Organization

A) Definition The term 'Organization' is derived from the word 'organism' which means a structure of body divided into parts that are held together by a fabric of relationship as one organic whole. A social unit of people systematically structured and managed to meet a need or to pursue collective goals on a continuing basis. All organizations have a management structure that determines relationships between functions and positions, and subdivides and delegates roles, responsibilities, and authority to carry out defined tasks. Organizations are open systems in that they affect and are affected by the environment beyond their boundaries. 1. An Organization has been defined by E. F. L. Breach as "a system of structural interpersonal relationships. In it, individuals are differentiated in terms of authority, status and roles with the result that personal interaction is prescribed, and anticipated reactions between individuals tend to occur while ambiguity and spontaneity are decreased". 2. According to Louis A. Allen, Organization is "the process of identification and grouping the work to be performed, defining and delegating responsibility and authority and establishing relationships for the purpose of enabling people to work most effectively together in accomplishing objectives". 3. James Mooney defines organization as "the form of every human association for attainment of a common purpose". B) Importance of Organization 1. Ensures optimum utilization of human resources: Every enterprise appoints employees for the conduct of various business activities and operations. They are given the work according to their qualifications and experience. Organization ensures that every individual. Is placed on the job for which he is best suited. 2. Facilitates coordination: It acts as a means of bringing coordination and integration among the activities of individuals and departments of the enterprise. It establishes clear-cut relationships between operating departments and brings proper balance in their activities. 3. Facilitates division of work: Different departments are created for division of work, specialization and orderly working of the enterprise. Similarly, delegation relieves top level managers from routine duties. 4. Ensures growth, expansion and diversification: Sound Organization structure facilitates expansion/diversification of an enterprise. Organization structure has

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in-built capacity to absorb additional activities and also effective control on them. A business enterprise brings diversification in its activities within the framework of its Organization. Stimulates creativity: Organization provides training and self-development facilities to managers and subordinates through delegation and departmentation. It also encourages initiative and creative thinking on the part of managers and others. Facilitates administration: Effective administration of business will not be possible without the support of sound organization structure. Delegation, departmentation and decentralization are the tools for effective administration. Determines optimum use of technology: Sound Organization structure provides opportunities to make optimum use of technology. It facilitates proper maintenance of equipment and also meets high cost of installation. Determines individual responsibility: Responsibility is an obligation to perform an assigned work. In a sound Organization, the manager finds it easy to pinpoint individual responsibility when the work is spoilt.

C) Organizational structure It consists of i) Organizational principle ii) Organizational design a) Principles of Organization / Organizing There are some principles which are common to all organizations that are established in a classical form i.e. the form where there is hierarchy of authority and responsibility and it flows downwards. The principles of Organization offer guidance for the creation of a sound, efficient and effective Organization structure. In other words, these principles are the sound criteria for efficient organizing. They ensure smooth and orderly working of a business enterprise. Principles of organizing are not given in a serial order by any authority on management. Management thinkers (Henry Fayol, F. W. Taylor, U. L Urwick and others) have laid down certain statements regarding organizing function of management. Such statements are treated as principles of organization. Well accepted principles of organization/organizing are as explained below.

1. Unity of Objectives: Objectives of the enterprise influence the Organization structure and hence the objectives of the enterprise should first be decided clearly and firmly. In addition, there should be unity among the objectives decided. This gives clear direction to the whole Organization and it will be geared for the achievement of such objectives. The Organization acts as a tool for achieving the objectives. The objectives may be divided into departmental objectives and organizational objectives. There should be unity of objectives as such unity gives one clear direction to the whole Organization. In addition, objectives should be made clear to all concerned persons so as to enable them to do their best to achieve the objectives. 2. Division of Work and Specialization: Division of work leads to specialization. Every department of an Organization should be given specialized functions. This will raise the overall efficiency and quality of work of an Organization. At the same time, specialization and departmentation should not have any adverse effect on the total integrated system. Coordination must be established among the departments and activities. Specialization is necessary for raising the efficiency of the whole Organization structure. The functions given to each department should be preferably only of one category. Employees should be assigned duties to different departments as per their qualifications, qualities and so on. 3. Delegation of Authority: There should be proper delegation of authored in every Organization, particularly in large organizations. The basic idea behind delegation is to see that decision-making power is placed at a proper place. Delegation should go to the lower levels of management. Everyone should be given authority which is adequate to accomplish the task assigned to him. Delegation is useful for getting the things done through others. A successful manager normally does not perform the jobs by himself. He delegates the authority and responsibility to his subordinates. He also motivates his subordinates and sees that they take initiative, work efficiently and contribute for achieving organizational objectives.

4. Coordination: Organization involves division of work and departmentation. This naturally suggests the need of proper coordination among the departments and efforts of people working in an Organization. Due to coordination one clear-cut direction is given to people/ departments and efforts will not be wasted or misdirected. Coordination also brings integration in the basic functions of management. The principle of coordination is important as it facilitates achievement of overall objectives of a business Organization. It also brings unity of action in the Organization. Coordination will not be available automatically. For this, working relationships need to be established within the Organization. 5. Unity of Command: Unity of command principle suggests that each subordinate should have only one superior whose command he has to obey. Dual subordination is undesirable as it leads to confusion, disorder, uneasiness and indiscipline. An employee should not have more than one boss to whom he has to report and also function as per his orders and instructions. Reporting to more than one boss leads to confusion. 6. Flexibility: According to the principle of flexibility, the Organization structure should be flexible and not rigid. Such structure is adaptable to changing situations and permits expansion or replacement without any serious dislocation and disruption. There should be an in-built arrangement to facilitate growth and expansion of an enterprise. 7. Simplicity: The Organization structure should be simple for clear understanding of employees. The structure should be easy to manage. Internal communication will be easy due to simplicity of Organization. The Organization structure should be simple as far as possible. The levels of management should also be limited. 8. Span of Control: The span of control, as far as possible, should be small and fair. This means a manager should not be asked to keep supervision on large number of subordinates. The span of control should be narrow and manageable. It should be properly balanced.

9. Scalar Principle (Chain of Command): The principle of chain of command suggests that the line of authority from the chief executive to the first line of superior should be clearly defined. The line of authority should be properly defined so as to avoid any confusion as regards the line of authority. This principle suggests that as far as possible, the chain of authority should be short and should not be broken. 10.Exception Principle: The executives at the higher level are busy in important matters and have limited time for the study of routine administrative matters. It is not desirable to take routine matters to the top level managers frequently. Very crucial and exceptionally complex problems should be referred to the top executives and routine matters should be dealt with by the junior executives at the lower levels. Moreover, time of top executives is saved. They can use their time for dealing with more important and complex problems. 11.Authority and Responsibility: Authority acts as a powerful tool by which a manager can achieve a desired objective. Authority of every manager should be clearly defined. Moreover, it should be adequate to discharge the responsibilities assigned. The superior should be held responsible for the acts of his subordinates. He cannot run away from the responsibility simply by delegating authority to his subordinates. In fact, the responsibility of the superior for the acts of his subordinates is absolute. 12.Efficiency: The Organization structure should enable the enterprise to function efficiently. This will enable the enterprise to accomplish its objectives quickly and also at the lowest cost. For this, the structure introduced should be suitable to the nature, size, activities etc. of the Organization. A suitable Organization structure ensures full and purposeful utilization of available human and material resources and ensures efficiency. 13.Proper Balance: Proper balance is necessary in different aspects of the Organization. This means there should be reasonable balance in the size and functions of departments, centralization and decentralization of the Organization, span of control, chain of command and finally in between human and material resources. This principle of balance suggests that the top management

should see that the vertical and horizontal dimensions of the Organization are fairly balanced. 14.Separation of line and staff functions: Line functions should be separated from the staff functions even when they are supplementary in character. Line functions are directly connected with operations while staff functions are auxiliary to the line functions. These functions should be coordinated when necessary but normally they should be kept separate. D) Six Key Elements in Organizational Design Organizational design is engaged when managers develop or change an organization's structure. Organizational Design is a process that involves decisions about the following six key elements: I. Work Specialization Describes the degree to which tasks in an organization are divided into separate jobs. The main idea of this organizational design is that an entire job is not done by one individual. It is broken down into steps, and a different person completes each step. Individual employees specialize in doing part of an activity rather than the entire activity. II. Departmentalization It is the basis by which jobs are grouped together. For instance every organization has its own specific way of classifying and grouping work activities. There are five common forms of departmentalization: 1. Functional Departmentalization. As shown in the Figure 2-1, it groups jobs by functions performed. It can be used in all kinds of organizations; it depends on the goals each of them wants to achieve. Figure 2-1Functional Departmentalization example

Different aspects on this type of departmentalization: Positive Aspects

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Negative Aspects
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Efficiencies from putting together similar specialties and people with common skills, knowledge, and orientations Coordination within functional area In-depth specialization

Poor communication across functional areas Limited view of organizational goals

2. Product Departmentalization. It groups jobs by product line. Each manager is responsible of an area within the organization depending of his/her specialization. Figure 2: Product Departmentalization example Source: Bombardier Annual Report

Different aspects on this type of departmentalization: Positive Aspects

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Negative Aspects
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Allows specialization in particular products and services Managers can become experts in their industry Closer to customers

Duplication of functions Limited view of organizational goals

3. Geographical Departmentalization. It groups jobs on the basis of territory or geography.

Figure 2-3: Geographical Departmentalization example

Different aspects on this type of departmentalization: Positive Aspects

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Negative Aspects
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More effective and efficient handling of specific regional issues that arise Serve needs of unique geographic markets better

Duplication of functions Can feel isolated from other organizational areas

4. Process Departmentalization. It groups on the basis of product or customer flow. Figure 2-4: Process Departmentalization example

Different aspects on this type of departmentalization: Positive Aspects

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Negative Aspects
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More efficient flow of work activities

Can only be used with certain types of products

5. Customer Departmentalization. It groups jobs on the basis of common customers Figure 2-5: Customer Departmentalization example

Different aspects on this type of departmentalization: Positive Aspects

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Negative Aspects
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Customers' needs and problems can be met by specialists

Duplication of functions Limited view of organizational goals

6. Matrix organization Each position is supervised by the two managers, the manager in-charge of the product and manager in-charge of the function.

President

Product manager

Product A

Product B

Product C

Human resources Manufacturi ng Funtional -Manager Marketing

III. Chain of command It is defined as a continuous line of authority that extends from upper organizational levels to the lowest levels and clarifies who reports to whom. There are three important concepts attached to this theory:

Authority: Refers to the rights inherent in a managerial position to tell people what to do and to expect them to do it. Responsibility: The obligation to perform any assigned duties. Unity of command: The management principle that each person should report to only one manager.

IV. Span of Control It is important to a large degree because it determines the number of levels and managers an organization has. Also, determines the number of employees a manager can efficiently and effectively manage. V. Centralization and Decentralization More Centralization

More Decentralization

Environment is stable Lower-level managers are not as capable or experienced at making decisions as upper-level managers. Lower-level managers do not want to have say in decisions Decisions are significant. Organization is facing a crisis or the risk of company failure. Company is large. Effective implementation of company strategies depends on managers retaining say over what happens.

Environment is complex, uncertain. Lower-level managers are capable and experienced at making decisions. Lower-level managers want a voice in decisions. Decisions are relatively minor. Corporate culture is open to allowing managers to have a say in what happens. Company is geographically dispersed. Effective implementation of company strategies depends on managers having involvement and flexibility to make decisions

VI. Formalization It refers to the degree to which jobs within the organization are standardized and the extent to which employee behavior is guided by rules and procedures.

Organizational design Organizational designs fall into two categories, traditional and contemporary. Traditional designs include simple structure, functional structure, and divisional structure. Contemporary designs would include team structure, matrix structure, project structure, boundaryless organization, and the learning organization I. Traditional Designs 1. Simple Structure A simple structure is defined as a design with low departmentalization, wide spans of control, centralized authority, and little formalization. This type of design is very common in small start up businesses. For example in a business with few employees the owner tends to be the manager and controls all of the functions of the business. Often employees work in all parts of the business and dont just focus on one job creating little if any departmentalization. In this type of design there are usually no standardized policies and procedures. When the company begins to expand then the structure tends to become more complex and grows out of the simple structure. 2. Functional Structure A functional structure is defined as a design that groups similar or related occupational specialties together. It is the functional approach to departmentalization applied to the entire organization. 3. Divisional Structure A divisional structure is made up of separate, semi-autonomous units or divisions. Within one corporation there may be many different divisions and each division has its own goals to accomplish. A manager oversees their division and is completely responsible for the success or failure of the division. This gets managers to focus more on results knowing that they will be held accountable for them. II. Contemporary Designs 1. Team Structure A team structure is a design in which an organization is made up of teams, and each team works towards a common goal. Since the organization is made up of groups to perform the functions of the company, teams must perform well because they are held accountable for their performance. In a team structured organization

there is no hierarchy or chain of command. Therefore, teams can work the way they want to, and figure out the most effective and efficient way to perform their tasks. Teams are given the power to be as innovative as they want. Some teams may have a group leader who is in charge of the group. 2. Matrix Structure A matrix structure is one that assigns specialists from different functional departments to work on one or more projects. In an organization there may be different projects going on at once. Each specific project is assigned a project manager and he has the duty of allocating all the resources needed to accomplish the project. In a matrix structure those resources include the different functions of the company such as operations, accounting, sales, marketing, engineering, and human resources. Basically the project manager has to gather specialists from each function in order to work on a project, and complete it successfully. In this structure there are two managers, the project manager and the department or functional manager.

3. Project Structure A project structure is an organizational structure in which employees continuously work on projects. This is like the matrix structure; however when the project ends the employees dont go back their departments. They continuously work on projects in a team like structure. Each team has the necessary employees to successfully complete the project. Each employee brings his or her specialized skill to the team. Once the project is finished then the team moves on to the next project. 4. Autonomous Internal Units Some large organizations have adopted this type of structure. That is, the organization is comprised of many independent decentralized business units, each with its own products, clients, competitors, and profit goals. There is no centralized control or resource allocation. 5. Boudary less Organization A boundary less organization is one in which its design is not defined by, or limited to, the horizontal, vertical, or external boundaries imposed by a predefined structure. In other words it is an unstructured design. This structure is much more flexible because there is no boundary to deal with such as chain of command, departmentalization, and organizational hierarchy. Instead of having departments, companies have used the team approach. In order to eliminate boundaries

managers may use virtual, modular, or network organizational structures. In a virtual organization work is outsourced when necessary. There are a small number of permanent employees; however specialists are hired when a situation arises. Examples of this would be subcontractors or freelancers. A modular organization is one in which manufacturing is the business. This type of organization has work done outside of the company from different suppliers. Each supplier produces a specific piece of the final product. When all the pieces are done, the organization then assembles the final product. A network organization is one in which companies outsource their major business functions in order to focus more on what they are in business to do. 6. Learning Organization A learning organization is defined as an organization that has developed the capacity to continuously learn, adapt, and change. In order to have a learning organization a company must have very knowledgeable employees who are able to share their knowledge with others and be able to apply it in a work environment. The learning organization must also have a strong organizational culture where all employees have a common goal and are willing to work together through sharing knowledge and information. A learning organization must have a team design and great leadership. Learning organizations that are innovative and knowledgeable create leverage over competitors.