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How do organizations form? What is the role of people within an organization? And why is organizational structure an important consideration for an organization's success? First, consider what an organization is: an organized body of people who have a particular purpose, such as to form a business, a society, or an association. The structure or arrangement of components within an organization helps serve its mission and channels the behavior of its members. In today’s dynamic business environment, organizational structures need to be designed so the organization can quickly respond to new competitive threats and changing customer needs. Future success for companies will depend on their ability to be flexible and respond to the needs of customers. 1 An organization’s structure is essentially an end in itself, a goal or purpose for its own sake, as it forms the framework for an organization. Yet it also serves the higher purpose, mission, or goals of the organization. Some of the primary factors that influence and direct organizational structure, along with the roles they serve, include the following:  Functions or departments: The functions and departments in an organization serve to define the division of work along task-oriented lines. For example, a large organization produces a significant quantity of one line of goods, such as a brand of clothing, and wants to do so quickly and economically.  Chain of command: The hierarchy of the chain of command provides a system of control and decision-making. For example, an organization might have a president or CEO, followed by tiers of management from top to middle to line managers. Following this tier would be staff members and employees.  Centralized or decentralized: The source of major decision-making may be centralized or decentralized. For example, in centralized organizations, decisions will more likely come from the top, known as the C-level or C-suite. The "C" stands for "chief," such as in the titles chief executive officer (CEO) and chief financial officer (CFO). In decentralized organizations, respective department managers and other corporate personnel typically possess the autonomy or authority to make decisions (Doyle, 2019; Vitez, 2019).  Level of formality: The level of formality relates to how procedures, rules, and guidelines are implemented, the behavioral norms and expectations, and how the level of formality influences and facilitates the overall culture. For example, is everyone called by their first name, from the president on down, or does everyone recognize and use professional titles? In this module, you will meet chief officers and other key members of the Pruhart Tech organization and learn about the ways that their highly centralized functional organizational structure affects the business. Four of the most common organizational structures include functional or departmental, divisional, matrix, and teams: Functional or departmental : This structure is based on the primary functions performed within an organizational unit or department, such as marketing, finance, production, sales, customer service, and so on. 2 Divisional: This structure typically groups each organizational function into a division, such as by product division (for example, specific health products or a specific make and model of vehicles) or geographical division (such as northeast or southeast and North America or South America). 3 Matrix: This structure often combines two different departments from complementary functional areas, such as manufacturing and marketing, specifically to work on a special project. 4 Teams: This structure is a newer type of organizational structure that includes a group of workers, with complementary skills, all working toward a common goal such as a specific project. 3

Some organizations also use a hybrid method that incorporates components of two or more of these structures. Most common in this category is the matrix structure, which often combines divisional and teams structural features. In this module, you will also read an overview of six organizational theories and learn how they relate to those four organizational structures:  Scientific management: Theory that analyzes work flows to improve efficiency, especially labor productivity dominant in manufacturing industries 5  Bureaucratic: Theory that focuses on creating rules and regulations to simplify complex procedures in societies and workplaces 5  Administrative: Theory that focuses on efficiency through management training and behavioral characteristics with the goal of improving workplace productivity 5  Neoclassical: Theory, also known as human relations theory, that emphasizes differences among people and social interactions with a goal of developing stronger relationships among coworkers (Wright, n.d.)  Modern: Theory that espouses the belief that changing one variable impacts many other variables, so adjusting and adapting to changes in the environment is essential to maintain equilibrium (Wright, n.d.)  Contingency or situational: Theory, also known as decision theory, that emphasizes managers must have the ability to make adjustments and to adapt how they manage their organizations contingent upon changing environmental conditions (Wright, n.d.) Finally, you will explore some real-world examples of the four common organizational structures. Learning Objectives  Identify the primary factors that influence an organizational structure and their roles. Lesson Introduction An organization is an organized body of people who have a particular purpose, such as to form a business, a society, or an association. It is a system with many moving parts, often defined by function and grouped into departments. The structure, or arrangement of components within an organization, helps serve and fulfill its mission and channels the behavior of its members. An organization's structure is essentially its own end goal, and many factors influence that structure. Every organization has some kind of underlying structure. Formal organizations have well-defined lines of authority, channels for information flow, and means of control. Human, material, financial, and information resources are deliberately connected to form the business organization. Typically, organizations base their frameworks on traditional, contemporary, or team-based approaches. Traditional structures are more rigid and group employees by function, products, processes, customers, or regions. Contemporary and team- based structures are more flexible and assemble employees to respond quickly to dynamic business environments. Regardless of the structural framework a company chooses to implement, all managers must first consider what kind of work needs to be done within the organization. 1 In this lesson, you will learn about the roles these primary factors fulfill as they influence and direct organizational structure:  Functions and departments help define the division of work along functional or task-oriented lines as well as departmental (Davoren, n.d.).  Chain of command facilitates and establishes procedures for control, decision- making, and the hierarchy of reporting relationships (Heathfield, 2018).  Centralized or decentralized defines the source of decision-making. In centralized organizations, decisions typically come down from a top-level executive, such as the CEO. In decentralized organizations, tiered levels of managers and other corporate personnel typically are authorized in decision-making (Doyle, 2019).

 Level of formality contributes to creating and implementing procedures, rules, and guidelines, as well as influencing or shaping the overall culture. For instance, in an informal team environment, everyone might use first names, from the president on down. In a formal functional environment, however, everyone might recognize and use professional titles (Quain, 2019). In this lesson, you will meet Dr. Mei Nora Yoshida, the CEO of the Pruhart Tech organization, along with one of her other chief officers and some team members. Functions and Departments Functions are attributed to the various roles or positions people fill, from management to employees. The employees are grouped by their functional skills into departments, which are then led by functional, departmental, or project managers (Davoren, n.d.). Functions and departments within an organizational structure include distinct advantages and disadvantages: Advantages  Grouping employees by function, knowledge, and skill levels inspires higher levels of productivity and performance.  Establishing fixed roles and responsibilities facilitates greater levels of accountability and security.  Reporting to one manager or supervisor streamlines overall communications.  Cooperating and communicating within the department maintains a higher level of clarity.  Working in one department does not preclude employees from pursuing career growth into another department. Disadvantages  Boredom may result if employees feel their roles are monotonous or repetitive.  Feelings of low morale and conflicts may arise if performance reviews or appraisals are not handled fairly.  Paying more to highly skilled employees increases costs for the department.  Communicating between departments is weak and problematic for coordination, flexibility, innovation, and teamwork.  Adapting to change may be difficult due to the rigidity of the structure.  Making decisions may result in delays and is usually done without consulting with team members. Managing functional departments can cause challenges for management as the departments become larger and focus on their own department goals rather than on organizational goals (Usmani, 2019). Chain of Command The chain of command is a factor within an organizational structure that establishes procedures regarding control and decision-making. The chain of command typically refers to the reporting hierarchy within the organization. It ensures all employees know where they are on the organizational chart and how they can contact those above them about concerns or ideas (Heathfield, 2018). Hierarchy of authority is essentially the chain of command—a control mechanism for making sure the right people do the right things at the right time. While there are a wide variety of organizational structures (some with more centralization of authority than others), hierarchy in decision-making is a critical factor for success. Knowing who will make decisions under which circumstances enables organizations to be agile while ambiguity of authority can often slow the decision-making process.

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Authority enables organizations to set directions and select strategies, which can in turn enable a common purpose. 1 Command and control within the traditional chain of command are clearly defined. They begin at the top with the uppermost management, such as the CEO or president of an organization, and flows downward through management to staff and employees (Heathfield, 2018). The chain-of-command factor can be applied or designed differently depending on the needs of an organization. Each design choice, such as a more traditional or rigid chain of command, has its own distinct advantages and disadvantages when applied to an organization's structure. Advantages  It clearly defines the reporting relationships to let everyone know who is responsible for different tasks, including providing information and direction, and who has authority and responsibility to assign tasks.  Only one boss or manager oversees and bears responsibility and accountability for his or her own group of employees.  Confusion is alleviated over who to approach for any type of assistance, resources, or feedback.  Job titles indicate who is responsible for various types of decisions and tasks within the organization. Disadvantages  Restricted decision-making and authority or autonomy by only those in top management tiers does not necessarily work well in today's more complex and multifaceted organizations.  New ways of communicating in intellectual and technical jobs often requires more rapid decision-making, which is impeded by following the traditional chain of command.  Readily available information from multiple sources to inform decisions and actions means a chain of command structure is not necessary or efficient.  Direct communication in a dynamic work environment is essential and requires greater flexibility and speed than in a chain-of-command structure.  Autonomy and the ability to respond quickly are necessary for response in a timely manner (Heathfield, 2018). Centralization or Decentralization The next set of factors that influence organizational structure is centralization or decentralization. This can affect or influence the decision-makers and the act of decision-making. However, the effect differs based on whether the organization is centralized or decentralized or on how highly centralized it is. High Centralization In centralized organizations, decisions are more likely to come from the top, which is known as the C-level or C-suite. The C stands for chief, such as in the following titles:  Chief executive officer (CEO)  Chief compliance officer (CCO)  Chief data officer (CDO)  Chief financial officer (CFO)  Chief information officer (CIO)  Chief knowledge officer (CKO)

 Chief marketing officer (CMO)  Chief operating officer (COO)  Chief technology officer (CTO) (Doyle, 2019) One advantage to being highly centralized within an organizational structure, depending on the degree of centralization, is efficiency due to the CEO and other chief officers making the decisions and setting objectives for managers and team members to follow. A disadvantage is primarily having too many levels of bureaucracy, which in turn often leads to lower productivity (Vitez, 2019). Low Centralization or Decentralization In a decentralized organizational structure, respective department managers and other corporate personnel typically possess the autonomy or authority to make decisions. Advantages to the decentralized structure in organizations are the use of a team environment and shared expertise among managers and team members. Disadvantages often include differences of opinion and difficulty in getting everyone to agree with the best decisions for the company (Vitez, 2019). If one or the other factor—centralization or decentralization—within the organizational structure is no longer working, it would be prudent to explore changing the influential factor and structure to better suit organizational goals (Vitez, 2019). Inside Pruhart Tech's Organizational Structure Pruhart Tech works under the functional organizational structure with a high degree of centralization. This means CEO Dr. Yoshida and her chief officers are the primary decision-makers while the majority of employees work on teams. Hannah recently began working at Pruhart Tech where she was assigned to the marketing and advertising department to work on one of two busy teams. Within the first month of her employment, she noticed the effect her team manager, Jack, has on the overall productivity of the team in comparison to Oliver, the other department team leader. Even though Jack has worked at the company longer, Oliver's approach to improving productivity and raising the overall efficiency while being more budget conscious is apparent. Each morning, Oliver's team gathers for a morning meeting. Each member receives necessary information, and one person takes notes to distribute to members of the middle management team and the executive team. Jack holds a team meeting in person each Monday morning. They discuss the week's strategies and other information. But for the rest of the week, all correspondences are addressed through email or telephone. There have been several pertinent breakdowns in communication where different team members were unclear about their responsibilities, but Jack was in meetings in other departments and could not be reached. Hannah has also noticed that Jack is not receptive to new ideas or employee input, whereas Oliver allots time during each daily meeting for employees to share their opinions on different company ideas. These ideas are recorded and submitted to multiple departments for review. By contrast, Jack speaks during the entire meeting. While employees are allowed to ask questions, Jack always says to email the top-level managers about their ideas. Hannah devised a plan that would save the company money by making better use of company resources at lower costs. However, when she emailed the idea, she never received a response. The idea got lost in the typical company bureaucracy. One morning before the team meeting, Hannah approached Jack with a new idea. Hannah: Good morning, sir. May I please have a moment of your time to discuss an idea I had for structure improvements that would enable the company to successfully expand? Jack: Thank you, Hannah. That sounds interesting. If we have time at the end of the meeting today, we will review your idea. Or you can just email our CFO, Alice Martin, instead. Hannah: I would be happy to email the information, sir, but I was really hoping to get all of the team's input on the idea before it is submitted higher up the management chain.

Jack: Well, I am sure it is a great idea, but I am not aware that the company is really looking to expand anytime soon. So I am not sure if they will be interested. But like I said, just email the CFO and see what she says. What do you think should be Hannah's next step? Is this functional structure working well for Pruhart Tech? You will learn more at check-ins throughout this module. Level of Formality The fourth factor that affects organizational structure is the level of formality, which addresses procedures, rules, and guidelines, and influences and directs the overall culture of the organization. Level of formality involves either formal or informal business elements or sometimes a combination of (or range between) both, depending on the needs of the organization. Formal If the level of formality is very formal within an organizational structure, there will likely be written documentation that provides standards and an organizational chart that visually depicts each management level and how it works. This is typically based on the hierarchal pyramid. The CEO and other chief officers and executive managers are at the top of the pyramid, followed by mid-level and low-level managers. Staff and other employees compose the base. Formality also extends to dress codes and the use of proper titles when addressing other people within the company. Advantages of being formal within an organizational structure include the following:  All roles and responsibilities are clearly delineated for every member of the organization, so there is no confusion about who does what.  The formal chain of command within the structure helps keep business operations and processes under control. An established protocol is in place for decision- making and the implementation of business instructions. Disadvantages of being formal within an organizational structure include the following:  Business decisions often take too long to move through levels of bureaucracy.  A disconnect often exists between departments, and between managers and employees. Informal If the level of formality is more informal within an organizational structure, the organization operates by an employee-developed system instead of using a written document of rules or a chain of command. This system is based on professional relationships among employees, along with communication and cooperation among teams. The informality typically extends to a business- casual dress code and the use of first names when addressing other people within the organization while still respecting titles and positions. Advantages of being informal within an organizational structure include the following:  It is easily adaptable to change.  Organizational shifts in response to external influences can happen quickly and efficiently. Disadvantages of being informal within an organizational structure include the following:  It can easily become too informal and cause disorganization, confusion, and misinterpretations of communications.  Employee decisions may lack input from management and turn out to be poor or wrong and not in the best interest of the organization (Quain, 2019). Lesson Summary Take a moment to reflect on the key points from this lesson. You learned about the primary factors that influence an organizational structure:

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 Functions or departments: These factors work together to define the division of work along task-oriented lines. For instance, workers with similar skill sets typically work in the same department, such as marketing or customer service.  Chain of command: This factor influences the control of and decision-making within an organizational structure. For instance, a hierarchy of authority establishes the reporting structure so each person knows who the immediate manager or supervisor is.  Centralized or decentralized: Whether an organizational structure is centralized or decentralized, it influences the decision-makers and their role in decision-making differently. For example, in centralized organizations, decisions will more likely come from the C-level, such as the CEO and CFO. In decentralized organizations, various department managers and other corporate personnel often have the authority to make decisions.  Level of formality: This factor helps establish and implement procedures, rules, and guidelines and influences the overall culture. For example, in an informal culture, all employees might use their first name when interacting, from the president on down. In a formal culture, all employees might recognize and use professional titles. You also met Dr. Mei Nora Yoshida, the CEO of the Pruhart Tech organization, and one of her chief officers and some team members. Learning Objectives  Describe features of each of the four organizational structures and how the structures are aligned with organizational theory. Lesson Introduction In this lesson, you will learn about four common organizational structures:  Functional structures typically organize similarly skilled workers into groups or departments to work together on the same project or goal.  Divisional structures typically organize by product lines or regions.  Matrix structures typically organize by combining people from different departments who have complementary strengths, such as production and marketing.  Teams structures typically organize people to cooperate on a mutually beneficial goal or project. Some organizations also choose a hybrid method and incorporate components of two or more of these structures to better suit their needs. For instance, the matrix structure often blends functional and divisional structures together. You will also learn about the following primary factors that influence organizational structures:  Functions and departments involve grouping people with similar skill sets into the same department, to work toward common goals.  The chain of command establishes a hierarchy of authority and a reporting structure within an organization.  A centralized organizational structure tends to be more formal and typically operates from the top level of management down through tiers of management and onto staff and employees. A decentralized organizational structure tends to be more informal and grants authority to middle management.  The level of formality within an organization can be formal or informal and establishes the rules and procedures, as well as influences the overall culture.

In this lesson, you will also read an overview of six organizational theories and learn how they align to the four organizational structures mentioned earlier. You will learn about differences between the following theories and read examples of each.  Scientific management theory is applicable to all organizational structures.  Bureaucratic theory applies to functional and divisional organizational structures.  Administrative theory applies to functional and divisional organizational structures.  Neoclassical theory applies to matrix and divisional organizational structures.  Modern theory applies to the matrix and teams organizational structures.  Contingency/situational theory focuses on ongoing interconnection between the operating environment and all organizational structures. You will also check in with Dr. Yoshida and some members of her organization to learn more about their structure and theoretical basis. Overview of Organizational Theories Organizational theory is simply the study of organizational structures with the intent to identify how they solve problems and how they maximize efficiency and productivity. Correctly applying organizational theory can have several benefits for both the organization and the society at large. As many organizations strive to integrate themselves into capitalistic societies, they initiate a ripple effect between other competing companies and already-existing economic pressures. Once an organization sees a window for expansion, it begins to grow by producing more and thus alters the economic equilibrium by catapulting itself forward into a new environment of production. This expansion induces changes not only in the organization’s infrastructure but also in competing organizations and the economy as a whole. Other organizations observe these innovative developments and recreate them efficiently. Developments in organizations help boost economic potential in a society and help generate the tools necessary to fuel its capitalistic system. 1 Classical Organizational Theories Scientific Management Theory Scientific management theory involves employee selection, training, and testing, which are crucial to all organizational structures (Wright, n.d.). This theory, which was first introduced by Frederick Winslow Taylor, focused on production efficiency and productivity of employees. By managing production efficiency as a science, Taylor thought that worker productivity could be completely controlled. He used the scientific method of measurement to create guidelines for the training and management of employees. This quantitative, efficiency-based approach is representative of the classical perspective. 1 Bureaucratic Theory Bureaucratic theory is tightly structured and predictable, with a significant amount of specialization and a rigid organizational chart. This theory applies to functional and divisional organizational structures (Wright, n.d.). Max Weber created this theory to focus on the theme of rationalization, rules, and expertise for an organization as a whole. Weber’s theory also focuses on efficiency and clear roles in an organization, meaning that management in organizations should run as effectively as possible with as little bureaucracy as possible. Weber’s theory also promotes the idea that there should be as few managerial levels as possible between management and employees. 1 Administrative Theory Administrative theory is based on a strong chain of command and distinguishes between service lines and staff. This theory applies to functional and divisional organizational structures (Wright, n.d.).

Henri Fayol focused on the efficiency of workers, but he looked at it from a managerial perspective, focusing on improving management efficiency rather than on improving each individual employee’s efficiency. Fayol’s theory focuses on the following five elements of management: 1. Planning: Managers should draft strategies and objectives to determine the stages of the plan and the technology necessary to implement it. 2. Organizing: Managers must organize and provide the resources necessary to execute the plan, including raw materials, tools, capital, and human resources. 3. Command (delegation): Managers must utilize authority and gain a thorough understanding of long-term goals to delegate tasks and make decisions for the betterment of the organization. 4. Coordination: High-level managers must work to integrate all activities to facilitate organizational success. Communication is key to success in this component. 5. Monitoring: Managers must compare the activities of the personnel to the plan of action; this is the evaluation component of management. 1 Neoclassical Theory Neoclassical theory, also known as human relations theory, focuses on workers and is less mechanistic than the classical approach. Key principles of neoclassical or human relations theory include the following:  Emphasis on the differences in people and the subsequent opportunity to create different and effective motivators  Resolution of creative conflict, which in turn helps with new idea development and strengthens working relationships  Focus on social interactions, management participation, and mutual decision- making This theory is most applicable to matrix and divisional organizational structures (Wright, n.d.). Modern Theory Modern theory is also known as modern systems theory because it is based on systems thinking and is socio- technical in nature. Each system impacts the next, especially when changes occur. This is also known as dynamic equilibrium because it is adaptive in nature as environmental changes occur. This theory applies to the matrix and teams organizational structures (Wright, n.d.). Contingency/Situational Theory Contingency/situational theory or situational contingency theory, also known as decision theory, focuses on ongoing interconnection between the operating environment (which includes social, political, legal, technical, and economic) and all organizational structures. This theory promotes the concepts of rationality and linear adaptation to environmental changes, particularly by management. All managers, regardless of level or department, must have decision-making authority and autonomy dependent on current conditions. This theory is applicable to all organizational structures (Wright, n.d.). In the next few sections, you will learn more about the four organizational structures and see which theories apply to each one. Functional Organizational Structure and Its Related Theories The functional organizational structure groups each part of an organization according to its function or purpose. This type of organization includes various departments, such as marketing, production, or sales. Each department includes employees who have those relevant skill sets (Writing, 2019). Coordinating effort involves working together in a way that maximizes resources. The common purpose is achieved through the coordinated effort of all individuals and groups within an organization. The broader group’s diverse skill sets and personalities must be leveraged in a way that adds value. The act of coordinating organizational effort is perhaps the most important responsibility of managers because it motivates and distributes human resources to capture value. 1

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While an advantage of the functional structure is its reliance on employees who have those skills, a disadvantage is restricted communication and coordination between departments (Writing, 2019). An example of a company using a functional organizational structure is FedEx. Each function within its department—such as HR, finance, and marketing—is managed from the top-down via functional head executives, beginning with the CEO and other chief officers. 2 You will learn more about how FedEx operates in the next lesson. Related theories underlying the functional organizational structure include the following:  Scientific management theory: Applicable to this structure because of its focus on production efficiency and employee productivity 1  Bureaucratic theory: Applicable to this structure because of its emphasis on efficiency and clear roles to help organizations run as smoothly and effectively as possible 1  Administrative theory: Applicable to this structure because of its focus on improving management efficiency 1  Contingency/situational theory: Applicable to this theory because of its emphasis on interconnections between all operating environments within any organization (Wright, n.d.) Divisional Organizational Structure and Its Related Theories The divisional organizational structure is most frequently embraced by larger corporations that serve as an umbrella group to smaller organizations. Division of labor is also known as work specification for greater efficiency. It involves delegating specific parts of a broader task to different people within the organization based upon their particular abilities and skills. Using division of labor, an organization can parcel out a complex work effort for specialists to perform. By systematically dividing complex tasks into specialized jobs, an organization uses its human resources more efficiently (Munroe, 2018). A primary advantage or benefit of the divisional structure is the ease and speed with which needs can be met within each individual division. A disadvantage is limited or inhibited communication between employees in different divisions. It is also costly because of the scope and size of divisions. 1 An example of a company that uses a divisional structure integrated with teams is Proctor & Gamble (P&G). Such integration allows for the authority and organization of a more concrete structure while at the same time capturing the cross-functional and projected-oriented advantages of teams. 2 You will learn more about how P&G operates in the next lesson. Related theories underlying the divisional organizational structure include the following:  Scientific management theory: Applicable to this structure because of its focus on production efficiency and employee productivity 1  Bureaucratic theory: Applicable to this structure because of its emphasis on efficiency and clear roles, to help organizations run as smoothly and effectively as possible 1  Administrative theory: Applicable to this structure because of its focus on improving management efficiency 1  Neoclassical theory: Applicable to this structure because of its focus on workers rather than mechanics, including social interactions (Wright, n.d.)  Contingency/situational theory: Applicable to this structure because of its focus on improving management efficiency (Wright, n.d.). Matrix Organizational Structure and Its Related Theories

The matrix organizational structure is a hybrid combination of functional and divisional structures. This structure is most common in large multinational corporations because the matrix allows for the existence of both functional and divisional structures within one company. While this allows the company to enjoy the benefits of having both types of structure, it also creates an atmosphere of dual management because functional and divisional managers often cover the same territory (Writing, 2019). In matrix management, the organization is grouped by any two perspectives the company deems most appropriate. Common organizational perspectives include function and product, function and region, or region and product. In an organization grouped by function and product, for example, each product line will have management that corresponds to each function. Proponents of matrix management suggest that this structure allows team members to share information more readily across task boundaries, countering the silo critique of functional management. Matrix structures also allow for specialization that can both increase depth of knowledge and assign individuals according to project needs. A disadvantage of the matrix structure is the increased complexity in the chain of command when employees are assigned to both functional and project managers. This increase in complexity can result in a higher manager-to-worker ratio, which can in turn increase costs or lead to conflicting employee loyalties. It can also create a gridlock in decision-making if a manager on one end of the matrix disagrees with another manager. Blurred authority in a matrix structure can result in reduced agility in decision-making and conflict resolution. Matrix structures should generally only be used when the operational complexity of the organization demands it. A company that operates in various regions with various products may require interaction between product development teams and geographic marketing specialists, suggesting a matrix may be applicable. Generally speaking, larger companies with a need for a great deal of cross-departmental communication benefit most from this model. 1 An example of a company that uses a matrix structure is Starbucks. In a matrix structure, the organization is grouped by both product and function. Product lines are managed horizontally and functions are managed vertically. This means that each function—such as research, production, sales, and finance—has separate internal divisions for each product. 2 You will learn more about how Starbucks operates in the next lesson. Related theories underlying the matrix organizational structure include the following:  Scientific management theory: Applicable to this structure because of its focus on production efficiency and employee productivity 1  Neoclassical theory: Applicable to this structure because of its focus on improving management efficiency (Wright, n.d.)  Modern theory: Applicable to this structure because of its basis in systems thinking with the recognition that change in one area affects all other areas (Wright, n.d.)  Contingency/situational theory: Applicable to this structure because of its focus on improving management efficiency (Wright, n.d.) Teams Organizational Structure and Its Related Theories The teams organizational structure groups employees together, often by departments, to allow them to work on projects in a unified manner and to strive toward achieving company goals. Each team has its own manager, and each member of the team understands designated job duties and balances each person’s strengths and weaknesses (Wright, n.d.). The team structure in large organizations is considered a newer type of organization that is less hierarchical, less structured, and more fluid than traditional structures (such as functional or divisional). A team is a group of employees—ideally with complementary skills and synergistic efforts—working toward a common goal. Teams are created by grouping employees in a way that generates a variety of expertise and addresses a specific operational component of an organization. These teams can change and adapt to fulfill group and organizational objectives. Some teams endure over time while others—such as project teams—are disbanded at the project’s end. Teams that include members from different functions are known as cross-functional teams.

Although teams are described as less hierarchical, they typically still include a management structure. One aspect of team-based structures that will likely persist indefinitely is the integration of team cultures within a broader structure (for example, a functional structure with teams interspersed). Such integration allows for the authority and organization of a more concrete structure with the cross-functional and projected-oriented advantages of teams. 1 An example of a company that uses a teams structure is Apple. Team building is now a frequent practice of many organizations and can include activities such as bonding exercises and even overnight retreats to foster team cohesion. To the extent that these exercises are meaningful to employees, they can be effective in improving employee motivation and company productivity. 2 You will learn more about how Apple operates in the next lesson. Related theories of the teams organizational structure include the following:  Scientific management theory: Applicable to this structure because of its focus on production efficiency and employee productivity 1  Modern theory: Applicable to this structure because of its basis in systems thinking with the recognition that change in one area affects all other areas (Wright, n.d.)  Contingency/situational theory: Applicable to this structure because of its focus on improving management efficiency (Wright, n.d.) Lesson Summary In this lesson, you explored an overview of six organizational theories and how they align to the four organizational structures:  Scientific management theory involves employee selection, training, and testing, which are crucial to all organizational structures due to the focus on analyzing work flows to improve economic efficiency, especially labor productivity. This theory also has strong influences on modern operations and process improvement, which uses quantitative metrics to determine how effectively a process is running. 3  Bureaucratic theory is tightly structured and predictable, with a significant amount of specialization and a rigid organizational chart. This theory applies to functional and divisional organizational structures due to the focus on specialization of the workforce, the merit system, standardized principles, and the hierarchal structure of the workplace. The theory suggests that clear guidelines and authority need to be in place to encourage an effective workplace. 3  Administrative theory is based on a strong chain of command. It distinguishes line workers versus staff. This theory also applies to functional and divisional organizational structures but differs from the bureaucratic theory in that it focuses on employees as people first and resources second. For instance, the theory operates under principles such as division of work, a congenial workplace, interrelation between individual interests and common organizational goals, a compensation package, equity, job guarantees, and team spirit. 3  Neoclassical theory focuses on workers and is less mechanistic than the classical approach. This theory, also known as the human relations theory, applies to matrix and divisional organizational structures due to its emphasis on recognizing the differences between people, creating effective motivators, resolving conflicts, developing new ideas, and building stronger relationships among coworkers (Wright, n.d.).  Modern theory is based on systems thinking and is socio-technical in nature. This theory applies to the matrix and teams organizational structures due to its recognition that changes in one variable within an organization impacts others because all are interrelated. This theory also focuses on maintaining equilibrium through constant adjustments and adaptations to environmental changes (Wright, n.d.).

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 Contingency/situational theory focuses on ongoing interconnection between the operating environment (which includes social, political, legal, technical, and economic) and all organizational structures due to its proposal that there is no one best way to organize a corporation or lead a company. Instead, the optimal course of action is contingent or dependent on specific internal or external situations that management must learn to handle. 4 Learning Objectives  Link the four organizational structures to real-world applications of those structures. Lesson Introduction You have learned about four organizational structures, the factors that influence them, and the theories that form the foundation for the structures. In this lesson, you will explore some real-world applications for each of those structures:  Functional structure: This is typically found in manufacturing companies, such as an auto manufacturing company that produces a single make or model of car or an organization with a single purpose, such as FedEx as a major international shipping company.  Teams structure: This is typically found in high-tech companies, such as Apple.  Divisional structure: This is typically found in companies for consumer products, such as Procter & Gamble.  Matrix structure: This is typically found in companies with geographic structures that intersect with divisional structures and a corporate functional structure, such as McDonalds or Starbucks. You will check in with Dr. Yoshida and her Pruhart Tech organization. Try to figure out ahead of time what real-world application might exist that is relevant for Pruhart Tech. Functional Structure Real-World Example: FedEx FedEx is a real-world example of a company with a functional organizational structure. In this structure, the organization is divided into smaller groups by areas of specialty (such as IT, finance, operations, and marketing). Correspondingly, the company’s top management team typically consists of several functional heads (such as the CFO and the COO). Communication generally occurs within each functional department and is transmitted across departments through the department heads. 1 The degree to which tasks are subdivided into smaller jobs is called specialization. Employees who work at highly specialized jobs, such as assembly-line workers, perform a limited number and variety of tasks. Employees who become specialists at one task or a small number of tasks develop greater skill in doing that particular job. This can lead to greater efficiency and consistency in production and other work activities. However, a high degree of specialization can also result in employees who are disinterested or bored due to the lack of variety and challenge. After a company divides the work into specific jobs, managers then group the jobs together so that similar or associated tasks and activities can be coordinated. This grouping of people, tasks, and resources into organizational units is called departmentalization. It facilitates the planning, leading, and control processes. Functional departmentalization is based on the primary functions performed within an organizational unit (such as marketing, finance, production, sales, and so on). Ethan Allen Interiors, a vertically integrated home furnishings manufacturer, is another example of an organization that continues its successful departmentalization by function, including retail, manufacturing and sourcing, product design, logistics, and operations, which includes tight financial controls.

Teams Structure: Real-World Example The Apple corporation is a real-world example of a company with a teams organizational structure. Before Apple cofounder Steve Jobs passed away in 2011, he had established his preferred method for teams and team members:  Keep the number of team members under 100.  Put your best and smartest people on the teams working on the most important projects.  Maintain focus and organization, and keep your own team’s products a secret from what other teams are working on.  Replicate a start-up inside the larger company.  Promote and give raises to team members, but keep people who excel in those job roles.  Start with a design as the basis for new products.  Focus on the customer (Yarow, 2012). The teams approach is one of the most current trends in business today to accomplish organizational goals. Using a team-based structure can increase individual and group motivation and performance. Teams are a specific type of organizational group. Every organization contains groups, which are social units of two or more people who share the same goals and cooperate to achieve those goals. For example, in healthcare, a team-based approach improves patient outcomes when doctors and other health professionals work together as a unit instead of having the doctor make all the decisions. This transformation from a functional to a team-based structure allows valuable input and expertise from other team members, resulting in improved quality of care. This approach also increases ownership among all the stakeholders, which increases motivation. Understanding some fundamental concepts related to group behavior and group processes provides a good foundation for understanding concepts about work teams. Groups can be formal or informal in nature. Formal groups are designated and sanctioned by the organization; their behavior is directed toward accomplishing organizational goals. Informal groups are based on social relationships; they are not determined or sanctioned by the organization. Formal organizational groups, like the sales department at Apple, must operate within the larger Apple organizational system. To some degree, elements of the larger Apple system—such as organizational strategy, company policies and procedures, available resources, and the highly motivated employee corporate culture—determine the behavior of smaller groups within the company, like the sales department. Other factors that affect the behavior of organizational groups are individual member characteristics (such as ability, training, personality), the roles and norms of group members, and the size and cohesiveness of the group. Norms are the implicit behavioral guidelines of the group or the standards for acceptable and unacceptable behavior. For instance, an Apple sales manager may be expected to work at least two Saturdays per month without extra pay. Although this is not written anywhere, it is the expected norm. Group cohesiveness refers to the degree to which group members want to stay in the group and tend to resist outside influences (such as a change in company policies). When group performance norms are high, group cohesiveness will have a positive impact on productivity. Cohesiveness tends to increase when the size of the group is small, individual and group goals are similar, the group has high status in the organization, rewards are group based rather than individual based, and the group competes with other groups within the organization. Work group cohesiveness can benefit the organization in several ways, including increased productivity, enhanced worker self-image because of group success, increased company loyalty, reduced employee turnover, and reduced absenteeism. Southwest Airlines is known for its work group cohesiveness. On the other hand, cohesiveness can also lead to restricted output, resistance to change, and conflict with other work groups in the organization.

The opportunity to turn the decision-making process over to a group with diverse skills and abilities is one of the arguments for using work groups (and teams) in organizational settings. 3 Checkin with Pruhart Tech You may recall that Pruhart Tech is a highly centralized company with formal rules in place that influence its functional team-based organizational structure. Recently, Dr. Yoshida heard rumblings of discontent about the tendency toward rigidity and complaints about some of her managers not wanting to hear new ideas during team meetings. She decided to explore the concept of easing up on some of the stricter forms of running her company and transition into an informal approach more aligned with the teams structure. Dr. Yoshida, who came from a more decentralized team-based company prior to starting her own business several years back, invited a variety of team members to participate in a panel discussion. She included some of her newest employees, such as Hannah, along with long-time employees. Hannah was thrilled to be included, yet she still hesitantly raised her hand when Dr. Yoshida asked for input and any ideas anyone had for improving the company or its culture. When Dr. Yoshida called on Hannah, she found her courage to share her ideas—and her already printed charts and supporting documents—that she had previously attempted to share with her team manager, Jack. To her pleasure, Dr. Yoshida loved her ideas because they aligned with tentative plans Dr. Yoshida had already pondered. She thanked Hannah for sharing and told her she would be hearing from Dr. Yoshida after she held a meeting with other chief executives. About a week later, Dr. Yoshida invited Hannah into her office. Dr. Yoshida told Hannah she was going to implement her cost-saving strategies for structural improvements over the six months and see what transpired. She also asked Hannah if she would be interested in being a new team leader to direct those efforts. Hannah accepted and was even allowed to choose her own team members. After about six months, Dr. Yoshida contacted Hannah and let her know that the company’s profit margins had increased exponentially thanks to Hannah’s strategies. Hannah’s next promotion was to team manager for a new department: the digital marketing division of Pruhart Tech. Divisional Structure Real-World Example: Proctor & Gamble Integration of divisions of the company allows for the authority and organization of a more concrete structure with the cross-functional and projected-oriented advantages of teams. For example, imagine Proctor & Gamble brings together a group of employees from finance, marketing, and R&D—all representing different geographic regions and divisions of the company. This newly created team is tasked with the project of creating a laundry detergent that is convenient, economic, and aligned with the company’s manufacturing capabilities. The project team might be allocated a certain number of hours a month to devote to team objectives. However, members of the team are still expected to work within their respective functional departments and company divisions. 1 You read in detail about the teams structure in a previous section. In a divisional structure, each division within this structure can correspond to either products or geographies of the organization. Each division contains all the necessary resources and functions within it to support that particular product line or geography (such as its own finance, IT, and marketing departments). Product and geographic divisional structures may be characterized as follows:  Product departmentalization: A divisional structure organized by product departmentalization means that the various activities related to the product or service are under the authority of one manager. If the division builds luxury sedans or SUVs, for example, the SUV division will have its own sales,

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engineering, and marketing departments distinct from those departments within the luxury sedan division.  Geographic departmentalization: Geographic departmentalization involves grouping activities based on geography, such as an Asian and Pacific or Latin American division. Geographic departmentalization is particularly important if tastes and brand responses differ across regions because it allows for flexibility in product offerings and marketing strategies (an approach known as localization). A common legal structure known as the multidivisional form (or “M-form”) also uses the divisional structure. In this form, one parent company owns subsidiary companies, each of which uses its brand and name. The whole organization is ultimately controlled by central management; however, most decisions are left to autonomous divisions. This business structure is typically found in companies that operate worldwide—for example, Virgin Group is the parent company of Virgin Mobile and Virgin Records. 1 Matrix Structure Real-World Example:  Functional hierarchy: Includes various departments, primarily at the corporate headquarters  Geographic divisions: Three regional divisions across the global market, as well as multiple divisions within the United States  Product-based divisions: Include coffee and related products, baked goods, and merchandise such as their iconic mugs  Teams: Most visible at the coffeehouse and café levels (Meyer, 2019) In practice, the matrix structure is a type of organizational structure in which individuals are grouped by two different operational perspectives simultaneously. This structure has both advantages and disadvantages but is generally best employed by companies large enough to justify the increased complexity. In matrix management, the organization is grouped by any two perspectives the company deems most appropriate. Common organizational perspectives include function and product, function and region, or region and product. In an organization grouped by function and product, for example, each product line will have management that corresponds to each function. If the organization has three functions and three products, the matrix structure will have nine potential managerial interactions. This example illustrates how inherently complex matrix structures are in comparison to other, more linear structures. 1 Lesson Summary In this lesson, you explored some real-world applications for each of the four organizational structures. The structures and real-world examples you discovered included the following:  Functional structure: You explored how FedEx is a real-world example of a company using a functional organizational structure.  Teams structure: You learned more about how Apple corporation implements its team-based structure.  Divisional structure: You learned about the consumer products company, Procter & Gamble, and how it operates with its combination of divisional and teams structures.  Matrix structure: You learned how the matrix structure works for Starbucks as it intersects with geographic structures and divisional structures in a corporate functional structure. You explored the world of organizational design in this module. You learned that the components within an organization help determine its mission and channels the behavior of its

members. You also learned that an organization’s structure is essentially an end in itself with many primary factors that influence that structure. Recall the following primary factors that influence and direct organizational structure, along with their roles:  Functions and departments: These factors work together to define the division of work along task-oriented lines as workers with similar skills or functionality work together in departments to work on specific goals or projects.  Chain of command: This factor influences the control and decision-making functions within an organization by establishing a hierarchy of authority and its related reporting structure.  Centralized or decentralized: These contrasting factors influence the role of the decision-makers and the act of decision-making. In centralized organizations, decisions typically derive from the CEO or other top executives. In decentralized organizations, department managers and other corporate personnel are authorized to make certain decisions.  Level of formality: Formal or informal levels influence the establishment and implementation of procedures, rules, and guidelines, as well as the overall culture. Formal organizations may require the use of titles when addressing other members while informal organizations may use first names, even with management. You learned more about four of the most common organizational structures:  Functional organizations group workers with similar skill sets together to work on a common project or goal.  Divisional organizations group departments by product lines (such as household cleaning products) or regions (such as Northeastern or Southwestern America, or North America or Asia).  Matrix organizations combine departments with complementary functions and strengths, such as R&D and marketing.  Team-based organizations combine groups of people to cooperate on specific goals or projects. In this module, you also read an overview of six organizational theories and learned how they applied to those four organizational structures:  Scientific management theory applies to all organizational structures through its emphasis on employee selection, training, and testing.  Bureaucratic theory applies to functional and divisional organizational structures due to its specialization and rigid organizational chart.  Administrative theory applies to functional and divisional organizational structures due to its basis on a strong chain of command and its distinction between line workers and staff.  Neoclassical theory applies to matrix and divisional organizational structures because of its focus on workers and its less mechanistic approach.  Modern theory applies to the matrix and teams organizational structures due to its basis on systems thinking and its socio-technical nature.  Contingency or situational theory applies to all organizational structures due to its focus on ongoing interconnection within the operating environment, which includes social, political, legal, technical, and economic factors. You also explored some real-world examples of the four common organizational structures. Finally, you met Dr. Yoshida and several of her officers and team members. You followed the experiences of Hannah, a new member of the marketing team at Pruhart Tech, and learned that

because of her innovative new ideas, she helped the company save money and increase profit margins. This in turn allowed Dr. Yoshida to expand the company and add the digital marketing department she had been planning for nearly a year. Dr. Yoshida then promptly promoted Hannah and assigned her as the new department head of the digital marketing team. Module 2: Organizational Effectiveness An organization is only as effective as the foundation on which it is built. Much like the foundation and structure of a house must be stable for it to withstand environmental elements, so an organization must be structurally sound for it to be effective and enduring against obstacles and competition. In previous lessons in this course, you learned about goals and goal setting and about organizational structures. This module will tie these three concepts together: goals, organizational structure, and organizational effectiveness. In this module, you will look at goals as the means to measure organizational effectiveness. For instance, goals for an organization might include creating innovative products, developing a strong R&D department, or exponentially increasing revenue (Organizational effectiveness, n.d.). You will explore the purpose of goals and why organizations set top-level goals. Such goals could include to allocate resources, both people and money; to structure processes; or to manage stakeholders. You will examine the goal approach model of organizational effectiveness. This approach, also known as the rational goal or goal attainment approach, ties goals to effectiveness. This means that an organization is efficiently meeting its established goals, such as in the areas of profitability, growth, and customer satisfaction (Admin, 2019). Likewise, organizational structure is linked to organizational effectiveness. This is known as goal attainment and addresses the following points:  Organizations need structures that enable goal attainment.  Organizational structure brings together processes that enable an organization to meet its goals.  Employees within divisions, functions, or teams help meet those goals.  Goal attainment equals organizational effectiveness. These are some examples of companies that made changes to their structure to impact goal attainment and organizational effectiveness. You will learn more about these later in the module:  Disney made structural changes as it prepared to launch two streaming services and buy film and TV assets owned by 21st Century Fox. 1  Google's single-umbrella, relatively "flat" organizational structure grew and reorganized into more than two dozen "monstrously diverse" subsidiaries. 2  Microsoft restructured its organization to refocus Microsoft's people because of low employee engagement and manipulated the organizational structure to eliminate harmful competition and create new team focus. 2 You will also review some case studies that further demonstrate how structure affects whether an organization can meet its goals effectively or not. In the first lesson, you will meet Sophia, a product manager who is tackling an unusually large new product development project. She is concerned that the strictly team-based organizational structure is not adequate for the project parameters. She determines she needs to have a discussion with her senior manager, Lulu, about a redesign of the organizational structure to make it more effective. In the second lesson, you will learn about the advice Lulu provides and how it will help Sophia and her team accomplish their assigned task.

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Learning Objectives  Explain the purpose of top-level organizational goals and how these goals link to organizational effectiveness. Lesson Introduction How are objectives and goals linked to organizational effectiveness? A common strategy for establishing objectives to help achieve goals is represented by the acronym SMART, which stands for specific, measurable, achievable, realistic, and time bound. In this lesson, you will learn more about objectives and goal setting, primarily as they relate to measuring organizational effectiveness. These will be high-level organizational goals addressing specific objectives organizations might have, such as developing a strong R&D-based structure or determining the most effective way to exponentially increase revenue. You will explore the purpose of goals or why organizations set top-level goals. For instance, organizations might need to establish a more efficient way to allocate both people and monetary resources, to choose a pathway for structural processes, or to manage their various stakeholders. You will also discover how goals are tied to an organization's effectiveness. While many types of approaches to establishing organizational effectiveness exist, this lesson focuses primarily on the goal approach model that facilitates the ability of organizations to meet their goals. This lesson will also include relevant examples and case studies about companies and their goal-setting initiatives. Finally, you will meet Sophia, a product manager tasked with a large new product development project. She takes on the responsibility of exploring whether the organizational structure is adequate for the magnitude of the project while maintaining the effectiveness of the organization. Purpose of Goals Organizations set clearly defined top-level goals, which trickle down to low-level team goals, for a number of reasons:  Increased visibility : Allows employees to align to company goals, which improves company morale and establishes a synergistic company culture  Increased responsibility : Facilitates decision-making, initiation of tasks, and self-monitoring (including corrective actions)  Faster achievement of tasks : Promotes a focus on priorities and getting things done more quickly and on time  Better collaboration : Unites team members to work together toward achieving mutual goals (Palizban, 2011) Organizational goals are also of two types:  Official : Formally stated organizational goals included in corporate documentation (such as charters, mission statements, and annual reports) with the purpose of building the public image and reputation of the organization  Operative : Concrete steps in an organizational plan to facilitate achievement of its vision and purpose, derived from strategic planning out of which spring the organizational goals (Admin, n.d.) Key organizational goals often address the following areas:  Employee performance  Innovation  Management performance  Market share

 Productivity  Profitability  Resources  Social responsibility (Admin, n.d.) Goals and objectives provide the foundation for measurement. Goals are outcome statements that define what an organization is trying to accomplish, both programmatically and organizationally. Goals are usually a collection of related programs and a reflection of major actions of the organization. They provide rallying points for managers. 1 For example, Walmart might state a financial goal of growing its revenues 20% per year or of growing the international parts of its empire. Try to think of each goal as a large umbrella with several spokes coming out from the center. The umbrella itself is a goal. 1 In contrast to goals, objectives are very precise, time-based, measurable actions that support the completion of a goal. Objectives must typically be related directly to the goal. They should be clear, concise, and understandable and stated in terms of results. They should begin with an action verb and specify a time frame for accomplishment. And lastly, they should be measurable. Apply the umbrella analogy and think of each spoke as an objective. Going back to the Walmart example and in support of the company's 20% revenue growth goal, one objective might be to open 20 new stores in the next six months. Without specific objectives, the general goal could not be accomplished—just as an umbrella cannot be put up or down without the spokes. Importantly, goals and objectives become less useful when they are unrealistic or ignored. For instance, if your university has set goals and objectives related to class sizes but is unable to ever achieve them, then their effectiveness as a management tool is significantly decreased. 1 Measures are the actual metrics used to gauge performance on objectives. For instance, the objective of improved financial performance can be measured using a number of metrics, ranging from a specific percentage change in total sales, profitability, efficiencies, or stock price. You may have heard the saying, "What gets measured, gets done." Measurement is critical to today's organizations. It is a fundamental requirement and an integral part of strategic planning and of principles of management more generally. Without measurement, you cannot tell where you have been, where you are now, or if you are heading in the direction you intend to go. While such statements may sound obvious, the way that most organizations have set and managed goals and objectives has generally not kept up with this view. 1 Financial outcomes are often short term in nature, so they omit other key factors that might be important to the longer-term viability of the organization. For instance, return on sales (ROS, or net profit divided by total sales) is a commonly used measure of financial performance, and organizations set goals and objectives related to ROS. However, an organization can increase ROS by cutting investments in marketing and research and development (since they are costs that lessen the "return" dimension of ROS). It may be a good thing to cut such costs, but that type of cost cutting typically hurts the organization's longer-term prospects. Decreases in marketing may reduce brand awareness, and decreases in research and development will likely stifle new product or service development. Goals and objectives, even when they cover more than short-term financial metrics, are often not tied to strategy and ultimately to vision and mission. Instead, you may often see a laundry list of goals and objectives that lack any larger organizing logic. 1 MeanThat. (2015, June 9). Measuring organizational effectiveness [Video file]. Retrieved from https://www.youtube.com/watch?v=YdbbtY-_uqk&t opens a new window Goals and objectives are an essential part of planning. They also have cascading implications for all the aspects of organizing, leading, and controlling. Broadly speaking, goals and objectives serve to do the following:  Gauge and report performance  Improve performance  Align effort  Manage accountabilities 1

Planning typically starts with a vision and a mission. Then managers develop a strategy for realizing the vision and mission. Their success and progress in achieving the vision and mission will be indicated by how well the underlying goals and objectives are achieved. A vision statement usually describes some broad set of goals—what the organization aspires to look like in the future. Mission statements also have stated goals—what the organization aspires to be for its stakeholders. For instance, Mars Inc., the global food giant, sets out five mission statement goals in the areas of quality, responsibility, mutuality, efficiency, and freedom. Thus, goals are typically set for the organization as a whole and set the stage for a hierarchy of increasingly specific and narrowly set goals and objectives. 1 However, unless the organization consists of only a single person, there are typically many working parts in terms of functional areas and product or service areas. Functional areas such as accounting and marketing will need to have goals and objectives that, if measured and tracked, help show if and how those functions are contributing to the organization's goals and objectives. Similarly, product and service areas will likely have goals and objectives. Goals and objectives can also be set for the way that functions and product or service areas interact. For instance, are the accounting and marketing functions interacting in a way that is productive? Similarly, is marketing delivering value to product or service initiatives? 1 Within the planning facet of planning, organizing, leading, and control (P-O-L-C) alone, you can think of goals and objectives as growing in functional or product and service arena specificity as you move down the organization. Similarly, the time horizon can be shorter as you move down the organization as well. This relationship between hierarchy and goals and objectives is summarized in the figure that follows. 1 Obviously, the role of goals and objectives does not stop in the planning stage. If goals and objectives are to be achieved and actually improve the competitive position of the company, then the organizing, leading, and controlling stages must address goals and objectives as well. 1 The way that the firm is organized can affect goals and objectives in a number of ways. For instance, a functional organizational structure in which departments are broken out by finance, marketing, operations, and so on will likely want to track the performance of each department. However, exactly what constitutes performance will probably vary from function to function. 1 In terms of leadership, top managers are usually the ones who set goals and objectives for the entire organization. Ideally, then, lower-level managers would set or have input on the goals and objectives relevant to their respective parts of the business. For example, a CEO might believe that the company can achieve a sales growth goal of 20% per year. With this organizational goal, the marketing manager can then set specific product sales goals, as well as pricing, volume, and other objectives, throughout the year that show how marketing is on track to deliver its part of organizational sales growth. Goal setting is thus a primary function of leadership, along with holding others accountable for their respective goals and objectives. 1 Finally, goals and objectives can provide a form of control since they create a feedback opportunity regarding how well or how poorly the organization executes its strategy. Goals and objectives are also a basis for reward systems and can align interests and accountability within and across business units. For instance, in a business with several divisions, managers and employees may behave differently if their compensation and promotion are tied to overall company performance, the performance of their division, or some combination of the two. 1 Goal Approach to Organizational Effectiveness Goals are essential in achieving organizational effectiveness. The goal approach, also known as the rational goal or goal attainment approach, ties goals to effectiveness. Likewise, organizational structure is linked to organizational effectiveness, which is the connection known as goal attainment (Admin, 2019). You might think that goals and objectives are easy to set, yet this intuition is often wrong in the organizational context. Goals and objectives are difficult to set because you might not know what they should cover or because you lay out too many of them hoping to cover all the bases. Similarly, goals and objectives can proliferate in organizations because new ones are set, whereas old ones are not discarded.

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Several important factors to improve an organization's effectiveness when setting goals are the following:  Fewer are better. Concentrate on measuring the few vital key variables rather than the trivial many.  Measures should be linked to the factors needed for success—key business drivers.  Measures should be a mix of past, present, and future to ensure the organization is concerned with all three perspectives.  Measures should be based around the needs of customers, shareholders, and other key stakeholders.  Measures should start at the top and flow down to all levels of employees in the organization.  Multiple indices can be combined into a single index to give a better overall assessment of performance.  Measures should be changed or at least adjusted as the environment and your strategy change.  Measures need to have targets or objectives established that are based on research rather than arbitrary numbers. 2 While you will learn primarily about the goal-attainment approach in this module, you should know that other approaches to organizational effectiveness exist. Here is a brief overview:  System resource approach: Views an organization as a system with an emphasis on inputs rather than outputs  Strategic constituencies approach: Assesses organizational effectiveness by its ability to satisfy both internal and external constituencies vital for the organization's survival  Internal process approach: Assesses organizational effectiveness by effort rather than attained effect (Admin, 2019) By contrast, as its name implies, the goal attainment approach focuses on attaining or achieving goals. The more efficiently and effectively an organization can achieve its goals, the more successful it is, according to this approach. Quite often, the bottom-line goals of organizations are focused on profitability. One way to look at the success of organizations is to assess their size relative to competitors. This type of measurement is usually done by looking first at annual revenues, the sum total of all products or services sold to customers. But this may not be the most meaningful measure since some very large companies are not always successful. Financial analysts usually look at other ratios to determine financial health. They look at profitability in a number of ways to assess the return that the company is generating for its owners (the shareholders) for each dollar of investment in the business, a concept known as return on investment (ROI). In doing so, they consider the gross margins the company achieves, which are the revenues generated from the sale of its products minus the cost of those goods. They also consider the organization's net earnings, which are the profits remaining after all interest, taxes, and other costs such as depreciation are factored in. These net earnings are then divided by all the shares of stock outstanding to determine earnings per share (EPS). This EPS number provides a good ratio for making comparisons to other companies regardless of their size. Financial analysts eagerly await the earnings numbers when publicly traded companies release these results each quarter, as they are required to do by the U.S. Securities and Exchange Commission (SEC). Analysts estimate what they expect a company to earn, sometimes a year or more in advance of the actual results. When companies exceed these estimates, their stock prices

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generally increase—sometimes dramatically—after the release of earnings. When they disappoint the analysts and underachieve on projected earnings, their share prices can plummet. 3 When setting attainable goals, another measure of size relative to competitors is market capitalization. That measure is determined by multiplying the current price of a single share of a company's stock by all the shares outstanding. In some cases, this "market cap" number may be significantly higher than the annual revenues a company achieves. In such cases, the financial markets believe that the company has growth potential far in excess of its current sales. Companies with market caps far higher than annual revenues are more highly valued than companies with market caps similar to or much lower than annual revenues. Companies work to achieve higher valuation by delivering consistent performance, meeting or exceeding earnings estimates, and providing a credible growth story that is supported by the facts. There are countless other financial measures. However, the most important thing to remember is that communicators have a special responsibility to educate themselves on the measures that are deemed most important by their colleagues in other functions. That includes more than the numbers. They must also understand the business challenges that are most pressing to the company. For nonprofit public relations, the most important measures may relate to the donor community or to the volunteer network on which the organization relies. For governmental public relations, it may require an increase in knowledge of policies, legislative initiatives, sources of tax revenues, or judicial rulings that will have an impact on the department's operations. One critical limitation to the goal attainment approach to evaluate organizational effectiveness is that it does not take into consideration the very human nature of organizations, nor the outside influences that affect the efforts to reach these goals. People are not cogs in a wheel, and a manager could become easily frustrated with the unrealistic expectation that organizations can run as smoothly as a piece of machinery. This makes engagement of employees a problem for the public relations professional, and his or her focus is often more on goal attainment than maintaining positive relations with the public. 3 It is useful to stop here and recognize that goals, objectives, and measures are different tools. Goals tend to be general statements, whereas objectives are specific and time bound. Measures are the indicators used to assess achievement of the objective. In some cases, a goal, an objective, and a measure can be the same thing, but more often you will set a goal and have a few objectives underlying that goal, and then one or more measures for each of the objectives. In addition to what has already been addressed, consider that one of the key litmus tests for setting goals, objectives, and measures is whether they are linked in some way to the key factors driving an organization's success or competitive advantage. This means that they must provide a verified path to the achievement of an organization's strategy, mission, and vision. This characteristic of effective goals, objectives, and measures is one reason that many managers use some form of balanced scorecard in their businesses. The balanced scorecard process provides a framework for evaluating the overall measurement system in terms of what strategic objectives it contributes to. The big challenge, however, is to verify and validate the link to success factors. Managers who do not scrupulously uncover the fundamental drivers of their units' performance face several potential problems. They often end up measuring too many things, trying to fill every perceived gap in the measurement system. For a variety of reasons, it is important to capture past performance. After all, many stakeholders such as investors, owners, customers, and regulators have an interest in how the company has lived up to its obligations. However, particularly in the area of objectives and measurement, the best systems track the past, present, and future. A combination of goals, objectives, and measures that provide such information is sometimes referred to as a dashboard—like the analogy that a dashboard tells you how the car is running, and through the windshield, you can see where you are going. Indicators on how well the economy is doing, for instance, can suggest whether your business can experience growing or declining sales. Another leading indicator is customer satisfaction. General Electric (GE), for instance, asks its customers whether they will refer other customers to GE. GE's managers have found that the higher this likelihood of referral, the greater the next quarter's sales demands. As a result, GE uses this measure to help it forecast future growth and evaluate the performance of each business unit. While it is important to track the goals and objectives most relevant to the needs of the business, relevance is subjective. This is why it is valuable to understand who the organization's key

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stakeholders are and set the goals, objectives, and measures in such a way that stakeholders can be satisfied. Or at the very least, stakeholders can gain information relevant to their particular interests. Some stakeholders may never be entirely satisfied with companies' performance. For example, some environmental groups may continue to criticize a company's environmental impact, but they can be somewhat placated with more transparent reporting of what the company is doing on the environmental front. Similarly, stakeholders with social concerns will appreciate transparency in reporting on the organization's corporate social responsibility efforts. 2 In summary, it is important to understand how organizations define their success as they place more value on the functions that contribute to that success and tend to reward those efforts the most as they evaluate their effectiveness. Most organizations set goals and measure themselves against those goals. These short-term benchmarks are easier to measure but may blind the organization from the forest for the trees. An organization must also consider its long-term sustainability and growth. Key constituents are essential to reaching immediate goals and sustaining long-term growth. And organizations must acknowledge and understand how critical these constituents are to meeting the purpose of the organization. 4 The process of making dynamic changes to goals and organizational structure means that managers and employees alike must have the agility to adapt to those changes as they affect the overall culture. In the next lesson, you will learn more about adaptability to changes, strategies, and the overall impact of the pace of change on organizational culture. Meet Sophia, Product Manager at Synesthor Sophia works as a product manager in the marketing department of a small tech firm, Synesthor. She oversees her own product development team for augmentative and alternative communication devices. She and her team have taken on different product development projects together and have done well overall. However, her boss recently assigned her team a large, lucrative account for a new treatment center for those individuals who have speech and developmental disorders. Sophia is worried that she does not have the experience necessary to tackle such a massive project. She decides to ask a senior manager, Lulu, for advice on how to properly structure her own team so that it meets all its set goals and supports the organization's mission. Sophia: "Good morning, Lulu. I was hoping you could help me with this new account I was assigned to recently. I am a little overwhelmed with the prospect of such a big project, and I am afraid my team-based structure is not up to par to meet expectations." Lulu: "It is okay to be nervous, Sophia. However, revamping your team's strategies and structure to help define objectives and meet goals is a smart and capable move. Before you do anything, it is important to first set up a list of measurable goals that must be completed to reach the final objective." You will check in with Sophia in the next lesson. You will learn how she handles the responsibility of this product development project, including setting goals, adjusting organizational structure, and achieving organizational effectiveness. Lesson Summary Take a moment to reflect on what you learned in this lesson about the link between goals and organizational effectiveness. You reviewed the common goal-setting strategy represented by the acronym SMART. You learned how goals and goal setting relate to measuring organizational effectiveness, particularly high-level organizational goals. Specifically, you reviewed tips for crafting appropriate goals and the characteristics of effective goals. You also explored why organizations set top-level goals and discovered how goals are tied to an organization's effectiveness. You specifically learned about the goal approach model that strengthens the ability of organizations to meet their goals. You met Sophia, a product manager, and learned that she is nervous about her product development project. She does not know whether or not the existing organizational structure is adequate to maintain the effectiveness of the organization.

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Learning Objectives  Explain how organizational structure impacts organizational effectiveness. Lesson Introduction Now that you have learned about the importance of goals, goal setting, and goal attainment in the realm of organizations, this lesson will discuss the circular relationship among organizational goals, structure, and effectiveness. The structure of an organization is essential to its success. Structure is the influence behind the processes that enable an organization to efficiently meet its goals. In organizations, meeting goals equates to maintaining effectiveness. Most often, an organization's employees within the various divisions, functions, or teams are the resources behind helping an organization meet its goals. In this lesson, you will explore the importance of alignment in promoting effective performance and profitability. You will learn how to align goals for maximum effectiveness. You will see why structure and design matter as an organization seeks to accomplish organizational effectiveness. Related to this, you will learn why it is sometimes necessary for an organization to restructure or redesign itself when an existing structure or design is no longer effective. You will learn how changes related to goals and structure impact the overall organizational culture and require managers and employees to be agile as they adapt to changes. You will discover barriers to effective teamwork and how to resolve the issues raised. Then you will explore some case studies on how companies made necessary changes to their structures to become more effective. Finally, you will check in with Sophia and her senior manager, Lulu. You will see how they are doing with evaluating Sophia's organizational structure as she moves forward with her large project in new product development to ensure that goals are met to maintain organizational effectiveness. Tying Structure to Effectiveness Goals, structure, and effectiveness impact one another. Organizations need structures that enable their attainment of goals by bringing together the processes involved. Most times, it is the employees within an organization's divisions, functions, or teams who help meet established goals. For organizations, the definition of meeting goals equates to effectiveness. 1 What exactly is meant by organizational structure? In other words, which elements of a company's structure make a difference in how employees and managers behave and how work is coordinated? In a previous module, you explored in detail these four organizational structures: functional, divisional, matrix, and teams. You also learned about the factors that influence them. In this section, you will review four factors that serve as the building blocks, or elements, that make up a company's structure and how that structure contributes to organizational effectiveness. The first factor is centralization, which is the degree to which decision-making authority is concentrated at higher levels in an organization. In highly centralized companies, many important decisions are made at higher levels of the hierarchy. 2 The military is an example of a centralized structure because those in the upper echelons of rank and management oversee all those below them (Wilkinson, 2013). In decentralized companies, decisions are made and problems are solved at lower levels by employees who are closer to the problem in question. Decentralized companies give more authority to lower-level employees, resulting in a sense of empowerment. Decisions are often made faster in these situations, and employees believe that decentralized companies provide greater levels of procedural fairness to employees. Job candidates are more likely to be attracted to decentralized organizations. 2 Franchises, such as fast-food restaurants, are examples of decentralized structures. They are part of a franchise chain, but each restaurant is responsible for operating its own business (Wilkinson, 2013). Because centralized organizations assign decision-making responsibility to higher level managers, there are greater demands on those individuals' mental and physical capabilities. A

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highly centralized structure can help an organization function more effectively in a stable environment, but finding the right balance can also present challenges. Formalization is the extent to which policies, procedures, job descriptions, and rules are written and explicitly articulated. The level of formality can influence individuals' interactions, such as how employees address each other when sending emails, extending invitations, or asking questions. In other words, highly formalized structures are those in which there are many written rules and regulations. These structures control employee behavior using such rules, and employees have little autonomy to make decisions on a case-by-case basis. Formalization makes employee behavior more predictable. Whenever a problem at work arises, employees know to turn to a handbook or a procedure guideline. Therefore, employees respond to problems in a similar way across the organization, which leads to consistency of behavior. While formalization reduces ambiguity and provides direction to employees, it is not without disadvantages. A high degree of formalization may lead to reduced innovativeness because employees are used to behaving in a certain manner. In fact, strategic decision-making in such organizations often occurs only when there is a crisis. Another important element of a company's structure is the number of levels it has in the hierarchy or chain of command. Keeping the size of the organization constant, tall structures have several layers of management between frontline employees and the top level, whereas flat structures consist of few layers. A closely related concept is span of control, or the number of employees reporting to a single manager. In tall structures, span of control tends to be smaller, resulting in greater opportunities for managers to supervise and monitor employee activities. In contrast, flat structures involve a wider span of control. In such a structure, managers will be relatively unable to provide close supervision, leading to greater levels of freedom of action for each employee. 2 Starbucks is an example of a company with a functional hierarchy. HR, finance, and marketing groups are at the top level of the corporate structure for monitoring and control from the top. Along with the functional hierarchy, there are also geographic divisions based on location and product-based divisions, and then the lowest level has teams (Meyer, 2019). Organizational structures differ in terms of departmentalization. Organizations using functional structures group jobs based on similarity in functions. Such structures may have many departments, like marketing, manufacturing, finance, accounting, HR, and IT. In these structures, each person serves a specialized role and handles large volumes of transactions. For example, a marketing employee working in a functional structure may serve as an event planner who plans promotional events for all the products of the company. 2 Apple Inc. is an example of a corporation with numerous departments, including design, engineering, computing, IT, and finance (ResearchGate, 2019). In organizations that use divisional structures, departments represent the unique products, services, customers, or geographic locations the company is serving. In other words, each unique product or service the company is producing will have its own department. Within each department, functions such as marketing, manufacturing, and other roles are replicated. In these structures, employees act like generalists as opposed to specialists. Instead of performing specialized tasks, employees will perform many different tasks in the service of the product. For example, a marketing employee working in this structure may oversee planning promotions, coordinate relations with advertising agencies, and plan and conduct marketing research. 2 The U.S. Department of Energy is an example of an organization having a divisional structure with clear divisions beneath each undersecretary with different tasks. 3 In reality, many structures are a hybrid of functional and divisional forms. For example, if the company has multiple product lines, departmentalizing by product may increase innovativeness and reduce response times. Each of these departments may have dedicated marketing, manufacturing, and customer service employees serving the specific product. Yet the company may also find that centralizing some operations and retaining the functional structure makes sense and is more cost-effective for roles such as HR management and IT. The same organization may also create geographic departments if it is serving different countries. Functional structures tend to be effective when an organization does not have a large number of products and services that require special attention. When a company has a diverse product line, each product will have unique demands, deeming traditional structures less useful for promptly addressing customer demands and anticipating market changes. Functional structures are also more effective in stable environments that are slower to change. In contrast, organizations using product departments are more agile and can perform better in turbulent environments. 2 FedEx is

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an example of an organization with a functional structure. Each different function is managed from the top down by functional heads. 3 Matrix organizations cross a traditional functional structure with a product structure. Specifically, employees reporting to department managers are also pooled together to form project or product teams. As a result, each person reports to a department manager as well as a project or product manager. In this structure, product managers have control and say over product-related matters. Matrix structures are created in response to uncertainty and dynamism of the environment and the need to give attention to specific products or projects. Instead of completely switching from a product-based structure, a company may utilize a matrix structure to balance the benefits of product-based and traditional functional structures. Using the matrix structure as opposed to product departments may increase communication and cooperation among departments because project managers will need to coordinate their actions with department managers. Matrix structures also have the benefit of providing quick responses to technical problems and customer demands. The existence of a project manager keeps the focus on the product or service that is being provided. A downside to keep in mind is that without good communication within the organization, things can become chaotic. Communication is the key. 3 How Structure Impacts Goals In the previous section, you explored how goals and structure are tied to effectiveness. In a similar fashion, the structure itself impacts goals and goal attainment. This is especially true when an organization goes through changes and determines it needs to conduct a redesign or restructuring. You have learned in previous portions of this course, as well as in this module, how to create and implement SMART goals. You know they need to be specific and measurable. Sometimes when organizations determine it is necessary to change their structure, they also learn that they must review and revise goals when they are no longer effective in meeting organizational goals. There are many different types of changes in organizations. The first is structural change. This has to do with the changes in the overall formal relationships within an organization. Examples of structural change include reorganizing departments or business units, adding employee positions, or revising job roles and assignments. These changes should be made to support broader objectives such as to centralize or decentralize operations, empower employees, or find greater efficiencies. Another common type of change is technological change. Implementation of new technologies is often forced upon an organization as the environment shifts. For example, an industry upgrade in a commonly used software platform may require that employees learn new ways of working. Upgraded machinery or hardware may require employees to learn new procedures or restructure the way that they interact with one another. The advent of web-based cloud technologies is an example from the last decade of ways by which new forms of collaboration are becoming more available. Technological change often induces structural change because it requires different ways of connecting across an organizational system. A third type of organizational change is culture change. Organizational culture refers to the common patterns of thinking and behaving within an organization. Culture is rooted in the underlying beliefs and assumptions that people hold of themselves and of the organization. These beliefs and assumptions create mindsets that shape the culture. Culture change is among the most difficult kinds of changes to create within an organizational system. It often involves reshaping and reimagining the core identity of the organization. A typical culture change process, if it is successful, requires many years to achieve. When considering how to assess the need for change in an organization, it can be helpful to think of three dimensions: the scope of change, the level of change, and the intentionality of change. The first dimension, scope of change, refers to the degree to which the required change will disrupt current patterns and routines. Incremental change refers to small refinements in current organizational practices or routines that do not challenge but rather build on or improve existing aspects and practices within the organization. Common incremental change practices are LEAN and Six Sigma, which are used to find relatively small changes that can generate greater

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efficiencies in a process. An organization can improve its product line efficiencies by identifying small discrepancies in process, then fixing them in a systematic way. Incremental change does not typically challenge people to be at the edge of their comfort zone. In contrast, transformational change refers to significant shifts in an organizational system that may cause significant disruption to some underlying aspect of the organization, its processes, or structures. Transformational change can be invigorating for some employees but also highly disruptive and stressful for others. Examples of transformational change include large system changes and organizational restructuring. Culture change often requires transformational change to be successful. Finally, a strategic change, either incremental or transformational, helps align an organization's operations with its strategic mission and objectives. This kind of change is necessary for an organization to achieve the focus it needs to make needed transfer missions and for work it does to stay competitive in the current or larger organization, larger market environment, or societal environment. 4 Organizations that Changed Structures Disney In March 2018, Walt Disney Company announced a major restructuring of its business. Miller and Cosgrove (2018) reported the following in The Los Angeles Times : "The Burbank-based entertainment giant said it would combine its international media business and its content streaming operation into one unit and create another division to house its consumer products business along with Walt Disney Parks and Resorts. The move—Disney's biggest restructuring in recent years—is the latest effort by a legacy entertainment and media company to adapt to rapid changes in consumer behavior driven by digital technology. Disney had been expected to make structural changes as it prepares to launch two streaming services and buy film and TV assets owned by 21st Century Fox—a $52.4-billion deal that requires federal regulatory approval. Disney's new direct-to-consumer and international unit will include the upcoming ESPN+ streaming service, which launches later this year, and a Disney-branded film and TV streaming offering scheduled to debut in 2019." Disney is a company that has proven it can change with the times. As it nears its 100th anniversary, it is preparing to take on some new environmental shifts in the business. People are now demanding streaming as a part of their entertainment. Disney is ready to answer that call. But does it need to change the way its business is structured—who reports to whom, functional groupings, span of control—to adapt? Does this restructuring support the company's strategy? Ultimately, will the restructure increase its profits? Organizational structure is an important aspect of the organizational behavior framework. Organizations refer to them time and again as they prepare to take on the changing headwinds of their business environments. Disney feels structural changes will set them up for success. 5 Google Google is an excellent example of how a couple of people in a garage changed the world. They started out with a single focus—to develop the world's best internet search engine. That was about the last time that Google had a single focus. Google grew up fast, and in 20 years it has accumulated dozens of locations, over 90,000 "Googler" employees, and many different interests. Among its offerings are Google Docs, Google Translate, Google Maps, Waze, Android, YouTube, Blogger, Google Fiber, Google Home, and self-driving vehicles. Google's single umbrella, with its relatively "flat" organizational structure, was growing monstrously diverse. How does a single, relatively flat organizational structure support such diversity? The short answer is that it does not. CEO and founder Larry Page created a holding company for all of Google's projects and called it Alphabet. Then each of those Google interests (26 in all) became its own company with its own

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CEO. The CEO of each of those companies is now able to concentrate on the goals of that company without worrying about the mission of Google overall. It allowed greater autonomy to those smaller companies under the Alphabet umbrella. Larry Page explained in a blog post, "Fundamentally, we believe this allows us more management scale, as we can run things independently that aren't very related. Alphabet is about businesses prospering through strong leaders and independence." Page admitted the reorganization was radical in the same post, saying, "In the technology industry, where revolutionary ideas drive the next big growth areas, you need to be a bit uncomfortable to stay relevant." The reorganization of Alphabet as a holding company for the 26 Google subsidiaries has been going strong since 2015. Employees are able to concentrate on the mission of their own company. With each company accountable for its own expenditures and income, Page expected that they would find innovating more meaningful. This is an example of how a very large company, forced into mechanistic structure by its sheer size and scope, made an organizational move to allow its smaller divisions to innovate and adopt more organic structures if that better fit their needs. Alphabet's 2018 revenue was $136.82 billion last year, and that is a good indication that it is working. 6 Microsoft Microsoft had established themselves as the world's go-to in personal computer operating systems and Office suites. But suddenly the behemoth technology company was struggling. Departments that had been established to innovate were now in competition with one another, creating a toxic environment that threatened the company's future success. While Google was the dominant online provider and Apple was the ruler of the world of mobile products, Microsoft was struggling to invent and then losing interest in their own products when they did. In 2014, a new CEO, Satya Nadella, started his tenure with a major restructuring of the company. His first order of business was to do away with the damaging internal competition that posed so much of a threat. But he also wanted to reinvent productivity and business processes, build an intelligent cloud platform, and create more personal computing. With a restructure plan and this three-pronged mission in hand, he went to work. Nadella waited two years before he merged Microsoft Research Group with the Bing, Cortana, and Information Platform group teams to create a new artificial intelligence and research group whose goal is to innovate artificial intelligence across Microsoft's product lines. Restructuring this organization was a success in that it refocused Microsoft's people. The company was suffering from low employee engagement. Manipulating the organizational structure to eliminate harmful competition and create new team focus was a huge win. Nadella helped Microsoft's employees find a new sense of meaning in their work. 6 Organizational Case Studies: Aligning Goals, Structure, and Effectiveness Now that you have learned about the circular relationship between goals, structure, and effectiveness, you will explore some more examples and case studies demonstrating how structure affects whether an organization can meet its goals. A key to this challenge is reevaluating the purpose of an organization and then ensuring the goals align with the organization and all its scheduled projects. This typically requires making changes in some part of the organizational structure and culture, keeping employees, customers, and stakeholders alike in mind. Developing a common understanding among the key stakeholders of the purpose, objectives, and goals of an organization is called the alignment process. Alignment can require several days of activities. Numerous companies specialize in designing and facilitating alignment sessions when they have large complex projects that are essential for the company's goals and effective operation. Although designed to meet the needs of each project, alignment sessions have some common agenda items:

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 Developing a common understanding of the project purpose  Agreeing on the means and methods for accomplishing the purpose  Establishing trust among team members A common understanding does not mean building a consensus. People may disagree with the direction being developed, but they have the same basic understanding as those who agree. For a goal to be effective, there must be a critical mass or sufficient commitment among the critical stakeholders. Therefore, disagreement is not fatal to the application of goals, but a unified team with a common understanding is much more powerful and increases the likelihood of success. If disagreement does exist, an open and forthright discussion will enable the leadership to address the disagreement in developing the objectives and goals. If the disagreement stays hidden and is not openly discussed, problems will emerge later. Developing a common understanding can be as easy as an informal discussion that lasts a few hours, or it can be a lengthy, complex process. The methods and processes employed to develop a common understanding are directly related to the complexity of the goal. The more complex goals will require more intense discussions around those issues that score high on the complexity profile. Developing a common understanding among the key stakeholders requires the following:  Defining success  Determining potential barriers to success  Establishing key milestones  Identifying decision-makers and the decision-making process 7 Aligning goals with an organization's structure directly impacts its effectiveness. As Deshler (2016) stated about an aligned organization, it "is one that optimally syncs the work, structure, metrics, people, rewards, culture, and leadership to strategy." These are 10 benefits of alignment in an organization: 1. Faster decision-making because everyone understands who within the organization holds the power to make decisions 2. Better employee engagement because employees understand the importance of their work and how it contributes to the company's success 3. Reduced wasted resources because of the focus on activities that promote growth and align with goals and priorities 4. Improved self-governance because employees clearly understand their work and priorities and how their decisions impact the company 5. Decreased customer confusion because company mechanisms are in place to ensure delivery of expectations consistently 6. Increased leadership credibility and respect because leaders can deliver on promises, meet expectations, and earn employees' respect 7. Greater visibility of resources because all are known and available to fill in as needed to address challenges 8. Optimized talents and skills because of clearly defined responsibilities and roles, which allow full utilization of talents 9. Safer risk taking because of better understanding of known or anticipated outcomes 10. More dynamic culture because of positive energy and focused efforts (Deshler, 2016)

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Amazon is a large corporation that successfully aligns its organizational goals with its operations management in order to increase productivity. This in turn ensures its overall structure maintains the organization's effectiveness. As Ferguson (2017) stated, "Amazon.com Inc.'s e-commerce success depends on the high efficiency achieved in its operations management (OM), which directly determines productivity." The company accomplishes this through 10 strategic areas within its operations management: 1. Design of goods and services using advanced information and communication technologies 2. Quality management with continuous improvement including creative input from employees 3. Process and capacity design with extensive automation and related technologies streamlining the process 4. Location strategy involving situating warehouses and fulfillment centers in optimal locations near large customer-populated areas 5. Layout design and strategy aligning with computer-assisted processes, which, for warehouses and fulfillment centers, maximize shelf space, minimize aisles, and achieve optimal capacity while not reducing efficiency 6. Job design and human resources using in-house employment and third-party employment agencies to align with organizational growth and human resource needs 7. Supply chain management through streamlining with automation and tracking orders 8. Inventory management using just-in-time processes to ensure optimal inventory ordering, holding, and fulfilling 9. Scheduling by relying on automated shipping schedules originated at fulfillment centers 10. Maintenance involving specialized teams who maintain technological assets and training workers to "maintain human resource capacity to satisfy the company's needs for its e-commerce business" (Ferguson, 2017) Amazon determined that additional tech training of employees would further improve productivity in areas including inventory, fulfillment center, and customer service. This decision to redesign its internal structure would also enable Amazon to be more employee oriented. The Bridgespan Group, a global nonprofit organization, presented this report based on a survey by Bain & Company Inc., a for-profit strategy consulting firm. It provides a comprehensive look into organizational structures, strengths, and effectiveness relevant for both for-profit and nonprofit organizations. "Too many people are involved in every decision." "Staff complain about unclear and changing priorities." "No bench strength exists in the leadership ranks to take on new tasks." "Staff are duplicating work and reinventing existing processes." Organizational inefficiencies like these are all too familiar to nonprofit leaders and management. And they come with a high cost: lower potential for making progress toward the important societal challenges and opportunities organizations seek to address. Simply put, effective organizations deliver results. This connection has been well documented in the for-profit sector, with highly effective organizations demonstrating superior market performance to their less effective peers. The same connection between effectiveness and performance has been observed time and time again in Bridgespan Group's work with over 200 nonprofit organizations. Given the link, it is critically important for nonprofit leaders to assess their organizations' effectiveness and become more purposeful about improving it.

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How can organizations become more effective? Based on Bridgespan Group's experience, and in line with organizational research from Bain & Company Inc., an organization must demonstrate strength in each of the following areas to be fully effective: leadership, decision-making and structure, people, work processes and systems, and culture. These elements are interconnected. Strength in one area offset by weakness in another does not appear to result in sustainable improvement. All five elements must be strong to create a highly effective organization. In the case of nonprofits, diagnostic surveys of 42 nonprofits suggest that there is significant room for nonprofits to improve their organizational effectiveness across all five categories. While many nonprofits owe their initial success to visionary leadership, only systematic development of each of these five areas will lead to the managerial strength required to sustain growth and outcomes. Organizations need to establish and communicate clear priorities, make roles and responsibilities explicit, create clear connections across organizational silos, and develop the talented people they attract. Otherwise, they will fall short of their full potential for impact. In this section, you will examine the survey results in more detail and see concrete managerial advice for strengthening the five core organizational elements that companies should pursue to become more effective organizations. 8 The Link between Organizational Effectiveness and Results The lack of a common measurement of performance in the nonprofit sector makes it difficult to prove the link between organizational effectiveness and results quantitatively. In the for-profit world, however, barometers such as profitability and shareholder value make this assessment possible. Consider the research of Bain & Company, the for-profit strategy consulting firm. Bain surveyed more than 500 companies about their organizational effectiveness and also measured the market performance of those companies. Of the respondents from the "strongest financial performers," 80% rated their companies highly effective while only 14% of the total pool of respondents did so. Bain also developed an in-depth diagnostic survey to assess the companies' performance in five areas: leadership, decision-making and structure, people, work processes and systems, and culture. The bulk of respondents from the smaller, high-performing group gave their companies much better marks across the board than did their more average- performing peers. The lessons emerging from Bain's research are clear: Effective organizations deliver results, and strength across all five elements is required. Experience working with nonprofit organizations has borne this out repeatedly. Room for Improvement The link between organizational effectiveness and results puts a premium on understanding how nonprofits function organizationally. To inform this perspective, Bain's organizational diagnostic survey was adapted, asking similar questions designed to assess nonprofit organizations' strength in each of the five categories that distinguish high-performing companies. As of this writing, this diagnostic has been administered to more than 40 nonprofits with annual budgets ranging in size from less than $5 million to about $200 million. The analysis indicates that while nonprofits have some tremendous organizational assets, weaknesses in other areas hold them back from achieving their full potential for impact. In short, significant room for improvement exists. Responses to the diagnostic survey painted the following picture:  Leadership: Nonprofit leaders tend to establish strong visions and build strong teams. These same leaders, however, seem to be less effective at translating a compelling vision into a set of explicit goals and corresponding priorities. They are even less effective at communicating priorities throughout their organizations.  Decision-making and structure: The ability of people to coordinate and work well together across organizational boundaries is an area where nonprofits tend to run into difficulties. Decision-making roles and processes also appear to be a significant weakness.  People: Nonprofits appear to attract good talent and do well placing the right people in the right jobs. However, these employees do not feel that their work is well aligned to the priorities of the organization. What is more, organizations on average have

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some difficulty evaluating, developing, and rewarding staff consistent with the organizations' priorities. This finding is not surprising given leadership scores on setting and communicating priorities. Further, nonprofits in general do not appear to prepare adequately for leadership transitions and succession. This area emerged as the biggest weakness overall.  Work processes and systems: Nonprofit employees, on both the program and administrative sides, appear to be skilled and motivated. Working conditions, however, hamper their effectiveness. In particular, work processes are not well defined, and resources are scarce. While this last point did not emerge strongly in the survey data, in Bridgespan Group's work with nonprofit organizations, working conditions appear repeatedly as a major impediment.  Culture: Culture is a clear strength. Interestingly, however, the ability to execute change is a weakness. This finding may also correlate to the relatively low leadership score in setting priorities. Nonprofit leaders cannot effectively change the direction of their organizations if they do not know what their priorities are and what they want the change to accomplish. These findings are consistent with Bridgespan Group's experience working with and observing many nonprofits. For the most part, they are strongly led but undermanaged. Many nonprofits have inspirational and visionary leaders who attract hard-working people with great passion for the cause at hand. However, these same leaders often find it difficult to implement and codify the kinds of mechanisms that would help these highly motivated people be as productive as possible. Good managers know how to bring discipline, structure, and process to bear, and this is where nonprofits seem to be most lacking. 8 ecoming More Effective The key to becoming more effective, then, is to invest in management capabilities, to move to a place where the nonprofit is not only strongly led but also strongly managed. As noted, Bridgespan Group's research suggests that nonprofits need to take a holistic approach toward improving effectiveness, shoring up management capabilities across the board. A good place to start is with the areas the research has shown to be most prone to weakness. The following five sets of questions can help an organization's leadership team assess those areas and set a purposeful course toward improvement. Given that many of the issues illuminated by the survey data link to unclear or poorly communicated strategic priorities, Bridgespan Group recommends beginning with that challenge. 1. Are you clear on the strategic priorities that will enable the organization to achieve the desired impact over the next several years? Have you communicated the strategy clearly enough that everyone in the organization understands where the team is going, why, and how to get there? Clear priorities are the "north star" against which an organization can align its people, structure, and processes and build its culture. When an organization's leader has established clear priorities, he or she has essentially defined what "success" will look like. Against that goal, it becomes easier to determine which programs or initiatives are essential, and which are not, and to allocate resources accordingly. Take an organization that serves students who are at risk for dropping out of high school for example. Where does that organization draw the line in terms of serving these young people? What if an opportunity arises to help recent dropouts get back into school? What about an opportunity to help younger students move out of the at-risk category before they enter high school or to strengthen the home lives of these students? Unless the leadership team has established and communicated what matters most, it can be difficult to chart a course in the face of such options. One way to determine if your organization has clear priorities is to ask each member of the senior management team to make a list of its top five priorities for the next one to three years. Once you have compared the lists, you will be able to see whether the team members are on the same page. If they are, you will next want to determine whether the priorities are well communicated throughout the organization. To find out, ask a representative sample of managers at the next level down to engage in the same exercise. These simple exercises will help you determine if your challenge is clarifying priorities or if you need to work on communicating the priorities to enable alignment to them.

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2. Given the organization's priorities, what decisions are truly critical? Is it clear who is responsible and who has the authority to make those decisions? With clearly communicated priorities come more consistent decisions, given that decision- makers throughout the organization are guiding their choices with the same compass. That said, ample room often remains for refinement of the decision-making process itself. A well-defined decision-making process leads to more efficient, responsive, and transparent decisions, with less role confusion and therefore less conflict. Establishing and implementing a strong decision-making process is a complex endeavor, one that is hard to do well. So it may be valuable to use a management tool specifically designed to help an organization's leaders unravel the decision-making process, clarify roles and responsibilities, and set clear expectations for decision-making going forward. The process of using such a tool can help leaders get past preconceived notions of structure and more fully engage in a holistic approach to their organization. The national leadership team at Boys Town in Omaha, Nebraska, for example, used a tool called RAPID to clarify decision-making between the national headquarters and site-based program leaders. Historically, decision-making had been highly centralized, with a small group of people at the national headquarters making many decisions about local operations—from hiring to merit pay increases to purchasing furniture. As Boys Town continued to expand its services, though, that approach no longer worked well. With input from managers throughout the organization, an internal project team worked with national office management to draft a matrix that classified the types of decisions Boys Town site-based leaders faced and set boundaries of authority and responsibility for decision-making going forward. This process helped the organization push decision-making down to the right level and clarify when and how the national office should be involved. 8 3. Who in the organization must work closely together to achieve these priorities. Does the company structure enable them to do so? Identifying the work that is critical to achieving the organization's priorities, who does that work, and how it delivers the desired outcomes helps reveal which people need to work together and ultimately whether the current structure facilitates their work. Organizational design experts in the for-profit and nonprofit sectors alike talk about the "grouping and linking" of work. They find that most leadership teams pay a lot of attention to how work is grouped, around geographies, for example, or product lines or functional areas such as finance or HR. Most, however, pay less attention to how people need to work together across these groups and thus fail to implement the kinds of structural mechanisms that can make such coordination easier. Without these mechanisms, people end up working in their own silos. The fallout ranges from wasted time (as people try to find information that is not readily available to them) to poor quality work (when the right input is not incorporated) to poor execution (because stakeholders critical to implementation fail to buy in). To help people work together more effectively across departments or groups, start by identifying critical areas in which such work takes place. Then narrow that list to the areas that link back to the organization's top priorities. Armed with this information, creating explicit linking mechanisms becomes a more manageable endeavor. Some organizations use cross-functional working teams. Others require staff members to serve as liaisons between departments—for example, asking a finance manager to work with a specific program. 4. Do you have the right people and capabilities to achieve the company's priorities. Do the organization's people feel that their goals and measures align with these priorities? One way to assess and improve the effectiveness of your people is to determine how they align against the organization's priorities. For each priority, identify who is working on it and compare it to items that are of lower priority. Ask yourself, "Do I have enough people against things that matter? Are my best people allocated against the things that matter the most? Have I taken lower-priority work away from these people so that I am sure they will succeed?" Doing this can be especially critical in times of change, be it regrouping after layoffs or embarking on a growth trajectory. These are the times when management team members tend to take on new responsibilities, sometimes overextending themselves and under-resourcing critically important areas.

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It is also important to maintain the connection to the organization's high-level priorities when setting individual performance goals and assessing staff performance. Too often, performance reviews are "check the box" activities. It is easier for participants to take reviews seriously—and feel that the process is valuable—when individual goals are clearly linked to the organization's overall goals. Performance reviews also should lead to action, influencing skill development plans, future job assignments, promotions, and rewards. Consider an example from another nonprofit that offers mentoring services. Leaders had told staff members that the organization's priorities included increasing the number of mentoring matches each staff member sets up, maintaining the quality of the matches, and balancing matches across easy- and hard-to-serve communities. During performance reviews, however, staff were assessed and rewarded only on the number of matches—the easily quantifiable metric. As one middle manager stated, "Staff members are routinely put in a position where they have to make a choice between actually doing their jobs well and appearing to do their jobs well." When this feedback was shared with senior leaders, they redesigned the process to include data and qualitative feedback on these other dimensions. They also began to reward employees who had performed well against all of the organization's priorities. This change has contributed to improved employee morale, and it is expected to drive more balanced performance across the organization's priorities. 5. Have you defined the work processes and tools to enable the organization's people to be effective as they address the company's top priorities? Time spent clarifying and honing work processes and making them explicit and accessible to employees can reduce rework and reinvention. The effort can also contribute to consistency and improving levels of quality. This is gold to any nonprofit, but it is particularly valuable when an organization is struggling to increase the impact on a tight budget or embarking on an expansion plan. Consider the experience of KIPP, a charter management organization currently operating schools in 19 states and the District of Columbia. In 2000, when KIPP had only two schools (both high performing), the organization received a large grant to replicate its efforts across the country. KIPP's small leadership team recognized that in order to grow successfully, they would need to articulate the work processes—both programmatic and administrative—that had made the model so effective in the first place. These processes included how to build a strong local board, budget for a new school, and hire the right teachers. To codify these processes, the organization's leaders documented the steps they had taken to set up their first two schools. By doing this, they ensured that the principals in each new KIPP school did not have to spend time reinventing the fundamentals of the model and could instead spend more time focusing on educating the students. In addition to getting the processes right, deploying tools and technology can also increase organizational effectiveness. With limited funds available, many nonprofits are hesitant to make these kinds of investments, but they can have a huge payoff. Consider one large youth-serving organization whose leaders discovered that completing essential documentation after each case interaction was a major source of stress for staff members. The process was labor intensive and time sensitive. As a first step toward addressing the problem, the organization tested voice recognition software that allowed staff to dictate their notes, which were then automatically transcribed. Not only did the software cut documentation time in half, but staff members also began to find the task much less onerous. In fact, the organization's leaders believe that adopting this technology has been a major contributor to improved staff retention, increasing quality while reducing hiring and training costs. Progress toward becoming a more effective organization means progress toward increasing your impact. Whatever your organization's strengths and weaknesses, a purposeful and holistic effort to improve effectiveness will be worthwhile—not only for your employees and volunteers but, above all, for those your organization seeks to serve. 8 Review how Nucor's decentralized organizational structure contributes to how effectively the company meets its goals:

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 Employees act as co-owners of the company by taking responsibility for taking care of customers.  Employees receive bonuses based on a reward and profit-sharing incentive that motivates them to help the company perform well.  Alignment between company and organizational goals results in low employee turnover rate and non-unionized status. 9 The Importance of Trust for Organizational Effectiveness Trust is an essential element among all participants in an organization if it is going to function effectively. Cooperation and coordination necessarily require trust among all key players as they act on intentions and engage in behavior and communications in an organizational setting. What can enhance trust among members in an organization and therefore improve its effectiveness?  Opportunities to socialize outside of organizational contexts  Shared commitment to organizational values  Existence of confidence in teammates and management  Cultivation of trust for collaboration and teamwork (Little, 2018) Trust on a project has a very specific meaning. Trust is the filter that project team members use for evaluating information. The trust level determines the amount of information that is shared and the quality of that information. When a person's trust in another person on the project is low, he or she will doubt information received from that person and might not act on it without checking it with another source, thereby delaying the action. Similarly, team members might not share information that is necessary to the other person's function if they do not trust the person to use it appropriately and respect the sensitivity of that information. The level of communication on a project is directly related to the level of trust. Trust is also an important ingredient of commitment. Team members' trust in the project leadership, and the creation of a positive project environment fosters commitment to the goals of the project and increases team performance. Establishing trust starts during the initiation phase of the project. The kickoff meeting is one opportunity to begin establishing trust among the project team members. Many projects have team-building exercises during the kickoff meeting. The project team on some complex projects will go on a team-building outing. One project that built a new pharmaceutical plant in Puerto Rico invited team members to spend the weekend spelunking in the lime caves of Puerto Rico. Another project chartered a boat for an evening cruise off the coast of Charleston, South Carolina. These informal social events allow team members to build a relationship that will carry over to the project work. In summary, remember the following:  The purpose of the alignment process is to develop a common understanding of the purpose, agree on the means and methods, and establish trust.  The components of the alignment process are discussions of the purpose, goals, participant roles; methods of tracking progress and costs; methods of managing change; and building trust.  The effects of a lack of trust are delays caused by fact checking or missing information that was not shared because the person's discretion was not trusted to handle sensitive information. 7  The structure and operation of an organization must work together for maximum effectiveness. An aligned organization has the greatest opportunity to achieve its goals. If an organization is not aligned, structural changes may be necessary so the organization can be more effective in meeting its goals (Deshler, 2016). Review of Nau's Changes in Organizational Structure Nau's organizational structure was decentralized, similar to this image.

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Nau began as a small company creating outdoor urban apparel constructed from sustainable materials and processes, with the entire life cycle of the product in mind. After just three years of rapid growth and expansion, their structure was no longer effective, and they briefly closed under bankruptcy protection. Shortly after that, they reorganized as a subsidiary of a larger company called Horny Toad while maintaining their own core values and other functions. These are the various functions Nau shares with Horny Toad and those Nau solely owns. The restructuring contributed to a more effective structure, which has proven to be a decentralized structure. 9 Shared functions with Horny Toad HR department Product independence IT department Business strategy Warehousing space Supply chain managemen Finance Reduced number of empl The restructuring in 2010 was successful for Nau. Today, Nau is still going strong and still maintains its four underlying values: 1. If it does not exist – invent it. 2. Refuse to compromise. 3. Make clothing that lasts. 4. Do more by giving back (Nau, 2019). What has happened in the years since the Toyota recall of 2009? Through this series of structural and management changes and through overcoming various obstacles, Toyota recovered and thrived with greater effectiveness as a global organization. Review the timeline in this table for some milestones and updates (Toyota Newsroom, 2019; Tajitsu, 2016; Koenig, 2018; DCG News, 2019):

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Year 2011 Natural disasters in Japan production returned to ne Milestones in the United S redesigned vehicles, the s Kentucky, and the expans the new plant in Mississip 2012 Toyota, Lexus, and Scion became the top retail bran Nineteen new and redesig numerous rewards. 2013 Toyota, Scion, and Lexus the highest luxury brand. Milestones included the s celebrated its 30th annive 2014 New Toyota headquarters technical center in Michig Thousands of Corollas an outside the United States. The Kentucky plant reach A new innovative model, 2015 Toyota broke ground on n its technical center in Mic More plants produced the awards, including the high The announcement was m California. 2016 A new research facility op The announcement was m increase business division function for several car m 2017 As part of a new $154 exp design and prototype faci 2018 R&D operations in Michi with suppliers and engine 2019 Toyota consolidated "29 d management offices, and service centers" (DCG Ne The company increased fr presence nationwide. What began as a divisional organizational structure with a "strong centralized global hierarchy" changed significantly in 2013 and continues today. The organizational structure now comprises three main characteristics:

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 Global hierarchy : While all business heads report to the global headquarters in Japan, the structure is less centralized, granting regional and business unit heads more decision-making authority.  Geographic divisions : Toyota now has eight regional divisions around the globe, with each regional head reporting to the global headquarters in Japan.  Product-based divisions : Four divisions include Lexus International; Toyota Number 1 for North American, European, and Japanese operations; Toyota Number 2 for all other regional operations; and the Unit Center, which includes engines, transmissions, and all related operations. This restructuring provides significant effectiveness with greater flexibility, greater capacity to respond to regional market conditions and issues, and greater facilitation of business resilience and ongoing growth (Gregory, 2018). Check In with Sophia, Product Manager at Synesthor Sophia and her senior manager, Lulu, are discussing how to properly structure Sophia's team so they can meet all their set goals as they take on a large product development project. Sophia: "How are we going to reach these goals in a timely manner?" Lulu: "Each team member needs to have a different role. Figure out their individual strengths and then have them each complete their task and work together as a whole. Assigning this kind of personal responsibility is a good way to reach goals and have each person play to their strengths." Sophia: "But what about accountability? How can I make sure that everyone is staying on task?" Lulu: "You will have to assign a supervisor or have them report directly to you. Establish a hierarchy so that each person has someone to answer to so that everyone is held accountable for his or her own work." Sophia: "Okay, thank you for your advice. I feel much better about this project now." Lulu: "No problem at all, Sophia. Remember, it is all about setting up a defined structure. While we work most often on a team-based structure, a matrix structure often works more effectively with a bigger project. When everyone knows their role, it becomes much less intimidating to take on bigger tasks. In fact, our plan is to reorganize our departments so your product development department can mesh with the operations department. Since the responsibility of operations management is to oversee design and to control the process of production, this structural change makes the most sense. It will ensure both product development and operations will continue to maintain and promote the overall effectiveness of our organization." Lesson Summary Reflect now on what you learned about the circular relationship among goals, organizational structure, and organizational effectiveness. You learned that the structure of an organization has a direct bearing on its success by influencing its effectiveness in achieving established goals. Structure impacts the processes that enhance an organization's efficiency with meeting its goals. You also learned that an organization's employees are most often the vital resources behind helping an organization meet its goals. You also explored how essential alignment is in promoting effective performance and profitability and why structure and design facilitate organizational effectiveness. You discovered that barriers sometimes necessitate a restructuring or redesign when an evaluation reveals the existing structure or design is no longer effective. You explored numerous case studies on how companies made necessary changes to their structures to become more effective. Finally, you checked in with Sophia. You learned that she and Lulu successfully evaluated Sophia's organizational structure. Sophia determined she would follow Lulu's suggestions to make the structure more effective in relation to Sophia and her team's large product development project. By doing so, they would maintain the integrity and effectiveness of the organization.

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The matrix structure combined functional and product structures, combining employees from the operations department and product teams. This provided a path for each person to report to a department manager and a product manager. In this structure, Sophia would have control and say over product-related matters. This change to a matrix structure was created in response to the need to give particular attention to the new account needing augmentative and alternative communication products. Using the matrix structure instead of distinct departments should increase communication and cooperation among departments, since Sophia as the product manager would coordinate the various teams' actions with department managers. 2 Module 3: Legal Business Entities Do you know someone who owns a business? If so, have you ever asked that person what business designation applies to the business? Several common legal business entities exist for a business owner to choose from, depending on the mission, vision, and purpose of the business, as well as its liability and taxation considerations. Each business entity also has its own presentation to potential customers or clients. Think about how it feels to walk into different businesses. Some feel casual and informal while others present a more rigid and formal environment. At one end of the range of business entities is sole proprietorship. People who are self-employed and work from home often have a home office. They may or may not have a set schedule for the day's work, but they typically have more flexibility in accomplishing tasks and interacting with people online, on the phone, or in person. Other self-employed people, such as a man who owns a natural foods store in a small town, have a couple of employees. They have a set schedule and set store hours for customers to walk around, see what is available, and make purchases. On the other hand, consider any dentist's, doctor's, or lawyer's office you might have visited. These businesses tend to be more formal as they have specific services to offer, and usually only by appointment. At the top of the range of business entities are corporations. These larger companies typically have multiple people in management positions and many employees. For instance, perhaps you have a large business that mills wood or manufactures metal products. Maybe another large business provides services to install digital equipment and to troubleshoot related problems. In these more formally structured businesses, you often walk into a reception area to ask questions or state your reason for seeking to speak to someone at the company. In any case, each business would register as a specific legal business entity. The six most common entity designations in the United States include sole proprietorship, general partnership, limited partnership, limited liability company, limited liability partnership, and corporation. In addition to the different business entity designations, businesses also differ in characteristics such as taxation, liability, and ownership or control of the business. In the case of sole proprietors, they are individually fully responsible for taxes, liability, and control of the business. Individuals with businesses or companies under a partnership designation share responsibility in those areas, either fully or in a limited capacity. Corporations typically have multiple owners and shareholders, all of whom share responsibility for taxes, liability, and control at varying levels. 1 In this module, you will learn about the common legal business entities of six different companies. You will explore how the characteristics of taxation, liability, and ownership apply according to each business structure. Finally, you will meet three companies in the same industry and learn how they operate under varying legal structures. Learning Objectives  Describe the characteristics of common legal business entities. Lesson Introduction

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Business structures can vary from individual owner to two or more partners jointly owning a business to large corporations with numerous owners and shareholders. Anyone who owns a business has to choose a designation that enables the business to operate effectively and manage liability and taxes. Six common legal business entities and companies that operate under those designations are as follows: 1. Sole proprietorship: A sole proprietor is an individual who owns an unincorporated business. For instance, Maria Lee runs her business from home, as an educational consultant. She operates her business under the name, ML Educational Consultancy. 2. General partnership: A general partnership is formed when two or more persons agree to share profits and losses in a joint business venture. Siblings Leilani and Loto Patel chose this designation for their restaurant, the Wild Parsley Grill. 3. Limited partnership: A limited partnership must be formed in compliance with state statutes that provide limited liability to limited partners who agree to refrain from management of the business. There must be two types of partners in a limited partnership: general partner(s) and limited partner(s). General partners manage the business and have unlimited liability, while limited partners have limited liability because they do not manage the business. Two couples who are long-time friends operate the shop The Yellow Leaf Bookstore, and they chose the limited partnership designation for this new business. 4. Limited liability company (LLC): An LLC is a hybrid form of business that provides limited liability to owners and may be treated as a partnership for tax purposes if the owners so elect. This is the business designation that Lucas Johnson and his business partner, Eva Williams, chose to form an education publishing company that they named Kretsmart. 5. Limited liability partnership (LLP): An LLP is similar to an LLC but is designed for professionals who do business as partners. Hair stylists Sophia and Talia chose this business designation for their hair and nail salon, which they named, Smartistry. 6. Corporation: A corporation is a legal entity chartered by the state, with a separate and distinct existence from its owners. There are two types of corporations: a C Corporation and an S Corporation. One distinction between C Corporations and S Corporations is the way they are taxed. C Corporations incur double taxation, while S Corporations incur flow-through taxation. A C Corporation is the entity that four education professionals chose to form and register a business, they named The Alliah Company, focused on curriculum and assessment development. 1 What Are Common Legal Business Entities? The six common legal business entities range from a sole proprietorship to an entire corporation. Each structure has its own characteristics and rules of organization. Sole proprietorships A sole proprietorship is the most common way of doing business in the United States. Legally, there is no difference or distinction between the owner and the business. The legal name of the business is the owner's name, but owners may carry on business operations under a fictitious name by filing a "doing business as" or d.b.a. filing (Doing Business As (DBA): What is it and is it needed?, n.d.). For instance, in another lesson, you will learn more about Maria Lee, a sole proprietor who operates her business as ML Educational Consultancy. Sole proprietors enjoy ease of start-up, autonomy, and flexibility in managing their business operations. On the downside, they have to pay ordinary income tax on their business profits, cannot bring in

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partners, may have a hard time raising working capital, and have unlimited liability for business debts. General partnerships A general partnership is formed when two or more persons agree to share profits and losses in a joint business venture. A general partnership is not a separate legal entity, and partners are jointly and severally liable for the partnership's debts, including acts of malpractice by other partners. Income from a general partnership flows through to the partners, who pay tax at the ordinary personal income tax rate. The Wild Parsley Grill is a family-owned restaurant operated by siblings Leilani and Loto Patel, who specialize in cooking and serving delicious meals made from organic and natural foods. The siblings had wanted to embark on this business venture since they were teenagers and chose the general partnership designation for their restaurant. As business partners, they equally contribute their money, labor, and expertise in food preparation and customer service. They even grow some of their own organic vegetables and fruits that they use in their restaurant. Leilani and Loto are meticulous not only in their food preparation but also in keeping track of their financial records. They have to file taxes every year and report profits and losses. Limited partnerships In most states, general partners can also bring in limited partners, creating a limited partnership. Limited partnerships must be formed in compliance with state statutes that provide limited liability to limited partners who agree to refrain from management of the business. Limited partners enjoy limited liability but generally cannot participate in day-to-day management of the business. There must be two types of partners in a limited partnership: general partner(s) and limited partner(s). General partners manage the business and have unlimited liability, while limited partners have limited liability because they do not manage the business. There must be two types of partners in a limited partnership: general partner(s) and limited partner(s). General partners manage the business and have unlimited liability, while limited partners have limited liability because they do not manage and their liability is based on their investment amount. Limited partnership may elect a member-managed or manager-managed style to control the business. William and Lulu Sousa initially opened a bookstore as a general partnership. When their long- time friends, Kamal and Maya Phan, expressed their excitement about the endeavor, the Sousas decided to invite the Phans to be partners in the business. Since the four share a passion for old classic books, they named the shop The Yellow Leaf Bookstore. They decided to transition to a limited partnership designation for this new business endeavor. This business format requires the partners to not engage in daily management responsibilities, so they hired managers and staff to take on those tasks. The Sousas and Phans instead enjoy interacting with customers and working together on marketing and sourcing additional books for their store. LLCs An LLC represents a new trend toward business organization. It allows owners, called members, to have limited liability just like corporations. Unlike corporations, however, LLCs can avoid double taxation by choosing to be taxed like a partnership or sole proprietorship. Unless a business wishes to become publicly traded on a stock exchange, the LLC is probably the most flexible, most affordable, and most compatible form for doing business today. In another lesson, you will learn more about Lucas Johnson and his business partner, Eva Williams, who formed an education publishing company that they named Kretsmart. Lucas and Eva share responsibilities for all of their company's decisions and operations on a daily basis. When filing taxes, Lucas and Eva function as partners, and each of them reports their business profits and losses on their personal tax returns. LLPs An LLP is similar to the LLC except that it is designed for professionals who do business as partners. They allow the partnership to pass through income for tax purposes but retain limited liability for all partners. LLPs are especially popular with doctors, architects, accountants, and lawyers. Most of the major accounting firms have now converted their corporate forms into LLPs.

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Sophia Costa and Talia Kalani are professional licensed hair stylists and cosmetologists. They operate a hair and nail salon named Smartistry. They chose to go with the LLP to protect their personal assets. Since this designation considers the business to be its own entity, this keeps the debts of the business separate from Sophia's and Talia's personal finances (Francis, 2019). Corporations A corporation is a separate legal entity. Owners of corporations are known as shareholders and can range from a few people in closely held corporations to millions in publicly held corporations. There are two types of corporations: a C-Corporation and an S-Corporation. If operating as a C corporation, shareholders of corporations have limited liability, but most are subject to double taxation of corporate profits. By electing to being treated as an S-Corporation under the tax laws, small businesses can avoid double taxation. State law charters corporations. Shareholders elect a board of directors who in turn appoint corporate officers to manage the company. In another lesson, you will learn about four education professionals who are fellow graduates. They formed a business that they named The Alliah Company. The team of four focus on providing curriculum and assessment development services. They appointed a board of directors and have a number of shareholders. The team makes sure they pay all required taxes on profits, and they distribute dividends to their shareholders. 1 Real-World Business Entities Most of the businesses you read about in this lesson are fictitious ones, created as examples to help you understand how the designation applies to a business. You might be surprised to learn about the structure or designation of some real-world businesses. Take a look at this list, and see which ones might be familiar to you: Sole proprietorship Have you ever visited eBay, perhaps to bid on something or to sell something? Pierre Omidyar originally founded eBay as a sole proprietorship. Maybe you have gone to a Kinko's to make copies or print some business cards. Paul Orfalea founded Kinko's as a sole proprietorship. Have you ever eaten Smartfood popcorn or enjoyed any of Annie's Homegrown products? Ann Withey, co-creator of those businesses, began them as sole proprietorships (Who Are Some Famous Sole Proprietors?, n.d.). LLC Amazon is a large, well-known, and fast-growing business. This giant online retailer, Amazon.com, has state subsidiaries set up as LLCs. It might seem strange that one of the world’s biggest companies uses a limited liability company (a business structure typically used by smaller businesses). The LLCs are beneficial from a tax perspective. General partnership or corporation Many of today's successful corporations began as a general or other type of partnership designation. When was the last time you stopped for a hamburger or chicken sandwich at McDonald's? Brothers Richard and Maurice McDonald opened their first barbeque restaurant–turned– hamburger stand in 1948. Then in 1961, Ray Kroc purchased the company and turned it into the global corporation it is today. The partners of Ben & Jerry's, founded in 1978 by Ben Cohen and Jerry Greenfield, expanded their humble ice cream shop business to a $4-million corporation in just five years. Then they sold it to Unilever in 2000 for $326 million.

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Apple Inc. was founded by the late Steve Jobs (who passed away in 2011) and Steve Wozniak in 1976. It is now one of the premier multinational technology corporations in the world (Eight Famous Business Partnerships, 2013). What Are the Characteristics of Common Legal Business Entities? Now you know about the six common types of legal business entities and examples of actual real-world businesses in those designations. It is important to explore the following three specific characteristics of legal business entities and learn how they apply to these business entities: 1. Taxation: Taxation refers to the manner in which the business owner reports profits and losses on personal or corporate tax returns. Depending on the business entity, the business owner would need to pay various types of taxes, such as income taxes, estimated taxes, and self-employment taxes. Beyond filing personal taxes using the common Form 1040, the business owner would also choose the appropriate forms for the business entity, such as Schedule C for reporting profits and losses and Schedule SE for reporting self-employment taxes. 2. Liability: Liability refers to the risk and responsibility for business debts and other actions related to the business. Liability varies depending on the business entity. For example, a sole proprietor is fully liable and responsible for all debts, while partners in a business share the liability and responsibilities among themselves. Although Entity Structure Taxation Liability Sole proprietorship Individual owner pays all taxes and reports profits or losses on personal tax returns. Individual owner is perso all business debts and resp General partnership Partners report annual income, deductions, gains, or losses to the Internal Revenue Service (IRS). The business does not pay income taxes but passes through profits or losses to partners, who report their shares of income or loss on personal tax returns and pay relevant taxes. Partners are personally lia business debts and manag and decisions. Limited partnership Partners report annual income, deductions, gains, or losses to the IRS. The business does not pay income taxes but passes through profits or losses to partners, who report their shares of income or loss on personal tax returns Limited partners have lim investment liability for bu and cannot participate in d management decisions. G partners have unlimited li business debts and have u

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Entity Structure Taxation Liability and pay relevant taxes. with management decisio LLC Members choose taxation as sole proprietorship, partnership, or corporation, not a separate tax entity. Taxes are passed on to members to pay through personal income tax filing. Members have a corporat protection and the tax stru partnership. LLP Profits, credits, and deductions are passed through to partners who file on personal tax returns. Each partner is not respon for another partner's misc negligence. Corporation Corporations pay taxes separately from the owners, who only pay taxes on profits and pay dividends to shareholders. Each shareholder pays taxes on the dividends in personal tax returns. S Corporations have flow through taxation. Shareholders have limited are only accountable for t investments. 3. shareholders in a corporation have limited liability, they may lose their investment amount. Tax liability exists in a number of areas: earned income, business, self- employment, payroll, sales, capital gains, and property tax liabilities (Who Are Some Famous Sole Proprietors?, n.d.). 4. Ownership or control: Ownership (control) refers to the designation of who owns or controls a business. This can be a single individual or many people, depending on the size and type of business. In a sole proprietorship, the individual has full ownership and control. In various partnerships, two or more people may share ownership and control. In LLCs members share ownership, however, control depends on member-managed or manager-managed elections. In corporations shareholders share ownership however, the shareholders elect a board of directors who appoints officers to control the management operations. These three characteristics apply to each business entity and its legal structure in different ways. 2 Lesson Summary

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Take a moment now to reflect on what you have learned in this lesson about common legal business entities.  Sole proprietorship : A sole proprietor is an individual who owns an unincorporated business.  General partnership : A general partnership is formed when two or more persons agree to share profits and losses in a joint business venture.  Limited partnership : A limited partnership must be formed in compliance with state statutes that provide limited liability to certain limited partners who agree to refrain from management of the business.  LLC : An LLC is a hybrid form of business that provides limited liability to owners while being treated as a partnership for tax purposes.  LLP : An LLP is similar to an LLC but is designed for professionals who do business as partners.  Corporation : A corporation is a legal entity chartered by the state, with a separate and distinct existence from its owners. You also learned about the following three major characteristics of these entities:  Taxation : The manner in which the business owner reports profits and losses on personal tax returns.  Liability : The risk and responsibility for business debts and other actions of the business  Ownership or control : The designation of who either owns or controls a business These three characteristics apply to each business entity and its legal structure in different ways. Learning Objectives  Explain the differences between companies with varying legal structures. Lesson Introduction You have learned about six different common legal business entities: sole proprietorship, general partnership, limited partnership, LLC, LLP, and corporation. Remember there are also three primary characteristics that apply to each business entity in different ways: taxation, liability, and ownership. Individuals in various businesses manage responsibility for these characteristics in accordance with their particular legal structures. Now you will learn about three companies in the education industry that have varying legal structures and how they manage those characteristics. You will meet Maria, who is a sole proprietor and runs her business from her home office. She offers various educational services and is fully responsible for all decisions related to her business. Next, you will meet Lucas and Eva, who are partners in an LLC. They offer educational publishing services and share responsibilities for all decisions and operations of the company. Finally, you will meet the team of a corporation that provides curriculum and assessment development services. They, together with other shareholders, share the corporation's responsibilities in different ways.

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Legal Structure Sole proprietorship Maria Lee is a sole proprietor of a business she runs from home. She organized her business as a DBA, doing business under the title ML Educational Consultancy. She has been working remotely for over a decade, providing a number of services. These include writing, editing, instructional design, curriculum development, and course and assessment writing. As a sole proprietor, Maria is responsible for all the decisions and responsibilities related to her business. Since she is an independent contractor, Maria must file as a self-employed individual and pay self-employment taxes. This often means paying quarterly estimated taxes to lessen the impact of taxes owed at the end of the year. Through careful record keeping, Maria can also benefit from certain tax deductions, such as the home office expense and related costs of running her business. One of the risks or disadvantages of being a sole proprietor is that Maria alone is responsible or liable for all decisions, obligations, and outcomes of her work performance. To protect herself, Maria has elected to maintain a small liability insurance policy to protect herself in the event a client brings any kind of legal action against her. 1 Tax Tips for Sole Proprietors" (2:50) This video explains how sole proprietors can utilize a wide range of tax savings techniques. This includes the ability to claim many of the same expenses and deductions as corporations. https://www.youtube.com/watch?v=dG_TOExHRss&t=2s LLC Lucas Johnson and his business partner, Eva Williams, own an education publishing company they named Kretsmart. They chose to file as an LLC and are therefore considered members of the company. As owners and members of the company, Lucas and Eva share responsibilities for all decisions and operations of the company on a daily basis. When filing taxes, Lucas and Eva function as a partnership. Each of them reports profits and losses from the business on their personal tax returns. The business itself is not a separate tax entity. However, since an LLC is considered self-employment, Lucas and Eva also have to pay self-employment taxes. Since their company is structured as an LLC, Lucas and Eva have limited liability. Their personal assets are protected, but they are not shielded from wrongful acts any employees of theirs might do. 1 "What Is a Limited Liability Company (LLC) and How to Start Your Own Business" (14:14) This video covers what an LLC is and illustrates how to start your own LLC to get your business operating. https://www.youtube.com/watch?v=edO6w5H8FNc Corporation A group of four education professionals formed and registered a business soon after they graduated, intending to focus on curriculum and assessment development. The members include Anika Patel, Leilani Yoshida, Diego Garcia, and Mateo Phan. They named their business The Alliah Company.

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As corporate shareholders, they appointed a board of directors who then hired directors and other officers for the corporation. Anika, Leilani, Diego, and Mateo pay all the required taxes on profits the company earns. Any dividends distributed to shareholders will also be subject to taxation in each shareholder's personal tax returns. Liability is limited for the corporation. Shareholders' personal assets are protected. The shareholders are only accountable for their stock investments. 1 "Corporate Formation" (11:45) This video explains how to form a corporation and mentions briefly other entities, including LLCs and partnerships. It also discusses other features and characteristics of corporations. Learn Law Better. (2018, May 16). Corporate formation [Video file]. Retrieved from https://www.youtube.com/watch?v=ZADl5azXdLc Lesson Summary Take a moment now to reflect on what you have learned in this lesson about how three business entities managed taxation, liability, and ownership under different legal structures. Sole proprietorship : Maria Lee is a sole proprietor of a business she runs from home. Since she is an independent contractor, Maria must file as a self-employed individual and pay self- employment taxes. Maria alone is responsible or liable for all decisions, obligations, and outcomes of her work performance. LLC : Lucas Johnson Eva Williams own a small education publishing company they named Kretsmart. When filing taxes, Lucas and Eva function as a partnership. Since they are structured as an LLC, Lucas and Eva have limited liability. Corporation : A group of four education professionals formed and registered a business as a corporation and appointed a board of directors who then hired managers and other officers for the corporation. They pay all required taxes on the profits the company earns, and shareholders pay taxes on dividends when filing their personal tax returns. Liability is limited for the corporation. Their personal assets are protected since shareholders are only accountable for their stock investments. Module 4: Business Laws and Business Ethics What do you know about ethics? Simply defined, ethics are moral principles that guide behavior and decisions. Abiding by ethical considerations can help you discern between right and wrong conduct or decisions while keeping the overall good and potential outcomes in mind. Ideally, you can always tell the difference between right and wrong. However, sometimes right and wrong choices can be subjective. You will learn more in this module about some common ethical challenges. Ethical obligations apply not only in personal life but also in the workplace. Many work-related laws were created specifically with ethical conduct in mind to promote appropriate behavior in the workplace by individuals and toward other people. In fact, these kinds of laws basically codify ethical behavior as it applies to workplace conduct. As new ethical situations arise, they can naturally lead to new laws or regulations. Human resource (HR) laws and an employer's obligations to employees are related. These include employer actions such as the following:  Hiring and firing  Providing compensation and benefits  Setting vacation, sick time, and other leave Federal HR laws and regulations primarily drive workplace behavior. Some of the most commonly known workplace laws, and their related ethical behavior, represent mutual obligations for employers and employees alike.

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You should also recognize that organizations have external stakeholders, who are recipients of the organization's legal and ethical obligations. Employees likewise have obligations in the workplace, which can be legal or ethical. The related laws or policies will vary by employer because they may not be necessary in a particular environment. Disagreement exists about the fine line between actions that are unethical but not illegal, such as charging an inordinate amount of money for life-saving drugs, and actions that are ethical but are considered illegal, such as protesting for a cause and getting arrested. Keep in mind that business law is a moving target, subject to constant evolution as new situations and circumstances arise. In this module, you will learn about ethical obligations and laws in the workplace, as they apply to employers and employees alike. You will meet Fatima Williams, a graphic designer at Corollary Marketing, who encounters a difficult situation with discrimination and uncomfortable working conditions. You will specifically learn about the following laws and their related ethical and legal behaviors:  Title VII of the 1964 Civil Rights Act, which forbids any type of workplace discrimination  Fair Labor Standards Act (FLSA) of 1938, which addresses working conditions, pay, and child labor  Occupational Safety and Health Act (OSHA) of 1970, which promotes and upholds safety and health practices in the workplace You will explore the role of external stakeholders and how an organization interacts with them regarding legal and ethical obligations. Finally, you will learn about common employee obligations and their related laws or policies, such as the following:  Adhering to nondisclosure and noncompete agreements, which relate to contract law  Respecting intellectual property, which relates to IP law  Treating confidential information appropriately, which relates to ethics policy  Not using company resources for personal use, which relates to ethics policy Learning Objectives  Describe the relationship between ethical obligations and workplace laws. Lesson Introduction Ethical behavior is essential and expected in the workplace. Many workplace laws were created specifically to promote ethical behavior and are likewise grounded in ethics. In fact, certain laws codify ethical behavior based on specific criteria. In addition, as new ethical situations arise, new laws or regulations become necessary. Creating and implementing a code of ethics for the workplace helps employees understand what the employer's expectations are for appropriate conduct. The code of conduct typically covers what is and is not allowed and describes what the consequences are for violating ethical expectations (Bianca, n.d.). This lesson provides you with an overview of three particular workplace laws and their origination. Each law will then be covered in greater detail in a later lesson. These three laws and their related ethical conduct considerations are:

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 Title VII of the 1964 Civil Rights Act: This act forbids any type of workplace discrimination.  Fair Labor Standards Act (FLSA) of 1938: This act addresses working conditions, pay, and child labor .  Occupational Safety and Health Act (OSHA) of 1970: This act promotes and upholds safety and health practices in the workplace. Developing an Ethical Culture Implementing and enforcing an ethical policy or code of conduct is essential for maintaining an organization's reputation and promoting its success. Nicholas Epley, a professor of behavioral science, and Amit Kumar, an assistant professor of marketing and psychology, identified four pillars that uphold the ethical culture of an organization:  Explicit values . A simple, concise, actionable mission statement should embody the organization's ethical values. It should secure its operational strategies and enforce its policies about hiring, firing, and promoting from within.  Thoughts during judgment . Keeping ethical behavior and expectations in the forefront helps employees think before speaking or acting. It helps them consider the context of their behavior ahead of making choices.  Incentives . In addition to earnings and benefits, additional incentives such as promotions, recognition, and validation encourage employees to more easily engage in ethical behavior.  Cultural norms . Employers should embrace the power and appeal of social norms by emphasizing all the good things and accomplishments of employees who behave ethically. This, in turn, highlights the rewards of good behavior and indirectly addresses the negative consequences for those who are unethical (Epley & Kumar, 2019). Workplace laws, therefore, should facilitate the creation and maintenance of an ethical culture. Epley and Kumar (2019) offer the following suggestions for ways to accomplish this task in the areas of hiring, evaluation, and compensation:  Hiring . Introduce core values during the interview phase. Script interview questions around the value to determine suitable applicants. For example, an employer or HR interviewer may say to the applicant: Tell me about a time a coworker or a supervisor made you feel unsafe or uncomfortable, and how you handled it .  Evaluations . Structure performance evaluations of employees around core values to emphasize their importance within the organization and to reward appropriate ethical behavior. For example, an employer may rate an employee based on how well he or she upholds the company core value of integrity in online communications with customers.  Compensation . Align bonuses or other financial incentives, such as extra paid time off, based on a scorecard linked to core values. For example, an employer might award a bonus or extra vacation time based on the number of projects an employee completes on schedule or the number of random acts of kindness an employee shows to others (Epley & Kumar, 2019). Organizations should strive to create and maintain an ethical culture with clear, concise codes of conduct. Likewise, they should provide rewards for abiding by ethical policies, as well as enforce consequences for unethical behavior. Embedding a strong ethical culture based on these types of principles forms the foundation for an organization that is more likely to encourage appropriate ethical behavior and discourage unethical behavior.

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Ethical and legal behavior can often be confused—partially because they can often overlap. However, legal behavior and ethical behavior are different. For instance, it is not a legal issue to debate if you should take a longer than scheduled lunch or show up late for your shift, but it could be an ethical issue. Both legal and ethical shortcomings have significant consequences for business: Legal misconduct can result in fines and (depending on the severity of the misconduct) incarceration of perpetrators, and ethical misconduct can result in a loss of trust from customers and partners. In this section you'll get an introduction to ethics and learn why this is an especially challenging issue for companies that are trying to "do the right thing." 1 In the next section, you will learn more about legal and ethical implications of choices and some related workplace laws that evolved from changing circumstances in the workplace. Overview: Three Workplace Laws Ethical behavior and legal behavior differ and have their own relevant consequences, for good or bad, depending on the choices made. Ethics are a set of standards that govern the conduct of a person, especially a member of a profession. While ethical beliefs are held by individuals, they can also be reflected in the values, practices, and policies that shape the choices made by decision-makers on behalf of their organizations. Professions and organizations regularly establish a code of ethics that serves to guide the behavior of members of the profession or organization. Legal behavior, on the other hand, follows the dictates of laws, which are written down and interpreted by the courts. In decision-making, determining the legality of a course of action is facilitated by the existence of statutes, regulations, and codes. Unlike ethical considerations, there are established penalties for behaving in a way that conflicts with the law. However, as society evolves, what constitutes legal behavior also changes. For example, until recently, the possession or use of marijuana was illegal in the state of Colorado. As a result of the legislation that legalized marijuana, existing laws will need to be reinterpreted, and undoubtedly additional laws will be enacted to govern what was formerly illegal behavior. Whether or not an individual thinks it is ethical to use a potentially harmful substance, the fact is that the law now allows such behavior. 1 It is changes like these that led to changes in workplace laws and ethical expectations, such as these three specific workplace laws and their related ethical components. These will also be covered in greater detail in a later lesson. Each of these laws originated based on changing economic conditions, as well as political climates and societal pressure. Title VII of 1964 Civil Rights Act Originally passed on July 2, 1964, the Civil Rights Act outlawed discrimination under any circumstance, including on the basis of sex, race, national origin, color, or religion. Title VII was added to the Civil Rights Act to specifically forbid discrimination in the workplace based on the same criteria, therefore encouraging the existence of a diverse workforce (Gould, 2014). Fair Labor Standards Act (FLSA) of 1938 The Fair Labor Standards Act of 1938 addresses working conditions, pay rates, and child labor laws. The act originally established a minimum wage, overtime standards and wages, and the requirements and standards for child labor. It has since cycled through multiple changes, especially for raising the minimum wage (Ash, n.d.). Occupational Safety and Health Act (OSHA) The Occupational Safety and Health Act (OSHA) of 1970 defines terms for safety and health practices in the workplace. It originated as a law to specifically declare that employees are entitled to safe workplaces, free from known and recognized hazards. The OSHA also establishes standards for employee programs addressing assistance, education, training, and outreach (Walter, 2011). Scenario: Unethical Behavior and Discrimination in the Workplace What constitutes specific unethical behavior in the workplace?

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In a perfect world, it is always clear what is right or wrong. In the real world, things are often not so clear. Someone's wrong can be your right, which means your right will, at some point, be someone else's wrong. Most of the time, the "right" choice is subjective. In business, many of these ethical challenges appear in the form of bribes, conflicts of interest, issues of honesty and integrity, and whistle-blowing. 2 Bribery is the act of giving money, goods, or other forms of compensation to a recipient in exchange for an alteration of their behavior (to the benefit/interest of the giver) that the recipient would otherwise not alter. A kickback is a form of negotiated bribery in which a commission is paid to the bribe-taker in exchange for services rendered. 2 A conflict of interest is an ethical challenge that occurs when an individual or organization is involved in multiple interests that are at odds with one another. This is especially problematic in situations involving someone in a position of trust—such as a doctor, a lawyer, or a superior— who has competing professional or personal interests. These competing interests make it hard to act on behalf of one interest without compromising the integrity of the other. 2 A whistle-blower is a person who exposes any kind of information or activity that is deemed illegal, unethical, or not correct within an organization that is either private or public. In addition to ethics, social and organizational pressures are motivating forces. Individuals are more likely to blow the whistle when several others know about the wrongdoing because they would otherwise fear consequences for keeping silent. 2 One of the barriers to whistle-blowing is the belief—widespread in the professional world—that individuals are bound to secrecy within their work sector. Accordingly, whistle-blowing becomes a moral choice that pits the employee's loyalty to an employer against the employee's responsibility to serve the public interest. 2 Integrity means adherence to principles. It is a three-step process: choosing the right course of conduct; acting consistently with the choice—even when it is inconvenient or unprofitable to do so; and openly declaring where one stands. Accordingly, integrity is equated with moral reflection, steadfastness to commitments, and trustworthiness. 2 The major difference between honesty and integrity is that one may be entirely honest without engaging in the thought and reflection that integrity demands. The honest person may truthfully tell what he or she believes without the advance determination of whether it is right or wrong. 2 Companies that value honesty and integrity can expect to see those values permeate their company culture. In such a climate, coworkers trust one another, employees view management with less suspicion, and customers spread the word about the company's ethical behavior. 2 Fatima Williams, a graphic designer for Corollary Marketing, has encountered one of these difficult situations in her workplace that is a violation of integrity and a conflict of interest. It digresses from there into significant sexual harassment and discrimination. Fatima is a devout Catholic, and she has been a responsible and dedicated employee for the past several years. She is hoping that her work ethic and talent earn her an upcoming promotion to an executive position over the entire graphic design department. However, ever since the new position became available, her manager, Michael Thomas, has been acting unprofessionally toward her. When they see each other in the hallway, he always bumps into her in a seemingly accidental manner and brushes his hand against her backside. At least once a week, Michael waits by Fatima's desk and criticizes her wardrobe as something more appropriate for a nunnery. During meetings, he invades her personal space by sitting incredibly close to her. On more than one occasion during meetings, Michael has made mocking comments about the crucifix necklace Fatima frequently wears and frequently makes sexual jokes at her expense. Fatima wants to file an official ethics complaint about Michael's behavior of making her feel unsafe in the workplace, as well as his mockery of her religious beliefs. But Michael has told Fatima in no uncertain terms that if she does file a complaint, he will ensure she is never given a promotion. As time passes, the harassment and the sexual advances get worse. Michael openly refers to Fatima as the office Catholic and calls her on her personal number daily to see whether she is available for dinner or a drink.

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This behavior continues until the new position gets filled, and Fatima learns that her coworker, Jack Sousa, has been given the job. While Jack is a good employee, he has only worked there half of the time Fatima has and he has not completed nearly as many achievements as Fatima has. She decides to confront Michael as to why she was passed over for the job. Fatima: Michael, may I please inquire why I was not given the promotion? I was the most qualified applicant for the position . Michael: Sweetheart, you are a fine employee, but the job means that you would have to work on Sundays . Fatima: I am not sure why that is a problem . Michael: I thought Catholics were in church all day on Sunday. Anyways, you are a better fit for the position you have now, but if you would like to discuss it further, maybe we can do so at dinner later? Fatima: No, thank you. As I have said repeatedly, I would like to keep our relationship professional. In this scenario, Fatima encountered some difficult situations that caused her to feel unsafe and discriminated against due to her gender and religion. Her manager, Michael, violated the following workplace codes of conduct against Fatima:  He made inappropriate sexual advances toward her and continually pressured her in spite of her attempts to ignore him.  He mocked her religious beliefs.  He implied that she was not given the promotion she desired due to her religious beliefs, but Fatima inferred that the promotion was not granted due to her rebuffing Michael's sexual advances (Kokemuller, n.d.). What would you do in Fatima's position? Should she be a whistle-blower and report her manager's unethical and discriminatory behavior toward her? "Sexual Harassment in the Workplace" (4:55) In this video, the presenter explains what sexual harassment is—and is not—and identifies how it contributes to discrimination and unsafe working conditions in the workplace. She also explains how to file a complaint to deal with the harassment. https://www.youtube.com/watch?v=NGc7KfQ3uWs Lesson Summary Take a moment to reflect on what you learned in this lesson.  Ethical behavior is essential and expected in the workplace.  Many laws originate as a result of situations that arise in the workplace, along with economic, political, and societal conditions and pressure.  A code of ethics helps inform employees about what is expected in the workplace and about the consequences for not following the code of ethics.  Specific unethical behaviors in the workplace include bribery, kickback, conflict of interest, and lack of integrity. Whistle-blowers often report such unethical behavior to bring attention to the violators.  Fatima faced sexual harassment and religious discrimination in the workplace and felt threatened when she wanted to file an ethics complaint. You also received a brief overview of the following three workplace laws and their related ethical considerations:

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 Title VII of the 1964 Civil Rights Act: This act forbids any type of workplace discrimination.  Fair Labor Standards Act (FLSA) of 1938: This act addresses working conditions, pay, and child labor.  Occupational Safety and Health Act (OSHA) of 1970: This act promotes and upholds safety and health practices in the workplace.  Learning Objectives  Identify an employer’s legal and ethical obligations with respect to the employer/employee relationship. Lesson Introduction All employers have legal and ethical obligations to their employees. Ethics form the foundation for a successful and respectful employer–employee relationship. Employers and their HR department personnel corroborate on related obligations and laws. Included in these mutual actions are the following:  Hiring and firing  Providing compensation and benefits  Setting terms for vacation or paid time off, sick time, and other types of leave The following three laws will now be covered in detail in this lesson:  Title VII of the 1964 Civil Rights Act, which forbids any type of workplace discrimination  Fair Labor Standards Act, which addresses working conditions, pay rates, and child labor  Occupational Safety and Health Administration (OSHA) law, which defines terms for safety and health practices in the workplace These particular laws represent mutual obligations on the part of employers and employees alike. This lesson also explores the fact that organizations have external stakeholders, and they have legal and ethical obligations to those external stakeholders. Employer and HR Mutual Actions Employers and their HR department personnel corroborate on carrying out related obligations and laws. Ethics and codes of conduct should be integral in establishing and carrying out these actions. Some of these mutual actions involving employees include hiring and firing; providing compensation and benefits; and setting terms for vacation or paid time off, sick time, and other types of leave. Hiring and firing . Employers rely on their HR departments and recruiters to find and hire the right employees for each open position in a company. CEO Shane Green offers the following four rules to hire just the right person for a job:  Begin the interview with a candidate by promoting the company's mission and values. This helps determine whether the candidate for the job understands and agrees with the company's values, and whether he or she would willingly uphold those values if hired.

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 Align company values with behavioral prescreening questions rather than simply considering a resume and experience. This helps determine whether a candidate fits the company culture.  Go beyond simply asking all the expected interview questions. Incorporate scenarios and activities that will engage a candidate interactively. This helps demonstrate the candidate's abilities, attitudes, and critical thinking and determines whether they align with company values.  Include other employees in the interview or hiring process. Having potential coworkers engage with the candidate helps minimize the recruiter's inherent bias and offers a more supportive and friendlier experience for the candidate (Green, 2019). On the other side of hiring an employee is the unenviable task of firing an employee. According to HR professionals, such as Rachel Bitte, a chief recruiting officer, one day of the week is better than others to carry out this unpleasant task to produce the best outcome for the employee and the employer. That is Wednesday, preferably in the morning. Why Wednesday? It allows two business days for the fired employee to get answers to questions behind the firing, to get a jump-start on beginning a new job search, and to simply process the news before the weekend (Zetlin, 2019). Providing compensation and benefits . Compensation—the all-important paycheck—continues to be the number one concern for employees, according to a recent survey conducted by PayScale. The main findings of the survey, shared by the Society for Human Resource Management (SHRM), included the following:  The primary reason for people quitting jobs is the desire for better pay.  People feel more fulfilled with the right pay.  Women tend to quit jobs more frequently than men due to the desire for greater flexibility in caring for family members.  People in the millennial age range are more likely to quit a job to find another with better pay.  The desire for higher pay is the predominant reason for people quitting jobs among both genders and among those employed less than a year to those with more than 10 years on a job (Wilkie, 2019). In addition to compensation, an employee benefits survey conducted by SHRM in March and April 2019 revealed the following top benefits offered by employers who seek to attract and retain the most highly skilled employees:  Healthcare plans  Health savings accounts  Telemedicine benefits  Wellness resources and fitness programs  Saving and investing with retirement plans, particularly those offering tax-free growth and withdrawals, along with employer contributions  Student loan repayment  Various types of paid time off and family leave  Flexible work schedules and telecommuting options  Phased retirement options  Family-friendly initiatives, such as private on-site lactation rooms and support services (Miller, 2019)

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Setting terms for vacation or paid time off, sick time, and other types of leave . Similarly, SHRM shared policies for paid time off and several types of paid family leave benefits: Paid time off :  Paid holidays, floating holidays, religious accommodation paid holidays  Paid leave for vacation, sickness, open or unlimited leave  Paid leave for bereavement, jury duty, voting, military, volunteering, service on a community board or professional organization Family leave benefits :  Maternity leave  Paternity leave  Adoption leave  Foster leave  Surrogacy leave  Elder care leave (SHRM, 2019) An additional modern ethical consideration in the workplace, which encompasses how employers and HR professionals treat employees, is the practice of monitoring employees with or without their knowledge. The linked reading titled, Legal and Ethical Issues of Employee Monitoring , by Professor Johnathan Yerby, could be an eye-opening experience. Yerby includes details about the practice of monitoring employees through various means, especially electronically, and covers both pros and cons for employers and employees alike. Employers who argue for monitoring claim it protects company interests, while employees decry monitoring as an unethical invasion of privacy (Yerby, 2013). "HR Basics: Employee Rights" (12:01) In this video, you will learn about employee rights within the context of the employment relationship, along with reciprocal legal obligations affecting the employee–employer relationship. https://www.youtube.com/watch?v=mKflvO_dktE 1964 Civil Rights Act: Title VII No discrimination in the workplace, under any circumstance . That is the central message of Title VII in the 1964 Civil Rights Act. The initial act came to fruition because of changes in society in the 1960s, particularly to end segregation in public places based on race. While the original Civil Rights Act addressed forbidding overall discrimination, it did not specifically cover discrimination in the workplace. That was the reason behind the addition of Title VII, which ensures the same prohibition on discrimination based on the same criteria as outside the workplace: sex, race, national origin, color, or religion. An interesting historical note, however, is that discrimination on the basis of sex or gender was originally not a part of the list of criteria. That addition came about due to the efforts of Representative Martha Griffiths, the first female of the U.S. House of Representatives to serve as a member on the House Ways and Means committee. She teamed up with a male counterpart, fellow House Representative, and Chairman of the Committee, Howard Worth Smith, to add the amendment to include sex as a basis for nondiscrimination in the workplace. Smith's efforts to add the amendment were done to make it controversial, based on his own bias against civil rights legislation. However, Griffiths chided her fellow lawmakers for their behavior and biased attitudes, and she succeeded in getting the criteria of sex added as another area to prohibit from discrimination (Gould, 2014).

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Fair Labor Standards Act The Fair Labor Standards Act (FLSA) of 1938 addresses working conditions, pay rates, and child labor laws. This act came to fruition during the Depression era under the presidency of Franklin D. Roosevelt. It was considered landmark legislation at the time, tackling such issues as the following:  Deciding on standards of child labor  Determining federal minimum wages  Setting full-time work hours at 35–40 hours, or no more than 44 hours, per week Amendments since then have included the following:  Raising the federal minimum wage to $7.25 per hour in 2009 (still the current rate)  Establishing overtime rates as 1.5 times the hourly rate for people working more than 40 hours per week  Setting the minimum employment age at 14 years old, with limited work hours for 14- and 15-year-old youth  Describing the types of records for employers to keep on employees (such as name, Social Security number, address, work days and hours, type of pay rate, and similar work-related details) (Ash, n.d.) States have long held the power to raise the minimum wage above the amount set for federal minimum wage rates. In 2018, numerous state ballot initiatives urged raising the minimum wage up to $15 per hour. By January 1, 2019, as many as 19 states had begun the process of raising their minimum wage. The action by states has put pressure on federal lawmakers to consider raising the federal pay rate to $15 per hour (Long, 2018). OSHA The Occupational Safety and Health Act of 1970, commonly known as OSHA, promotes and upholds safety and health practices in the workplace. This act came to fruition due to the outcry from people about the increasing number of workplace accidents, injuries, and fatalities of employees due to exposure to dangerous substances, as well as to unsafe and even hazardous working conditions. Over the past 40 to nearly 50 years, the Occupational Safety and Health Administration (known by the same acronym, OSHA) has seen a significant increase in safer and healthier workplace conditions and a decrease in work-related illnesses, injuries, and fatalities. The U.S. Department of Labor (n.d.) provides statistics claiming that about 14,000 fatalities occurred in 1970, at the time OSHA originated, but as of 2009, that number had decreased to 4,340. (U.S. D.O.L., n.d.) Many people today claim that nearly 50 years later, OSHA has failed to fully protect employees and it needs a serious overhaul. John Leeth, a professor at Bentley University in the department of economics, and Nathan Hale, an economist with the U.S. Forest Service, explained that OSHA is just one of the four pillars supporting the U.S. safety policy system. It works in conjunction with the legal system, the state workers' compensation insurance programs, and the labor market. (Leeth & Hale, 2013) Leeth and Hale (2013) suggest OSHA can more effectively promote worker safety in the following ways:  Supply information directly to workers about potential hazards in their workplaces.  Target disadvantaged groups to compensate for wage differentials.  Target health hazards and small firms to provide adequate protection through workers' compensation insurance.  Inspect more worksites extensively for first inspections and then less extensively for fewer worksites on subsequent inspections.

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 Provide consultation services to all size firms to eliminate possible workplace hazards (Leeth & Hale, 2013) "OSHA's Top 10 List for 2018" (5:20) This video demonstrates OSHA's top 10 most frequently cited violations for the year 2018. This should help companies examine their own facilities to avoid these unsafe workplace conditions. https://www.youtube.com/watch?v=nusUnfeyFvA Obligations of Organizations to Stakeholders Organizations have external stakeholders, accompanied by legal and ethical obligations to those external stakeholders. Who are external stakeholders? They are any individuals or organizations with a vested interest in a particular business. They can include customers, shareholders, board members, and even community members (Emma, 2019). Linda Emma, a digital marketing strategist, suggests the following as the legal and ethical obligations a business has toward these external stakeholders: Customers . Keep promises and provide quality products or services. Shareholders and board members . Be honest about your business dealings and endeavor to reward investors with a good return on their investments. Community members . Adhere to local regulations and consider donating to worthy causes or sponsoring events (Emma, 2019). Lesson Summary Take a moment to reflect on what you learned in this lesson. You discovered ethics and codes of conduct should be integral in establishing and carrying out mutual actions on which employers and their HR department personnel corroborate. The related obligations and laws include the following:  Hiring and firing  Providing compensation and benefits  Setting terms for vacation or paid time off, sick time, and other types of leave You also learned more details about the following three workplace laws and their related ethical considerations:  Title VII of the 1964 Civil Rights Act: This act forbids any type of workplace discrimination.  Fair Labor Standards Act: This act addresses working conditions, pay, and child labor.  Occupational Safety and Health Act (OSHA): This act promotes and upholds safety and health practices in the workplace. Finally, you discovered that organizations have external stakeholders to whom they owe legal and ethical obligations. Learning Objectives  Identify an employee’s legal and ethical obligations in the workplace. Lesson Introduction

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Just as employers have obligations to their employees and stakeholders, so do employees have obligations in the workplace to their employers and to their coworkers. Employee obligations in the workplace can be legal, or ethical, and include the following:  Adherence to nondisclosure and noncompete agreements covered under contract law  Respect of intellectual property (IP) covered under IP law  Appropriate treatment of confidential information covered under ethics policies  Improper use of company resources for personal use covered under ethics policies The imposition of these laws or policies will vary by employer because they are not all necessary in every environment. This is partly because business law is a moving target, and constantly evolving. In this lesson, you will learn more about the importance of each of these four obligations as they relate to the ethical culture of an organization. Contract Law: Nondisclosure and Noncompete Agreements Have you ever signed a contract or an agreement that contained a nondisclosure or noncompete clause, or maybe both? These clauses fall under the category of contract law. A nondisclosure agreement, also called a confidentiality agreement, is often included in a legal contract between at least two parties. For instance, as an employee, you typically sign an employment agreement with your employer. A nondisclosure clause outlines confidential material, knowledge, or information that you and your employer would need to share with one another. However, this information often needs to be restricted from access by third parties. It seems to make sense to sign such an agreement if you are an employee and your employer does not want you to share sensitive information about the company with anyone outside the company (Murphy Law, 2018). Similarly, a noncompete clause, also called a covenant not to compete or a restrictive covenant, is often included in employment contracts. It typically requires you, as an employee, to agree not to enter into or start a similar profession in competition against the employer within a close geographical area. The noncompete clause often includes additional language declaring you must hold to this agreement for a certain amount of time even after leaving the company (Murphy Law, 2018). While signing an employment contract containing either or both the nondisclosure agreement and the noncompete clause may sound reasonable, some employment lawyers recommend cautious consideration. Violating the terms of these clauses would be considered unethical breaches of your contract and would likely subject you to legal action. All of these terms are typically spelled out in your contract. On the other hand, the noncompete clause, in particular, could potentially be an unethical expectation on the part of your employer under the following circumstances:  It is too restrictive in duration and geographic location.  It unreasonably interferes with your ability to find a new job.  It causes undue hardship on you because of the restrictions (Murphy Law, 2018). Therefore, read contracts carefully and discuss any concerns with a potential or existing employer, or an employee if you are in a position to hire someone. This would help ensure that both of you handle the situation professionally and ethically. Intellectual Property

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Do you know what IP is? If you have composed a song, crafted an invention, or designed software, that is a creative work. You have rights to it and may apply for a patent, copyright, or trademark. IP laws endeavor to protect IP from misuse or theft. Both federal and state laws collectively form IP law, which offers a number of ways for people to protect IP and for others to gain permission to use someone's IP. Attorney Rich Stim describes five types of IP laws:  Copyright —This type of IP law protects all forms of original creative works if they meet certain requirements.  Trademark —This type of IP law protects brand names, logos, slogans, and other identifiable products and services.  Right of publicity —This type of IP law protects a person's image against unauthorized use, such as using the name or image of someone to promote a product or service without permission.  Trade secrets —This type of IP law protects sensitive business information, such as marketing plans for new products.  Right of privacy —While not specifically encompassed within IP law, privacy laws focus on a person's right to be left alone and not have his or her privacy invaded (Stim, 2016). From another perspective, particularly in the workplace, determining ownership of IP presents a challenge. Typically, terms must be defined in an employment agreement or a contract regarding who owns IP once an employee has developed it. These are usually referred to as works made for hire , meaning the employer owns anything an employee develops (Gilbert McWherter Scott Bobbitt, PLC, 2017). It would be in the best interest of employer and employee alike to make ownership of IP clear in a written contract. This would facilitate a more ethical workplace environment and avoid legal confrontations. Confidential Information Whether at home or in the workplace, confidential information should be guarded and only available to those who have the right to know about it. Confidentiality in the workplace, however, has special ethical implications. Corporate executive Sam Ashe-Edmunds offered the following explanations about confidentiality in the workplace: Casual confidentiality —This refers to your networking and interactions in the workplace as an employee. Keeping information confidential, rather than repeating gossip, helps you establish a trustworthy reputation. Some examples of violating casual confidentiality include repeating people's opinions of the boss or fellow coworkers, forwarding private emails, and otherwise sharing information in person or via documents that should not be shared. Legal confidentiality —This refers to information that is strategic to the company, which should not be shared. Usually a nondisclosure clause, discussed previously, addresses the importance of keeping company information confidential while employed and even after leaving a company. Some examples of violating legal confidentiality include revealing salaries, customer information, trade secrets, security information, or other types of data that could be harmful for the company (Ashe-Edmunds, 2018). An employer's HR personnel are often the professionals charged with protecting information on employees and the company and preventing the misuse, abuse, or theft of such information by unauthorized access. Some steps that HR professionals could take to help protect information include the following:  Securely store all personal files for management and employees.  Devise and communicate confidentiality policies to all company supervisors, managers, and employees.

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 Ensure employees know which actions would be considered breaches of confidentiality and what the consequences would be for those actions.  Implement and maintain security protocol for electronic storage of protected data.  Properly dispose of outdated or unneeded sensitive information to prevent theft or leaks.  Regularly update privacy policies and guidelines as new government guidelines are published (Dogra, 2018). Understanding the importance of treating confidential information properly and taking these steps to safeguard confidential information help promote a safer, more ethical workplace. Company Resources Company resources can include many things, such as materials, property, technology, and even time. As an employee, it is your responsibility to abide by ethics policies and not misuse or abuse any company resources available to you. For instance, in an office setting, it is a reasonable expectation that you can use a fair amount of supplies and certain office equipment to perform your job. Yet the overuse of this equipment, or using it for personal rather than work-related tasks, can cause a number of problems that could lead to extra expenses for the company:  Shortage of supplies, such as paper, pens, and other items  Increased wear on equipment, requiring additional maintenance  Damaged or broken equipment  Lost productivity (Walter Kluwer, 2013) You might not consider time as a company resource, but most any work-related task has a time element attached to it. How can time be a company resource? When you are at work, you need to be performing job- related tasks during designated work hours unless you are on an approved break. Consider the following tasks:  Checking your personal emails  Texting a friend or family member on your phone  Checking into social media accounts and interacting with people  Exceeding break and lunch times because you are on your phone  Delaying starting work upon arrival or after breaks If you do any of these things on a regular basis, you are stealing time from your employer. Theft of time is a violation of ethical policy in many companies (Ruhnka & Loopesko, 2013). Lesson Summary Just as employers have obligations to their employees and stakeholders, employees have obligations to their employers and to one another. Employee obligations can be legal or ethical and include the following:  Adherence to nondisclosure and noncompete agreements covered under contract law  Respect of IP covered under IP law  Treatment of confidential information covered under ethics policies

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 Improper use of company resources for personal use covered under ethics policies The imposition of these laws or policies often varies by employer because not all of them are necessary in every environment. This is partly because business law is a moving target that is constantly evolving. In this lesson, you learned more about the importance of each of these four obligations as they relate to the ethical culture of an organization. You also discovered that there are drawbacks and ethical concerns to keep in mind when dealing with your employee obligations.

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