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Designing a Better Business Organization

Being a manager is one of the most difficult — and potentially one of the most rewarding — jobs that anyone can take on in an organization. A successful manager must continuously improve systems and processes to make them more efficient, more effective, and less costly. Because the environment of business is always changing — new employees, new technology, new sources of supply, new competitors — managers always have to be alert to the need of restructuring their organizations to keep them competitive in the marketplace.

As you work to design a better organization, be sure to consider the following factors.

Division of labor

The very first step in organizational design is assigning specific employees to specific jobs, called division of labor.

In a one-person organization — say, a home-based public relations agency — only one person completes all the jobs that need to be done. The business owner types the letters, answers the phone, places advertisements for her business, designs promotional materials for clients, writes press releases, schedules clients for media interviews and radio and television appearances, does the accounting, pays the bills, and even takes out the trash!

Once the owner of the public relations agency hires an employee, however, then she can make her operation more efficient through effective division of labor. The new hire can take on tasks that the owner is not so good at or that require a lot of work but don't generate revenues — perhaps typing letters and answering phones. This way, the owner can concentrate her efforts on the things that she is best at and that have a better cash return on the investment of her time.

In his book, Wealth of Nations, Adam Smith made a very clear case for the division of labor. As an example, he used the case of a pin-producing factory.

"One man draws out the wire, another straights it, a third cuts it, a fourth points it, a fifth grinds it at the top for receiving the head; to make the head requires two or three distinct operations; to put it on is a peculiar business, to whiten the pins is another; it is even a trade by itself to put them into the paper; and the important business of making a pin is, in this manner, divided into about eighteen distinct operations, which, in some manufactories, are all performed by distinct hands, though in others the same man will sometimes perform two or three of them."

According to Smith, through the division of labor, ten workers could produce approximately 48,000 pins a day, where a single person performing all these steps alone would be lucky to produce 20 pins in one day. Smith may have exaggerated his point just a bit, but it is essentially true: By assigning distinct, simplified tasks to individuals that are easily learned, productivity skyrockets.

When you assign a specific job to an employee, ensure that

  • The duties of the job are clear and the boundaries are well-defined.
  • The job is not too complex or too simple for the particular employee.
  • Employees are given the authority to execute their jobs without undue management interference.
  • The job is kept interesting by varying tasks, goals, and approaches.
  • Employees are well-trained to do their job.

Although the division of labor has a time-honored place in modern business, today's most successful organizations are going a step farther — they are cross-training employees in the jobs of their coworkers. Employees who know one another's jobs are much more flexible, and the organizations they work for can be much more responsive to changing market conditions or to the challenges of competitors — or simply to fill in for an absent worker. Also, cross-trained employees often have higher morale than employees who aren't cross-trained because the varied tasks make their jobs more interesting.

Departmentalization and cellular manufacturing

In traditional organizations, after managers hand out individual jobs to employees, the managers then determine whether any jobs can be grouped together into logical divisions. So, for example, the managers group every employee assigned a sales-oriented task together with other sales-oriented employees to form a sales department. Employees who have an accounting function — whether payroll, accounts receivable, or accounts payable — are put together to form an accounting department. And so it goes throughout the organization.

This method, however, is the old way of doing business. In a major blow to departmentalization, a new method of structuring manufacturing concerns by using manufacturing cells has broken down the organizational walls that led to massive production inefficiencies. Cellular manufacturing consists of closely linking work steps in a specific process. For example, if 20 work steps are involved in completing a piece of work (work in this case means making a product in a plant, or processing paper in an office), linking places the people and the machines they use next to each other in a work cell. In a traditional manufacturing organization these 20 work steps would have been accomplished in different functional departments spread throughout the business — sometimes in different buildings, cities, states, or even countries.

Flexible work teams now comprise many functions within organizations, and some entrepreneurial-type businesses are not based on departments at all.

Span of control

Span of control refers to the number of employees reporting to a particular supervisor or manager. A narrow span of control consists of only a few employees; a wide span of control includes many employees.

One manager, Peter, once indirectly managed a staff of more than 200 employees working at some 45 locations nationwide. If each employee had reported directly to Peter, his task would have been almost impossible. But narrowing the span of control made Peter's job feasible. Only four employees reported directly to Peter — three project managers and an administrative assistant — and each of the project managers managed a group of ten or more site supervisors.

The tendency nowadays is to flatten organizations by widening the span of control and decreasing the layers of management (hierarchy), and by relying more on employee teams to take on many of the roles formerly performed only by managers. Why flatten an organization?

  • The flatter an organization, the fewer layers of management. Less management leads to less bureaucracy and quicker decision making.
  • The fewer layers of management, the more money available to spend on other, more productive activities (such as the company picnic — yum!).
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