Unit 3

Organization

Introduction
Meaning
Organizing is the process of identifying and
grouping of activities required to attain the objectives,
delegating authority, creating responsibility and
establishing relationships for the people to work
effectively.

Definition
Organizing is the process of defining and grouping
the activities of the enterprise and establishing the
authority relationships among them.
Purpose or importance or advantages of
organization

Ensures optimum use of man and material
resources
Facilitates co-ordination and communication
Permits optimum use of technological
innovations
Increase the efficiency of management
Facilitates growth and diversification
Simulates creativity and initiative
Facilitates development of managerial ability

The Organizing Process
1. Identification and classification of required
activities
2. Grouping of activities in light of resources and
situations
3. Delegation of authority
4. Horizontal and vertical coordination of
authority and information relationships
5. Enterprise objectives
6. Supporting objectives, policies and plans
7. Staffing
Defining Organizational Structure
1. Organizational Structure
The formal arrangement of jobs within an organization.
An organization's degree of complexity, formalization and
centralization.
2. Organizational Design
Constructions or changing of an organization's structure.
A process involving decisions about six key elements:
Work specialization
Departmentalization
Chain of command
Span of control
Centralization and decentralization
Formalization
Organizational Structure
Work Specialization
The degree to which tasks in the organization are
divided into separate jobs with each step
completed by a different person.
Overspecialization can result in human diseconomies
from boredom, fatigue, stress, poor quality, increased
absenteeism, and higher turnover.
Departmentation
Definition
Koontz and ODonnell defined A
departmentation is a process of dividing the
large monolithic functional organization into
small and flexible administrative units.
Departmentalization Strategies or types
or
Organization Structure types
Functional
Grouping jobs by functions
performed
Product
Grouping jobs by product
line
Geographic
Grouping jobs on the basis of
territory or geography
Process
Grouping jobs on the basis of
product or customer flow
Customer
Grouping jobs by type of
customer and needs
Numbers
Based on number of person
forming the department
Time
Time of work (Shifts)
Functional departmentation
The grouping of common & homogeneous activities to form an
organizational unit is known as functional organization
Each department have a head with the title departmental manager
The functional departmentation will include both line function as
well as staff function
Production Marketing Accounts Personnel IT
Managing Director
Board of Director

Advantages
Specialisation each department focuses on its own work
Clarity know your and others roles
Simplifies training

Disadvantages

Lack of responsibility for the end result
Overspecialization or lack of general management
It leads to increase conflicts and coordination problems among
departments Reduce Coordination between function

Product departmentation
Example : Dabur India Limited (Home care, Health care,
Personal care and Foods)
Car Division
Truck Division Bus division Long vehicle
Chief Executive
production
Marketing
finance HR
Advantages
Clear focus on market segment helps meet customers needs
Positive competition between divisions
Better control as each division can act as separate profit centre
Unprofitable products may be easily determined.
It is flexible and new product line can be added easily.
Disadvantages

Duplication of functions (e.g. different sales force for each division)
Negative effects of competition
Lack of central control over each separate division.
Require more personal with general manager abilities.



Territorial /geographical departmentation
Example : Coca-Cola Ltd (Central North American group,
Western North American group, Eastern North American group and
European group)
Eastern Zone
Kolkata
Central Zone
Kolhapur
Northern zone
Delhi
Southern zone
Chennai
Western zone
Mumbai
Head Office
Mumbai
jalandhar
chandigarh
New delhi ajmer
branch
branch branch branch
Advantage
Place responsibility at lower level
Place emphasis on local market & problem
Take advantage of economic of local operations
Better face to face communication with local interest
Improve coordination in a region
Serve local needs better
Disadvantage
Communication problem between head office and
regional office due to lack of means of communication at
some location.
It leads to duplication of activities which may cost higher.
Coordination between various divisions may become
difficult.

5. Departmentation by process
When production activities involve the use of several
distinctive process ,these can be used as the base for
grouping of activities.
spinning dyeing Weaving Packaging
Production Manager
Advantage
Machine can be used effectively
No duplication of activities
Principle of specialization & division of labor is followed
Disadvantages
More specialist are essential
Conflict in organization authority exists

4. Departmentation by customer
Customer based departmentation is basically market oriented in
which department are created around the market served or
around marketing channel
customers are the key to the way activities are grouped.
Example: UCO bank (Home loans, Business loans, Vehicle loans
and Educational loans)


wholesale Retail Hire purchase
export

Marketing Manager
Advantage
It fulfills the expectation & needs of customer
Better service to customer
Fully focus on customer
Disadvantage
Their may be duplication of activities
Co-ordination is difficult
Conflict

Organization Structure (contd)
Chain of Command
The continuous line of authority that extends from
upper levels of an organization to the lowest levels
of the organization and clarifies who reports to
who.

Organization Structure (contd)
Authority
The rights inherent in a managerial position to tell
people what to do and to expect them to do it.
Responsibility
The obligation or expectation to perform .
Unity of Command
The concept that a person should have one boss
and should report only to that person.
Organization Structure (contd)
Span of Control
The number of employees who can be effectively and
efficiently supervised by a manager.
Width of span affected by:
Skills and abilities of the manager
Employee characteristics
Characteristics of the work being done
Similarity of tasks
Complexity of tasks
Physical proximity of subordinates
Standardization of tasks
Span of control
Direct single relationships- Supervisor has direct
relationship with his subordinates individually


Direct group relationships-A supervisor has direct
relationship with his subordinates jointly.


Cross relationship A subordinate has
relationship with another subordinate mutually.

X
Y
Z
X
Y Z
Span of control

Direct single relationship = n
Direct group relationship= n(2
n-1
-1)
Cross relationship = n(n-1)
Total relationship=n{
2
n
2
+n 1}


Wide and Narrow Structure

FLAT STRUCTURE
An organization with relatively few levels in its
hierarchy of authority.
TALL STRUCTURE
An organization with relatively many levels in
its hierarchy of authority.

26
Flat Organization:
31 members; 3 levels; average span of control is 5
Flat Organization
Advantages:
More Delegation of Authority
Development of Managers
Clear policies
Disadvantages:
Overloaded supervisors
Danger of superiors loss of control
Requirement of highly trained managerial
personnel

28
Tall Organization:
31 members; 5 levels; average span of control is 2
Tall Organization
Advantages:
Close supervision
Close control of subordinates

Disadvantages:
Too much control
Many levels of management
Excessive distance between lowest level and
highest level, so slow communication
Factors determining effective span
1. Capacity of supervisor
2. Capacity of subordinates
3. Nature of work
4. Type of technology
5. Degree of decentalisation
6. Degree of planning
7. Communication techniques
8. Use of staff assistance
9. Geographical closeness of employees
10. Supervision from others
Organizational Designs
Traditional Designs
Simple structure
Low departmentalization, wide spans of control, centralized
authority, little formalization
Functional structure
Departmentalization by function
Operations, finance, human resources, and product
research and development
Divisional structure
Composed of separate business units or divisions with
limited autonomy under the coordination and control the
parent corporation.
Organizational Designs (contd)
Contemporary Organizational Designs
Team structures
The entire organization is made up of work groups or self-
managed teams of empowered employees.
Matrix and project structures
Specialists for different functional departments are assigned
to work on projects led by project managers.
Matrix participants have two managers.
Project structures
Employees work continuously on projects; moving on to
another project as each project is completed.
MARTIX DEPARTMENTATION
MARTIX DEPARTMENTATION
Advantages
Efficiently manage large, complex tasks
Effectively carry out large, complex tasks
Disadvantages
Requires high levels of coordination
Conflict between bosses
Requires high levels of management skills
PROJECT ORGANISATION
PROJECT ORGANISATION
Advantages :
1. The participating specialists of the project team get opportunity for prompt,
expeditious and effective accomplishment of the goals of the project. This
motivates them to make maximum contribution to the execution of the
project
2. It facilitates speedy communication between the project manager and the
team members
3. It provides flexibility in handling various tasks.
Disadvantages :
1. The entire project becomes meaningless, if the project manager fails to
coordinate the activities of the project properly
2. The members of the project organisation have to sever the contacts with the
mainstream organisational life. As such, they may be bypassed when
opportunities arise in their respective fields for promotion
3. The job of the project manager becomes very difficult because he has to
deal with specialists from a number of diverse fields.
Organizational Designs (contd)
Contemporary Organizational Designs (contd)
Boundaryless Organization
An flexible and unstructured organizational design that is
intended to break down external barriers between the
organization and its customers and suppliers.
Removes internal (horizontal) boundaries
Eliminates the chain of command
Has limitless spans of control
Uses empowered teams rather than departments
Eliminates external boundaries
Uses virtual, network, and modular organizational structures to
get closer to stakeholders.
Removing Boundaries
Virtual Organization
An organization that consists of a small core of full-time employees
and that temporarily hires specialists to work on opportunities that
arise.
Network Organization
A small core organization that outsources its major business
functions (e.g., manufacturing) in order to concentrate what it does
best.
Modular Organization
A manufacturing organization that uses outside suppliers to provide
product components for its final assembly operations.
VIRTUAL ORGANISATION
VIRTUAL ORGANISATION or NETWORK
STRUCTURE
Advantages :
1. Through virtual organisation it is possible to create
best-of-everything organisation because each partner
brings its core competence.
2. A virtual organisation allows someone with an
innovative idea and little money to successfully compete
against large companies. This is possible because of
flexible nature.
Disadvantages :
1. It reduces managements control over the key parts of
its business
2. The reliability of the partners may be doubtful.
Organizational Design Decisions
Mechanistic Organization
A rigid and tightly controlled
structure
High specialization
Inflexible
departmentalization
Narrow spans of control
High formalization
Limited information
network (downward)
Low decision participation
Organic Organization
Highly flexible and adaptable
structure
Non-standardized jobs
Fluid team-based
structure
Little direct supervision
Minimal formal rules
Open communication
network
Empowered employees
Organizational Designs (contd)
The Learning Organization
An organization that has developed the capacity to
continuously learn, adapt, and change through the
practice of knowledge management by employees.
Characteristics of a learning organization
An open team-based organization design that empowers
employees
Extensive and open information sharing
Leadership that provides a shared vision of the
organizations future, support and encouragement
A strong culture of shared values, trust, openness, and a
sense of community.
Organization Structure (contd)
Formalization
The degree to which jobs within the organization
are standardized and the extent to which
employee behavior is guided by rules and
procedures.
Highly formalized jobs offer little discretion over what is
to be done.
Low formalization means fewer constraints on how
employees do their work.

Formal and Informal organizations
Formal Organisation
According to Allen The formal organization is a
system of well defined jobs, each bearing a definite
measure of authority, responsibility and
accountability.
Informal organisation
It is an organization which establishes the
relationship on the basis of members interaction,
communication, personal likings and disliking's and
social contacts within as well as outside the
organization.
Difference between Formal and
Informal Organisations
Formal
a. It is created by the top
management.
b. It is created to get the jobs of an
organisation performed in a
planned and systematic manner.
c. It is managed by officially
appointed managers.
d. Managers of formal organisation
have formal authority.
e. Formal organisation is
permanent and stable.
Informal
a. It is not created by top management.
It arises out of the natural desire of
the people to associate.
b. It is formed to satisfy those needs of
members which can not be satisfied
through formal organisation.
c. Members of the informal group select
some one as their leader to take care
of the interests of the group members.
d. The authority of the leader of the
informal group depends upon the
combined support of group members.
e. Informal organisation is of temporary
nature. It changes its size and
membership from time to time.


Organization Structure (contd)
Centralization
The degree to which decision-making is concentrated
at a single point in the organizations.
Organizations in which top managers make all the decisions
and lower-level employees simply carry out those orders.
Decentralization
Organizations in which decision-making is pushed
down to the managers who are closest to the action.
Employee Empowerment
Increasing the decision-making
Centralization and Decentralization
Definition
According to Luuis A. Allen has defined
both the terms as, Centralization is the
systematic and consistent reservation of
authority at central points within an
organization. Decentralization applies to the
systematic delegation of authority in an
organization-wide context.
Advantages of Decentralization
It reduces burden of the management
It encourages decision making
It facilitates the growth of the organization
It enables the department staff members to
complete work early
It emphasis on horizontal growth of the
organization thereby reducing number of
management levels.
It promotes the establishment and use of broad
controls which may increase motivation.


Disadvantages of Decentralization
It is difficult to have uniform policies and
procedures
There is an increase in complexity of coordination
of decentralized organizational units.
There is possibility of duplication of work.
Large number of members and supervisors are
required under this department.
It is not possible for small scale organizations.
It requires high degree of self motivation


Line and staff authority
According to Louis Allen line and staff
authorities are, Line functions are those which
have direct responsibility for accomplishing the
objectives of the enterprise and staff functions
refer to those elements of the organization that
help the line function to work most effectively in
accomplishing the primary objectives of the
enterprise.
Line authority
This is the simplest and the earliest form of
authority. It is also known as Military,
traditional, Scalar or Hierarchical form of
authority.
The line authority represents the structure in
a direct vertical relationship through which
authority flows.
Advantages of line authority
It is simple and easy to understand
It is most economical and effective
Delegation of authority is clear
It facilitates unity of command
Channel of communication is clear
It ensures excellent discipline in the enterprise

Limitations of line authority
The organization is rigid and inflexible
It neglects specialties
It overloads a few executives
It is limited to too small organization
It may not promote the own thinking of the
employees
It requires high type of supervisory personnel.

Staff authority
Staff authority is exercised by a man over line
personnel.
Staff refers to those elements of the
organization which helps the line to work
more effectively in accomplishing the primary
objectives of the enterprise.
The function of the staff is to investigate the
research and given advise to line, managers.
Benefits of staff authority
Staff improves the quality of managerial
decisions
When the line operations is complex, the line
people requires advise of staff personnel.
Staff can help in coordinating various activities
and in ensuring uniformity of action in certain
matters.
Staff carries out a critical evaluation of existing
practices and procedures.
Limitations of staff authority
Danger of undermining line authority
Lack of staff responsibility
Thinking in vacuum sometime staff may not
having practicality
Managerial problems due to multiple chain
of command
Functional authority or functional organization
According to Koontz and ODonnell,
Functional authority is the right which an
individual or department has delegated to it
over specialized processes, practices, policies or
other matters relating to activities undertaken
by personnel in departments other than its
own.
Advantages of Functional authority
Since a foreman is responsible for one
function, he can perform his duties in a better
way.
This organization structure makes use of
specialists to give expert advise to workers.
Expert guidelines reduces accidents and
wastages materials, man and machine hours.
It relives the pressure needed to search a large
number of all-round executives.
Limitations of Functional authority
Co-ordination is difficult between various
functional foreman.
It violates unity of command principle.
Maintaining the discipline is difficult
It makes industrial relationship more complex
Workers remain confused about the authority
and activity of each foreman

Delegation of authority
Delegation of authority is a process which
enables a person to assign works to others
and delegate them with adequate authorities
to do it.
According to Mc. Farland, Delegation is a
primary formal mechanism by which the
network of authority relationship is
established.
Features of delegation
It is authorization to a manger to act in a certain
manner.
It has dual characteristics.
A superior can not delegate entire authority to
their subordinate.
It does not implies reduction of entire authority
of the superior.
Authority can be withdrawn at any time.
It may be specific or general, written or oral.
It is created through the process of organising.

Types of delegation
1. Over delegation-Burdening the subordinates
2. Under delegation-lack of trust in
subordinates
Process of delegation
1. Determination of result expected
2. Assignment of duties
3. Delegation of authority
4. Creation of obligation or accountability


Making delegation effective
Establishment of definite goals
Right person for the right job
Establishment of definite responsibility
Motivate subordinates
Appropriate environment
Free flow of information
Proper training to subordinates
Establish adequate controls.