Richard L. Daft - Management. 9th ed., 2010

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240

ContinuingCasept3

General Motors

Part Three: Planning

The Moment of Decision: Can Man-

agement Fix GM’s Financial Crisis?

In the months leading up to 2009, news leaked that

General Motors (GM) was pitching a merger to other

Big Three automakers. Although they are famous

cross-town rivals, GM, Ford, and Chrysler are facing a

brutal common enemy: global economic crisis. As the

companies struggled to survive the worst sales slump

in decades, an unexpected meltdown in the U.S. mort-

gage industry spawned an international credit crisis,

freezing cash  ows worldwide.

Unable to obtain money, and burning through

$1 billion of its own reserves monthly, GM set out to

 nd partners who might circle the wagons to stave off

bankruptcy. Chairman Rick Wagoner and President

Frederick Henderson met with Ford executives Alan

Mulally and William Ford Jr. to propose merging their

companies to survive the economic downturn. After

numerous meetings, Mr. Mulally and Mr. Ford con-

cluded that Ford Motor Company could reorganize

better on its own. Not willing to give up on the idea,

Wagoner took his pitch to Chrysler.

The past few years have been a moment of deci-

sion for GM. With the world’s top automaker inching

close to a  nancial precipice, senior executives have

begun making tough choices and seeking out innova-

tive solutions to rescue the organization.

Of the many possible options for saving GM, a

merger strategy is perhaps the boldest. First, a merger

could solidify GM’s position as global sales leader

over Japanese rival Toyota, which in recent years has

challenged GM’s status as the world’s top automaker.

Although its position as top automaker is not unim-

portant, the bigger problem is cash: GM doesn’t have

any. The company reported losses of $18.7 billion in the

 rst half of 2008, and the ensuing plunge of shares to

their lowest levels since 1950 left the company valued

at just $3 billion. Against that backdrop, Chrysler’s

$11 billion cash horde looked especially inviting to

Wagoner and his executive management teams.

Not surprisingly, analysts were divided about a

merger option. Van Conway, a merger and acquisi-

tions expert and partner at Conway & MacKenzie,

cheered GM’s survival instinct. “You want to be the

last man standing here because the car market is going

to come back.” However, Erich Merkle, an analyst at

the accounting  rm Crowe Horwath, did not applaud

the move. “If you put two auto companies together,

both that are losing money, both that are losing market

share, you’ve just got an auto company that’s losing

market share faster and losing more money.”

Management has other options for performing

what amounts to emergency bypass surgery on the

100-year-old company. For example, in July 2008,

Wagoner announced a plan to cut $10 billion in costs

while raising $5 billion through asset sales through

the end of 2009. Within months, the iconic Hummer

brand was up for sale. Next followed a steady drum-

beat of plant closings throughout the Midwest—even

the company’s Detroit headquarters was rumored to

be up for sale.

Among GM’s most dif cult decisions has been what

to do about skyrocketing labor costs. The United Auto

Workers Union, once a symbol of workforce stability

and fairness, has become a  nancial albatross around

GM’s neck. GM spends as much as $1,635 on every

vehicle sold to cover bene ts for active and retired U.S.

workers. In addition, with all compensation perks fac-

tored in, pay for GM workers adds up to $73 per hour.

Toyota pays nothing for retirees and only $215 per

vehicle to cover active-worker bene ts. Management

addressed the imbalance in 2006 by offering 126,000

employees as much as $140,000 to sever all ties with

the company. The massive buyout was part of a four-

point restructuring plan announced in 2005 to achieve

$7 billion in cost reductions.

Yet of all the tricks GM has up its sleeve to man-

age its  nancial crisis, one option is reportedly off the

table. In a written statement to the press, management

acknowledged “unprecedented challenges” related to

global  nancial markets. The statement  rmly added,

“But bankruptcy protection is not an option GM is

considering. Bankruptcy would not be in the inter-

ests of our employees, stockholders, suppliers, or

customers.”

Questions

1. What planning approaches and methods might

GM adopt to help manage its turbulent envir

on-

ment and respond effectively to global economic

crisis?

2. In what way does a merger solution to GM’s

 nancial crisis represent strategic thinking and

planning?

3. As GM’s managers continue making decisions that

affect the company’s ultimate survival, what pre-

vents them from making purely rational decisions,

and what common decision-making errors must

they guard against?

241

Planning

SOURCES: Jeff Green, “GM Is Said to Be in Preliminary Talks With

Chrysler,” Bloomberg, October 11, 2008, http://www.bloomberg.com

(accessed October 12, 2008); Alex Taylor III, “Deepening Gloom

at General Motors,” Fortune (June 19, 2008), http://money.cnn

.com/2008/06/19/news/companies/taylor_gm.fortune/index.htm

(accessed October 13, 2008); “Toyota Zooms Past GM,” The Street

.com, April 24, 2007, http://www.thestreet.com (accessed October

12, 2008); Bill Vlasic, “G.M. Said to Seek Merger with Ford Before

Chrysler,” The New York Times, October 11, 2008, http://www.nytimes

.com/2008/10/12/business/12auto.html (accessed October 15, 2008);

“General Motors Could Sell Detroit Headquarters to Raise Cash,”

Boston Herald, October 7, 2008, http://www.bostonherald.com

(accessed October 13, 2008); Alex Taylor III, “Behind Ford’s Scary

$12.7 Billion Loss—The Big Three Are Hemorrhaging Money, and

Struggling to Stay Competitive with Foreign Rivals,” Fortune (Janu-

ary 26, 2007), http://money.cnn.com/2007/01/26/news/companies/

pluggedin_taylor_ford.fortune/index.htm (accessed October 10, 2008);

“Ford, GM Say They Won’t File for Bankruptcy,” MSNBC.com, October

10, 2008, http://www.msnbc.msn.com/id/27101859 (accessed October

12, 2008); David Kiley, “Can GM Make It?” BusinessWeek Online, Octo-

ber 9, 2008, http://www.businessweek.com/lifestyle/content/oct2008/

bw2008109_718575.htm (accessed October 12, 2008); Tom Krisher,

“General Motors Putting Hummer Brand and French Factory Up

for Sale,” The Associated Press, September 24, 2008, http://www

.canadaeast.com/article/article/425760 (accessed October 12, 2008);

Sharon Silke Carty, “GM Offers Buyouts to 126,000,” USA Today,

March 27, 2006, http://www.usatoday.com (accessed October 10,

2008); Tom Krisher, “Analysts: GM Would Need Cash to Acquire

Chrysler,” ABC News, October 11, 2008, http://abcnews.go.com/

Business/wireStory?id=6009470 (accessed October 14, 2008); Rick

Haglund, “Why GM and Chrysler? You May Not Like the Answer,”

Mlive.com, October 15, 2008, http://www.mlive.com (accessed October

15, 2008); Alex Taylor III, “Gentlemen, Start Your Turnaround,” Fortune

(January 8, 2008), http://money.cnn.com/2008/01/07/news/companies/

gm_turnaround.fortune/index.htm (accessed October 15, 2008); “Global

Auto Market May ‘Collapse’ in 2009—J.D. Power Points to Growing

Concerns Around Credit Availability,” MSNBC.com, October 10, 2008,

http://www.msnbc.msn.com/id/27114183 (accessed October 13, 2008).

chapter9pt4

Learning Outcomes

Chapter Outline

After studying this chapter, you should be able to:

1. Discuss the fundamental characteristics of organizing, including

such concepts as wor

k specialization, chain of command, span of

management, and centralization versus decentralization.

2. Describe functional and divisional approaches to structure.

3. Explain the matrix approach to structure and its application to both

domestic and int

ernational organizations.

4. Describe the contemporary team and virtual network structures and why

they ar

e being adopted by organizations.

5. Explain why organizations need coordination across departments and

hier

archical levels, and describe mechanisms for achieving coordination.

6. Identify how structure can be used to achieve an organization’s strategic

goals.

What Are Your Leadership Beliefs?

Organizing the Vertical Structure

Work Specialization

Chain of Command

Span of Management

Centr

alization and Decentralization

Departmentalization

Vertical Functional Approach

Divisional Ap

proach

Matrix Approach

Team Approach

The Virtual Network Approach

Advantages and Disadvantages of Each

Structure

Organizing for Horizontal Coordination

The Need for Coordination

ask Forces, Teams, and Project

Management

Reengineering

Structure Follows Strategy

New Manager Self-

Test: Authority Role

Models

243

Designing Adaptive

Organizations

Controlling

Planning

Environment

Organizing

Leading

Introduction

WHAT ARE YOUR LEADERSHIP BELIEFS?

The ﬁ t between a new manager and the organization is

often based on personal beliefs about the role of lead-

ers. Things work best when organization design matches

a new manager’s beliefs about his or her leadership role.

To understand your leadership beliefs, please answer each

item below as Mostly True or Mostly False for you.

Think about the extent to which each statement

reﬂ ects your beliefs about a leader’s role in an organiza-

tion. Mark as Mostly True the four statements that are

most true for you, and mark as Mostly False the four that

are least true for you.

Mostly

True

Mostly

False

1. A leader should take charge of

the group or organization.

2. The major tasks of a leader are to

make and communicate decisions.

3. Group and organization members

should be loyal to designated

leaders.

4. The responsibility for taking risks

lies with the leaders.

5. Leaders should foster member

discussions about the future.

6. Successful leaders make every-

one’s learning their highest

priority.

7. An organization needs to be

always changing the way it does

things to adapt to a changing

world.

8. Everyone in an organization

should be responsible for accom-

plishing organizational goals.

SCORING AND INTERPRETATION: Each question

pertains to one of two subscales of leadership beliefs.

Questions 1–4 reﬂ ect position-based leadership beliefs. This

is the belief that the most competent and loyal people

are placed in positions of leadership where they assume

responsibility and authority for the group or organization.

Questions 5–8 reﬂ ect nonhierarchical leadership beliefs.

This belief is that the group or organization faces a com-

plex system of adaptive challenges, and leaders see their

job as facilitating the ﬂ ow of information among mem-

bers and their full engagement to respond to those chal-

lenges. The subscale for which you checked more items

Mostly True may reveal your personal beliefs about

position-based versus nonhierarchical leadership.

Position-based beliefs typically work for managers in a

traditional vertical heirarchy or mechanistic organiza-

tion. Nonhierarchical beliefs typically work for man-

agers engaged with horizontal organizing or organic

organizations, such as managing teams, projects, and

reengineering.

A manager’s work is in uenced by how the company is organized. New managers

are typically more comfortable and more effective working in an organization system

that is compatible with their leadership beliefs. Yet all organizations wrestle with

the question of structural design, and reorganization often is necessary to re ect a

new strategy, changing market conditions, or innovative technology. Good managers

understand and learn to work within a variety of structural con gurations.

In recent years, many companies have realigned departmental groupings, chains

of command, and horizontal coordination mechanisms to attain new strategic goals.

Managers at Nissan created cross-functional teams to enhance horizontal collabora-

tion. Microsoft reorganized into three divisions that each focus on a primary business

line to increase  exibility in developing and delivering new products. Among CEO

Robert Nardelli’s plans for getting struggling automaker Chrysler back on track is a

PART 4 ORGANIZING244

major reorganization that includes outsourcing some

operations to developing countries.

Each of these organi-

zations is using fundamental concepts of organizing.

Organizing is the deployment of organizational resources

to achieve strategic goals. The deployment of resources is

re ected in the organization’s division of labor into speci c

departments and jobs, formal lines of authority, and mecha-

nisms for coordinating diverse organization tasks.

Organizing is important because it follows from

strategy—the topic of Part 3. Strategy de nes what to do;

organizing de nes how to do it. Structure is a powerful tool

for reaching strategic goals, and a strategy’s success often

is determined by its  t with organizational structure. Part

4 explains the variety of organizing principles and con-

cepts used by managers. This chapter covers fundamental

concepts that apply to all organizations and departments,

including organizing the vertical structure and using

mechanisms for horizontal coordination. Chapter 10 dis-

cusses how organizations can be structured to facilitate

innovation and change. Chapters 11 and 12 consider how

to use human resources to the best advantage within the

organization’s structure.

ORGANIZING THE VERTICAL

STRUCTURE

The organizing process leads to the creation of organiza-

tion structure, which de nes how tasks are divided and

resources deployed. Organization structure is de ned

as: (1) the set of formal tasks assigned to individuals and

departments; (2) formal reporting relationships, includ-

ing lines of authority, decision responsibility, number of

hierarchical levels, and span of managers’ control; and (3)

the design of systems to ensure effective coordination of

employees across departments.

Ensuring coordination

across departments is just as critical as de ning the departments to begin with. With-

out effective coordination systems, no structure is complete.

The set of formal tasks and formal reporting relationships provides a framework

for vertical control of the organization. The characteristics of vertical structure are

portrayed in the organization chart, which is the visual representation of an organi-

zation’s structure.

A sample organization chart for a water bottling plant is illustrated in Exhibit 9.1.

The plant has four major departments—accounting, human resources, production,

and marketing. The organization chart delineates the chain of command, indicates

departmental tasks and how they  t together, and provides order and logic for the

organization. Every employee has an appointed task, line of authority, and decision

responsibility. The following sections discuss several important features of vertical

structure in more detail.

Work Specialization

Organizations perform a wide variety of tasks. A fundamental principle is that work

can be performed more ef ciently if employees are allowed to specialize.

Work

specialization, sometimes called division of labor, is the degree to which organiza-

tional tasks are subdivided into separate jobs. Work specialization in Exhibit 9.1 is

Successful artist Shepard Fairey has

proven himself to be an effective manager too. Fairey runs his own

marketing design ﬁ rm, Studio Number One, a studio to design

unique graphics and logos used in untraditional advertising cam-

paigns, and on labels for clothing, soft drinks, and other products.

Fairey manages a creative team of seven full-time employees and

a handful of part-timers and interns. Even in a small organization

such as this, organizing is a critical part of good management.

Fairey has to be sure people are assigned and coordinated to do all

the various jobs necessary to satisfy clients such as Express, Levi’s,

and Dr. Pepper/Seven Up. The right organization structure enables

Studio Number One to be “fast, deadline-sensitive, and responsive.”

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CHAPTER 9 DESIGNING ADAPTIVE ORGANIZATIONS 245

Organizing

illustrated by the separation of production tasks into bottling, quality control, and

maintenance. Employees within each department perform only the tasks relevant to

their specialized function. When work specialization is extensive, employees spe-

cialize in a single task. Jobs tend to be small, but they can be performed ef ciently.

Work specialization is readily visible on an automobile assembly line where each

employee performs the same task over and over again. It would not be ef cient to

have a single employee build the entire automobile, or even perform a large number

of unrelated jobs.

Despite the apparent advantages of specialization, many organizations are mov-

ing away from this principle. With too much specialization, employees are isolated

and do only a single, boring job. In addition, too much specialization creates separa-

tion and hinders the coordination that is essential for organizations to be effective.

Many companies are implementing teams and other mechanisms that enhance coor-

dination and provide greater challenge for employees.

Chain of Command

The chain of command is an unbroken line of authority that links all persons in an

organization and shows who reports to whom. It is associated with two underlying

principles. Unity of command means that each employee is held accountable to only

one supervisor. The scalar principle refers to a clearly de ned line of authority in the

organization that includes all employees. Authority and responsibility for different

tasks should be distinct. All persons in the organization should know to whom they

report as well as the successive management levels all the way to the top. In Exhibit

9.1, the payroll clerk reports to the chief accountant, who in turn reports to the vice

president, who in turn reports to the company president.

EXHIBIT 9.1 Organization Chart for a Water Bottling Plant

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PART 4 ORGANIZING246

Authority, Responsibility, and Delegation The chain of command illustrates

the authority structure of the organization. Authority is the formal and legitimate right

of a manager to make decisions, issue orders, and allocate resources to achieve orga-

nizationally desired outcomes. Authority is distinguished by three characteristics:

1. Authority is vested in organizational positions, not people. Managers have

authority because of the positions they hold, and other people in the same posi-

tions would have the same authority.

2. Authority is accepted by subordinates. Although authority  ows top-down

through the organization’s hierarchy, subordinates comply because they believe

that managers have a legitimate right to issue orders. The acceptance theory of author-

ity argues that a manager has authority only if subordinates choose to accept his

or her commands. If subordinates refuse to obey because the order is outside their

zone of acceptance, a manager’s authority disappears.

3. Authority  ows down the vertical hierarchy. Positions at the top of the hierarchy

are vested with more formal authority than are positions at the bottom.

Responsibility is the  ip side of the authority coin. Responsibility is the duty to

perform the task or activity as assigned. Typically, managers are assigned author-

ity commensurate with responsibility. When managers have responsibility for task

outcomes but little authority, the job is possible but dif cult. They rely on persuasion

and luck. When managers have authority exceeding responsibility, they may become

tyrants, using authority toward frivolous outcomes.

Go to the ethical dilemma on page 270 that pertains to issues of authority,

responsibility, and delegation.

Accountability is the mechanism through which authority and responsibility are

brought into alignment. Accountability means that the people with authority and

responsibility are subject to reporting and justifying task outcomes to those above

them in the chain of command.

For organizations to function well, everyone needs

to know what they are accountable for and accept the responsibility and authority

for performing it. Accountability can be built into the organization structure. For

example, at Whirlpool, incentive programs tailored to different hierarchical levels

provide strict accountability. Performance of all managers is monitored, and bonus

payments are tied to successful outcomes. Another example comes from Caterpillar

Inc., which got hammered by new competition in the mid-1980s and reorganized to

build in accountability.

Caterpillar, which makes large construction equipment, engines, and power systems, had

almost total control of its markets until the mid-1980s, when a combination of global reces-

sion and runaway inﬂ ation opened the door to a host of new competitors, including Japan’s

Komatsu. The company was losing $1 million a day seven days a week in the mid-1980s.

When George Schaefer took over as CEO, he and other top managers decided to under-

take a major transformation to make sure Caterpillar wasn’t caught ﬂ at-footed again.

They started with structure. One major problem Schaefer saw was that the organization

didn’t have clear accountability. Schaefer pushed authority, responsibility, and account-

ability dramatically downward by reorganizing Caterpillar into several new business divi-

sions that would be judged on divisional proﬁ tability. Business units could now design

their own products, develop their own manufacturing processes, and set their own prices

rather than getting permission or directives from headquarters. The division managers were

strictly accountable for how they used their new decision-making authority. Each division

was judged on proﬁ tability and return on assets (ROA), and any division that couldn’t

demonstrate 15 percent ROA was subject to elimination. The CEO held regular meetings

with each division president and kept notes of what they said they would achieve. Then at

the next meeting, he would review each manager’s performance compared to his or her

TakeaMoment

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CHAPTER 9 DESIGNING ADAPTIVE ORGANIZATIONS 247

Organizing

commitments. The compensation plan was also overhauled to base managers’ bonuses on

meeting divisional plan targets.

Previously, if things went wrong, division managers would blame headquarters. The clear

accountability of the new structure forced people to ﬁ nd solutions to their problems rather

than assigning blame.

Some top managers at Caterpillar had trouble letting go of authority in the new

structure because they were used to calling all the shots, but the new structure was

an important part of returning the company to pro tability. Another important con-

cept related to authority is delegation.

Delegation is the process managers use to

transfer authority and responsibility to positions below them in the hierarchy. Most

organizations today encourage managers to delegate authority to the lowest pos-

sible level to provide maximum  exibility to meet customer needs and adapt to the

environment. However, as at Caterpillar, many managers  nd delegation dif cult.

When managers can’t delegate, they undermine the role of their subordinates and

prevent people from doing their jobs effectively. Techniques for effective delegation

are discussed in the Manager’s Shoptalk box.

As a new manager, delegate authority and responsibility to employees so they can

quickly respond to customer needs and other shifts in the environment. Don’t hoard

control and limit the effectiveness and creativity of others.

Line and Staff Authority An important distinction in many organizations is

between line authority and staff authority, re ecting whether managers work in

line or staff departments in the organization’s structure. Line departments perform

tasks that re ect the organization’s primary goal and mission. In a software com-

pany, line departments make and sell the product. In an Internet-based company,

line departments would be those that develop and manage online offerings and

sales. Staff departments include all those that provide specialized skills in support of

line departments. Staff departments have an advisory relationship with line depart-

ments and typically include marketing, labor relations, research, accounting, and

human resources.

Line authority means that people in management positions have formal author-

ity to direct and control immediate subordinates. Staff authority is narrower and

includes the right to advise, recommend, and counsel in the staff specialists’ area

of expertise. Staff authority is a communication relationship; staff specialists advise

managers in technical areas. For example, the  nance department of a manufactur-

ing  rm would have staff authority to coordinate with line departments about which

accounting forms to use to facilitate equipment purchases and standardize payroll

services.

Span of Management

The span of management is the number of employees reporting to a supervisor.

Sometimes called the span of control, this characteristic of structure determines

how closely a supervisor can monitor subordinates. Traditional views of organi-

zation design recommended a span of management of about seven subordinates

per manager. However, many lean organizations today have spans of manage-

ment as high as 30, 40, and even higher. For example, at Consolidated Diesel’s

team-based engine assembly plant, the span of management is 100.

Research

over the past 40 or so years shows that span of management varies widely and

that several factors in uence the span.

Generally, when supervisors must be

closely involved with subordinates, the span should be small, and when super-

visors need little involvement with subordinates, it can be large. The following

section describes the factors that are associated with less supervisor involvement

and thus larger spans of control.

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PART 4 ORGANIZING248

The attempt by top management to decentralize deci-

sion making often gets bogged down because middle

managers are unable to delegate. Managers may cling

tightly to their decision making and task responsibili-

ties. Failure to delegate occurs for a number of rea-

sons: Managers are most comfortable making familiar

decisions; they feel they will lose personal status by

delegating tasks; they believe they can do a better job

themselves; or they have an aversion to risk—they

will not take a chance on delegating because perfor-

mance responsibility ultimately rests with them.

Yet decentralization offers an organization many

advantages. Decisions are made at the right level,

lower-level employees are motivated, and employees

have the opportunity to develop decision-making

skills. Overcoming barriers to delegation in order to

gain these advantages is a major challenge. The fol-

lowing approach can help each manager delegate

more effectively:

1. Delegate the whole task. A manager should

delegate an entire task to one person rather than

dividing it among several people. This type

of delegation gives the individual complete

responsibility and increases his or her initiative

while giving the manager some control over the

results.

2. Select the right person. Not all employees have

the same capabilities and degree of motivation.

Managers must match talent to task if delegation

is to be effective. They should identify subordi-

nates who made independent decisions in the

past and show a desire for more responsibility.

3. Ensure that authority equals responsibility.

Merely assigning a task is not effective delega-

tion. Managers often load subordinates with

increased responsibility but do not extend their

decision-making range. In addition to having

responsibility for completing a task, the worker

must be given the authority to make decisions

about how best to do the job.

4. Give thorough instruction. Successful delega-

tion includes information on what, when, why,

where, who, and how. The subordinate must

clearly understand the task and the expected

results. It is a good idea to write down all provi-

sions discussed, including required resources

and when and how the results will be reported.

5. Maintain feedback. Feedback means keeping

open lines of communication with the subordi-

nate to answer questions and provide advice,

but without exerting too much control. Open

lines of communication make it easier to trust

subordinates. Feedback keeps the subordinate

on the right track.

6. Evaluate and reward performance. Once the

task is completed, the manager should evaluate

results, not methods. When results do not meet

expectations, the manager must assess the con-

sequences. When they do meet expectations, the

manager should reward employees for a job well

done with praise,  nancial rewards when appro-

priate, and delegation of future assignments.

Are You a Positive Delegator?

Positive delegation is the way an organization imple-

ments decentralization. Do you help or hinder the

decentralization process? If you answer yes to more

than three of the following questions, you may have

a problem delegating:

▪ I tend to be a perfectionist.

▪ My boss expects me to know all the details of my

job.

▪ I don’t have the time to explain clearly and con-

cisely how a task should be accomplished.

▪ I often end up doing tasks myself.

▪ My subordinates typically are not as committed

as I am.

▪ I get upset when other people don’t do the task

right.

▪ I really enjoy doing the details of my job to the

best of my ability.

▪ I like to be in control of task outcomes.

SOURCES: Thomas R. Horton “Delegation and Team Build-

ing: No Solo Acts Please,” Management Review (September

1992): 58–61; Andrew E. Schwartz, “The Why, What, and to

Whom of Delegation,” Management Solutions (June 1987):

31–38; “Delegation,” Small Business Report (June 1986): 38–43;

and Russell Wild, “Clone Yourself,” Working Woman (May

2000): 79–80.

How to Delegate

Manager’sShoptalk

CHAPTER 9 DESIGNING ADAPTIVE ORGANIZATIONS 249

Organizing

1. Work performed by subordinates is sta-

ble and routine.

2. Subordinates perform similar work

tasks.

3. Subordinates are concentrated in a sin-

gle location.

4. Subordinates are highly trained and

need little direction in performing

tasks.

5. Rules and procedures de ning task

activities are available.

6. Support systems and personnel are

available for the manager.

7. Little time is required in nonsupervi-

sory activities such as coordination with

other departments or planning.

8. Managers’ personal preferences and

styles favor a large span.

The average span of control used in an

organization determines whether the struc-

ture is tall or  at. A tall structure has an

overall narrow span and more hierarchical

levels. A  at structure has a wide span, is

horizontally dispersed, and has fewer hier-

archical levels.

Having too many hierarchical levels

and narrow spans of control is a common

structural problem for organizations. The result may be routine decisions that are

made too high in the organization, which pulls higher-level executives away from

important long-range strategic issues, and it limits the creativity and innovativeness

of lower-level managers in solving problems.

The trend in recent years has been

toward wider spans of control as a way to facilitate delegation.

Exhibit 9.2 illustrates

how an international metals company was reorganized. The multilevel set of manag-

ers shown in panel a was replaced with ten operating managers and nine staff spe-

cialists reporting directly to the CEO, as shown in panel b. The CEO welcomed this

wide span of 19 management subordinates because it  t his style, his management

Prior to the early 1990s, there were seven management

layers at Electric Boat Corporation’s Quonset Point facility in Rhode Island, which

fabricates and assembles U.S. Navy nuclear submarines. This tall structure resulted

in high costs and a lengthy chain of command that slowed decision making. After the

General Dynamics Corporation subsidiary re-engineered itself into a f lat structure

with only three layers, overhead and indirect labor costs were cut by 50 percent, and

communications, efﬁ ciency, and productivity all improved. The Best Manufacturing

Practice (BPM) Center of Excellence ranks Electric Boat’s practices as among the best.

BPM is a partnership of the Ofﬁ ce of Naval Research, the Commerce Department, and

the University of Maryland.

EXHIBIT 9.2 Reorganization to Increase Span of Management for President of an International Metals Company

tal

structure A mana

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ara

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arr

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men

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eve

ﬂ

at structure A mana

eme

ructure c

aracterize

era

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ati

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