Dunkin donuts structure

The Organizing Function

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.

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Introduction 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 produc- tive 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 col- laboration. 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 socialization.

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 report- ing 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 organi- zational 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.

M A N A G E M E N T I N P R A C T I C E

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

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Introduction 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 strat- egy. 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 con- tracts 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 extraor- dinary 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 differ- ent 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.)

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Job Design Chapter 3

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 objec- tives 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.

Job design takes place when managers, nor- mally 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 manage- ment. Jobs are the building blocks used in creating the organization’s structure. Carefully designed jobs allow workers to succeed by being responsible for appropri- ate and manageable levels of work. Also, precise job descriptions provide workers

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▲▲ The specific tasks performed by a mechanic, when com- bined, constitute his job.

The organizational structure at The Richards Group consists of fairly standard authority–responsibil- ity relationships. Individuals continue to report to supervisors who are in charge of the basic func- tions, 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 main- tain egalitarian and positive relationships among all employees.

Some of the successful campaigns initiated by The Richards Group include the longstanding Chick- fil-A cow campaign, the Motel 6 campaigns, and the company’s 2010 and 2011 Super Bowl com- mercials 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

companies? 3. What types of individuals should The Richards Group hire, and what types would not fit with

the company?

Departmentalization Chapter 3

with clarity regarding which tasks they are and are not assigned to do. Well-written job specifica- tions enhance the odds that the proper person will be hired to complete the assigned tasks.

Table 3.1 Types of jobs

Category Examples

Unskilled Blue Collar Housekeeper

Trash hauler

Semiskilled Blue Collar Assembly line employee

Truck driver

Skilled Blue Collar Electrician

Plumber

Carpenter

Front-line White Collar Retail clerk

Bank teller

Semiprofessional Paralegal

Paramedic

Dental hygienist

Professional Doctor

Attorney

CPA

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 depart- mentalization 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 . . .

Function small, single-product/service firms

Product growing, few product companies

Customer firms selling the same product to diverse customers

Geographic region branch banking, retail chains, franchise operations

Strategic business unit conglomerates

Matrix 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

Departmentalization Chapter 3

for a firm using this approach. Functional structure allows for top-level control with exper- tise maintained in the individual departments. Jobs are easily matched to functional specialties (Mintzberg, 1979).

Henry Mintzberg (1983) recognized five coordinated flows linking the common parts of departmentalization:

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

structure.

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 prod- uct 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 advan- tage 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

Figure 3.1 Departmentalization by function

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President

Vice President Sales

Vice President Production

Vice President R&D

Vice President Accounting

Departmentalization 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.

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 dif- ferent 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 locations.

Figure 3.2 Departmentalization by product

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President Bic, Inc.

Vice President Pens

Vice President Razors

Vice President Accounting

Vice President Lighters

Production Sales Production Sales Production Sales

Figure 3.3 Departmentalization by customer

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President

Industrial Sales Division

Government Sales Division

Vice President Accounting

Consumer Sales Division

Departmentalization Chapter 3

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 stra- tegic 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 Amazon.com 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.