MGT 330 Structure for Conglomerates


Reflect on your reading for the week, specifically Analytical Exercise 8. Is another form of structural
configuration better suited to multiproduct, multiservice companies? If not, is
there a form of departmentalization for multiproduct, multiservice companies
which would match somewhat the divisional structure configuration?”
Explain how the following somewhat match each other:
• functional structure with simple structure
• divisional structure with departmentalization by product
• machine bureaucracy with centralized, mechanistic
• professional bureaucracy with decentralized, organic
Your initial post
should be at least 200 words in length


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The Organizing Function
Tay Jnr/Digital Vision/Thinkstock
Learning Objectives
After completing this chapter, you should be able to:
Connect the organizing function with company success.
Identify different categories of jobs.
Employ the best form of departmentalization for a specific company.
Finalize the structure of a company.
Describe various types of organizational configuration.
Chapter 3
????3.1 Introduction
One key part of a manager’s job is to identify the best way to organize and run a company or an
organization. Well-organized companies often become the most efficient, effective, and productive in an industry group. Effective organizing processes lead to company success. A management
team that can work with and implement the structures and plans of a company is vital.
The organizing process flows naturally from the human tendency to seek cooperation and collaboration. Many people are predisposed to cooperate with one another. Early humans worked
together to survive.
While some cooperative human behaviors are likely instinctual, people learn them mostly from
various interactions with the environment, family, school, and culture. For example, many learn
early in life to keep their bedrooms clean and orderly. They later learn to keep a school locker
orderly, and eventually they learn to organize computer files and MP3 music files on portable
music devices. As humans evolved, their mental capacity for planning and organizing became
more complex. Organizing complex structures, however, such as a large-scale manufacturing
plant or a resort with 500 guest rooms, requires organizing skills that encompass more than basic
Organizing may be defined as the process of efficiently and effectively bringing people and
resources together to create products and services. Organizing establishes task and authority
relationships that allow people to work together to achieve the organization’s goals.
Managers create structures within business organizations to facilitate the operations of their
institutions. The structure of the organization consists of individual jobs that are combined into
departments to create “the skeleton of the organizational system” (Steers, Ungson, & Mowday,
1985). This structural “skeleton” holds up the entire organization and allows it to move forward
to achieve its plan for success. Organizational structure is a formal system of task and reporting relationships that coordinates the activities of employees so that they can work together to
achieve organizational goals. The organizational structure determines how an organization’s
resources can be best used to create goods and services. Organizational design is the process
by which managers make specific organizing choices that result in the particular kind of organizational structure for the company.
In this chapter, we introduce the organizing function and divide it into three primary activities:
job design, departmentalization, and specification. Job design creates the individual job units,
departmentalization categorizes the jobs into logical groups or departments, and specification of
authority–responsibility relationships finalizes the company’s structure.
The Richards Group: Organizing Creativity
The Richards Group, based in Dallas, Texas, is America’s largest independent advertising agency.
The company generates billings in excess of $1 billion annually and employs over 650 marketing
professionals. Its list of clients includes a variety of well-known companies, such as Orkin, Fruit of
the Loom, T.G.I. Friday’s, Zales, Red Lobster, Farmers Insurance, and others. Graphic Design USA has
Chapter 3
listed The Richards Group as one of the six most influential agencies in the United States. The firm
has also received many awards, including Adweek magazine’s Agency of the Year numerous times.
Beyond these simple statistics is a story that owner-founder Stan Richards described as “a rocket
ride,” in an April 6, 2006, article in the Dallas Business Journal. That ride led to his being named
one of The Wall Street Journal’s “Giants of Our Time.” Other agencies have emulated many of the
tactics employed by The Richards Group. Richards notes that his company instituted them first, and
he believes they still use them best. He has creatively employed the fundamentals of organizing to
help the company achieve its dramatic success.
The Richards Group is founded on key core principles in its mission statement and its overall strategy. In a 2010 interview with Donald Baack, Stan Richards expressed his company’s philosophy
when he said, “Some companies push products. Some sell ads. We sell the truth.” The approach
clearly works. Richards notes:
When we are hired by a client, it’s not just to make ads. We do so many things that are extremely
important. That ad is what the consumer ultimately sees, but in order to get there, you have to have a
dead-on strategy, if you’re going to be successful. You go through the strategic process, you get to the
right answer, and then you can execute against that answer.
Based on this foundation, the company’s organizational structure has been built. The Richards
Group carefully engaged in job design. A small advertising agency will hire generalists, who take
care of a variety of assignments. As the organization grows, jobs become more specialized. The
Richards Groups employs highly skilled specialists in every aspect of advertising, from creating contracts with prospective clients, to purchasing media time, to making advertisements, to evaluating
their success.
Departmentalization is the point where Stan Richards moved away from traditional models. The
firm, which once consisted of fewer than 60 workers all located on one floor of an office building,
expanded to a major office building on the North Central Expressway in Dallas, Texas. Employees in
The Richards Group work in open offices with no doors or walls. More significantly, Richards notes:
What we do is co-mingle all the disciplines, so that in every cluster of spaces we will have an art director
who sits next to a brand manager, who, for example, sits next to a print production manager, so that, in
those interdisciplinary villages that everyone here occupies, nobody’s next door neighbor does the same
thing that he or she does. What you don’t get is all the creative people sitting on this floor, then all the
account management people on the next floor, and the media people on the floor above that.
The reason I did that in the first place was that when we were 50 or 60 people, there was an extraordinary level of energy and electricity that just flowed through the place. You could just walk in and feel
it. A lot of it was created by the casual contact people had with each other. When you have 50 or 60
people packed into a tight space, you see everybody every day.
What agencies have always done, is when they reach that 120 to 130 person size, they then had to
move to multiple floors. And the minute they do, they take a tight-knit bunch of people who really liked
each other and understood each other, because they saw each other every day, and divide them up into
tribes. These tribes don’t always get along.
There are lots of occasions where a creative will butt heads with a planner, because they have a different point of view. When you are packed into a tight space, and when you have a great deal of casual
contact going on all day, every day, you get over that stuff, because they are your friends. When you’re
on a different floor, you seldom see them and you decide, “That’s a different tribe up there, and they
drive me crazy.” By moving away from traditional forms of departmentalization, the company has
avoided many of those problems. (S. Richards, personal communication, February 2010, reprinted by
permission of Stan Richards.)
Job Design
Chapter 3
The organizational structure at The Richards Group consists of fairly standard authority–responsibility relationships. Individuals continue to report to supervisors who are in charge of the basic functions, such as media selection. At the same time, to continue the creative cooperative spirit built by
comingling specialists, staff meetings are often held in the stairwells between floors to help maintain egalitarian and positive relationships among all employees.
Some of the successful campaigns initiated by The Richards Group include the longstanding Chickfil-A cow campaign, the Motel 6 campaigns, and the company’s 2010 and 2011 Super Bowl commercials with Bridgestone. Another product, Corona, has become the number one imported beer
in the United States. It has passed Heineken due, in part, to a successful advertising management
program assisted by The Richards Group (Richards, 2010).
Discussion Questions
1. How are jobs in advertising agencies different from jobs in other companies?
2. Do you think comingling specialists, as is the case in The Richards Group, would work in other
3. What types of individuals should The Richards Group hire, and what types would not fit with
the company?
???3.2 Job Design
One major aspect of creating a company’s organizational structure involves designing jobs at all
levels of the hierarchy. Documenting the types of jobs the company needs to complete its objectives is the first step in the job design process.
A job is a set or series of tasks performed by an individual on behalf of an organization. A task is a
single chore that is part of something larger—the job. For example, a mechanic in a car dealership
may be asked to sweep the floor (one task), change the oil in a truck (task two), and sometimes
drive patrons from the shop to their work or homes (task three). Most jobs require the completion
of many tasks throughout the day. Jobs can also be assigned to categories, such as those displayed
in Table 3.1.
Wavebreakmedia Ltd/Thinkstock
??The specific tasks performed by a mechanic, when combined, constitute his job.
Job design takes place when managers, normally working with the human resources
department, determine the tasks that need
to be completed, the people who will do
them, and the selection criteria that will be
used to choose employees and place them
on the job. The standard approach to job
design involves three steps: job analysis,
job description, and job specification. These
steps are described in detail in Chapter 4
pertaining to human resource management. Jobs are the building blocks used
in creating the organization’s structure.
Carefully designed jobs allow workers to
succeed by being responsible for appropriate and manageable levels of work. Also,
precise job descriptions provide workers
Chapter 3
with clarity regarding which tasks they are and are not assigned to do. Well-written job specifications enhance the odds that the proper person will be hired to complete the assigned tasks.
Table 3.1 Types of jobs
Unskilled Blue Collar
Trash hauler
Semiskilled Blue Collar
Assembly line employee
Truck driver
Skilled Blue Collar
Front-line White Collar
Retail clerk
Bank teller
Dental hygienist
Specialized Professional
Research scientist
??3.3 Departmentalization
Departmentalization is an organizational tool that involves placing various jobs into individual
departments or divisions including accounting, marketing, and production. Although departmentalization may be used in several other ways, Table 3.2 summarizes some of its various forms
and indicates when each of them may be most helpful to the management team.
Table 3.2 Forms of departmentalization
Departmentalization by . . .
Found in . . .
small, single-product/service firms
growing, few product companies
firms selling the same product to diverse customers
Geographic region
branch banking, retail chains, franchise operations
Strategic business unit
high-tech firms, multinational companies
Departmentalization by Function
Departmentalization by function is the most common form, because most companies are
smaller and offer one main product or service. Figure 3.1 presents a simplified organization chart
Chapter 3
for a firm using this approach. Functional structure allows for top-level control with expertise maintained in the individual departments. Jobs are easily matched to functional specialties
(Mintzberg, 1979).
Figure 3.1 Departmentalization by function
Vice President
Vice President
Vice President
Vice President
Henry Mintzberg (1983) recognized five
coordinated flows linking the common parts of
1. Authority. Authorization is needed to move the structural part forward and complete job tasks.
2. Work material. Raw material and supplies are essential to start and complete tasks.
3. Information. Data is required to inform decision making at every level of the organization.
4. Decision process. Timely decision making allows for the continual operation of job tasks.
5. Ideology. An organization’s unique vision, theories, culture, and traditions contribute to its
Mintzberg’s coordinated flows are essential to begin operating activity as well as to measure
progress. They are well served by a functional form of departmentalization.
Departmentalization by Product
Multiproduct firms use departmentalization by product, in which all activities related to a product or service are placed in one department under one executive or senior manager. Figure 3.2
shows an example as applied by the Bic company, which is divided based on the products sold.
General Motors, DuPont, and other firms learned that growth and expansion of product lines
requires a form of structure that facilitates the differences in products and at the same time
allows for some specialists to serve all parts of the company. Departmentalization by product
meets these needs and demands (Ranson, Hinings, & Greenwood, 1980).
Departmentalization by Customer
Many companies offer the same product to divergent customers. As depicted in Figure 3.3,
departmentalization by customer allows for specialization based on customer differences.
A company such as Dell Computers has three distinct groups: other businesses (industrial or
b-to-b sales), the government, and individual consumers. This form of structure offers the advantage of optimizing the services to all groups, each of which have unique purchasing needs and
purchasing methods. For example, individuals buy online or at the store, businesses tend to make
Chapter 3
purchases at trade shows or through a purchasing department, and governments must follow
specific, regulated procedures. The three groups require differing service needs, such as repair
contracts and warranties.
Figure 3.2 Departmentalization by product
Bic, Inc.
Vice President
Vice President
Vice President
Vice President
Figure 3.3 Departmentalization by customer
Sales Division
Sales Division
Sales Division
Vice President
Departmentalization by Geographic Region
When a company is divided by territories or regions, terms such as district, zone, and area are
assigned to the departments. Figure 3.4 is an example of departmentalization by geographic
region. Departmentalization by location is also known as parallel departmentalization, because
the levels in the organizational hierarchy contain managers who perform the same duties in different regions, such as at branch banks or fast-food locations. Geographical departmentalization
makes it possible to tailor managerial efforts that address territorial differences. For example,
a Sears retail store in Florida will sell different items than one in Minnesota during the winter
months; however, the department names remain the same. A food chain such as Subway may
offer region-specific menu items, while the basic model of operation remains the same in all
Chapter 3
Figure 3.4 Departmentalization by geographic region
Vice President
Western Region
Vice President
Eastern Region
Vice President
Central Region
District Manager
District Manager
District Manager
Store Managers
Store Managers
Store Managers
Departmentalization by Strategic
Business Unit
As noted in Chapter 2, strategic business units are clusters of activities typically held together by
a common thread, such as a product type or type of customer served. A strategic business unit
(SBU) will be analyzed as a “company within the company.” Many major corporations align strategic business units by products, customers, geographic regions, manufacturing methods, and
other common elements (Figure 3.5). For example, 3M may subdivide its operations into strategic
business groups organized by type of product: sticky (duct tape, Scotch tape), magnetic (DVDs,
recording tape), and cleaners. Each strategic business unit may be evaluated through the revenues
it generates or profits it creates, which means some units will be termed “profit centers.” Others
may be structured as cost centers or as simple operating divisions. If divided into
one unit based on selling popular press books, another featuring electronic transmission of book
materials, and a third focused on high school and college textbooks, each of them could become
a stand-alone strategic business unit.
Figure 3.5 Departmentalization by strategic business units
Vice President
Vice President
Vice President
Vice President
Chapter 3
Departmentalization by Matrix
Matrix organizations are also called two-boss systems. As shown in Figure 3.6, each employee
answers to a functional area supervisor as well as a product manager. For example, the top row in
this figure includes three functional first-line supervisors: one for production, one for accounting,
and one for sales. Directly below them are the employees performing those functions. The vertical row of supervisors in the same figure indicates managers for individual products (1 and 2).
Thus, a production worker in the top row responds to a functional manager (production supervisor) and to a product manager (product 1). In the next row down, production workers respond
to the same production supervisor but to the manager for product 2. The same holds true for
salespeople responding to the sales manager and then to the product manager to whom they are
assigned (1 or 2) as well as for accountants answering to the accounting supervisor but also to
their designated product manager, 1 or 2.
Matrix organizations create circumstances in which maximum flexibility and adaptability in
operations are possible, because workers are routinely assigned to differing products and product
managers. Consequently, they must be able to adjust to change and accept some role ambiguity
as part of the daily routine as the tasks they work on tend to vary. The only constant will be the
employee’s functional supervisor.
Figure 3.6 Departmentalization by matrix
Vice President
Product 1
Vice President
Product 2
Vice President
Vice President
Vice President
Product 1
Product 1
Product 1
Product 2
Product 2
Product 2
Completing the Organization’s Structure
Chapter 3
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