DESIGNING AN EFFECTIVE BUSINESS ORGANIZATION
It is not easy to create a successful business. Many new businesses fail in the first few years. Few businesses maintain their success for the lifetime of the owner. Successful businesses need more than a good product or service. Skilled managers, well-prepared and motivated employees, adequate resources, and effective procedures add to business success. A business needs to be well organized to help people do their work properly. An effective business begins with a clear purpose and the application of key principles for organizing work.
Setting DirectionThe direction for a business comes from its mission statement . A mission statement is a short, specific written statement of the reason a business exists and what it wants to achieve. Here is an example from Starbucks: To inspire and nurture the human spirit—one person, one cup and one neighborhood at a time.
After a mission statement is developed, the business sets goals. A goal is a precise statement of results the business expects
to achieve. Goals are used to define what needs to be accomplished and to determine if the business is successful. An example of a goal for an automobile manufacturer is “to produce the top-rated brand for quality and customer satisfaction.”
Finally, the business sets policies and procedures for the organization. Policies are guidelines used in making consistent decisions. Procedures are descriptions of the way work is to be done. Effective policies and procedures provide guidance and direction to people working in the organization.
It is not easy to create a successful business. Many new businesses fail in the first few years. Few businesses maintain their success for the lifetime of the owner. Successful businesses need more than a good product or service. Skilled managers, well-prepared and motivated employees, adequate resources, and effective procedures add to business success. A business needs to be well organized to help people do their work properly. An effective business begins with a clear purpose and the application of key principles for organizing work.
Setting DirectionThe direction for a business comes from its mission statement . A mission statement is a short, specific written statement of the reason a business exists and what it wants to achieve. Here is an example from Starbucks: To inspire and nurture the human spirit—one person, one cup and one neighborhood at a time.
After a mission statement is developed, the business sets goals. A goal is a precise statement of results the business expects
to achieve. Goals are used to define what needs to be accomplished and to determine if the business is successful. An example of a goal for an automobile manufacturer is “to produce the top-rated brand for quality and customer satisfaction.”
Finally, the business sets policies and procedures for the organization. Policies are guidelines used in making consistent decisions. Procedures are descriptions of the way work is to be done. Effective policies and procedures provide guidance and direction to people working in the organization.
Principles of Effective OrganizationWhen several people work together, their work needs to be organized so they work together well and achieve their tasks. Several principles guide the effective organization of work.
Responsibility, Authority, and Accountability Responsibility is the obligation to complete specific work. Authority is the right to make decisions about how responsibilities should be accomplished. Accountability is taking responsibility for the results achieved. In an effective organization, all managers and employees have a set of responsibilities as a part of their jobs. With every job assignment, they know they have the authority to make the decisions and obtain the resources needed to complete the assignment. They know they will be recognized and rewarded if they are successful. They will be held accountable if the work is not completed well.
Unity of Command A key organizing principle is to provide unity of command. Unity of command means there is a clear reporting relationship for all staff of a business. If there is confusion in assignments and unclear relationships among people who are working together, it will be hard for people to know what to do or where to go for help. For each work assignment, people need to know who is the leader and how decisions will be made.
Span of Control The last organizing principle is span of control. Span of control is the number of employees who are assigned to a particular work task and manager. A large number of people working with little support from their manager cannot be effective. In the same way, a manager with only a very small number of people may provide too much control. Organizations need to make sure that workers have a balance of supervision and freedom to do their work. The span of control for well trained, experienced, and motivated employees can be much greater than for new and inexperienced employees who are not enthused about their work.
Responsibility, Authority, and Accountability Responsibility is the obligation to complete specific work. Authority is the right to make decisions about how responsibilities should be accomplished. Accountability is taking responsibility for the results achieved. In an effective organization, all managers and employees have a set of responsibilities as a part of their jobs. With every job assignment, they know they have the authority to make the decisions and obtain the resources needed to complete the assignment. They know they will be recognized and rewarded if they are successful. They will be held accountable if the work is not completed well.
Unity of Command A key organizing principle is to provide unity of command. Unity of command means there is a clear reporting relationship for all staff of a business. If there is confusion in assignments and unclear relationships among people who are working together, it will be hard for people to know what to do or where to go for help. For each work assignment, people need to know who is the leader and how decisions will be made.
Span of Control The last organizing principle is span of control. Span of control is the number of employees who are assigned to a particular work task and manager. A large number of people working with little support from their manager cannot be effective. In the same way, a manager with only a very small number of people may provide too much control. Organizations need to make sure that workers have a balance of supervision and freedom to do their work. The span of control for well trained, experienced, and motivated employees can be much greater than for new and inexperienced employees who are not enthused about their work.
TYPES OF ORGANIZATIONAL STRUCTURES
When only one person works in a business, there is little need for an organizational structure. The sole employee is responsible for all of the work. When more people are hired, there will need to be an agreement on what work each person will do and if one person has authority over the work of others. An organization chart is a diagram that shows the structure of an organization, classifications of work and jobs, and the relationships among those classifications.
Functional Organization Structure Most businesses use a functional organizational structure. In this type of organization, work is arranged within main business functions such as production, operations, marketing, and human resources. All of the people with jobs related to one of the functions will work together. They report to managers who are responsible for that function. The advantage of a functional organization is that people work with others who have the same skills. A drawback is that people become more focused on their specific function than on the success of the whole business. Often, people working in one function have little interaction with people in other parts of the business.
Matrix Organizational Structure A newer organizational structure designed to overcome the drawbacks of the functional structure is the matrix organization. In a matrix organizational structure, work is structured around specific projects, products, or customer groups. People with varied backgrounds are assigned together because their expertise is required for the project or to serve the customer. The assignment may be temporary or long-term.
A matrix organization can be interesting and motivating to employees. They work with many different people. They are focused on a specific project or task. However, it can be confusing and inefficient without effective leadership and communication.
When only one person works in a business, there is little need for an organizational structure. The sole employee is responsible for all of the work. When more people are hired, there will need to be an agreement on what work each person will do and if one person has authority over the work of others. An organization chart is a diagram that shows the structure of an organization, classifications of work and jobs, and the relationships among those classifications.
Functional Organization Structure Most businesses use a functional organizational structure. In this type of organization, work is arranged within main business functions such as production, operations, marketing, and human resources. All of the people with jobs related to one of the functions will work together. They report to managers who are responsible for that function. The advantage of a functional organization is that people work with others who have the same skills. A drawback is that people become more focused on their specific function than on the success of the whole business. Often, people working in one function have little interaction with people in other parts of the business.
Matrix Organizational Structure A newer organizational structure designed to overcome the drawbacks of the functional structure is the matrix organization. In a matrix organizational structure, work is structured around specific projects, products, or customer groups. People with varied backgrounds are assigned together because their expertise is required for the project or to serve the customer. The assignment may be temporary or long-term.
A matrix organization can be interesting and motivating to employees. They work with many different people. They are focused on a specific project or task. However, it can be confusing and inefficient without effective leadership and communication.