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BUSINESS ORGANIZING

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SyllabusOrganizing: Organizing as managerial function –

organization structure, formal and informal organization.

Traditional Organization Structures – Functional, Divisional and Matrix Structure

Directions in organizational Structures– Team structure, network structure , boundary less structure

Organizing Trends and Practices – Chain of command, unity of command, span of control

delegation and empowerment, decentralization and use of staff

organizational design and organizational configuration

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Organizing - MeaningThe process of defining and grouping the

activities of the enterprise and establishing authority relationship amongst them.

Process of determining the activities to be performed, arranging these activities to administrative units, as well as assigning managerial authority and responsibilities to people employed in the organization.

Deciding how best to group organizational activities and resources

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Organizing involves:The identification and classification of

required activitiesThe Grouping of activities necessary to

attain objectivesThe assignment of each group to a

manager with the authority necessary to supervise it

The provision for coordination horizontally [on the same or a similar organizational level] and vertically [ between various departments which are not on a similar organizational level] in the organization structure4

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DefinitionHeney, “ Organization is a harmonious adjustment

of specialized parts for the accomplishment of some common purpose or purposes”

Mc Farland, “ An identified group of people contributing their efforts towards the attainment of goals is called an organization”

George Terry, “ Organizing is the establishing of effective behavioural relationships among persons so that they may work together effectively and gain personal satisfaction in doing selected tasks under given environmental conditions for the purpose of achieving some goal or objective”

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Nature/ Characteristics of organizingexists to achieve some common objectivesInvolves division of labour to facilitate

specialization which improves organizational efficiency

People constitute a critical, dynamic element of an organization

Involves authority or chain of command

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Importance of organizingFocus on and facilitate the attaining of

objectives.Arrangement of positions and jobs

within the hierarchy.Define responsibilities and line of

authority of all levels.Creating relationships that will

minimize friction.

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Organization StructureSet of elements that can be used to configure

or construct an organization. Six building blocks that managers can use

in constructing an organization;Designing jobs-job specializationGrouping jobs- DepartmentalizationEstablishing reporting relationships between

jobs-chain of commandDistributing authority among jobs-delegationCoordinating activities among jobsDifferentiating among positions-line and staff

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Formal OrganizationAccording to Bernard, “Formal Organization is a system of consciously coordinated activities of two or more persons towards a common objective”

Nature of Formal Organization Deliberately created by top management Based on division of labour or specialization Defines clearly authority and responsibility of every

individual Has written rules and regulations Specifies communication channels Depicted on the organization chart of the company Focuses on the jobs and not the individuals who

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Formal Organization Structure

CEO

VP MaktgVP HRVP

ProductionVP

Finance

Production ManagerQuality Manager

HR Manager

Training Manager

Marketing ManagerSales Manager

Finance Manager

Cost Manager

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DemeritsAs definite boundaries of

each worker are clearly defined, it reduces the conflict among the employees

Overlapping of responsibility is avoided

Motivates employees as standards of performance are well established

Sense of job satisfaction, security arises from the classification of the task

Favouritism in evaluation and appraisal is avoided

May reduce spirit of initiative

Does not consider sentiments and values of social groups

Does not consider individual goals

May create coordination problem

Merits

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Informal OrganizationA network of personal and social relationships that arise spontaneously as people associate in a work environment. Consists of all the informal groupings of people within a formal organization

Nature of informal organization:Unplanned and arises spontaneouslyReflects human and social relationships

among peopleBased on common taste, language,

religion, culture etcThe membership of informal organization is

voluntaryHas no written rule and regulations

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Informal Organization Structure

CEO

VP MaktgVP HRVP

ProductionVP

Finance

Production ManagerQuality Manager

HR Manager

Training Manager

Marketing ManagerSales Manager

Finance Manager

Cost Manager

Quality Manager, HR Manager, Sales Manager and Cost Manager form a group for Cricket as they have common interest in Cricket13

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MeritsHelps to satisfy

social and psychological needs of employees to inspire them to work efficiently and effectively

Improves sense of belongingness, security and loyalty among employees

Recreation

DemeritsResistance to changeRumor- grapevine

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Characteristics Formal Organization Structure Informal Organization Structure

Formation Deliberately formed, planned and created by Top Management

Emerges spontaneously as a result of social interaction among organizational members

Purpose To achieve planned goals of organization0

To provide social satisfaction to members

Structure Well defined tasks and relationships

No clear cut structure, complex network of relations

Flexibility Rigid, stable and predictable Flexible, unstable and unpredictable

Standards of behaviour

Standards of behaviour and performance are prescribed by management

Standards of behaviour and performance are evolved by mutual consent among members

Leadership Managers act as leaders as they have authority

Members voluntarily select their leader

CommunicationFormally established line of communication, official communication

Communicate according to convenience

Organization Chart

Official structure can be shown in the form of chart Can not be shown

Rules and regulations Written and fixed Oral norms

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Traditional Organization StructuresFunctional StructureDivisional StructureMatrix Structure

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Functional StructureAlso known as U Form- U means UNITARYGrouping resources, organizational activities &

individuals by skills, knowledge & actionAn organizational structure composed of all the

departments that an organization requires to produce its goods or services

Grouping of activities according to the functions of an organization

Whole task of the organization is divided into specialized functions and each function is performed by a specialist in charge

Example: organizing around function like Manufacturing, Marketing, Finance, HR, R&D etc

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Functional Structure

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MeritsPromotes

specializationWork load

reductionBetter controlHigher efficiencyEncourages

learning from others doing similar job

Easy monitoring and evaluating performance

DemeritsReduces coordination

between functionsResponsibility for profit is

at the top onlyExpensiveDelay in decision makingSlow adaptation to

environmental chargesSpecialists become rigid

and can not understand what other units do

Difficult for departments to communicate with others

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Divisional StructureAlso known as M Form- M means MultidivisionalIt’s a structure made up of separate, semi autonomous

units or multiple divisions in related industryEx: 1] HP: computers, scanners, printers, electronic medical

equipments. Ex 2] Walt Disney: Theme parks, Movies A structure composed of separate business units within

which are the functions that work together to produce a specific product for a specific customer

Create smaller, manageable teamsDevelop a business unit level strategy to competeDivisions have marketing, finance, HR and other functionsFunctional managers report to divisional managers who

report to corporate heads

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Divisional Structure

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MeritsFocuses on

results; divisional managers are responsible for what happens to their products and services

DemeritsDuplication of

activities and resources which increases costs and reduces efficiency

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Conglomerate Structure or H Form

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H stands for HOLDINGIt’s a structure made up of multiple divisions in unrelated

businesses/industryEx: Samsung Electrics Co uses H Form or conglomerate

structure. – Semiconductors, Telecommunications, Appliances, Media

Ex: General Electric- aircraft engines, appliances, broadcasting, financial services, lighting products, plastics, etc]

It is essentially a holding company that results from unrelated diversification

This design which results from a strategy of unrelated diversification, is a complex to manage

Managers find that comparing & integrating activities among the dissimilar operations are difficlut

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Matrix or Grid StructureCombines two organization structures; functional and

project structures [based on projects organizational activities are grouped]

Functional departments create vertical chain of command

Project or product types form horizontal chainThis type used to efficiently execute multiple project

operations of enterpriseProject managers coordinate teams of employees drawn

from different functional departmentsMatrix organization relies on multiple command structureEx: General Motors, Prudential, American Cyanamid, NCR

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Matrix or Grid Structure

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MeritsWhere large

number of small projects have to be executed or completed, matrix organization works out better

Suitable to industries like building and construction, highly technology oriented industries etc

DemeritsViolates principle

of unity of command

Costly and expensive

Delay in decision making

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Some organizations like Philips and Citibank adopted matrix structure but later dropped it.

Matrix structure is not always appropriate to organizations.

When matrix structure is appropriate to companies?

When there is an environmental pressureWhen huge information processing is

existingWhen sharing scarce resources is

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Directions in Organizational Structure

Team StructureNetwork StructureBoundary Less Structure

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Team Structure

When management uses teams as its coordination device, you have a team structure

Members are assigned to a team for a specific task/projectOnce the task is done, members disburse and join another

teamIt breaks down departmental barriers and decentralizes

decision making to the level of work teamsIt requires employees to be specialists and also generalistsIn small companies team structure can define entire

organization.In large companies one can see team structure integrated

with project structureEX: APPLE, XEROX

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Team StructureCEO

Project Manager

3Project

Manager 2Project

Manager 1Project

Manager 4

Marketing TeamTesting TeamDevelopme

nt Team HR Team

Junior Software Engineer

Senior Software Engineer

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MeritsFlexibilityEmployee participation

in decision making which leads to high morale, efficiency

Quick decision makingEasy communicationBarriers between

functional departments are broken

Synergy effectEmployees

empowerment

DemeritsLoss of

productive time in team meeting

Work specialization wont workout

Interpersonal relations issues

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Network StructureCompany keeps core business and through

contacts with external agencies runs business [outsourcing]

Also known as modular organization-especially in manufacturing firms

Companies like NIKE & REEBOK, concentrate on their core strengths in product development and marketing and contracted all their footwear manufacturing to outside suppliers

Sweden's Ericsson contracts its manufacturing and even some of its R&D to more cost effective contractors in New Delhi, Singapore, California and other global locations

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Core Busines

s : Manufacturing shoes

Distribution Agency

Supplier Agency

Marketing Firm

Promotion/ Ad Firm

Accounting Firm

Manpower Consultancy

Network Structure

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MeritsFocus on core

businessCost saving

DemeritsNo control over

external agenciesFailure in one

network may affect entire network

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Boundary Less StructureBoundaries that divide employees such as hierarchy, job

function and geography as well as those that distance companies from suppliers and customers broken down

Seeks to remove vertical, horizontal and external barriers so that employees, managers, customers and suppliers can work together, share ideas and identify best ideas for organization.

Works without any chain of commandInstead of having many hierarchical levels, it is made up of

less layers, flattened or horizontal.Uses technology/intranet for better communication processIt replaces functional departments with cross functional teams

and organization around processes; uses lateral transfers, rotate people into and out of different functional areas

Replaces departments with empowered teams

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What are boundaries?Vertical Boundaries: Boundaries between layers

within the organization. VP Marketing ->Marketing manager - > Marketing executive. Problem: Lower layer employee has ideas, but thinks in terms of chain of command, and does not inform to boss

Horizontal: boundaries that exist between organizational functional units. Each unit has a singular function. Problem: each unit maximizes its own goals, but not overall goals of the organization.

External: barriers between organization and outside world like customers, suppliers, government agencies, public etc. Problem: lack of awareness of customers needs and suppliers requirements

Geographical: Barriers among organization units located in different countries. Problem: no communication between unitsRefer: wikipedia.com, www.scribd.com/doc/23027675/semester-2-Assign-2-Bureaucratic

-Vs-Matrix-structure36

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Boundary Less Structure

suppliers

customers

society

Government

Agencies

Top Mgt

R&D

Fin

Mktg

ProdnHR

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Virtual organizationsEssential feature of this organization is connectivityAbility to network a large number of service

providers, contractors whom it outsources its burden of getting infrastructural support, retaining for itself only a few areas of core competence.

Organization has no office as such because its executives will work with mobile phones and laptops at any place and at any time.

Key attributes; technology, opportunism- companies often work temporarily to meet specific demands of the customers and fall apart once need is over, no borders, trust, excellence

Examples of companies who have virtual teams: IBM, Motorola, Oracle, Honey well, HP, GE

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Organization Structure elementsOrganizing means how best to group

organizational activities and resourcesOrganization Structure means set of

elements that can be used to configure or construct an organization

Organization Design means overall set of structural elements and the relationships among those elements used to manage the total organization.

There are 6 elements that can be used to construct an organization;

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6 elements:Work specializationDepartmentalizationChain of commandSpan of controlCentralization and decentralizationFormalization

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1. Work specializationInvolves designing the jobs/ job designJob design means determination of an

individual’s work related responsibilities. First step in designing jobs is determining

level of the desired job specialization. Job specialization is the degree to which

overall task of the organization is broken down and divided into smaller component parts.

The concept of job specialization is evolved from the concept of division of labour.

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Work specialization contd…Adam Smith, 18th Century economist, described how

a Pin manufacturing Factory used division of labour concept to improve productivity.

One worker will drew the wire, another straightened it, a third cut it, fourth grounded the point and so on.

Ten men were able to produce 48000 pins in a day, whereas each man working alone could produce 20 pins per day.

Henry Ford implemented this concept in automobile assembly line

Work specialization is the extension of the growth, as growth continues, specialization too continues.

When Walt Disney started his company, he himself wrote cartoons, drew them, marketed to theaters, but today it has more than 1000s of specialized jobs.

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2. DepartmentalizationProcess of grouping jobs according to some

logical arrangement.Organization can create departments on

the basis of itsFunctionsProductsGeographical areasProcessCustomers

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Departmentalization contd..Functional Departmentalization

Product Based Departmentalization

CEO

HR ProdnFINMakt

g

CEO

Hair Care

Body care

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Departmentalization contd..Geographical Departmentalization

Based on Process Departmentalization

Based on Customer Departmentalization

CEO

South Region West RegionNorth

Region

CEO

Development MarketingTesting

CEO

Government ConsumerInstitution

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3. Chain of command/ Scalar ChainClear and distinct line of authority among

the positions in an organizationThe line of authority extending from the

upper organizational levels to lowest levels, which clarifies who reports to whom

Helps employees answer questions as “who do I go, if I have a problem?” or “to whom am I responsible?”

Scalar principle suggests that there should be a clear line of authority from top to bottom linking managers at all levels

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Gangplank principle

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In certain special situations the scalar chain/ chain of command should be avoided [ Fayol]

To facilitate speed and efficiency in administrative matters, communication through the formal chain can be avoided and lateral communication permitted

A

E

F

GD

C

BIf D has to communicate with G, the message has to travel through formal chain CBAEFG. This involves delay and hence, D may be permitted to communicate directly to G [which forms lateral communication] on important matters.

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3 concepts in Chain of Command/ scalar chain:

Authority: right to tell people what to do and to expect them to do it

Responsibility: obligation or expectation to perform any assigned duty

Unity of Command: a management principle that each person should report to only one manager

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4. Span of ControlDetermining how many people will report to

each managerThe no of employees a manager can

efficiently and effectively manage

A manager must deal with 3 kinds of interactions with and among subordinates;

Direct: manager’s one to one relationship with each subordinate

Cross: among subordinatesGroup: between groups of subordinates

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Span of Control contd..No of possible interactions of all types between

manager and subordinates can be determined as follow:

I= total no of possible interactionsN= no of subordinatesEx: if N [ no of subordinates] = 2, the no of

possible interactions are 6.If N= 5, I or no of possible interactions are 100.Manager has to determine optimal span of

control. This is nothing but deciding whether it should be narrow or wide span of management/ control

)12/2( NNI N

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Narrow Span of ControlFew subordinates per managerMore managers are required in this type.This results in Tall structure of the

OrganizationMerits DemeritsPersonal contact between managers and subordinates

Effective control and close supervision

Develops good human relations in organization

Expensive as larger no of managers are involved

Creates communication problems; because of increased no of people through whom information must pass

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Wide Span Of ControlMany subordinates per managerLess supervisors are requiredResults in Flat organization structureThis is preferable if workers are well trained

and competitiveMerits DemeritsReduces cost of supervision as few managers are required

Easy communication process

Better coordination between manager and subordinates as few managers supervise them

More administration and supervisory responsibility of managers

Effective control can not be assured

Requires talented managers

Managers won’t have time to provide support and leadership

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Width of span is affected by:Skills and abilities of the manager

Employee characteristics or abilities

Nature of work performedAvailability of time for supervision for managers

Factors influencing span of control

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DelegationProcess by which manager assigns a

portion of his or her total workload to others

The downward pushing of authority to make decisions is known as delegation of authority

Reason for delegation: to enable manager to get more work done

Steps in delegation process:

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Merits of DelegationReduces managers

heavy workloadDevelopment of

subordinatesBy participating in

decision making and problem solving, subordinates learn about operations and improve their managerial skills

Guidelines for effective Delegation

Provide incentives for accepting responsibility

Train subordinatesHaving mutual trust

and confidenceMake clear with nature

and scope of taskProvide necessary

facilities or resources and information to perform the task

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Barriers to effective DelegationFrom managers’

side“I can do it better

myself” fantasyNot trusting

subordinatesFear of loosing

power, fear of subordinates overtaking them

Briefing difficulty or lack of communication power

From subordinates side

Fear of criticismLack of confidence,

adequate resources and information

May think that no reward for accepting additional responsibility

Prefer to avoid risk57

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EmpowermentIt is the term used to express ways in which

employees can make decisions without consulting a manager

It is self management, employees manage their own work, monitor quality of goods and services.Points to remember while empowering employees:

Sharing vision, goals or objectives with employees.

Trusting peopleProviding necessary information for

decision makingDelegate work as well as authorityProvide feedbackPoint out problems not people

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5.Centralization & DecentralizationCENTRALIZATIONCentralization of power to make decision at the higher

levels of managementHence employees can’t act independentlyThis results in Tall StructureMerits Demerits

Taking emergency or quick decisions without any delay

Standardized policy or procedures

No individual initiative

Top management will be over burdened

Widens gap between managers and employees

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DecentralizationDispersal of decision making authorityDelegating power or authority to middle

and lower level managersDegree to which lower level employees

provide input increases or actually they make decisions

Results in Flat StructureMerits DemeritsReduces burdenIncreases flexibility

and involvement from employees

Increases administrative cost

Difficult in controlling

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StaffingProcess of planning, employing and developing

human resources at different levels of an organization for carrying out the various functions in the organization

Includes activities as human resource planning, recruitment, selection, placement, T&D, remuneration, performance appraisal, promotion, transfer etc.

Koontz & O'Donnell, “the managerial function of staffing involves managing the organization structure through proper and effective selection, appraisal and development of personnel to fill the roles designed in to the structure”61

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Line organizationsAll positions in the organization are in the

direct line of authority from top to bottom.

GM

Work Manager

Foreman

Workers

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Staff OrganizationAct as advisory function to line organizationTheir main task is to provide advice,

guidance, suggestions to line people.

GM

Work Manager

Foreman

Workers

Business

Economist

Industrial

Relations

Legal Advisor

Cost Account

ant

Industrial

Engineers

R&D

Represents staff function Represents line

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Use of Staff function in Decentralization

In decentralization, decision making power will be dispersed

Line authority can utilize staff people who can give better advice, guidance and suggestions. This will help line authority to take good and effective decisions.

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6. FormalizationThe 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.

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Organization DesignFollowing factors influence organization

designing task;Environment: external or internalBusiness strategy – focused, differentiated

or low costTechnology – complexity of the technology

used Internal contingency factors:

*goals*organization size*employees

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Organization ConfigurationThis is nothing but creating departments in

the organization based on some logic arrangement; based on functions, products, processes, geography and customers.

[refer slide 43, departmentalization, 2nd element of organization structure]

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THANK YOU

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