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Summary Chapter 7
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Chapter 7 of Introduction to Business: Processes and Context
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Creating a flexibleorganisation
To survive and grow, companies must look for ways to improve their methods of doing
business.
Managers maintain an organisational structure that achieves company goals and creates
products that foster long-term customer relationships.
When organising/re-organising firms, the focus is on achieving low operating costs, or
ensuring customer satisfaction.
The organisational structure may influence the performance
7.1: What is an organisation?
An organisation is a group of two or more people working together to achieve a common
set of goals
An inventor who goes into business to produce and market a new invention, hires people,
decides what each will do, etc. This is the essence of organising.
7.1.1: Developing organisation charts
An organisation chart is a diagram that represents the positions and relationships within
an organisation. Each rectangle represents a position in the organisation. Top: president,
next: vice presidents, etc.
The chain of command is the line of authority that extends form the highest to the
lowest levels of the organisation. It can be long or short, depending on the size of the
organisation.
It clarifies positions and relationships in the organisations, and help managers to track
growth and change in the structure
Large companies do not maintain detailed charts due to many positions and the always
changing parts of their structure.
7.1.2: Major considerations for organising a business
Management must decide how to organise the firm before starting. This focuses on job
design, departmentalisation, delegation, span of management and chain of command
7.2: Job design
Specialisation is the separation of a process into distinct tasks and the assignment of
different tasks to different people.
Considering: all activities performed within the organisation
7.2.1: Job specialisation
, Adam Smith was the first to emphasise the power of specialisation. The various tasks in a
particular pin factory were arranged so that one worker drew the wire for the pins,
another straightened it, the third cut it, etc.
Before: 200 pins a day. After: 48000 pins a day
7.2.2: Rationale for specialisation
Job specialisation is necessary in every organisation, since the ‘job’ is too large for one
person to handle.
When the worker learns one specific, highly specialised task, they can learn quickly and
perform efficiently
A worker repeating the same job does not lose time changing operations.
The more specialised the job: the easier the training
7.2.3: alternatives to specialisation
Disadvantage of specialisation: boredom and dissatisfaction due to repetition. Effort is
lost, and thus the company’s efforts for quality products is sabotaged.
Job rotation is the systematic shifting of employees from one job to another. E.g. a
different job every week for 4 weeks, and then return to the first job again.
It provides a variety of tasks; workers are less likely to become bored or dissatisfied.
Other approaches: job enlargement/enrichment.
7.3: Departmentalisation
The process departmentalisation is the process of grouping jobs into manageable units.
Most common bases for organising a business into departments are by function, product,
location and customer
7.3.1: Function
Departmentalisation by function groups jobs that relate to the same organisational
activity. E.g. all marketing personnel are grouped together in the marketing department.
Smaller organisations departmentalise by function
Disadvantage: it can lead to slow decision making and it tends to emphasise the
department over the organisation as a whole
7.3.2: Product
Departmentalisation by product groups activities related to a particular good or service.
This is used by larger firms that produce a variety of products
It makes it easier and provides for integration of all activities associated with each
product.
May cause duplication of specialised activities between departments (e.g. finance)
Emphasis is placed on the product rather than the organisation itself
7.3.3: Location
Departmentalisation by location groups activities according to the defined geographic
area in which they are performed. Areas may range from countries, to regions within
countries, to areas of cities.
Advantage: organisation can respond quickly to the unique demands of different
locations
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