Assignment

Please see attachedments

Baack, D., Reilly, M., & Minnick, C. (2014). The five functions of effective management (2nd ed.). Retrieved from https://content.ashford.edu/

The Planning Function

Learning Objectives

After completing this chapter, you should be able to:

• Explain how a company’s mission and strategic vision statements shape its
planning processes.

• Describe how internal and external environments influence a company’s plans.
• Analyze and develop sets of goals at the strategic, tactical, and operational levels.
• Implement the three types of plans managers create.
• Allocate the proper amount of resources to carry out a company’s plan.

2

iStock/Thinkstock

Introduction Chapter 2

2.1 Introduction
Planning is a systematic process in which managers make decisions about future activities and
the key goals that the organization intends to pursue. One primary element of this process, stra-
tegic planning, focuses on planning for the future of the organization. It is a purposeful effort
directed by management within an organization, which, when conducted effectively, draws on
the knowledge, skills, and abilities of employees at all levels of the organization. Quality strategic
plans integrate all company activities into one coherent course of action (Bedeian, 1986, p. 100).
As noted in Chapter 1, the following steps are involved in planning: Examining the company’s
internal and external environments to discover company strengths and weaknesses and emerg-
ing opportunities and threats; determining which goals the organization will pursue; choosing
strategies, tactics, and operational plans to achieve company goals; and allocating organizational
resources to pursue the company’s goals. Each of these activities can help you become a more
successful manager.

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

Fox Sports 1: Strategic Planning and
On-the-Ground Execution

The world of sports has experienced a multitude of changes, many of them driven by new tech-
nologies. In the past century, major league baseball was at one point broadcast only by radio and
sometimes even by an announcer reading ticker tape without actually being at the game. Player
salaries were minimal and owners dominated the game. The advent of black-and-white television
broadcasts changed perceptions of many sports, most notably baseball, basketball, football, and
eventually the Olympics. Today, all of those telecasts seem truly arcane.

New broadcasting technologies now allow for regional broadcasts of all major sports, including
professional and college games. The availability of videotaped highlights, on-site interviews, and
interactions using social media has once again changed the landscape. Along with these innova-
tions came a major influx of money to be made by all concerned: owners, players, and the media.

The Fox media group has made inroads into a variety of television markets, including standard net-
work programming, news broadcasts, and many sports. Fox holds the rights to broadcast Major
League Baseball, NFL football, numerous college football and basketball games (including champi-
onship games and bowl games in football), NASCAR events, and UFC fight nights, among others.
After assessing the opportunities and threats present in the broadcasting environment, execu-
tives at Fox sports decided on a strategic plan. Fox Sports co-president Randy Freer, noted, “As a
company we haven’t been afraid to innovate and take well-calculated risks” (Fox Sports, 2013).
Consequently, the organization chose to go head-to-head with industry giant ESPN by launching
FOX Sports 1, or FS1, in August 2013.

Previous attempts to make inroads on the ESPN mega-network had failed, most notably when CNN
and Sports Illustrated magazine created the CNN-SI channel as a joint venture. What made Fox’s
managers think they could succeed where others had failed? “Building credibility and trust with
our audience is paramount, so naturally we’ll provide the staples, like news, scores and highlights,
but we’ll do it in a FOX Sports way,” Fox co-president Eric Shanks said. In other words, the co-
presidents reached the conclusion that a major opportunity existed, expressed this way on the FOX

(continued)

Introduction Chapter 2

The Value of Planning

Are you familiar with this saying? “A failure to plan is a plan to fail.” It sounds reasonable, but in
today’s complex and rapidly changing environment, it might be easy to conclude just the oppo-
site—that planning simply wastes time because things happen so quickly. In reality, this saying
serves as a concise reminder that planning remains as important as ever. Successful executives
follow the steps and principles of planning, specifically because of environmental volatility.
Quality managers know that planning helps company leaders anticipate change, and planning
helps managers make changes.

In this chapter, you will discover that the planning process begins with a careful analysis of the
company’s internal and external environments. As a result, company leaders are able to anticipate
change. Through careful forecasting and other environmental scanning programs, the company
becomes less likely to be taken by surprise. When other firms fail to spot trends or changes, a
company can take advantage by being able to move ahead. For example, Amazon.com was able
to forecast a trend in which people would become more and more comfortable with online shop-
ping, and an e-commerce retailing giant was born.

Planning helps company leaders implement change. Step-by-step programs make it possible to
avoid missteps and confusion. A well-executed plan may be one of the biggest time savers in busi-
ness. The steps of planning take place under the banner of the firm’s overall statements about its
direction and purpose.

Sports website: “More people consume and care about
sports than ever before,” and even calling the demand
“voracious” at one point, suggesting a growing mar-
ketplace. This opportunity was matched with a major
company strength—the extensive sports programming
already in place. The expansion strategy became the
net result.

Naturally, ESPN will respond to these competi-
tive efforts. Weeks before the FS1 launch, ESPN
announced it had signed well-known commentator
Keith Olbermann to host a nightly show on one of
the company’s secondary channels. Industry analysts
expect other changes in the network as well. Just as
sports teams compete based on opportunities, threats,
strengths, and weaknesses, competitors in all for-profit
markets continually assess these factors and respond
with strategic plans, tactics, and operational efforts. The
coming years will reveal whether Fox’s venture into this
arena will succeed.

Discussion Questions

1. What environmental factors did FOX Sports executives consider before launching FS1?
2. What internal strengths does FOX Sports hold? What weaknesses?
3. Do you think FS1 will succeed? Why or why not?

Evan Agostini/Invision/AP

▲▲ The launch of the FS1 channel
resulted from identifying an oppor-
tunity and drawing on a key network
strength that was already in place.

Introduction Chapter 2

The Value of the Planning/Control Cycle

Among the most important elements of planning is its basis for the control system. As managers
create and implement goals and standards for individual employees, departments, and the over-
all organization, they have established the baselines that will be used to evaluate performance
at each level. Without a complete planning process that includes setting clear-cut, measurable
standards, the function of control (discussed in detail in Chapter 7) is not possible.

At the same time, the control system is what begins the new planning cycle. Information gath-
ered regarding performance from the previous year provides a valuable starting point for the next
round of planning. In essence, one function cannot be carried out without the other as the cycle
repeats itself over the life of the organization.

The opposite of the planning/control cycle is a situation called “firefighting.” Instead of generating
a set of quality plans complete with useful goals and standards, managers are forced to react to
the crises and emergencies that occurred because no plan was in place. Firefighting wastes time,
managerial energy, and company resources.

Mission and Vision Statements

Organizations are created to meet various needs and provide various goods and services. Business
organizations are founded with a major guiding principle in mind. A company’s mission state-
ment expresses a clear and concise reason for the organization’s existence. In essence, the mis-
sion statement answers the question, “Why are we in business?” Outside of obvious answers, such
as “to make money,” mission statements define the overall organization (Smith, Arnold, & Bizzell,
1985). You can view the mission statements of several Fortune 500 companies at http://www
.missionstatements.com/fortune_500_mission_statements.html.

Accompanying a mission statement will be the organization’s strategic vision statement, which
points toward the organization’s future. The statement offers direction about where the organiza-
tion is heading and what it hopes to become. It articulates the long-term direction of the company.
Walmart’s vision statement is “We help people save money so they can live better,” which replaced
its former version, “To be the worldwide leader in retail.” These statements help inspire organiza-
tional members and provide a worthwhile purpose to work together to achieve the vision. Many
times the statements are not financial in nature because such visions might not appeal to everyone
in the organization. In the new millennium, many statements of strategic vision have incorporated
concepts about globalization and the use of Internet technology to build toward the future.

Mission statements and strategic vision statements form the basis from which all planning
begins. As an example, Honest Tea’s mission statement is as follows: “Honest Tea seeks to create
and promote great-tasting, truly healthy, organic beverages. We strive to grow our business with
the same honesty and integrity we use to craft our products, with sustainability and great taste
for all.” (Copyright © THE COCA-COLA COMPANY. Reprinted by permission.) To help ful-
fill this mission, the company includes a corporate social responsibility vision statement. These
documents drive every aspect of the firm’s operations, from the design of the production plant to
relationships with all publics, including suppliers of flavors and ingredients, retail outlets, local
communities, and governments. Employees at the entry level are made acutely aware of the orga-
nization’s commitments. For any company, a strategic, tactical, or operational plan that violates
these key statements takes the company off course and can create serious complications in the
future. In the case of Honest Tea, this would include plans for individual products as well as for
each department in the company. To keep the company on course, each plan should align with
the concepts of honesty, integrity, and sustainability.

http://www.missionstatements.com/fortune_500_mission_statements.html

http://www.missionstatements.com/fortune_500_mission_statements.html

Assessing the Environment Chapter 2

2.2 Assessing the Environment
Would it surprise you to know that some of the earliest ideas about strategic planning came from
a Chinese general? Over 2,500 years ago, Sun Tzu wrote The Art of War. The book explains how
to develop military strategies that lead to victory. Sun Tzu argued that intelligence and cunning
are often more effective than violence and destruction. Alliances make it possible for a military
leader to expand an empire without losing soldiers and depleting other resources. When in battle,
the best approach is to attack the enemy’s weak points and take advantage of the strengths of
one’s own army. In essence, the first environmental analysis was part of a military operation a
very long time ago.

Assessing the environment involves two key activities: examining the company’s internal opera-
tions and analyzing the external environment. The combination of the two factors guides the
management team as they seek to create plans with the highest potential to be successful.

Internal Operations

Various levels of analysis can be combined to understand the well-being of a company. Normally,
assessment of the internal environment takes place at the strategic, tactical, and operational lev-
els. It is tempting to think that the greatest amount of consideration should be given to the stra-
tegic level; however, actions at the lower levels can contribute greatly to a company’s success.

Strategic Assessment
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 will be analyzed
as a “company within the company.” As an example, the 3M Corporation could establish one
division devoted to magnetic tape (video and audio) and another to adhesive tape (Scotch
tape, duct tape, packing tape). The evaluation of strategic business units will be devoted to
understanding whether these portfolios of activities mesh and provide the company with a
viable future.

Profit centers are business units treated as distinct from one another in terms of generating rev-
enues and creating expenses so that profitability can be measured. A profit center manager will
be responsible for cost controls and creating revenue streams (Clow & Baack, 2010, p. 398). In the
Fox media group, one profit center might be television programming, a second would be newspa-
pers, and a third would be radio station revenues.

Strategic analysis involves assessing how all operating divisions, profit centers, subsidiary
companies, and other major elements are working together. Managers consider the group of
activities to see how each performs individually and how it contributes to the organization’s
overall well-being. One division may not make a great deal of profit, but it may still contribute
by providing low-cost supplies or services to the other divisions (Thompson, Strickland, &
Gamble, 2008).

Tactical/Functional Assessments
The second level of analysis focuses on the various departments or functions within the com-
pany. Tactical assessments help the management team identify more concrete areas where com-
panies have strengths and weaknesses. As a simple example, the Aflac duck advertising campaign
has created strong brand recognition in the company’s marketing program and constitutes a key
strength. Southwest Airlines’ website is easy to navigate and makes purchasing tickets less com-
plicated. The FedEx tracking system for packages creates consumer confidence in the company.

Assessing the Environment Chapter 2

Tactical functional assessments involve asking the right questions about all of the firm’s opera-
tions, including the factors described in Table 2.1.

Table 2.1 Tactical/functional analyses

Function Examples of factors to analyze

Production Costs, on-time delivery rates, consumer views of quality

Quality Control Rates of defects/returns

Marketing Market share, brand loyalty or power

Sales By total volume, product lines, individual products

Accounting Errors noted by auditors

Finance Cost of capital, liquidity, leverage (debt ratio)

Information Technology Quality of website, online ordering systems, support of internal operations

Research and Development Number of innovations adopted

Human Resources Rates of absenteeism, tardiness, turnover

A tactical analysis is similar to a strategic analysis in the sense that each of these functions are
assessed individually and also in terms of how well they contribute to company success. As noted
in Chapter 1, line managers often have different responsibilities and pursue different objectives
than do staff managers. Time frames must also be considered. A research and development team
may take several years to finalize an innovation. Absenteeism, tardiness, and turnover rates are
normally examined annually. Company sales can be studied in shorter time frames, especially
under circumstances such as a major season (Christmas, summer vacation) versus off-season.

Operational-Level Assessments
Front-line supervisors contribute information to the planning process by providing additional
details. Each of the functions assessed at the tactical level can be studied in greater deal at the
operational level. The goal of internal assessments in general is to provide as complete a pic-
ture as possible for managers to commence with planning decisions. For example, if servers in
a restaurant encounter ongoing complaints about a specific item on the menu, the information
can be transmitted to a supervisor who would in turn report the problem to managers at higher
ranks. Julia Stewart, who was CEO of IHOP (International House of Pancakes) when the com-
pany acquired Applebee’s, noted that she relied heavily on feedback from first-line employees in
assessing products and serving methods (Mero, 2007).

The External Environment

Any number of factors, events, trends, and crises that occur outside of a company can have a
powerful impact on what takes place inside that same company. To fully understand the orga-
nization’s current situation, top-level managers are expected to know what is happening in the
world. The external environment consists of the total set of forces that influence a company but
are not within its boundaries. A standard analysis of the external environment consists of two
major components:

1. Semicontrollable forces influence a firm, but the company can influence them in return.
2. Noncontrollable forces influence the firm, and the company cannot influence them in return.

Assessing the Environment Chapter 2

Semicontrollable Forces
Managers at the strategic, tactical, and operational levels interact with members of other organi-
zations and other entities such as governments and special interest groups. These individuals and
groups influence the company’s success. Part of the planning process involves examining these
relationships to discover any problems or opportunities. Semicontrollable forces include

• customers
• suppliers
• financial institutions
• unions
• the local community
• shareholders

A company’s customers can take many forms. For a major manufacturer, one potential set of
primary customers is either wholesale or retail middlemen. The manufacturer does not sell
directly to individual consumers, but rather to other companies. A company finds a second
type of customer when it sells products, component parts, or supplies to other companies. For
example, Holiday Inn caters to individual travelers, but also to companies and industries host-
ing conventions as well as employees who
travel regularly for their company. These
types of customers are called B2B, b-to-b,
or business-to-business customers. For
retailers, customers are the consumers
who visit the store.

Customers clearly influence a company’s
operations. If a local restaurant serves
items that cause food poisoning and many
customers become ill, that restaurant
may not survive. If Walmart’s manage-
ment team decides to take a product off
its shelves, the company that provided
the product may have a big problem.
Consequently, managers know that cus-
tomers are influenced through the four P’s
of marketing: products, prices, place (dis-
tribution), and promotion.

Influencing customers involves creating desired products at acceptable prices with distribution
systems that make it easy to buy items and promotional programs that attract and keep people
coming back. The recent explosion of Internet shopping has drastically changed the nature of dis-
tribution or placing systems in many industries, such as travel and hospitality, and new websites
continue to emerge.

Suppliers provide the raw materials and support services necessary to keep a company function-
ing. If a supplier raises prices or provides low-quality materials, the company has been affected.
To influence suppliers, company leaders rely on bargaining processes. The negotiations routinely
cover prices, levels of quality, delivery times, and sometimes inventory control and financing
services. For example, a buyer in a furniture company that requires quality fabric to cover chairs
and sofas would probably threaten to change suppliers if suddenly the materials began routinely

Fuse/Thinkstock

▲▲ The explosion of Internet shopping has drastically changed
the nature of distribution or placing systems in many
industries.

Assessing the Environment Chapter 2

tearing during the production process. The same buyer might also look for other options if a fab-
ric supplier suddenly and dramatically raised its prices.

Financial institutions influence a company by either lending or refusing to lend money. Credit
terms including interest rates, collateral, and repayment programs influence how a firm’s finan-
cial team operates. To positively influence financial institutions that might lend them money,
company leaders maintain quality records to make it clear the firm is a good credit risk. Following
the 2008 recession, many businesses found it difficult to obtain funding for expansion or other
projects.

Unions influence a company’s bottom line. Arrangements between unions and companies range
from cooperative to combatant. Managers are able to influence unions in various ways, includ-
ing how employees are treated in terms of hiring, firing, layoffs, discipline, pay, and benefits.
Management also influences unions through concessions and demands at the bargaining table.

The local community can grant either favorable or unfavorable treatment to an organization.
Local governments can create business tax incentives but also can instruct local law enforcement
to keep a careful eye on a company. Local citizens can respond positively to a company, lead-
ing members to seek employment in the organization or spread negative word-of-mouth com-
ments about the firm. To influence the local community, managers engage in positive public
relations activities. Any bad publicity, such as when a video of an employee tampering with food
in a Domino’s Pizza restaurant went viral (Maniac World, 2013), should immediately be met
with a response from the company, to avoid long-term damage to the firm’s image. Also, human
resources departments work hard to make sure citizens perceive the company as a fair and com-
passionate employer.

Shareholders influence an organization through voting and by purchasing or not buying stock. At
the extreme, shareholders can overthrow a board of directors and elect new members. Although
a CEO replacement by shareholders is a rare event, instances of pressure on CEOs are more com-
mon, such as when a group placed pressure on Chevron to terminate the services of CEO John
Watson (Rapoza, 2013). Top managers try to keep shareholders happy by maintaining favorable
dividend payments and by releasing documents such as annual reports to demonstrate that the
company is in good hands (Trewatha, Newport, & Johnson, 1997).

Noncontrollable Forces
Another set of factors demands the management team’s attention. Noncontrollable forces shape
the planning process by presenting opportunities and posing threats. The traditional list of non-
controllable forces includes the following:

• political and legal forces
• social trends
• economic conditions
• technological changes
• competitive forces

Political and legal forces can profoundly affect business activity. Governments have various
goals and agendas, many of which can make a company’s business environment more favorable
or create tremendous obstacles. Table 2.2 displays seven ways in which governments influence
business.

Assessing the Environment Chapter 2

Table 2.2 Seven ways in which governments influence business

Laws, regulations, and
regulatory agencies

Affordable Health Care Act

Occupational Safety and Hazards Act

Environmental Protection Agency (and Act)

Family and Medical Leave Act

Civil Rights Act

Sarbanes–Oxley Act

Courts and court decisions Liability lawsuits

Size of judgments and awards

Employment discrimination cases

Taxation and tax policies Tax rates on individuals

Tax rates for corporations

Tax loophole

Subsidies and loans Student loans

Loans to businesses and industries

Subsidies for farmers

Subsidies for oil companies

Government competition with private
enterprise

U.S. Postal Service (versus FedEx, UPS)

National Park Service campgrounds (versus private camping sites)

Government intrusion into the
economy

Activities of the Federal Reserve Board

Deficit/Surplus spending

Protection of private and
intellectual property

Private ownership

Patents and copyrights

Social trends constantly change. Managers are expected to monitor and adjust to various social
circumstances, such as recently emerging viewpoints about same-sex marriages. Some individu-
als may still have powerful feelings about such a major social change. Here are some social trends
that currently have an impact on business:

• Rising levels of education but greater educational disparity in the population
• Changing expectations related to gender roles
• Family size and composition
• Population locations and movements of populations (rural to urban; Northwest United

States to the South)
• Aging of the population
• Spending/saving rates

Each of these factors can influence a business in subtle or dramatic ways. For example, rising
savings rates during recessions can influence discretionary spending. Smaller family sizes have
changed food packaging; food companies now offer smaller units and even single-serving pack-
ages, especially because more households consist of only one person who is divorced or widowed,
or two people living together. The aging population creates opportunities for businesses that

Assessing the Environment Chapter 2

provide care for the elderly and other similar services. Leaders consider the impact of social
trends on their company’s specific products, services, and managerial style.

Whether boom or bust, economic conditions shape purchasing habits, the costs of raw materials,
and company activities. A firm responding to a recession is likely to cut back on payroll, traveling
expenses, and inventories. A company will react to a growing economy by offering new products,
adding personnel, and expanding other activities.

Technological changes have affected the business landscape in major ways over the past sev-
eral decades. In essence, technology has restructured the entire conduct of business. Technology
affects planning for the following reasons:

• It leads to new products.
• It creates product improvements.
• It improves production methods.
• It changes how jobs are performed.

New technologies have dramatically affected jobs at the lowest level of a company. For example,
an employee working as office assistant now needs to know how to use the Internet, a GPS device,
and an iPad to conduct daily business. At the extreme, technology has shaped new industries,
including e-commerce and biomedical research and products.

Competitive forces are among the most powerful noncontrollable influences. Company leaders
monitor competition at three levels: product versus product (Ford Focus versus Toyota Corolla),
company versus company (Ford versus Toyota), and industry versus industry (automobile versus
high-speed rail). Companies compete for customers, suppliers, key employees, financial resources,
and physical resources. Effective planning calls for responding to moves made by the competi-
tion (Bedeian, 1986, pp. 156–178). It also includes evaluating the industry environment. Table 2.3
identifies the five forces approach to industry evaluation, as developed by Michael Porter (1990).

Table 2.3 Porter’s five forces

Force Description

Threat of new entrants Assesses the possibility of new competitors entering the marketplace
and considers barriers to entry that might prevent new entrants, such as
governmental restrictions; patent or intellectual property protection; capital
requirements; brand strength of current competitors; the lack of distribution
channels for new competitors

Threat of substitutes Assesses the potential for substitute products to change the industry
(e.g., digital vs. traditional photography)

Presence of suppliers Assesses relationships with suppliers and current competitors

Customer strength Identifies industries in which customers hold the most market power and can
affect competitors

Competitive rivalries Identifies how strongly companies compete with one another; this forces
increases with larger numbers of competitors, slow industry growth, unused
industry capacity, increased product similarity, high barriers to exit

Source: Based on Porter, M. (1990). Competitive advantage. New York: The Free Press.

Assessing the Environment Chapter 2

The threat of new entrants applies to some industries far more than others. Technological indus-
tries such as mobile phones, readers, laptop computers, and other electronic devices have expe-
rienced several new entrants, and more can be expected. Therefore, the threat of competitive
rivalry rises. Conversely, well-established industries such as professional sports and hotel chains
do not experience new competitors, thereby reducing competitive rivalries.

Threats of substitutes are often most noticeable in difficult economic times. Buying patterns shift
when consumers try to save money. Substitutes also become an issue when a new and improved
version of a product is developed, such as digital photography. Recently, the entry of Netflix into
television product has threatened traditional producers of programming such as CBS, NBC, ABC,
Fox, and even HBO. This event would, in turn, change the nature of those competitive rivalries.

Rarely would the presence of suppliers become an issue in a developed country. Conversely, in
newly emerging economies, suppliers may find it to their advantage to enter such markets. Doing
so would increase competitive rivalries in companies in those nations.

Customer strength has begun to affect banks and other financial institutions. As consumers are
able to show for an increasing number of ways to save or store their money and pay their bills,
banks find competitive rivalries within the industry on the rise. The same holds true for mort-
gages, certain forms of insurance, and other financial services. Competitive rivalry strength is
the result of the other four forces combined. Porter believes industry understanding represents
the key to developing quality strategies based on the most pertinent environment: competition.

Forecasting

To further assist managers in the process of planning, various forecasts are prepared. These cre-
ate additional insights into the company’s current circumstances and provide direction regarding
plans to pursue. Managers examine three
types of forecasts as part of the planning
process: economic forecasts, sales forecasts,
and technological forecasts. Each report
provides valuable planning information.

Economic Forecasts
Economic conditions influence a com-
pany’s plans in direct ways. Recession-
sensitive companies experience sales that
follow economic conditions. Housing, air-
line travel, and automobile companies are
recession sensitive. Other firms experience
the phenomenon in reverse. Home gar-
dening equipment, auto parts stores, and
lower-end fast-food restaurants often enjoy
rising sales in bad economies. Figure 2.1
models an economic business cycle, which
typically lasts from three to seven years.

Photodisc/Thinkstock

▲▲ Low-cost fast-food outlets often experience an increase in
sales during periods of recession. This is an example of eco-
nomic conditions influencing a company’s plans.

Assessing the Environment Chapter 2

If management believes that economic conditions will decline, some activities such as the follow-
ing will change:

• orders of raw materials
• inventory levels
• sales force expenditures, including travel and entertainment
• size of the work force
• company lending and borrowing
• advertising expenditures
• creating or delaying the development and release of new products

In a recession, many companies will cut back on orders for raw materials, reduce inventories,
limit sales force travel, limit advertising expenditures, maintain or decrease the size of the work
force, and delay the release of new products. When an economy approaches its peak, the opposite
occurs: inventories expand, purchases of raw materials rise in response, the sales force pushes
hard to find new customers, the work force grows, advertising expenditures may increase, and
new products can be offered.

Remember, however, that management reactions to economic conditions depend on the nature
of the company and industry. Those companies that are recession sensitive encounter sales that
mirror what happens in the economy. Among the most recession-sensitive industries are con-
struction, airline travel, and automobile sales. Sales are highest during peak economic conditions
and lowest during recessions. Reverse-recession sensitive companies and industries encounter the
opposite circumstances. Falling economic conditions lead to increased sales as consumers and
companies cut back. For example, home gardening equipment and automobile parts stores and
repair shops tend to enjoy higher sales during recessions. Lower-cost fast-food outlets often expe-
rience an increase in sales during poor economic times, because people are looking for ways to
cut expenses and reduce spending. Recession-proof industries and companies experience sales not

Figure 2.1 The economic cycle

A typical economic cycle lasts between three and seven years as the economy moves through
the stages of recession, rising, booming, and declining conditions.

f02.01_MGT330.ai

Time

Recession

G
N

P
/G

D
P

Rising
Economy

Booming
Economy

Declining
Economy

GNP = gross national product
GDP =gross domestic product

Assessing the Environment Chapter 2

connected to economic conditions. Many necessities, such as toothpaste, toilet paper, and hand
soap do not see sales affected by economic circumstances. Any item consumers need regardless
of economic conditions may be considered recession proof.

Sales Forecasts
Accurately projecting anticipated revenues constitutes a key component of effective planning.
Sales forecasts can be based on numbers (quantitative) and management opinion (qualitative).
Both are designed to make sure individual departments and activities will have sufficient funding
to conduct operations without being wasteful. The sales forecast shapes the company’s budget,
one of the primary short-term plans. Table 2.4 introduces a series of methods used to forecast
annual sales. Most of these methods are used to predict annual sales for the coming years. The
others predict sales of new products that may or will be introduced to the marketplace.

Table 2.4 Types of sales forecasts

Based on opinions

Survey of buyer intentions Discover whether consumers are interested in or would purchase a new
product.

Executive survey Company executives estimate next year’s sales.

Consultant survey Consultants (experts) estimate next year’s sales.

Sales force survey Sales force members collectively estimate next year’s sales.

Based on present sales

Test market Test impact of price change on sales.

Test impact of advertising on sales.

Test impact of new product on total sales.

Based on past sales

Time series sales forecast Predicts future sales based on past sales

Statistical demand analysis Predicts future sales based on some other factor than past sales (e.g.,
change in impact of interest rate on housing sales)

Technological Forecasts
Technological forecasts are designed to predict changes and trends that affect a firm’s long-term
operations. By effectively predicting that the mobile phone technology would reach nearly every-
one in the United States, some companies were able to aggressively move into markets selling
phones and connecting services. Those who predicted that mobile technologies would move into
apps and Internet access gained a major advantage in their process planning.

Two common technological forecasting methods include the Delphi technique and normative
technological forecasts. The Delphi technique consists of a panel of experts who are placed in
separate locations and do not know the identities of their compatriots. The panel coordinator
poses a question to each expert, such as, “When will it become economically feasible to replace
internal combustion engines with some other form of power?” Each panel member responds
in writing, and the coordinator collects all the answers. Next, each panel member receives the
entire set of responses and has the opportunity to reconsider his or her initial response. A second
iteration of answers is then circulated among members. The system continues until the group

Assessing the Environment Chapter 2

reaches a basic consensus. Anonymity is maintained so that members are not swayed by another
person’s image or reputation, but rather by the quality of his or her arguments.

The Delphi technique seeks to understand what kinds of technological breakthroughs will occur
and when they will occur. In the case of internal combustion engines, some may argue that bet-
ter batteries will lead to cars not powered by gas and that such an innovation will take place in
about 20 years.

Conversely, normative technological forecasting places values on outcomes. Rather than dis-
cussing when something will happen, the panel looks for answers as to when something should
happen, such as the cure for a major disease. The difference in focus of this type of forecasting
is exemplified by an individual pharmaceutical company that seeks to maintain secret and pro-
prietary intellectual property and thus develops a medicine so that the company can make a
profit based on the discovery. If, instead, the goal were simply to cure the disease and all parties
were willing to cooperate and share information and discoveries, a medicine might be discovered
much more quickly. Most often, the Delphi technique has greater value in the business com-
munity, whereas normative technological forecasts may be useful to governmental officials and
social observers.

Technological forecasting cannot be as precise as other methods; however, its value should not
be underestimated. Managers looking at the long-term, strategic time horizon will consider when
an industry or business might be changed by a technological breakthrough, so that the company
can respond effectively.

SWOT Analysis

As noted earlier, the combination of internal and external environmental forces, assisted by
quality forecasting techniques, creates what is known as SWOT analysis (SWOT stands for

strengths, weaknesses, opportunities, and
threats). Examples of company strengths
include well-respected brands, a highly
skilled work force, and financial stability.
Weaknesses may come from the lack of
reliable suppliers or a key product near-
ing the end of its life cycle. Opportunities
emerge from underserved markets; newly
developed technologies that could lead to
additional products or product improve-
ments; or social trends, such as new forms
of distance learning. Threats result from
declining markets, bad economies, tech-
nologies that replace a firm’s technology, or
competitive actions.

Consider the four possibilities presented
in Figure 2.2. In the first situation (box 1),
an opportunity has presented itself in an
area where the company is strong. This will
likely lead to a plan designed to take advan-
tage of the situation. The Fox media group’s

Figure 2.2 SWOT analysis

f02.02_MGT330.ai

1. Plan to Pursue 3. Monitor

2. Decide Whether
to Pursue

4. Plan to Fend
Off Threat

Opportunity Threat

ENVIRONMENT

W
e
a
k
n

e
ss

S
tr

e
n

g
th

C
O

M
PA

N
Y

Assessing the Environment Chapter 2

management team believed it located such a circumstance with the launch of FOX Sports 1, as
noted earlier in this chapter.

In box 2, an opportunity exists in an area where the company is weak. Managers in that circum-
stance will decide whether the plan should be committing resources to strengthen the company
and pursue the opportunity, or letting some other firm that is better suited to the situation move
forward. For example, when Amazon.com first released the Kindle, it was clear that personal
reading devices offered a major opportunity. Some companies responded with competitive prod-
ucts while others decided to stay out of the market.

In the third circumstance (box 3), a threat exists where the company is strong. Managers moni-
tor this situation and take action as needed. Video rental companies such as Blockbuster found
themselves in this situation in the past decade. Blockbuster responded by moving into video rent-
als in conjunction with other providers, such as DirecTV.

In box 4, a threat exists in an area where the company is weak. Failure to respond may lead to the
company’s downfall (Gomez-Mejia, Balkin, & Cardy, 2005, pp. 280–282), as was the case when
Borders bookstores failed to adapt to changing circumstances in the retail book-selling industry
in 2011.

Analysis of its internal and external environment is a critical part of any company’s planning
processes. Without an evaluation of semicontrollable and noncontrollable forces, combined with
a SWOT analysis and various forecasts, managers are more likely to be “shooting in the dark” as
they make plans. When the company has sufficient information about these factors and remains
true to its mission and vision, quality planning goals can then be established.

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

Portfolio Analysis

In some instances, a SWOT analysis is not sufficient to analyze the operations of an entire business
as a single entity. In the examples in the previous section, opportunities, threats, strengths, and
weaknesses are assessed for the total company.

An alternative approach may be used in circumstances under which a company operates in differing
environments. For example, the Canon company operates in four different areas: copiers, printers,
cameras, and optical equipment. Each operation faces unique environmental circumstances. Even
though some overlap exists between the technologies involved and some customers, other factors
make the areas unique.

A portfolio analysis offers a systematic method for analyzing a set of products and services. The
analysis leads to recommendations regarding which items should be emphasized and which should
be phased out. Others may be maintained, thereby “harvesting” profits without substantial new
investments.

The key to a portfolio analysis is to identify (1) lines of businesses, (2) groups of business lines,
(3) the relation of each line to the organization’s mission statement, and (4) the overall fit with other
lines and the organization’s primary business. The most vital set of questions assesses the fourth
point, the fit (The Forbes Group, 2013). Those business areas that distract from the organization’s
primary purpose become the main candidates for termination.

(continued)

Determining Organizational Goals Chapter 2

2.3 Determining Organizational Goals
Company leaders establish at least three levels of goals and objectives: strategic goals, tactical
goals, and operational goals. Strategic planning involves charting the direction of the organiza-
tion in regards to its long-term goals, objectives, and strategies. In most organizations, senior-
level managers are responsible for development and execution of the strategic plan. Strategic
goals are major end results that relate to the long-term growth and survival of the organization.
These goals are the long-term, sweeping targets a company seeks to pursue, including the follow-
ing (Drucker, 1972):

• market share
• innovation
• productivity
• profitability
• physical and financial resources
• manager performance and development
• employee performance and attitudes
• social responsibility

Market share represents the company’s share of total industry sales. As an example, consider Red
Bull. In 2001 the company held a 70% share of the energy drink market. Over time, products such
as the 5-hour ENERGY drink might reduce this share, forcing company leaders to respond. In
general, managers set market share goals in two areas: expanding the company’s share to increase
sales, which involves taking customers away from other firms, or holding shares in a growing
market, which results in increased sales (see Figure 2.3).

Innovation includes any kind of creative solution. Innovation goes beyond research and develop-
ment of new products or product improvements. It also includes new methods of delivery, new
ways to contact customers, better accounting systems, an updated website, and other changes.
Innovative companies stay ahead of the curve and keep competitors off guard and catching up.
GEICO Insurance has taken advantage of an innovative marketing program featuring a variety
of entertaining commercials, each with the same tagline—“15 minutes can save you 15% on car
insurance,” —that allows it to build its customer base.

Productivity means output per worker. Companies that succeed in this area do so by finding ways
to help workers accomplish more in the same amount of time by working smarter, not harder.
One way to maintain a competitive edge is to find ways to increase revenues without increasing
employees.

Profitability may be the strategic goal everyone thinks a company should seek to achieve first.
Unfortunately, seeking profits above all other things often makes a company shortsighted and

As you consider methods of analyzing a business operation, first consider the scope of the business.
Is it a single product/service company? Does the business offer several similar lines of products,
such as Campbell’s soups, V8 juice, and vegetable drinks? Or, is the organization a conglomer-
ate of diverse products, services, and activities? If so, it may be necessary to move from a SWOT
analysis to a portfolio analysis. Can you think of companies in each category (single business versus
conglomerate)?

Determining Organizational Goals Chapter 2

willing to cut corners. Profits should result from improvements in efficiency and effectiveness.
Profits are needed to maintain a company in the long run. They cannot be ignored, nor should
they be overemphasized in the short term.

Physical and financial resources include the company’s plant and equipment, delivery fleet, com-
puter systems, and other tangible physical assets. Financial resources are needed to purchase and
maintain the best possible equipment.

Manager performance and development reflect how well a company recruits, rewards, trains,
promotes, and retains quality managers. A company needs a line of succession to ensure its suc-
cess over time.

Employee performance and attitudes indicate
how well the company has done in the same
basic areas: recruiting, rewarding, training,
and retaining employees. A company culture in
which workers feel empowered bodes well for
present and future circumstances.

Social responsibility indicates the type of global
citizen a company wishes to become. Socially
responsible companies eliminate negative activ-
ities, including discrimination, pollution, tax
evasion, and other legal and ethical violations.
Socially responsible companies also become
involved in positive activities, such as training
the unemployed, giving to charities, and partici-
pating in community-building activities. As an
example, Honest Tea works diligently to support
smaller farms in economically depressed areas
by purchasing ingredients and specific flavors

Figure 2.3 Market share goals

f02.03_MGT330.ai

Target
Increase

Increase Share in
a Stable Market

Hold Share in
a Growing Market

Target
Increase

Projected
Market Growth

Company
Share

Company
Share

ALI BURAFI/Associated Press

▲▲ TOMS is an example of a socially responsible organiza-
tion. For every pair of shoes sold, the company donates a
pair to a child in need.

Developing Quality Plans Chapter 2

for its line of bottled teas. Socially responsible companies are less likely to invite legal scrutiny
and are more likely to receive a fairer hearing should an action be called into question. Some may
argue that unethical activities can enhance profits in the short term; however, firms that do so
are not likely to survive for long.

Tactical Goals

Strategic goals are subdivided into tactical goals, which have a more immediate impact. Tactical
goals are set in the following functional areas:

• production
• quality control
• marketing
• sales
• accounting
• finance
• information technology
• research and development
• human resources

Creating tactical goals requires coordination of the deliberations of middle-level and functional-
level managers. Marketing and sales will need to cooperate with information technology when
building a website. Human resources can find successful job candidates only when the other
departments spell out the types of people and skills needed. Accounting departments need to
know how to value assets on their books to best facilitate overall company financial success.
Frequently it takes the direction of the top management team working with middle managers to
establish quality, functional-level tactical goals. The top management team makes sure that tacti-
cal goals mesh with strategic goals. Additional information regarding tactical goals is provided in
Chapter 7, as it pertains to a control system.

Operational Goals

Operational goals are the performance targets for everyday activities, such as sales and produc-
tion quotas, completing daily reports and paperwork, and processing the flow of raw materials
into the company and the finished goods to customers. Operational goals often are the basis for
performance appraisals of individual employees and their supervisors. Individual sales quotas
may be established for members of the sales force. Production targets may be set for individual
line workers as well as for their supervisors.

2.4 Developing Quality Plans
The development of goals at the three basic levels leads to the creation of plans to achieve those
outcomes. A strategy is a cluster of decisions about what goals to pursue, what actions to take,
and how to use resources to achieve the goals. Tactics are the plans that support strategies in the
functional areas. Operational plans direct daily activities in individual units. A fully developed
and coordinated planning process specifies plans in each of these areas.

Developing Quality Plans Chapter 2

Strategic Plans and the Strategic Management Process

The executive management team holds the responsibility for maintaining the company’s vision
and mission. To do so, efforts at all levels of management are coordinated into a unified course of
action. This process is called strategic management. Table 2.5 displays the steps involved in the
strategic management process.

Table 2.5 Steps of strategic management

Step Activity

Analysis and Diagnosis

The Company

The Environment

The SWOT

Identify strengths and weaknesses.

Identify opportunities and threats.

Analyze combined strengths, weaknesses, opportunities, threats.

Strategy Generation Create a list of strategic options.

Strategy Evaluation and Choice Select one or more strategies.

Strategy Implementation Put strategies into action at all levels.

Strategic Control Evaluate strategic effectiveness.

Regarding strategic options, we next examine three categories of strategies: those based on core
competencies, generic strategies, and more specific strategies.

Core Competencies
A core competence represents the most proficiently performed internal activity that is central to
the firm’s strategy and competitiveness. Core competencies are based in knowledge and people,
not capital and assets. In this approach to strategic planning, the goal becomes to develop a
distinctive competence, which is something a company performs at a better level than all its
competitors. For example, Crest toothpaste has devoted considerable effort to being known as
the “cavity fighter” as its distinctive competence. German auto manufacturer Mercedes Benz
focuses on engineering as its core competence. Discovering core and distinctive competencies is
also known as the resource-based approach to strategic planning (Wernerfelt, 1984).

Generic Competitive Strategies
The second perspective regarding strategic planning is choosing one of the generic competitive
strategies (Porter, 1980). Generic strategies provide overall guidelines for the entire organization.
These strategies include the following:

• Low-cost provider strategy: Seeking to achieve the lowest overall costs as compared to com-
petitors, and therefore being able to compete with price

• Broad differentiation strategy: Seeking to make the organization’s products unique when
compared to competitors, therefore being able to compete based on those differences

• Best-cost provider strategy: Giving customers the most value for their money; combines
some uniqueness with lower costs and lower prices

• Focused market niche based on cost: Concentrating on a market segment and outcompeting
rivals based on price

• Focused market niche based on differentiation: Concentrating on a market segment and
outcompeting rivals based on some form of differentiation

Developing Quality Plans Chapter 2

Differentiation means different and better. It allows company leaders to charge a higher price and to
market products based on characteristics like quality or exclusivity. Examples of differentiation in
retailing would be Saks Fifth Avenue or Macy’s. Low-cost approaches seek to attract a wider number
of customers more interested in price than in frills such as displays or brand names. Walmart and
Southwest Airlines feature the low-cost approach. The hybrid of these methods is the best-cost pro-
vider method, used by numerous companies seeking to be both distinctive and price competitive.
Focused market niche strategies identify certain groups and concentrate on cost or differentiation.
Centrum vitamin products target seniors with differentiated characteristics (e.g., Centrum Silver
for senior men). MasterCuts targets adults who want low-cost hair care rather than high-end cuts.

Specific Strategies
As the executive team manages the organization’s portfolio of activities, various strategic options
emerge. These may be divided into four categories, as shown in Table 2.6.

Table 2.6 Types of strategies

Rapid growth Sole growth Stability Decline

Merger/Acquisition/Takeover

Vertical integration

Horizontal integration

Joint venture

Globalization

Incremental growth

Efficiency

Customers

Suppliers

Refinance company
debt

Repurchase stock

Retire debt

Divestment

Liquidation

Retrenchment

Rapid Growth Strategies
Rapid growth strategies may be used when the top management team has identified an oppor-
tunity. Mergers, acquisitions, and takeovers of other companies are designed to build company
strength by combining with another organization. Recently, Esurance merged with Allstate in
order to widen the customer base for both companies as well as expand methods for individuals
to purchase car insurance, ranging from typical visits to an insurance agent to being able to buy
insurance online.

Vertical integration involves taking over
a new aspect of the marketing area, for
example, when a manufacturer either sets
up its own distribution systems or opens its
own retail outlets, as in the case of Braum’s
Ice Cream stores. A fully vertically inte-
grated company is one with its own suppli-
ers, distribution centers, and retail outlets.
McDonald’s is nearly fully vertically inte-
grated because the company owns farming
operations in the United States to produce
beef and potatoes. Horizontal integration
strategies are designed to widen relationships
with distributors with the goal of increasing
market share and/or controlling the channel
of distribution.

Fuse/Thinkstock

▲▲ Mergers and acquisitions are designed to build company
strength by combining one organization with another.

Developing Quality Plans Chapter 2

Another form of rapid growth takes place through cooperative agreements between firms to
mutually market products or to create joint venture arrangements, such as Old Spice combining
with Head and Shoulders shampoo and Tide detergents combining with Downy fabric softeners
to create co-branded products. Joint ventures differ from mergers in that the companies involved
remain separate entities.

Globalization also can create rapid growth. The Ford Motor Company has grown over the years
through expansion into numerous countries around the world. The same holds true for Sony,
Yum! Brands, and many other international companies.

Slow Growth Strategies
Slow growth strategies are best when a company’s environment and internal circumstances indi-
cate that its rapid growth is not feasible. Incremental growth involves the firm seeking either to
add more customers in existing markets or to gradually expand into new markets. Efficiency
strategies seek to build profits by eliminating waste or finding new ways to do things that take
less time or use fewer resources.

Stability Strategies
When companies operate in mature, highly competitive markets, top management may decide
on a stability strategy that maintains the status quo. Long-term contracts with suppliers or retail
outlets are used to ensure the continuing relationships between various companies. A company
may also work to build strong relationships with customers and use contracts to ensure stability
with retail outlets and wholesalers. Stability strategies also include refinancing company debt to
take advantage of favorable interest rates, repurchasing stock to ensure ownership without the
possibility of hostile takeovers, and retiring debt to open credit lines for the future.

Decline Strategies
An executive management team will employ decline strategies when it determines that a hos-
tile environment or dire circumstances within the company dictate dramatic change. Types of
decline strategies include divestment, liquidation, retrenchment or turnaround programs, and
downsizing.

A divestment involves selling part of the company, thereby yielding cash. The purchasing com-
pany views the part that is sold as an opportunity to expand or to turn around a failing enterprise.
Liquidation means that the company stops an operation and sells off the component parts. Many
times a company’s management team will use liquidation when it is unable to complete a divest-
ment deal. Company leaders may decide it is best to close the plant, sell the building, equipment,
delivery trucks, and other assets, and simply move on. Retrenchment or turnaround programs
have one common denominator: the objective of becoming smaller but stronger. This can be
accomplished by the following strategies:

• reducing outlets
• reducing the number of products and services
• eliminating entire markets
• eliminating employees

The hamburger chain White Castle provides one example. The company retrenched in the 1960s
after McDonald’s had made major inroads. Kmart closed numerous stores in order to survive and
rebuild. In 2008, Starbucks adopted the same strategy. By concentrating efforts on the most prof-
itable units and cutting those that are not doing well, a firm can prepare for growth at some point

Developing Quality Plans Chapter 2

in the future. Possibly one of the most famous examples of retrenchment by reducing products
occurred when Chrysler cut nearly 500 products from its lines as part of a major reorganization
in the 1980s. The goal was to sell only items that the company had expertise with as well as some
type of technological or market advantage. Downsizing involves the elimination of employees.
The impact on morale will be negative. At the same time, it may be the only available option for
a company (Hoskisson, 1994).

Tactical Plans

Tactical plans support strategies. In essence, each department or function will be assigned the
task of outlining activities in its individual area. For example, in the area of marketing, tacti-
cal plans would involve decisions about advertising; selling techniques including promotions,
packaging, and labeling changes; pricing and discounts; and other marketing activities such as
sponsorships and cooperative agreements with other companies.

Gillette has been a dominant provider of shaving products for many decades. The tactics Gillette
employs to maintain the company’s position include making product changes and moving from
a single-edge blade to two, then three, then four, and finally five blades in a razor. Gillette prod-
ucts and advertisements have changed with the times, including a much greater focus on women
as consumers. Coupons are used to discount razors. Free samples are often provided to college
students in dormitories to encourage them to try the blades.

Similar efforts are made in all of the other functional areas. Most recently, many organizations
have established a presence on Facebook and Twitter to support other efforts to sell products.
Most tactical plans have time horizons of three years or less.

Operational and Short-Term Plans

Operational plans direct daily activities. They include items such as preparing work schedules,
ordering inventory, and routinely updating a website. Operational plans help ensure that front-
line supervisors and company employees are clear about their everyday responsibilities.

Special Short-Term Plans
Two types of plans are developed for specific company circumstances: projects and programs.
A project is a plan for a single-time activity. When the activity is complete, the plan will be dis-
carded. For this reason, projects are also known as single-use plans. Examples of projects include
a plan to redesign the interior of a retail store; a plan to build and pave a parking lot for customers;
or a plan for a special occasion, such as a company’s 50th anniversary.

A program consists of a set of projects that change a company’s direction. Adding an
e-commerce component to a brick-and-mortar retail store is a program. The projects for that
program would include choosing the right equipment, building a website, establishing shipping
methods, and other activities. Another program involves introducing a new product. Projects
include the product’s design, creating packaging and labeling, test marketing the product, and
creating a rollout.

Projects and programs should be coordinated with all other types of plans. Company managers
make sure that they maintain the strategic direction of the company and do not interfere with
tactical or operational plans.

Allocating Resources Chapter 2

Contingency Plans
At all three levels of planning, things can go wrong or not work out. Contingency plans are
designed for the “what-if ” circumstances that routinely appear in an unstable environment
(Gomez-Mejia, Balkin, & Cardy, 2005, pp. 204–205). In recent years, oil prices have risen and
fallen dramatically in relatively short periods. Companies that have energy-saving contingency
plans are better able to adapt to rising energy prices. Before any major election, tax policies are
debated. Should a different party take power, taxation systems can change dramatically. As a
result, many organizations develop contingency plans so that the company will be prepared
whatever the outcome.

In summary, managers deploy strategic plans as the result of a careful analysis of the environ-
ment combined with an examination of the company’s current situation. Strategic controls are
designed to provide the types of information that will guide these decisions as the organization
moves forward. Tactics, operational plans, and special short-term plans must all work in concert
to achieve efficiency and effectiveness.

2.5 Allocating Resources
A plan is not complete until the necessary labor (human resources) and parts (general resources)
to build the product for sale have been allocated. The primary device used to allocate resources
is a company’s budget. A budget is an annual financial plan.

Budgets are similar to road maps. They map out where the money will come from (sales and other
revenues) and where it will go (individual departments and activities). Often, a pro forma income
summary spells out revenues and expenses for the coming year. Three types of budgets are com-
mon in business: incremental budgets, zero-based budgets, and rolling budgets.

Incremental Budgets

Incremental budgets remain basically the same from year to year. Managers use the current
budget to develop one for the next year. Only incremental or marginal changes are made to the
budget. These changes take two forms:

1. Across the board, where each department receives a uniform percentage budget change
2. Relative amount, where some departments receive more and some receive less

Across-the-board adjustments are the easiest to calculate. If a 4% across-the-board increase is
in order, each department receives that percentage for the next year’s budget. In many cases,
employees then know they will receive a 4% pay raise as well. Relative amount adjustments are
made when one department’s needs are determined to be greater. A company’s executive team
may determine that the delivery fleet is outdated. To purchase new vehicles, the team will grant
an uneven amount of budget to the purchase by cutting back on monies granted to other depart-
ments and activities.

Zero-Based Budgets

Zero-based budgets are used when departmental leaders begin with zero in their budget accounts.
Department managers then must justify expenses in order to receive funding. The term applied

Summary Chapter 2

to zero-based budgeting is cost-benefit analysis. Financial resources are allocated to departments
and activities with the best ratios of potential benefits compared to departmental expenditures.
Zero-based budgeting is designed to “cut the fat” out of budgets that have become bloated over
time. When this type of budget is used, unnecessary and low-priority activities get the axe.

Rolling Budgets

Rolling budgets are used when company leaders adjust departmental budgets throughout the
course of the year, based on actual revenues. For example, if sales are off by 10% in the first quar-
ter, the management team knows that less money was spent on raw materials, production, ship-
ping, and sales force commission. The budget can then be adjusted at that time. Budgets may be
rolled quarterly, semiannually, or even more often. Many electrical providers roll budgets each
month, because weather conditions determine a great deal of revenue. A warm January may
mean lower revenues due to less heating; a cool summer month also reduces revenues. A rolling
budget allows the budget to be adjusted right at the time.

The most efficient possible budget is a rolling, zero-based budget. When it is used, managers have
the greatest degree of control over funding. Firms with major financial crises may resort to this
approach. Any type of budget should reflect the company’s strategies. Major changes, such as an
acquisition or the development of a new product, will require that the right amounts of resources
are devoted to the task. For example, in the early 2000s, Holiday Inn company leaders determined
that the firm was losing business due to outdated decor in many of the units. The decision was
made to sell the least profitable units and use the funds to update and improve the remaining
hotels. Additional funds were devoted to developing new signage and a new logo for the company.
Many times, companies undertake modernization programs like these. The accounting depart-
ment works in conjunction with top management to develop a plan to put the right amount of
resources into the program.

In the legal world, crime fighters often know the best way to catch a criminal is to “follow the
money.” In business operations, organizational priorities are easily discovered by following the
money. Projects and activities that receive funding are clearly the ones that are most important
to company leaders.

Summary
Planning involves managers making decisions about future activities and the key goals the orga-
nization will pursue. Planning begins with a company’s statements of mission and strategic vision.
Everything else flows from those documents. Planning consists of the following steps: examining
the company’s internal and external environments; setting goals; choosing strategies, tactics, and
operational plans; and allocating organizational resources to pursue the company’s goals.

Assessing the internal environment takes place at the strategic, tactical, and operational lev-
els. Company strengths and weaknesses should be identified during this process. Assessing the
external environment involves analysis of the semicontrollable and noncontrollable forces an
organization encounters. The goal will be to discover opportunities and threats. Forecasting of
future economic conditions, sales, and changes in technology should be part of this process.
These sets of information can then be combined into a SWOT analysis.

Strategic, tactical, and operational goals will be combined into one logical set of objectives.
From these, actual plans are developed. Strategic plans can be based on an organization’s core

Summary Chapter 2

competencies. They may be devised to focus on cost, differentiation, or both. Rapid growth strat-
egies are prepared to take advantage of key opportunities. Slow growth strategies are useful when
no major opportunities exist. The same holds true for stability strategies. Decline strategies are
employed when the firm encounters turbulent circumstances.

Tactical plans are designed to support strategies in the company’s departments or functional
areas. Operational plans direct daily activities. Special short-term plans, including projects and
programs, help managers make needed changes.

Funding for the company’s goals and plans gets channeled through the organization’s budget.
Incremental budgets use previous figures to develop future allocations. Zero-based budgets
require managers to justify their activities in order to be funded. Rolling budgets are adjusted as
revenue figures become available.

The planning process sets the stage for every other company activity. Remember, firms that fail
to plan tend to drift, encountering problems that should not have occurred in the first place. As
mentioned earlier, this situation is known as firefighting. The opposite of firefighting is enjoying
the benefits of getting things done more quickly and efficiently by simply following the plan.

C A S E S T U D Y

Oooh, Marvin

Marvin Hegarty enjoyed a long career in the retail jewelry business. His modest retail store, Marvin’s
Jewelry, was originally located in the downtown trading district in Charleston, South Carolina.
Eventually he opened a second location in a major shopping mall in the same city. Marvin would
be the first to admit he was “less than good looking.” Instead of feeling bad about it, he used his
image as a marketing advantage. Marvin ran television advertisements promoting various rings,
watches, and other items, always surrounded by two or three beautiful models, with the tag line,
“Oooh, Marvin.” Local billboards used the same idea. At Christmas time, Marvin dressed up in
a Santa Suit and became “Marvin Claus,” once again smothered with attention by his “Oooh
Marvin” women.

As Marvin approached the age of 60, he wanted to make the transition to being a part-time owner-
worker, leaving the management of the daily operations to his son. The two had even begun work-
ing on commercials featuring both men, changing the tag line to “Oooh, Marvin. Oh, Melvin.” The
goal was to keep their long-time customer base returning to the store.

New challenges began to emerge as the retail diamond business continued to evolve. For many
years, jewelry retailers had been able to take advantage of major markups on items, as much as
80% on some diamonds and precious metals. Even major chains, such as Zales, were able to price
items at high levels. Then, during holiday seasons and at other key times, they offered sweeping
discounts of often 25% or 33% off while still maintaining high levels of profit. Marvin had been
able to compete with the retail chains such as Zales through his folksy commercials and personal
interactions with customers, which included a great deal of involvement in community affairs.

Recently, however, the landscape was changing. Some retail stores had begun to operate using the
concept of lower markups and higher volume. To defend against some of these companies, Marvin
had been able to communicate successfully that price implies quality and service. At the same time,

(continued)

Key Terms Chapter 2

Key Terms
budget An annual financial plan.

core competence The most proficiently performed internal activity that is central to the firm’s
strategy and competitiveness.

Delphi technique A panel of experts who seek to predict what kinds of technological break-
throughs might occur and when such breakthroughs will take place.

as some big box stores began to sell jewelry in the stores and on websites, it became increasingly
difficult to battle against larger advertising budgets.

The greatest shift occurred in younger customers. These Internet-savvy individuals had begun to
discover websites, such as http://www.bluenile.com, that sold products directly to customers with-
out the need for retail stores and commissions to salespeople. The more popular websites relied on
rating systems that guaranteed the quality of items sold, most notably diamonds. As a result, the
sites could offer higher quality merchandise at much lower prices. Younger customers would then
take one of two approaches. Some would simply buy an item, such as a diamond, from Blue Nile
and then travel to a retail store to purchase only the band. Others would use the site to discover the
best price for an item and take that information into a retail store to negotiate much better prices
with the salesperson. This approach also allowed them to see what they were about to purchase
rather than waiting for a shipment and hoping the item would meet their expectations. Marvin and
Melvin found themselves forced to grant larger and larger discounts to young people buying rings
for weddings as well as for necklaces and earrings.

In essence, greater information about the actual wholesale prices for various jewelry items was
driving prices down for all competitors. Marvin also worried that younger people did not watch
as much television, and that his longstanding approach was wearing thin. He was concerned that
using “decorative” models as background for his messages might not work with women, because
they might be sensitive to such an approach even if it had always been presented more as humor
and less as some kind of sexy pitch.

Marvin knew that he would have to adapt to these new circumstances. He would have to find a
niche for his stores that set them apart from others. He knew the primary variables would continue
to be price, quality, and customer service. Even though his sales force was aging, each salesperson
had many years in the business and good relationships with many people in town. His company also
maintained positive relationships with most jewelry wholesalers and suppliers.

Finally, Marvin was concerned with the high level of rent he was paying in his mall store. While he
owned the other location, he knew that keeping down the cost of the actual brick-and-mortar
location would help. Against this backdrop, Marvin believed it was time to develop a long-term,
strategic response that would allow his son to enjoy the same level of success that he had achieved
during his own lifetime.

Discussion Questions

1. What are the strengths and weaknesses associated with Marvin’s Jewelry?
2. What opportunities and threats are present in the jewelry industry?
3. What strategic response should Marvin employ?
4. What tactical changes should the company undertake?

http://www.bluenile.com

Critical Thinking Chapter 2

distinctive competence Something a company performs at a level that is better than that of
all its rivals.

external environment Consists of the total set of forces that act on a company but are not
within its boundaries.

five forces approach Model developed by Michael Porter that identifies and analyzes five
competitive forces that shape industries and helps determine an industry’s strengths and
weaknesses.

mission statement A document that expresses a clear and concise reason for why the organi-
zation exists.

normative technological forecasting Technological forecasting designed to identify when a
technological breakthrough would occur if various entities would cooperate in creating it.

program A set of planning projects designed to change a company’s direction.

project A plan for a single-time activity.

strategic management Coordinating the efforts of all levels of management into a unified
course of action.

strategic planning A purposeful effort that is directed by management within an organiza-
tion; if done effectively, it draws on the knowledge, skills, and abilities of employees at all levels
of the organization.

strategic vision statement A statement that offers direction about where the organization is
heading and what it hopes to become; it also articulates the long-term direction of the company.

Critical Thinking
Review Questions

1. Define planning and strategic planning.
2. Explain the concepts associated with a mission statement and a strategic vision statement.
3. When assessing the internal environment and operations, what three levels are examined?
4. Explain the difference between semicontrollable and noncontrollable forces in the external

environment.
5. What semicontrollable forces influence business operations?
6. What noncontrollable forces influence business operations?
7. What three types of forecasts are used to assist in the planning process?
8. What are the four possible outcomes of a SWOT analysis?
9. Explain the differences between strategic, tactical, and operational goals.

10. What are the steps of strategic management?
11. Define and explain the concepts of core competence and distinctive competence.
12. Describe the five basic generic competitive strategies.

Critical Thinking Chapter 2

13. Name the rapid and slow growth strategies company leaders can employ.
14. Name the stability and decline strategies company leaders can employ.
15. Define the following terms: project, program, and contingency plan.
16. What is a budget, and how is it like a road map?
17. Name and briefly describe the three main types of budgets.

Analytical Exercises

1. Write a mission and strategic vision statement for the following companies:

• Red Bull
• Phillip Morris Tobacco Company
• Applebee’s
• Allstate Insurance

2. What specific factors should be analyzed as part of a tactical/functional analysis for Yum!
Brands, Inc.? Do the concepts of strategic business units and profit centers apply to this orga-
nization? Explain your answer.

3. What links exist between the following strategic goals? Explain how they are interconnected.

• market share
• innovation
• productivity
• profitability
• physical and financial resources
• manager performance and development
• employee performance and attitudes
• social responsibility

4. In the SWOT analysis diagrammed in Figure 2.2, which strategies match with each of the four
boxes from the following categories? (Some of the answers may fit into more than one box.)

• core competence and distinctive competence
• low-cost provider/differentiation/best-cost provider
• rapid growth/slow growth/stability/decline

5. Outline what you believe are the distinctive competence and the core competence of the fol-
lowing companies. Describe what you believe is the generic strategy used by each of those
companies. Explain specifically which type of strategy the company should undertake in the
coming years: rapid growth, slow growth, stability, or decline. Defend your choices.

• British Petroleum
• Facebook
• Hyundai
• Dunkin’ Donuts
• Netflix

Critical Thinking Chapter 2

6. Using the Internet, write a brief report on how the decline strategies used by the following
companies made them “smaller but stronger” and then allowed them to rebound.

• Kmart
• Starbucks
• Chrysler Corporation
• White Castle

7. If you were managing a thriving organization, which of the three types of budgets—incremen-
tal, zero-based, or rolling—would be best? Why? If you were managing an organization that
“could do better,” which of the three types of budgets would be best? If you were managing a
company in crisis, which of the three types of budgets would be best? Can you think of times
when the traditional response would be wrong? If so, explain how.

8. Relate the concepts of mission and strategic vision statements to the following:

• core and distinctive competence
• the five generic strategies

Case Study: Opening Your New Dunkin’ Donuts Locations

Prior to completing this assignment, review the pertinent sections of Chapter 3. You have been the manager of a Dunkin’ Donuts store in the Midwest for the past two years. The store is owned by a Dunkin’ Donuts franchisee who owns 20 other Dunkin’ Donuts locations. Your employer took an employee inventory and examined all current employees. It has been noted by the owner that you have a highly successful track record. You have been recognized for doing an exceptional job staffing, leading, training, coaching, and managing people. You have been recognized for successfully managing all key components of your store and have successfully managed key business drivers such as cash, profits, growth, asset utilization, and people. In regards to the metrics that are used to measure their stores for sales, quality, and customer service, your store is the top performing store in their system.

Congratulations! You have just been promoted to district manager! The Dunkin’ Donuts franchisee sees your growth potential and the growth potential in your geographic area. The owner now has committed significant capital and plans to open five new locations over the next two years. You will be given complete autonomy, authority, and responsibility to structure, staff, and operate these five new locations. You will be playing a key role in this expansion for growth.

For this assignment, you will prepare a four to five-page paper in which you explain your chosen job design and organizational design as the new District Manager for Dunkin’ Donuts.

You must organize your paper using the following section headings and include additional section headings as needed:

· Introduction—Provide a well-organized introduction to the paper.

· Job Design—Explain your chosen job design including job analysis, job description and job specification.

· Organizational Design—Explain why the chosen organizational design was chosen.

· Conclusion

Your paper must include at least three scholarly sources in addition to the textbook and be formatted according to APA style guidelines as outlined in the Ashford Writing Center.

The Case Study: Opening Your New Dunkin’ Donuts Locations paper

· Must be four to five double-spaced pages in length (not including title and references pages) and formatted according to APA style as outlined in the Ashford Writing Center’s 

APA Style (Links to an external site.)

.

· Must include a separate title page with the following:

· Title of paper

· Student’s name

· Course name and number

· Instructor’s name

· Date submitted

· Must use at least three scholarly, peer-reviewed, and/or credible sources in addition to the course text.

· The 

Scholarly, Peer Reviewed, and Other Credible Sources (Links to an external site.)

 table offers additional guidance on appropriate source types. If you have questions about whether a specific source is appropriate for this assignment, please contact your instructor. Your instructor has the final say about the appropriateness of a specific source for a particular assignment.

· Must document any information used from sources in APA style as outlined in the Ashford Writing Center’s 

Citing Within Your Paper (Links to an external site.)

 guide.

· Must include a separate references page that is formatted according to APA style as outlined in the Ashford Writing Center. See the 

Formatting Your References List (Links to an external site.)

 resource in the Ashford Writing Center for specifications.

Carefully review the 

Grading Rubric (Links to an external site.)

 for the criteria that will be used to evaluate your assignment.

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.

3

Tay Jnr/Digital Vision/Thinkstock

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

(continued)

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.)

(continued)

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

Wavebreakmedia Ltd/Thinkstock

▲▲ 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

f04.01_MGT330.ai

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

f03.02_MGT330.ai

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

f04.03_MGT330.ai

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.

Figure 3.4 Departmentalization by geographic region

f03.04_MGT330.ai

President

Vice President
Western Region

Vice President
Central Region

Vice President
Eastern Region

District Manager District Manager District Manager

Store Managers Store Managers Store Managers

Figure 3.5 Departmentalization by strategic business units

f03.05_MGT330.ai

President

Vice President
SBU1

Vice President
SBU2

Vice President
SBU4

Vice President
SBU3

Departmentalization Chapter 3

Departmentalization by Matrix

Matrix organizations are also called two-boss systems. As shown in Figure 3.6, each employee
answers to a functional area supervisor as well as a product manager. For example, the top row in
this figure includes three functional first-line supervisors: one for production, one for accounting,
and one for sales. Directly below them are the employees performing those functions. The verti-
cal row of supervisors in the same figure indicates managers for individual products (1 and 2).
Thus, a production worker in the top row responds to a functional manager (production supervi-
sor) and to a product manager (product 1). In the next row down, production workers respond
to the same production supervisor but to the manager for product 2. The same holds true for
salespeople responding to the sales manager and then to the product manager to whom they are
assigned (1 or 2) as well as for accountants answering to the accounting supervisor but also to
their designated product manager, 1 or 2.

Matrix organizations create circumstances in which maximum flexibility and adaptability in
operations are possible, because workers are routinely assigned to differing products and product
managers. Consequently, they must be able to adjust to change and accept some role ambiguity
as part of the daily routine as the tasks they work on tend to vary. The only constant will be the
employee’s functional supervisor.

Figure 3.6 Departmentalization by matrix

f04.06_MGT330.ai

Vice President

Product 1

Vice President

Product 2

Vice President
Production
Vice President
Sales
Vice President
Accounting

Top-Level
Management
Team

Production
Group

Product 1

Accounting
Group

Product 1

Sales
Group

Product 1
Production
Group
Product 2
Accounting
Group
Product 2
Sales
Group
Product 2

Completing the Organization’s Structure Chapter 3

An adaptation of the matrix organization is to design the company by product and by country.
Products must often be adapted when moved into new areas, due to differences in electrical sys-
tems (AC versus DC) and in measurements such as ounces versus grams. Product managers are
asked to identify national differences and help adapt production systems, marketing programs,
and other activities to the new circumstances. In this adaptation, the functional managers remain
the same. Instead of product managers (the vertical row of supervisors), the titles become those
assigned to managers for various countries. Each employee then has a functional supervisor and a
national supervisor who is responsible for helping the company adapt to differing circumstances
in other countries.

Managerial Concerns

The most rudimentary form of organizational structure, by function, is also the most common.
This form is seen in smaller, single-product or service companies, which constitute the majority
of businesses. As companies add products, services, and additional specialists and activities, the
degree of complexity rises and more intricate departmental arrangements normally result.

Departmentalization by products will be best suited to companies that have begun to grow by
adding new products and services (product diversification). Departmentalization by customer
tends to be found in organizations that sell the same product to diverse customers, such as com-
puters and other technologies as well as some other, more basic items. Departmentalization by
geographic area, or parallel departmentalization, is typical when a company performs the same
activities in various geographic areas, such as is found in retail chains (Walmart, Sears, Target), in
fast-food chains (Subway, McDonald’s, KFC), and in branch banking, which allows managers to
customize to the unique needs of the region while at the same time standardizing many aspects
of company operations. Strategic business units are used in multiproduct/multiservice conglom-
erates with high degrees of differentiation between units. The matrix organization grants the
manager the highest degree of flexibility and adaptability and normally is present in high-tech
firms that must adapt to quickly changing environmental circumstances as well as in companies
operating in various countries.

Remember that these forms of departmentalization can be adapted to meet specific company
needs as well as be modified to serve in multinational companies, nonprofit organizations, and
even governmental institutions. The needs of the organization should dictate its structure.

3.4 Completing the Organization’s Structure
Completion of an organizational structure occurs as managers identify the amount of influence
and accountability for these different individuals and groups, along with other elements of orga-
nizational design. The organization charts shown in the previous section depict the first key
activity that is part of completing the organization’s structure: drawing lines of authority and
responsibility. In each of the models, any vertical line from one position to the next lower (or
higher) depicts an authority–responsibility relationship. In essence, a president holds authority
over his or her vice presidents; those VPs are responsible for carrying out the president’s instruc-
tions and decisions.

Authority, then, consists of the right to direct with permission to act, which suggests that
authority has two key components. The right to direct means the right to give orders and oversee
activities. The manager of an auto repair shop has the authority to ask a worker who is changing

Completing the Organization’s Structure Chapter 3

a tire to stop and help another employee pull the transmission from another car being repaired.
Permission to act represents the right to make decisions on behalf of a company. The auto repair
manager may have made the decision to work on the transmission first, knowing that because the
customer needing a new tire will not return until the next day, that task can be completed later.
The transmission repair is more urgent and deserves attention first.

Responsibility, or accountability, is the obligation to complete tasks as assigned by reporting to a
specific supervisor. Someone who is responsible follows directions and is expected to follow them
correctly and completely. The mechanic who has been asked to assist in the transmission repair
should do so until the chore has been successfully completed.

The noted French management expert Henri Fayol (1916) was among the first to describe the
concept of parity of authority and responsibility. This principle suggests that anyone who holds a
position of authority should be held accountable for how that authority is used. Further, anyone
who is responsible for an outcome should have sufficient authority to carry out the assignment.

In today’s modern organizations, three forms of authority are found. Line authority is direct
formal authority, the type shown on the lines of an organization chart. Staff authority consists
of the right to advise or give advice. A company’s legal department provides legal advice to all
levels in the company. An accountant gives tax advice to all departments. Functional authority
has been described as the right to direct, but not to discipline. It occurs when a person has been
placed in charge of a task force or committee. The individual is charged with the responsibility
of getting something done (direct), such as completing a safety committee report; however, com-
mittee members may or may not follow directions and complete the task on time. Functional
authority relies on employee professionalism to accomplish goals. Due to the increasingly com-
plex nature of work, the reliance on functional authority has risen as the number of teams and
groups increases. When the first process in completing the structure of an organization, outlin-
ing authority–responsibility relationships, is complete, then other decisions can be made.

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

Sources of Authority

Where does authority come from? How is it established? Over the years, two major perspectives
regarding the nature of authority and its sources have emerged. One theory suggests a “top down”
source of authority; the other proposes a “bottom up” foundation.

Max Weber, a German sociologist who studied organizations, suggested three sources of authority
from the top-down perspective. Traditional authority derives from longstanding traditions within
countries whose kings, chieftains, and church officials possess the ability to direct others through
birthright or societal beliefs in governmental or religious systems. In Europe, many business organi-
zations were founded through the dictates of members of royal families, which meant that submit-
ting to the authority of a supervisor was, in essence, submitting to the authority of the crown.

A second source, charismatic authority, emerges as a “gift of grace”—for example, when a dynamic
military leader inspires and guides troops. A leader like this holds and maintains authority due to
personal characteristics including charm, persuasiveness, inspirational ability, and so forth. Such a
“general” then becomes empowered to direct the activities of others within his or her domain.

(continued)

Completing the Organization’s Structure Chapter 3

Centralization and Decentralization

Another key set of decisions to be completed includes those regarding the delegation of author-
ity. Centralization and decentralization refer to the degree of delegation of decision making,
authority, and power within an organization. A highly centralized organization is one in which
authority is not delegated. The executive management team, for example, makes key decisions
and issues orders that direct company activities. Other members of the organization must take
and follow orders issued by the executive management team. In a highly decentralized firm,
front-line supervisors make important organizational decisions.

Size and Decentralization
Peter Blau (1970) suggests that a strong relationship exists between the size of an organization
and the degree of decentralization. In essence, smaller firms are likely to remain centralized,
because managers are aware of all activities and know each employee. This places them in the
position to make all decisions. As a firm grows, the company begins to add specialists and new
departments. The sheer volume of decisions to be made rises. The top manager becomes less able
to direct everything, which means delegation begins to take place. At the same time, the top
manager wants to retain a degree of control, which leads to standardization, formalization, and
mechanization/computerization.

Standardization is the use of a series of job titles that are exactly the same, and the work-
ers perform the same activities. Formalization refers to the presence of rules and procedures.
Mechanization/computerization measures the reliance on computers and technology to

The third source, legal/rational authority, is based on a con-
tractual agreement, such as one created between an organi-
zation and its employees. In exchange for compensation and
other benefits, an employee agrees to submit to the authority
of managers within the organization (Weber, 1922).

In all three of Weber’s forms, authority rests at the top of the
organization and moves downward. Processes such as del-
egation allow authority to be granted to those at lower ranks.
In contrast, a second point of view argues the exact oppo-
site. Chester Barnard’s (1938) acceptance theory insists that
authority exists only when subordinates accept or acquiesce
to it. To achieve authority, four conditions must be met. First,
individuals must understand the nature of authority. Second,
they must believe the use of authority takes place in a man-
ner consistent with the purposes of the organization. Third,
the subordinates must believe the use of authority takes place
in a way that meets their own personal interests. Fourth,
those being influenced must be able to comply.

Consider the companies where you have worked and other
organizations (such as religious denominations or charitable groups) that you belong to. Do you
believe that authority moves from the top down or from the bottom up? Does the type of organiza-
tion make a difference? Think of a military organization as opposed to a group of volunteers in a
Parent-Teacher Association at a grade school. Understanding the basis of authority and its use is a
helpful tool for those in managerial or leadership positions.

Courtesy Everett Collection

▲▲ Sociologist Max Weber
(1864–1920)

Completing the Organization’s Structure Chapter 3

maintain operations (Blau & Schoenherr,
1971). As an example, consider the differ-
ences between managing a “stop and shop”
convenience store and a Walmart super-
store. In the convenience store, the man-
ager knows all the employees and every
aspect of the store’s operations, so he or she
can make every decision. At the Walmart
superstore, the manager does not even
know the names of all employees. The store
employs specialists in many areas, includ-
ing automotive, lawn and garden, jewelry,
men and women’s clothing, and others. The
Walmart store manager is best served by a
classic management principle: Let experts
make decisions. The manager delegates to
the specialists (decentralization). At the
same time, Walmart hires many individuals with titles such as “stocker” and “cashier” (standard-
ization), the rules for rotating inventory on the shelves and for checking out customers are the
same for every stocker and cashier (formalization), and the store uses computers to track sales,
inventory, and other statistics (mechanization).

Strategies and Decentralization
In 1962, Alfred Chandler proposed a relationship between company strategies and company
structure. His work suggests that organizational structure may be a matter of managerial design
that evolves over time and as organizational conditions change. Chandler’s analysis is grounded
in historical research. An in-depth review of case histories of a number of major U.S. companies
reveals four stages of structural development that were consistently present (see Table 3.3).

Table 3.3 Strategy and structure

Stage 1 Most firms begin with a single product and a centralized, functional form of structure.

Stage 2 Successful firms tend to grow by adding products and services, a strategy known as product
diversification.

Stage 3 The demands of the new products and services become so great that the company becomes
inefficient and eventually a crisis develops.

Stage 4 To resolve the crisis, company leaders adopt new forms of structure that are product based and
decentralized.

As Table 3.3 indicates, Stage 2 holds a strategy and Stage 4 suggests a corresponding change in
structure. The historical information corresponds with the work of Blau in that firms in Stage 1
are likely to be small and centralized. Stages 2 and 3 add the complexity of added decisions and
specialists. Stage 4 indicates that decentralization better serves a larger company.

As an example, consider how this approach would apply to the Bic Corporation when it first
expanded its product lines. The original Bic product, a ballpoint pen, was highly successful as
early as the 1960s. The product line held a major share of the disposable pen market. To expand,
however, Bic’s executives knew that a second product would need to be developed. At that
time, Gillette had introduced the Cricket disposable lighter. Seeing a potential opportunity, Bic

Nick Ut/

Associated Press

▲▲ Stores like Walmart use the practice of standardization
when hiring multiple employees with the same title, such as
cashier.

Completing the Organization’s Structure Chapter 3

introduced its disposable lighter. For a time, the Bic product was well received—until 1987, when
a few incidents of injuries occurred for some customers using the lighter (Funding Universe,
2013). This challenge could have led to splitting the pen department away from the lighter depart-
ment and decentralizing the decision making to experts who could make sure that the design was
safe and that the information could be effectively transmitted to wary consumers. The strategy,
product diversification, would then have led to a change in structure, product-based departmen-
talization, and decentralization of authority.

It is important to note that changes in degrees of centralization and decentralization tend to alter
job descriptions and job specifications. In a highly centralized operation, individuals at the low-
est levels must understand they will not be allowed to make decisions and will be expected to
follow orders. Front-line supervisors in the company will experience the same situation. In highly
decentralized companies, individuals who are willing to take the initiative, make key decisions,
and work with others are more likely to be hired. Delegation and decentralization rely on coop-
eration between managers and employees to make the best decisions and take the proper course
of action.

Mechanistic and Organic Structures

Another key element of organizational design regulates company flexibility and adaptability.
Mechanistic organizations are characterized by the high use of rules and procedures, a greater
number of levels in the organization, and formal relationships between workers. This design
results in a less flexible method of operation. Organization charts in mechanistic organizations
tend to be tall and thin, with many ranks and fewer people at each rank. For many years, the
military was used as a prime example of a mechanistic organization. The Army holds many
ranks, from buck private to five-star general; relationships historically tended to be highly formal
among soldiers, who referred to each other by titles and used respectful language (such as “sir”),
and the organization was served by a vast number of rules and procedures. More recently, the
military has changed and the example is less applicable. Currently, many manufacturing opera-
tions in environments characterized by low levels of change and few competitors may use a more
mechanistic form of structure.

Organic structures employ few rules and procedures, have a small number of organizational
levels and ranks, and allow for informal relationships among workers and supervisors. This
design is much more flexible and adaptable as a result. Organic structures are short and squat,
with few ranks and many people in each rank. Many creative industries, such as advertis-
ing agencies and management consulting firms, use organic structures. There may be as few
as three organizational levels or ranks, from entry-level employee to the top manager in the
company; relationships are informal and on a first-name basis, and these organizations can
quickly adapt to changing circumstances. Advertising agencies have been forced to adapt to the
increasing use of social media (Facebook and Twitter) in developing methods to reach custom-
ers. An organic form of structure better serves that need. The same is true for consulting firms
that must adapt to changing economic and social conditions when providing advice to client
companies.

Joan Woodward (1965) and her associates engaged in a major research project in Great Britain in
the 1950s. The purpose was to seek out the causes of structure in effective organizations. These
efforts identified a consistent pattern in which the technology of a firm could be matched to its
structure, as displayed in Table 3.4.

Completing the Organization’s Structure Chapter 3

Table 3.4 Technology and structure

Type of technology Type of structure

Unit, small batch Organic

Large batch, mass production Mechanistic

Process production Organic

Unit or small batch technology occurs when units are made one at a time (repairing a car; tailor-
ing a suit), or in small lots or batches, such as the amount of marinara sauce prepared for daily
use in an Italian restaurant. Remaining flexible and adaptable best serves that type of opera-
tion, at least in terms of profits, growth, and other measures of company success. Large batch
assembly-line operations create standardized products. Carefully following rules and procedures
increases efficiency. As noted earlier, many manufacturing facilities are mechanistic in their
structural designs, at least in the production departments. Process production includes unique
circumstances such as chemical manufacturers, some utilities, and breweries and distilleries. In
these organizations, problems tend to be unusual and require investigation. The more flexible and
adaptable organic structure fits these circumstances.

In essence, Woodward argues that we should not be concerned with how companies are struc-
tured in general. Instead, she identified what successful companies achieved. These organiza-
tions thrived by matching their structures with the type of technology used to make the goods
or services.

Impact on Employees and Managers

At this point, you may be asking a key question often posed by business students: Who cares?
Why is the study of centralization/decentralization and mechanistic/organic organizational
design important? Part of the answer may be found in the impact of a structure on individual
employees and their supervisors.

In the first place, structural design influences the number and types of decisions made at every
rank in the company. In a centralized/mechanistic organization, only those at the highest ranks
make decisions of any importance. First-line supervisors and employees are relegated to simply
following the dictates of those decisions. In contrast, an organic/decentralized company is char-
acterized by lower-ranking supervisors, and even individual employees make more decisions—
and those decisions have a greater impact on the organization.

Moreover, organizational design and job design in particular designate the number of tasks lower-
ranking employees will perform. In mechanistic/centralized companies, first-line employees can
expect to perform a relatively small number of tasks as they do their jobs. Greater decentraliza-
tion and a more organic structure tend to increase the number of tasks entry-level workers per-
form, and those tasks often are more varied and interesting.

Structure also affects the rigidity or flexibility present in each worker’s role. Mechanistic orga-
nizations, by their natures, clearly define how a role or job should be performed. Therefore, little
flexibility exists within those positions, save for employees at the highest ranks in the company.
An organic organization leads to greater flexibility in the role. That is, individual workers help
decide how tasks should be performed.

Completing the Organization’s Structure Chapter 3

Furthermore, the nature of an organization’s structure dictates the relationship between man-
agers and subordinates. In a mechanistic/centralized firm, you can expect more formal inter-
actions with a supervisor. Titles tend to be used rather than first names. Those employed in
organic/decentralized organizations will notice a more casual and informal relationship with
those in charge.

In ways most people would not think of, structure influences perceptions of chances for advance-
ment or promotion. A mechanistic/centralized organization tends to have many ranks and
exhibits a taller, thinner organization chart. The increase in the number of ranks, with fewer jobs
within each rank, means it becomes easier to obtain promotions over time. Some management
experts have called this phenomenon the “illusion of upward movement,” because the person
does move up the organizational hierarchy (perhaps even with a pay raise and new title), but he
or she still holds low levels of authority and often continues to work in a relatively mundane job.
Organic/decentralized organization charts are likely to be short and squat; they have few ranks
and many positions within each rank. This structure increases competition any time there is a
job opening at a higher level. At the same time, even someone at the lower rank may experience
a greater sense of empowerment, even without being promoted.

Finally, clearly spelled out structures, such as those present in mechanistic and centralized
firms, tend to generate role clarity for the employees. In other words, workers know what they
are “supposed to be doing” at any given time. Role clarity creates a sense of security and is often
less stressful for individuals within the company. The opposite situation, role ambiguity, means
employees have a less solid or strong sense of what they are supposed to be doing. Role ambiguity
can create tension and stress for some individuals.

Two issues emerge as a consequence. First, what is best for the organization? As Joan Woodward
discovered, some companies clearly are best suited to more centralized and mechanistic forms
of structure. Others become more likely to succeed with an organic and decentralized form of
organizational structure. It is the responsibility of the management team to design the appropri-
ate structure for the organization.

The second issue centers on where people would like to work. Students often respond quickly by
saying, “an organic/decentralized company.” But is that really what they want? Consider your own
needs for clarity and low ambiguity before answering. The human resources department, work-
ing with individual managers, should be aware of the relationship between the job designs, as dic-
tated by the natures of organizational structures, and the personal characteristics of employees
who are a good match to those jobs. Part of your responsibility as an applicant is to ensure that
the places you seek employment are best suited to your personality and your desire for autonomy,
responsibility, and a challenging number of tasks.

Characteristics of Typical Organizations

German sociologist Max Weber (1864–1920), who was noted previously in the “Management in
Practice” box in this section, had his work published posthumously in 1922. Weber suggested
that organizations share certain characteristics in addition to goal orientation (Weber, 1947). The
final design of the organization should account for each of these characteristics, which include
the following:

• Division of labor (labor specialization). Tasks in organizations tend to be grouped to
maximize productivity and are often based on some inter- or extra-organizational criteria.
Typically, work specialization is broken down by specific job tasks or work skills, such as

Completing the Organization’s Structure Chapter 3

machinists, equipment operators, quality control inspectors, accountants, and salespeople.
Seldom does an organization efficiently operate for long without labor specialization.

• Span of control. A superior cannot manage an unlimited number of subordinates, because
this situation is unwieldy and ineffective. Subordinates require feedback, direction, and
often correction. Organization theory suggests limiting the number of subordinates; the
number depends on the kind of work to be completed by the subordinates and the distance
from the center of control. The span should be kept as manageable as possible.

• Formalization. Almost all organizations have rules, whether written or unwritten. Most
modern organizations use the term policy or work rules, but in every case the rules are
intended to guide action and decision making across the organization. The more detailed,
specific, and clear the rules of the organization are, the more formal the organization.

• Number of authority levels. Organizations may have very few authority levels (flat) or sev-
eral (tall), depending on the type of organization and its plan of operation. Organization
theory suggests that the wider the span of control (more subordinates reporting to a supe-
rior), the flatter the organizational structure; and the narrower the span of control (fewer
subordinates reporting to a superior), the taller the structure.

Weber suggested that these characteristics could be coordinated only by effective communica-
tion among organizational members and by standardizing work processes. As work becomes
more complex, direct supervision becomes a more important factor in maintaining standardized
work outputs. Weber’s concept of formalization is a natural efficiency-improving process that
happens within the organization and may occur in several ways: by the job, by the work, or by
the rules.

An Organization in Crisis

Sometimes, events in an organization’s environment threaten internal operations. J. D. Thompson
(1967) developed a view of organizational structure in which the core technology used by a com-
pany becomes the key. In an organizational system, such as the one displayed in Figure 3.7, inputs
are regulated by the buffers, which lead them into the technical core. Outputs are moved into the
external environment through various departmental activities. In essence, management develops
departments (the buffers in Figure 3.7) to protect and facilitate the core technology.

Figure 3.7 Technology and structure

f03.07_MGT330.ai

Threat

New
Buffer

Inputs
Labor

Funding
Materials

Buffers
HRM

Finance
Purchasing

Technical
Core

Buffers
Sales

Warehouse
Shipping

Outputs
Goods

&
Services

Source: Technology and Structure, from Thompson’s Model of Technology and Structure, from Thompson, J. D. (1967).
Organizations in action. New York: McGraw-Hill.

Structural Configurations Chapter 3

When a threat emerges in the external environment—perhaps a dramatic price increase for raw
materials, a natural disaster, a terrorist action, negative publicity, or a new competing technology
—company leaders tend to respond by creating a new buffer or department to defend against the
threat. When mad cow disease threatened the U.S. beef industry, one response would have been
to create a new layer of inspectors to make sure the disease did not infect local herds. Many infor-
mation technology departments have specially assigned units to defend against virus attacks,
bombs, and other malware. More recently, the September 11, 2001, attacks on the United States
have led to the creation of a variety of new governmental departments, including the Department
of Homeland Security and the Transportation Security Administration.

In summary, organizational design consists of far more than simply drawing an organizational
chart. In addition to job specification, company structure consists of the form of departmen-
talization to be used along with other elements of structure. Beyond authority–responsibility
relationships, management teams dictate the degree of delegation to be used on a company-wide
basis. The level of centralization or decentralization that is present influences the jobs to be per-
formed and the people selected to perform those jobs. Mechanistic organizational structures
match with more standardized operations. Organic structures are best suited to problem-solving
situations in which organizations must remain flexible and adaptable. Most forms of structure
are relatively standardized, identifying the level of job specialization and the number and types
of managers. When an environmental crisis emerges, one natural tendency is to develop a new
department or buffer to defend against the threat.

3.5 Structural Configurations
Structural configurations constitute the final element of organizational design. Management
theorist Henry Mintzberg (1983) suggested five common elements of an organization:

1. Operating core. The subordinate workers who perform the basic labor in the organization that
is related to the production of goods or services.

2. Strategic apex. Top-level managers charged with ensuring that the organization serves its mis-
sion in an effective way.

3. Middle line. The managers who connect the strategic apex with the operating core.
4. Technostructure. The analysts who design, change, plan, or train the operating core.
5. Support staff. The specialists providing the direct support services for the organization.

These core elements then dictate the design of the organizational structure. Mintzberg identi-
fied five common structures: simple structure, machine bureaucracy, professional bureaucracy,
divisional structure, and adhocracy.

Simple Structure

Small entrepreneurial businesses often use a simple structure. The local dry cleaner, the corner
restaurant, the auto repair shop, and many others are likely organized as simple structures. This
form of organization is dominated by the strategic apex, but it has little formalization or complex-
ity. Almost everyone reports directly to the owner of the business, so the organization chart looks
flat and has few, if any, reporting layers. When should this simple structure be used? Typically,
when the organization is “small or in the formative stage of development” (Robbins, 1990).

Structural Configurations Chapter 3

Machine Bureaucracy

The trademark of the machine bureaucracy is standardization. The structure features highly
routine operating tasks, typically grouped together into functional departments. There is high
formalization, central authority, and decision making flows through a chain of command.
Machine bureaucracies work best in large organizations such as manufacturing or service, where
high volumes are produced, resulting in a routine. In machine bureaucracy, standardized pro-
duction work is the norm. These structures use elaborate work rules, considerable numbers of
middle-line managers, and distinctive line and staff management configurations. Organizational
charts include multiple management layers between top management and the shop floor, where
production or services are delivered.

This type of organizational design requires a simple and stable operating environment, which
may be its single greatest weakness. Machine bureaucracies have difficulty adapting to changes
in the environment, such as significant product changes brought about by market demand.
Business history is filled with accounts of large manufacturing firms that could not change to
meet emerging environments and then collapsed in bankruptcy. Few people remember Nash
Motors (part of Nash-Kelvinator Corporation) or Hudson Motors. Both firms were technol-
ogy innovators in their time and produced beautiful automobiles. Eventually, however, mar-
ket instability forced Hudson to merge with Nash-Kelvinator to become American Motors
Corporation (AMC), and AMC later merged with Kaiser-Jeep Corporation. In 1987, the
Chrysler Corporation acquired AMC/Jeep.

When should a machine structure be used? Typically, this structure is most “efficient when
matched with large size, a simple and stable environment, and a technology that contains rou-
tine work that can be standardized” (Robbins, 1990, p. 285). This is the typical structure of large
manufacturing firms, large insurance firms, and even state and federal prison systems.

Professional Bureaucracy

A professional bureaucracy may be used when an organization depends on highly skilled pro-
fessionals delivering goods or services at the core of the organization. “Obvious examples include
hospitals, school districts, universities, museums, libraries, engineering design firms, social ser-
vice agencies, and public accounting firms” (Robbins, 1990, p. 289). In this type of structure,
professionals self-impose standardization and formalization, often in compliance with govern-
ing bodies (e.g., licensing agencies, professional associations, or both) and typically due to the
complex operating environment. For example, certified public accounting firms are licensed
in most states. They have a professional organization (American Institute of Certified Public
Accountants) and several governing bodies, including the Financial Accounting Standards Board
and the Securities and Exchange Commission. Accounting professional training incorporates
the standards of conduct, legal requirements, and the skills appropriate to the profession. Thus
accountants have a degree of autonomy within the organization and in the exercise of profes-
sional judgment.

When should professional bureaucracy be used? Typically, this structure is most effective when
the environment is stable and complex, and when formalization and standardization are inter-
nalized through professionalization.

Divisional Structure

The divisional structure is actually a set of autonomous units, each typically a machine bureau-
cracy unto itself, coordinated by a central headquarters (Robbins, 1990). The divisional structure

Structural Configurations Chapter 3

is widely used across the postindustrialized
business world. Examples include General
Motors, Microsoft, 3M Company, AT&T,
General Electric Company, International
Business Machines, Coca-Cola Company,
United Technologies Corporation, and the
Walt Disney Company. Divisions are cre-
ated (or acquired) to serve a market and are
given operating control to make decisions
appropriate to meeting the needs of that
market. This could be a category of a mar-
ket. For instance, Chevrolet manufactures
automobiles in the mid-priced market cat-
egory ($25K to $40K sales price), whereas
Cadillac produces cars for the luxury mar-
ket category ($35K to $70K sales price). Both
auto makers are generally autonomous divi-
sions of General Motors.

Among the many weaknesses of the divisional structure are the duplication of activities and
the potential for counterproductive inter-market competition for customers. This form is not
only inefficient but can limit opportunities for cooperation across market segments and waste
resources. It was a significant factor leading to GM’s 2009 bankruptcy reorganization and fed-
eral government bailout. Now reorganized with fewer divisions and dealers, GM may be able to
rebuild its business and value.

When should the form of divisional structure be used? Typically this structure is most effec-
tive when the organization selects the diversification strategy; that is, when the organization
decides to become a multi-market or multiproduct operation. An important consideration is that
the organization’s technology must be divisible without causing significant deterioration of the
economies of scale it had gained as a machine bureaucracy.

Adhocracy

Most people working in an organization have experienced a project team, task force, or a cross-
functional team. When you participated, you were part of an adhocracy. Adhocracies are organic
and dynamic in nature and have limited formalization and standardization; they also tend toward
decentralized decision making. Little is routine in an adhocracy. Adhocracies last for the life of
a project and are disbanded afterward. Adhocracies are largely populated by professionals with
high levels of skills and abilities to contribute to the completion of the project. Adhocracies are
flexible and adaptable, and that is why they exist at all.

A commercial building construction project is an example of an adhocracy. A project manager
takes the plans from the building’s architect and assembles a project team that includes internal
(assistant superintendent, construction site managers, etc.) and external members (the trades
appropriate for the work required). The work begins once a calendar is created and contracts
are established. It continues in a planned sequence until all work is complete, final inspection
is made, and the building is handed over to the owner-user. The project ends, and all its team
members move on to other projects. They may team up for a future project, or they may never
see each other again.

Associated Press

▲▲ General Motors is an example of a company that uses a
divisional structure.

Structural Configurations Chapter 3

A weakness of the adhocracy structure is the stresses it can place on participants during the life
of the project. There are limited boundaries and few vertical relationships (boss–subordinate) to
mitigate tensions. Many participants have difficulty working in temporary work environments,
which are subject to rapid change, or dealing with ambiguity. As a result, adhocracy structures
are difficult to establish and to dismantle once they are operating.

Typically, the adhocracy structure is most effective when used for developing nonroutine solu-
tions and projects, and where flexibility is required. This structure works best when solutions or
projects have a short life cycle and high levels of professionalism are resident or available. Table
3.5 summarizes the five organizational configurations.

Table 3.5 Summary of the five organizational configurations

Characteristic

Simple
structure

Machine
bureaucracy

Professional
bureaucracy

Divisional
structure

Adhocracy

Specialization Low High functional High social High functional High social

Formalization Low High Low High within
divisions

Low

Centralization High High Low Limited Low

Environment Simple and
dynamic

Simple and
stable

Complex and
stable

Simple and
stable

Complex and
dynamic

General Structural
Classification

Organic Mechanistic Mechanistic Mechanistic Organic

Source: Summary of the Five Organizational Configurations, from Robbins, S. P. (1990). Organization theory: Structure, design, and applications, p. 305.
Upper Saddle River, NJ: Prentice Hall.

The Importance of Organizational Goals in Structural Design

Organizations exist for a purpose. The purpose of the organization, or the plan, also influences
the structure of the organization. The purpose of a small shop operator located on Main Street in
your hometown likely will be to meet small capital financing needs, design an informal mission,
and employ less than 25 employees who report directly to the owner. The planning process of this
small shop focuses on the needs of its community by maintaining inventory, appropriate capital
availability, and a sensitivity to the community’s standards. At the other end of the spectrum is a
multiunit retail operator with 100,000-square-foot, large-scale retail stores located in and across
several states or the entire nation. A company of this kind may have 10,000 employees, high capi-
tal demands, a well-defined mission statement, and sophisticated marketing needs. It likely has
a long-range strategic plan, complex operational plans, and several levels of management, each
with very specific performance expectations.

Organizational design considerations remain largely the same for profit-seeking and nonprofit
organizations. Both seek to create organizations that are both efficient and effective. As noted
in Chapter 1, an efficient organization delivers services in a timely fashion with few wasted
resources or wasted time. An effective organization provides products and services that best
meet customer needs or the needs of the overall community. Those involved in the organiz-
ing process seek to match the structure with the type of organizational involved and its goals.
Four common goals in the area of organizational design that help achieve efficiency and effec-
tiveness are

Structural Configurations Chapter 3

1. Managing complexity
2. Differentiation and integration
3. Managing interdependence
4. Creating and overseeing boundary-spanning activities

Managing Complexity
Organizational complexity is a term used to describe the number of diverse and autonomous
but interrelated organizational components or parts. The definition specifies that complexity
increases in relation to the number and types of interrelationships between individuals, to the
effects of these relationships on the organization, and to the organization’s relationships with
entities in the external environment (Hage & Aiken, 1970). In essence, complexity means “com-
plicated.” Such complications abound in many businesses. Organizational design assists man-
agers who deal with substantial degrees of complexity by developing the right kinds of units
(departments) to respond to each need and then creating managerial programs and protocols to
oversee and coordinate the activities of all units.

Differentiation and Integration
Lawrence and Lorsch (1967) introduced the concepts of differentiation and integration to the
study of organizational structure. Differentiation acknowledges that various elements of an orga-
nization provide unique specialties and activities. For example, a health care organization of any
size has differentiation. Various types of physicians (surgeons, neurologists, ophthalmologists,
internists), nurses, insurance experts, and many others deliver diverse forms of health care and
support service activities. Effective organizations recognize and accommodate such differences
through the type of structure in place and the use of managerial actions and directives within
each specialized department. Some structures are mechanistic and/or centralized in nature while
others are organic and decentralized, based on the type of unit involved.

Integration recognizes that these unique and specialized organizational units must also work in
harmony with each other to benefit the overall well-being of the total institution. Increasing dif-
ferentiation can spawn greater antagonism among individual units, as Stan Richards noted in the
“Management in Practice” box featuring The Richards Group. Effective organizations find ways
to improve relations among the departments involved.

Perhaps the best analogy for differentiation and integration is that of an orchestra. The instru-
ments are highly unique from each other (differentiation). The conductor’s role is to make sure
each instrumental section performs the music in a well-coordinated fashion, beginning and end-
ing its part at the right time, at the appropriate volume, and in tune with the rest of the orchestra
(integration). Effective organizational design helps achieve these goals.

Managing Interdependence
Many industries and companies experience high levels of interdependence, where various units
rely on each other to operate. Interdependence increases as tasks become more interconnected;
when the level of uncertainty rises; when units must share resources; and as the size of the orga-
nization grows.

Structural design can assist in making sure that lines of authority and responsibility are such
that units are able to work in a coordinated fashion. In the case of sequential interdependence,
where one person or group’s endpoint becomes the next person or group’s beginning, work flows
are established so that bottlenecks do not occur. Sequential interdependence occurs on assembly

Summary Chapter 3

lines but also in other situations, such as when salespeople file their monthly reports with the
accounting office to finalize income summaries and other statements.

In the situation where the goal is reciprocal interdependence, the model assumes a “back and
forth” form. Reciprocal interdependence occurs when physicians exchange ideas with each other
about how to treat a patient, including how to handle multiple injuries in an emergency care
situation, and organizational design facilitates these interactions. Pooled interdependence occurs
when units work near each other but rarely interact. Some companies operate using a series of
stand-alone units. In those organizations, another goal of organizational design can be to accom-
modate interdependent relationships (Thompson, 1967).

Creating and Overseeing Boundary Spanning
Boundary spanning occurs when a person or group goes beyond an internal or external boundary
to interact with those in a separate internal or external unit. When a negotiator on behalf of the
manufacturing company bargains with a union, the mediator working to coordinate the bargain-
ing session becomes a boundary spanner. A manager who coordinates the efforts of a company’s
marketing and sales department by assigning employees to appear in commercials is serving as a
boundary spanner. The individual who makes the case for donations to a nonprofit organization
to outside individuals and organizations becomes an external boundary spanner. An accountant
or attorney negotiating with the federal government over a tax filing becomes a boundary span-
ner (Thompson, 1967).

Organizational design prescribes both internal and external boundaries. Authority and responsi-
bility relationships help oversee boundary-spanning activities. Institutions with effective internal
and external mediators and mediating processes are more likely to succeed over time, making
this a key goal in the area of organizational design. Mediation of this type allows internal units to
function more effectively with one another. Mediation with external organizations and the public
helps protect the organization from various types of threats present in the environment, such as
tax audits or surprise price increases by suppliers.

Summary
Organizational structure is a formal system of task and reporting relationships that coordi-
nates the activities of employees so that they can work together to achieve organizational goals.
Organizational design is the process by which managers make specific organizing choices that
result in a particular kind of structure for the company. Organizational design involves numer-
ous activities that include designing jobs, departmentalizing decisions, completing the company’s
structure, and outlining the best structural configuration.

Job design is the process of assigning tasks to jobs. It begins with job analysis, which results in
the assignment of individual tasks to specific jobs. Then, a job description outlining the tasks and
duties can be created. Finally, a job specification identifies the eligibility requirements or quali-
fications needed to perform a job. Departmentalization is an organizational tool that involves
placing various jobs into different departments or divisions. The primary forms of departmen-
talization include those by function, product, customer, geographic region, or strategic business
unit, as well as by the matrix approach. Managers select the form of departmentalization that
best matches each company’s unique operating needs.

An organization’s structure is complete when lines of authority and responsibility have been iden-
tified. Authority consists of the right to direct activities and permission to act or make decisions.

Summary Chapter 3

Responsibility is the obligation to complete tasks as assigned by reporting to a specific supervisor.
Parity of authority and responsibility means that equal levels of both are placed in each job or
position in the organization.

Managers then conduct organizational operations by featuring centralization, decentralization,
specialization, formalization, and degrees of mechanistic or organic flexibility. Each structure
matches the specific circumstances of the company involved. When a crisis arises, one natu-
ral response is to create additional structure or a new department designed to defend against
the threat.

Structural configurations related to various business enterprises include a simple structure,
machine bureaucracy, professional bureaucracy, divisional structure, or adhocracy. Each form
facilitates the operation of a specific type of enterprise. Organizational goal-setting processes
lead to the most efficient and effective forms of organizational decision.

C A S E S T U D Y

The New Venture

Monica Kellogg was about to embark on a new and exciting aspect of her entrepreneurial venture.
She began her career as a salesperson vending basic insurance products to individuals. Eventually
she was able to open her own office, catering to individual consumers seeking life insurance, health
insurance, car/vehicle/boat insurance, and other basic insurance services. She employed three office
workers to assist in filing claims and taking care of additional responsibilities, including changes in
policies when her clients married, divorced, bought new cars, moved, disputed payments on claims,
and so forth.

Now, however, her insurance provider offered Monica the opportunity to increase her business. She
could expand her clientele to include business customers. The new sets of products would include
liability insurance of all types (including for health care providers), health insurance policies for entire
companies rather than individual purchasers, fleet insurance for vehicles, and other major insurance
policies tailored to businesses.

To meet the needs of this new level of service, Monica hired an insurance sales professional to
tend to all of her individual clients. She also hired an “office manager” to supervise that portion
of her business. She would be traveling across the state and in two adjoining states to make sales
presentations to small businesses and a few larger corporations. She decided to hire an additional
employee to focus entirely on corporate rather than individual client needs.

To begin the process, Monica and her assistant traveled to the insurance company’s home office for
a monthlong training session. The primary instructor noted, “You folks are now in an entirely dif-
ferent kind of insurance business. Meeting the needs of a major company is different from serving
individual members of the public. You will require more sophisticated sales skills, negotiation skills,
and increased knowledge of the ways insurance packages differ from products sold to John Q.
Public.” Monica was excited by the challenge.

Besides hiring three new, more specialized employees, Monica purchased additional office space to
house the ongoing and new parts of her operation. She dedicated half the space to individual cus-
tomers and the other to business clients. A wall would separate the two operations to grant both
privacy and some level of noise control, especially for those who conducted business by telephone.

(continued)

Key Terms Chapter 3

Key Terms
adhocracy Organizations that are organic and dynamic in nature and have limited formaliza-
tion and standardization; they also tend toward decentralized decision making.

authority The right to direct with permission to act.

centralization/decentralization The degree of delegation of decision making, authority, and
power within an organization.

departmentalization The organizing of people into different departments or divisions in
which collections of tasks are placed together, such as accounting, marketing, and production.

divisional structure An organizational structure featuring a set of autonomous units, each
typically a machine bureaucracy unto itself, coordinated by a central headquarters.

formalization The presence of rules and procedures.

job A set or series of tasks performed by an individual on behalf of an organization.

job design What occurs when managers determine the tasks needed to be done, who will do
them, and what selection criteria will be used to choose employees and place them on the job.

machine bureaucracy A form of organizational structure featuring highly routine operating
tasks typically grouped together into functional departments with high formalization, central
authority, and the decision making that flows through a chain of command.

mechanistic organization An organizational structure characterized by high use of rules and
procedures, a greater number of levels in the organization, and formal relationships between
workers; as a result, it is a less flexible method of operation.

mechanization/computerization A measure of the reliance on computers and technology to
maintain operations.

organic structure An organizational structure that employs few rules and procedures, has a
small number of organizational levels and ranks, allows for informal relationships among work-
ers and supervisors, and is much more flexible and adaptable as a result.

After two months, it was time to begin the new venture. Monica worried about maintaining control
over her newly expanded operation. She also knew that happy customers represented the key to a
successful future. While the scope of the business had changed, it still boiled down to one-on-one
relationships with every customer.

Discussion Questions

1. What type of approach should Monica use as part of the job analysis component of creating
these new positions in her company?

2. In terms of departmentalization, should her company move away from a functional approach to
some other type? If so, what type?

3. What should happen to the degree of decentralization in the insurance office?
4. What role does increasing complexity play in the organizational structure to be featured in this

newly expanded operation? Explain your answer.

Critical Thinking Chapter 3

organizational design The process by which managers make specific organizing choices that
result in the particular kind of organizational structure they will use.

organizational structure A formal system of task and reporting relationships that coordinates
the activities of members so that they work together to achieve organizational goals.

professional bureaucracy An organizational structure in which professionals self-impose
standardization and formalization, often in compliance with governing bodies.

responsibility (or accountability) The obligation to complete tasks as assigned by an employ-
ee’s immediate supervisor.

simple structure An organizational structure dominated by a strategic apex but having little
formalization or complexity; almost everyone reports directly to the owner of the business, and
the organization chart is flat because there are few, if any, reporting layers.

standardization The use of a series of job titles that are exactly the same, and the assignment
of workers to perform the same activities.

task An action or activity performed by an employee as part of his or her job.

Critical Thinking
Review Questions

1. Define organizing, organizational structure, and organizational design.
2. What is a job?
3. What are the three steps of job design?
4. Define departmentalization, and name the six major forms.
5. What types of companies match with each of these forms of departmentalization?

a. function
b. product
c. customer
d. geographic area
e. matrix

6. Define authority and responsibility.
7. Define centralization/decentralization, standardization, formalization, and mechanization/

computerization.
8. Define mechanistic and organic forms of structure.
9. What four characteristics apply to most organizations, according to Max Weber?

10. What kinds of companies should employ the simple form of organizational structure?
11. What kinds of companies should use the machine bureaucracy structure?
12. What kinds of organizations should feature a professional bureaucracy structure?
13. What kinds of firms should use the divisional form of structure?

Critical Thinking Chapter 3

14. What types of organizations are best suited to the adhocracy form of structure?
15. What are some common goals of the organizational design processes?

Analytical Exercises

1. An organization’s structure has been likened to the skeleton of the body. To continue that
analogy, what part is the company’s mission? What parts are individual jobs? What parts are
the departments?

2. Briefly describe how a company such as FedEx or UPS could use the time-and-motion study
process in conducting its operations in each of these areas:
• receiving packages for delivery at designated stores
• sorting packages
• making deliveries to individual customers and businesses

3. Create job specifications for the following positions:
• laborer at Burger King
• heavy equipment operator for a construction company
• salesperson for tractors and farm equipment
• information technology specialist to be a web master

4. Which form of departmentalization is the best match for the following companies? Explain
your answer.
• local dry cleaner
• T.G.I. Friday’s
• Greyhound Bus Lines
• GEICO Insurance
• Ford Motor Company International

5. Marjorie is the chief accounting officer in her company. She has five junior accountants under
her supervision. She serves as head of the workplace safety committee in the firm. She has
expertise in the area of internal auditing, and lately the firm’s CEO has asked her numerous
questions about the firm’s most recent audit. What types of authority does Marjorie hold in her
current situation? Can you think of some ways that the forms of authority may conflict with
one another? Explain your answer.

6. Indicate which of the following personality characteristics would fit with a centralized and
mechanistic organization, and which would be a better match in a decentralized and organic
organization. Explain your choices.
• high need for autonomy
• high need for continuing performance feedback
• enjoys working with others
• enjoys problem solving
• prefers direction and role clarity

Critical Thinking Chapter 3

7. “Among the many weaknesses of the divisional structure are the duplication of activities and
potential for counterproductive inter-market competition for customers. This form is not
only inefficient but can limit opportunities for cooperation across market segments and waste
resources.” This statement applies to conglomerate organizations. Can you think of a structure
that is better suited to multiproduct, multiservice companies? Defend your answer.

8. Explain how the following structures somewhat match each other:
• functional structure with simple structure
• machine bureaucracy with centralized, mechanistic structure
• professional bureaucracy with decentralized, organic structure
• divisional structure with departmentalization by product

2/18/20, 7)21 PM

Page 1 of 2https://ashford.waypointoutcomes.com/assessment/23601/preview

Description:

Total Possible Score: 15.00

Distinguished – The paper is well organized with the introduction that provides sufficient background on the topic, thesis
statement, and the conclusion that is logical, smoothly flows from the body of the paper.

Proficient – The paper is organized with the introduction that provides background on the topic, thesis statement, and the
conclusion that is logical but not quite smooth.

Basic – The paper is organized with the introduction and the conclusion, but the introduction and/or the conclusion require
improvement.

Below Expectations – The paper is loosely organized with the introduction and the conclusion, and the introduction and/or
the conclusion require much improvement.

Non-Performance – The introduction and the conclusion are either nonexistent or lack the components described in the
assignment instructions.

Distinguished – Provides a comprehensive and expertly crafted explanation of the chosen job design that identifies the
standard approach to job design: (a) job analysis, (b) job description and (c) job specification.

Proficient – Provides a complete job design. The work identifies the standard approach to job design: (a) job analysis, (b) job
description and (c) job specification. The job design is slightly underdeveloped.

Basic – Provides a limited job design. The work identifies some of the standard approach to job design: (a) job analysis, (b)
job description and (c) job specification. The job design is underdeveloped.

Below Expectations – Provides a poorly developed job design. The work includes a few if any of the standard approach to
job design: (a) job analysis, (b) job description and (c) job specification. The job design is significantly underdeveloped.

Non-Performance – The explanation of the chosen job design is either nonexistent or lacks the components described in the
assignment instructions.

Distinguished – Provides a comprehensive explanation of the chosen organizational design. Effectively applies course
concepts to this explanation.

Proficient – Provides an explanation of the chosen organizational design. Applies course concepts, but the organizational
design is slightly underdeveloped.

Basic – Provides limited explanation of the chosen organizational design. Somewhat applies course concepts. The
organizational design is underdeveloped.

Below Expectations – Provides a minimal explanation of the chosen organizational design. Does not apply course concepts.
The organizational design is significantly underdeveloped.

Non-Performance – The explanation of the chosen organizational design is either nonexistent or lacks the components
described in the assignment instructions.

Distinguished – Displays meticulous comprehension and organization of syntax and mechanics, such as spelling and
grammar. Written work contains no errors and is very easy to understand.

Proficient – Displays comprehension and organization of syntax and mechanics, such as spelling and grammar. Written
work contains only a few minor errors and is mostly easy to understand.

MGT330.W2A1.11.2017

Organization: Introduction, Thesis Statement, and Conclusion Total: 3.00

Explains the Chosen Job Design Total: 5.00

Explains the Chosen Organizational Design Total: 5.00

Written Communication: Control of Syntax and Mechanics Total: 0.50

2/18/20, 7)21 PM

Page 2 of 2https://ashford.waypointoutcomes.com/assessment/23601/preview

Basic – Displays basic comprehension of syntax and mechanics, such as spelling and grammar. Written work contains a few
errors which may slightly distract the reader.

Below Expectations – Fails to display basic comprehension of syntax or mechanics, such as spelling and grammar. Written
work contains major errors which distract the reader.

Non-Performance – The assignment is either nonexistent or lacks the components described in the instructions.

Distinguished – Accurately uses APA formatting consistently throughout the paper, title page, and reference page.

Proficient – Exhibits APA formatting throughout the paper. However, layout contains a few minor errors.

Basic – Exhibits limited knowledge of APA formatting throughout the paper. However, layout does not meet all APA
requirements.

Below Expectations – Fails to exhibit basic knowledge of APA formatting. There are frequent errors, making the layout
difficult to distinguish as APA.

Non-Performance – The assignment is either nonexistent or lacks the components described in the instructions.

Distinguished – The length of the paper is equivalent to the required number of correctly formatted pages.

Proficient – The length of the paper is nearly equivalent to the required number of correctly formatted pages.

Basic – The length of the paper is equivalent to at least three quarters of the required number of correctly formatted pages.

Below Expectations – The length of the paper is equivalent to at least one half of the required number of correctly formatted
pages.

Non-Performance – The assignment is either nonexistent or lacks the components described in the instructions.

Distinguished – Uses more than the required number of scholarly sources, providing compelling evidence to support ideas.
All sources on the reference page are used and cited correctly within the body of the assignment.

Proficient – Uses the required number of scholarly sources to support ideas. All sources on the reference page are used and
cited correctly within the body of the assignment.

Basic – Uses less than the required number of sources to support ideas. Some sources may not be scholarly. Most sources
on the reference page are used within the body of the assignment. Citations may not be formatted correctly.

Below Expectations – Uses an inadequate number of sources that provide little or no support for ideas. Sources used may
not be scholarly. Most sources on the reference page are not used within the body of the assignment. Citations are not
formatted correctly.

Non-Performance – The assignment is either nonexistent or lacks the components described in the instructions.

Written Communication: APA Formatting Total: 0.50

Written Communication: Page Requirement Total: 0.50

Written Communication: Resource Requirement Total: 0.50

Powered by

Scholarly, Peer-Reviewed, and Other Credible Sources

Source type What is it? Examples Best used for

Scholarly A source written by scholars or academics in a
field. The purpose of many scholarly sources
is to report on original research or
experimentation in order to make such
information available to the rest of the
scholarly community. The audience for
scholarly sources is other scholars or experts
in a field. Scholarly sources include
references and usually use language that is
technical or at a high reading level.

*Note: Different databases may define
“scholarly” in slightly different ways, and thus
a source that is considered “scholarly” in one
database may not be considered “scholarly”
in another database. The final decision about
the appropriateness of a given source for a
particular assignment is left to the instructor.

Scholarly Journals

• Journal of Management Information
Systems

• American Journal of Public Health
• Early Childhood Research Quarterly

Scholarly Books (published by a university
press or other high-quality publisher)

• Shari’a Politics: Islamic Law and
Society in the Modern World

• The Grand Design: Strategy and the
U.S. Civil War

• The Hidden Mechanics of Exercise:
Molecules That Move Us

Journal articles:

• Recent research on a topic
• Very specific topics or narrow

fields of research
• NOT good for an introduction to

or broad overview of a topic

Books:

• In-depth information and research
on a topic

• Putting a topic into context
• Historical information on a topic

Peer Reviewed A publication that has gone through an
official editorial process that involves review
and approval by the author’s peers (experts
in the same subject area). Many (but not all)
scholarly publications are peer reviewed.

*Note: even though a journal is peer
reviewed, some types of articles within that
journal may not be peer reviewed. These
might include editorials or book reviews.

Refer to “Scholarly Journals” examples

Books go through a different editorial process
and are not usually considered to be “peer
reviewed”. However, they can still be
excellent scholarly sources.

Refer to “Scholarly Journals” description

**Note: some publications (such as some
trade journals) can be peer reviewed but not
scholarly. This is not common.

Credible A source that can be trusted to contain
accurate information that is backed up by
evidence or can be verified in other trusted
sources. Many types of sources can fall into
this category.

Refer to “Scholarly Journals” examples. Also:

• Newspapers
• Magazines
• Books
• Trade journals or publications

•

•
•
•
•

Basic/general/background
information about a topic
Current events
Local news
Statistical data
Information about specific

*Note: The final decision about the
appropriateness of a given source for a
particular assignment is left to the instructor.

• Government websites
• Websites from educational

institutions (like universities)
• Websites or other publications from

reputable organizations (like the
Mayo Clinic)

• Encyclopedias (general or subject)

Many websites could be considered credible.
The more information provided about the
source, the more likely they are to be
credible. Look for information about the
author and/or the organization, how recently
it was published, the intended audience, the
intended purpose, and whether there is
evidence of bias.

•
•
•
•

organizations or companies (look
at the organization’s or company’s
website, or look for articles in
newspapers or trade journals)
Government information
Information about popular culture
Opinions or commentaries
Topics of general interest

Ashford University Library, June 2015, CR 0130415