For question 1, review Section 7.1d Centralization and Decentralization.1. Read the chapter introduction. Explain why organization must support strategy.2. Explain in your own words which organizational structure is best in which environment: Structure: centralized or decentralized. Environment: fast-paced, rapid, frequent change with high uncertainty or relatively stable, little to moderate change in customer needs and wants with high certainty.2. If you wanted to add a group of big data scientists to a large organization such as PepsiCo, would you centralize the scientists in a central bool at headquarters or decentralize them to separate divisions? Explain why with supporting argruments from the text.For questions 2 and 3, review Section 7.1b Chain of Command.2. What is the difference between accountability and responsibility?3. Delegation is key to leadership – why?4. Read Section 7.2b Divisional Approach. Describe a divisional approach to structure and provided two examples in general and then one example with a company. DO NOT USE examples provided in the book. When I say in general, use terms from the book.


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Chapter 7: Designing Organization Structure: 7.1b Chain of Command
Book Title: Understanding Management
Printed By: Mohammed Hubail (
© 2017 Cengage Learning, Cengage Learning
7.1b Chain of Command
The chain of command is an unbroken line of authority that links all employees in an
organization and shows who reports to whom. It is associated with two underlying principles.
Unity of command means that each employee is held accountable to only one supervisor.
The scalar principle refers to a clearly de?ned line of authority in the organization that
includes all employees. Authority and responsibility for different tasks should be distinct. All
individuals in the organization should know to whom they report, as well as the successive
management levels all the way to the top. For example, at Sony, the new CISO reports to
the CIO, who reports to the chief transformation of?cer, who in turn reports to the CEO.
In Exhibit 7.1, the payroll clerk reports to the chief accountant, who in turn reports to the vice
president, who in turn reports to the company president.
Authority, Responsibility, and Delegation
The chain of command illustrates the authority structure of the organization. Authority
(Authority is the formal and legitimate right of a manager to make decisions, issue orders,
and allocate resources to achieve organizationally desired outcomes.) is the formal and
legitimate right of a manager to make decisions, issue orders, and allocate resources to
achieve organizationally desired outcomes. Authority is distinguished by three
1. Authority is vested in organizational positions, not people. Managers have authority
because of the positions they hold, and other people in the same positions would
have the same authority.
2. Authority ?ows down the vertical hierarchy. Positions at the top of the hierarchy are
vested with more formal authority than are positions at the bottom.
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3. Authority is accepted by subordinates. Although authority ?ows from the top down,
subordinates comply because they believe that managers have a legitimate right to
issue orders. The acceptance theory of authority argues that a manager has authority
only if subordinates choose to accept his or her commands. If subordinates refuse to
obey because the order is outside their zone of acceptance, a manager’s authority
Responsibility is the ?ip side of the
authority coin. Responsibility
An organization’s structure is based on
(Responsibility is the ?ip side of the
authority. As a potential new manager, check
authority coin; it refers to the duty to
out your authority role models by completing
perform the task or activity that one has
the “New Manager Self-Test”.
been assigned.) is the duty to perform
the task or activity as assigned.
Typically, managers are assigned
authority commensurate with their responsibilities. When managers have responsibility for
task outcomes but little authority, the job is possible but dif?cult. They rely on persuasion
and luck. When managers have authority exceeding responsibility, they may become
tyrants, using authority to achieve frivolous outcomes.
Accountability is the mechanism through which authority and responsibility
are brought into alignment. Accountability (Accountability means that
people with authority and responsibility are subject to reporting and
justifying task outcomes to those above them in the chain of command.)
means that the people with authority and responsibility are subject to
reporting and justifying task outcomes to those above them in the chain of command.
For organizations to function well, everyone needs to know what they are accountable for
and accept the responsibility and authority for performing it. The British Broadcasting
Corporation (BBC) is undergoing structural changes to clarify its chain of command and
strengthen management accountability in the wake of a crisis that erupted after the BBC
decided not to air a news report about former BBC television personality Jimmy Savile being
accused of widespread sexual abuse of children. To make matters worse, the broadcaster
got into trouble again by airing a false report that accused a former senior political of?cial of
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similar offenses. The resulting scandal tarnished the image of the respected broadcaster
and left the executive of?ces of the BBC in turmoil. The director-general resigned after just
two months on the job, and two senior executives resigned under pressure while the
organization sorted out what went wrong. New director-general Tony Hall emphasized the
need to change the culture at the BBC, calling for “greater personal accountability” and a
simpler, clearer management structure. Many problems contributed to the crisis, but one
was a fuzzy chain of command without clear lines of authority for decision making. After the
Savile crisis, the editorial leadership was under extreme pressure, and there was confusion
over who had responsibility for the decision to run the story about the senior political of?cial,
for instance.
New Manager Self-Test
Authority Role Models
Instructions: Expectations about authority for a new manager are often based on
experiences with your ?rst authority ?gures and role models—Mom and Dad. To
understand your authority role models, please answer each of the following items as
Mostly True or Mostly False for you. Think about each statement as it applies to the
parent or parents who made primary decisions about raising you.
Mostly True
Mostly False
1. My parent(s) believed that children
should get their way in the family as
often as the parents do.
2. When a family policy was established,
my parent(s) discussed the reasoning
behind it with the children.
3. My parent(s) believed that it was for my
own good if I was made to conform to
what they thought was right.
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Mostly True
Mostly False
4. My parent(s) felt that the children
should make up our own minds about
what we wanted to do, even if they did
not agree with us.
5. My parent(s) directed my activities
through reasoning and discussion.
6. My parent(s) was clear about who was
the boss in the family.
7. My parent(s) allowed me to decide most
things for myself without a lot of
8. My parent(s) took the children’s
opinions into consideration when
making family decisions.
9. If I didn’t meet parental rules and
expectations, I could expect to be
Scoring and Interpretation: Each question pertains to one of three subscales of
parental authority. Questions 1, 4, and 7 re?ect permissive parental authority,
questions 2, 5, and 8 indicate ?exible authority, and questions 3, 6, and 9 indicate
authoritarian parental authority. The subscale for which you checked more items
Mostly True may reveal personal expectations from your early role models that
shape your comfort with authority as a new manager. Authoritarian expectations
typically would ?t in a traditional vertical structure with ?xed rules and a clear
hierarchy of authority (mechanistic organization characteristics). Flexible authority
expectations typically would ?t with horizontal organizing, such as managing teams,
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projects, and reengineering (organic organization characteristics). Because most
organizations thrive on structure, permissive expectations may be insuf?cient to
enforce accountability under any structure. How do you think your childhood role
models affect your authority expectations? Remember, this questionnaire is just a
guide because your current expectations about authority may not directly re?ect
your childhood experiences.
SOURCE: Adapted from John R. Buri, “Parental Authority Questionnaire,” Journal of Personality and
Social Assessment 57 (1991): 110–119.
Another important concept related to
authority is delegation.
is the process that managers use to
transfer authority and responsibility to
positions below them in the hierarchy.
Most organizations today encourage
managers to delegate authority to the
lowest possible level to provide
maximum ?exibility to meet customer
needs and adapt to shifts in the
environment. Consider how top
managers at revived the
company by pushing authority and
responsibility down to the front lines.
“I think the most dif?cult transition
for anybody from being a worker
bee to a manager is this issue of
delegation. What do you give up?
How can you have the team do what
you would do yourself without you
doing it?”
—Tachi Yamada, President of the Bill & Melinda
Gates Foundation’s Global Health Program
As illustrated by this example, delegating decision making to lower-level managers and
employees can be highly motivating and improve speed, ?exibility, and creativity. However,
many managers ?nd delegation dif?cult. When managers can’t delegate, they undermine
the role of their subordinates and prevent people from doing their jobs effectively.
Line and Staff Authority
An important distinction in many organizations is between line authority and staff authority,
re?ecting whether managers work in line departments or staff departments in the
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organization’s structure. Line departments perform tasks that re?ect the organization’s
primary goal and mission. In a software company, line departments make and sell the
product. In an Internet-based company, line departments would be those that develop and
manage online offerings and sales. Staff departments include all those that provide
specialized skills in support of line departments. Staff departments have an advisory
relationship with line departments and typically include marketing, labor relations, research,
accounting, and HR.
Spotlight on Skills is the company known for organizing Howard Dean’s presidential
campaign in 2004. As an organization that helps other people create organizations,
Meetup has been instrumental in setting up local groups for everything from protests
to gardening clubs. When went through a period of rapid expansion,
top executives implemented a command-and-control structure as a way to regulate
and monitor performance. The company even had a “review board” that worked with
managers to oversee what employees could and could not do. The trouble was,
“productivity went through the ?oor,” says chief technology of?cer Greg Whalin. One
day, a senior manager pulled CEO Scott Heiferman into a conference room and
showed him a list of complaints, including “We aren’t a creative company” and “I
hate the organization chart.”
Heiferman decided to go in the opposite direction and push authority and
responsibility down to his employees. Now, Meetup’s employees have almost total
freedom to select the projects they work on and how and when they accomplish
them. With the authority and responsibility for setting priorities and making
decisions, employee creativity soared. In addition, many people began working
harder than ever before. “We got more done in six weeks than in six months last
year,” said Heiferman.
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Green Power
A New Department
SAP created its ?rst-ever chief sustainability of?cer position in 2009, and Peter Graf,
formerly a computer scientist, leads a global team that oversees sustainability
initiatives. To change SAP, Graf and his team focused on the top of the hierarchy,
educating SAP’s board of directors as their ?rst target. Regular e-mails and
newsletters to board members de?ned terminology and answered questions (such
as “What does ‘offset’ mean with regard to sustainability?”). In addition, Graf and his
team reminded board members of incidents within SAP’s own corporate history,
such as the decision by a major German customer to stop ordering SAP software
because the company had no sustainability code of conduct.
By the time SAP’s board held its next of?cial meeting, members were fully engaged
in adopting sustainability policies, speaking with an informed, uni?ed voice as they
assisted the new department’s efforts to change the sustainability thinking of
employees, suppliers, and customers.
SOURCE: Michael S. Hopkins, “How SAP Made the Business Case for Sustainability,” MIT Sloan
Management Review 52, no. 1 (Fall 2010): 69–72.
Line authority (Line authority means that people in management positions have formal
authority to direct and control immediate subordinates.) means that people in management
positions have the formal authority to direct and control immediate subordinates. Staff
authority (Staff authority includes the right to advise, recommend, and counsel in the staff
specialists’ area of expertise. Staff authority is a communication relationship; staff
specialists advise managers in technical areas.) is narrower and includes the right to advise,
recommend, and counsel in the staff specialists’ area of expertise. Staff authority is a
communication relationship; staff specialists advise managers in technical areas. For
example, the ?nance department of a manufacturing ?rm would have staff authority to
coordinate with line departments about which accounting forms to use to facilitate
equipment purchases and standardize payroll services. BP has a new safety department,
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created in the wake of the BP-Transocean Deepwater Horizon oil rig explosion in the Gulf of
Mexico that killed 11 crew members and set off an environmental disaster, that advises
managers in line departments regarding risk management, agreements with contractors,
and other safety-related issues. Unlike many staff specialists, BP’s safety unit has broad
power to challenge line managers’ decisions if it considers them too risky.
To understand the importance of the chain of command and clear lines of
authority, responsibility, and delegation, consider the Deepwater Horizon
oil rig explosion. Activities were so loosely organized that no one seemed
to know who was in charge or what their level of authority and
responsibility was. When the explosion occurred, confusion reigned.
Twenty-three-year-old Andrea Fleytas issued a mayday (distress signal) over the radio
when she realized that no one else had done so, but she was chastised for overstepping
her authority. One manager said that he didn’t call for help because he wasn’t sure he had
authorization to do so. Still another said that he tried to call to shore but was told that the
order needed to come from someone else. Crew members knew that an emergency
shutdown needed to be triggered, but there was confusion over who had the authority to
give the OK. As ?re spread, several minutes passed before people got directions to
evacuate. Again, an alarmed Fleytas turned on the public address system and announced
that the crew was abandoning the rig. “The scene was very chaotic,” said worker Carlos
Ramos. “There was no chain of command. Nobody in charge.” In the aftermath of the
explosion and oil spill, several federal agencies were also on the hot seat because of loose
oversight and confusion over responsibility that led to delays and disagreements that
prolonged the suffering of local communities.
Chapter 7: Designing Organization Structure: 7.1b Chain of Command
Book Title: Understanding Management
Printed By: Mohammed Hubail (
© 2017 Cengage Learning, Cengage Learning
© 2020 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means – graphic, electronic, or mechanical, or in any other
manner – without the written permission of the copyright holder.
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Chapter 7: Designing Organization Structure: 7.2b Divisional Approach
Book Title: Understanding Management
Printed By: Mohammed Hubail (
© 2017 Cengage Learning, Cengage Learning
7.2b Divisional Approach
In contrast to the functional approach, in which people are grouped by common skills and
resources, the divisional structure occurs when departments are grouped together based
on similar organizational outputs. With a divisional structure, also called an M-form
(multidivisional) or a decentralized form, separate divisions can be organized with
responsibility for individual products, services, product groups, major projects or programs,
divisions, businesses, or pro?t centers.
The divisional structure is also sometimes
called a product structure, program structure, or self-contained unit structure. Each of these
terms means essentially the same thing: Diverse departments are brought together to
produce a single organizational output, whether it is a product, a program, or service to a
single customer.
Most large corporations have separate divisions that perform different tasks, use different
technologies, or serve different customers. When a huge organization produces products for
different markets, the divisional structure works because each division is an autonomous
business. For example, Google has seven product divisions, including YouTube, Chrome
and Apps, Android, Knowledge (search), Ad Products, Geo and Commerce, and Google+
(social networking).
Walmart uses three major divisions for Walmart Stores, Sam’s Club
(U.S.), and International Stores. Each of these three large divisions is further subdivided into
smaller geographical divisions to better serve customers in different regions.
How It Works
Functional and divisional structures are illustrated in Exhibit 7.4. In a divisional structure,
divisions are created as self-contained units, with separate functional departments for each
division. For example, in Exhibit 7.4, each functional department resource needed to
produce the product is assigned to each division. Whereas in a functional structure, all R&D
engineers are grouped together and work on all products, in a divisional structure, separate
R&D departments are created within each division. Each department is smaller and focuses
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on a single product line or customer segment. Departments are duplicated across product
Exhibit 7.4
Functional versus Divisional Structures
The primary difference between divisional and functional structures is that in a divisional
structure, the chain of command from each f …
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