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Summary Chapter 7
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Chapter 7 of Introduction to Business, required for first year IBA
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Creating a fexibleorganisation
To survive and grow, companies must look for ways to improve their methods of doing
business.
Managers maintain an organisatonal structure that achieves company goals and creates
products that foster long-term customer relatonships.
When organising/re-organising frms, the focus is on achieving low operatng costs, or
ensuring customer satsfacton.
The organisatonal structure may infuence 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 inventon, 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 positons and relatonships within
an organisaton. Each rectangle represents a positon in the organisaton. 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 organisaton. It can be long or short, depending on the size of the
organisaton.
It clarifes positons and relatonships in the organisatons, and help managers to track
growth and change in the structure
Large companies do not maintain detailed charts due to many positons and the always
changing parts of their structure.
7.1.2: Major considerations for organising a business
Management must decide how to organise the frm before startng. This focuses on job
design, departmentalisaton, delegaton, span of management and chain of command
7.2: Job design
Specialisation is the separaton of a process into distnct tasks and the assignment of
different tasks to different people.
Considering: all actvites performed within the organisaton
7.2.1: Job specialisation
, Adam Smith was the frst to emphasise the power of specialisaton. The various tasks in a
partcular 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. Afer: 4000 pins a day
7.2.2: Rationale for specialisation
Job specialisaton is necessary in every organisaton, since the ‘job’ is too large for one
person to handle.
When the worker learns one specifc, highly specialised task, they can learn quickly and
perform efciently
A worker repeatng the same job does not lose tme changing operatons.
The more specialised the job: the easier the training
7.2.3: alternatives to specialisation
Disadvantage of specialisaton: boredom and dissatsfacton due to repetton. Effort is
lost, and thus the company’s efforts for quality products is sabotaged.
Job rotation is the systematc shifing of employees from one job to another. E.g. a
different job every week for weeks, and then return to the frst job again.
It provides a variety of tasks; workers are less likely to become bored or dissatsfed.
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 functon, product,
locaton and customer
7.3.1: Function
Departmentalisation by function groups jobs that relate to the same organisatonal
actvity. E.g. all marketng personnel are grouped together in the marketng department.
Smaller organisatons departmentalise by functon
Disadvantage: it can lead to slow decision making and it tends to emphasise the
department over the organisaton as a whole
7.3.2: Product
Departmentalisation by product groups actvites related to a partcular good or service.
This is used by larger frms that produce a variety of products
It makes it easier and provides for integraton of all actvites associated with each
product.
May cause duplicaton of specialised actvites between departments (e.g. fnance)
Emphasis is placed on the product rather than the organisaton itself
7.3.3: Location
Departmentalisation by location groups actvites according to the defned geographic
area in which they are performed. Areas may range from countries, to regions within
countries, to areas of cites.
Advantage: organisaton can respond quickly to the unique demands of different
locatons
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