ORGANIZATION

ORGANIZATION DEFINED

When two or more people are working toward the same objective,
each one must know what part of the job he is supposed to do.
Otherwise there will be confusion and duplication of effort. And no
matter how precisely the work is divided, the efforts will not dovetail
exactly unless some means of coordination is provided.
Considered as a process, then, organization includes

(1) breaking down the work necessary to achieve the objective into individual jobs
and

(2) providing means of coordinating the efforts of the jobholders.

In a small group of course both phases can be handled informally and orally and
changes in assignments can be made easily if it turns out that one part of the work is
proceeding too slowly to mesh with the other parts. But when achievement of the
objective requires the work of a large number of people and the performance of
many different tasks, some sort of permanent or semipermanent division of the
work is usual; so is a formal system of coordination.
Perhaps the first social scientist to discuss the process of organization
was Max Weber. According to Weber the process includes

1 . Distributing the regular activities in a fixed way as official duties.

2. Arranging a hierarchy of jobs with each jobholders authority to give

commands strictly prescribed, including his authority to apply various
means of coercion.

3 Preparing written documents ( “the files”) to govern the general

conduct of the institution.
The result of the process of organizing is, the “ organization ” —the
people employed and the network of relationships among them.

When the organization was structured in the way he described. Weber

said, the result would be a bureaucracy, which he thought would be the
most efficient form of organization possible.
He wrote

The fully developed bureaucratic mechanism compares with other

organizations exactly as does the machine with non-mechanical modes
of production.
DESCRIBING AN ORGANIZATION

One of the simplest ways of presenting a picture of an organization although it

does not give a complete or wholly accurate picture—is to draw up an organization
chart, which is simply a diagram of the formal authority structure. This shows by
job title who reports to whom ,that is, the subordinate-boss relationships (In
business a subordinate is said to be “reporting” to his superior. This term has
found favor, perhaps because it sounds more democratic to say that Jones reports
to Smith than to say that Smith is Jones’s boss. Also, it carried the important
connotation that Smith can hold Jones responsible for doing certain work.)
A chart of a small branch sales office might look like the chart in Figure 1. If the
office were larger it might be necessary to insert another layer of supervision
between the sales manager and the rank and file, as shown in Figure 2. Here
only the assistant sales manager and the office manager report to the sales
manager directly and each of the rank-and-file employees reports to one or the
other of the two second-level managers.
Figure 1

sales
manager

salesman secretary book mail

keeper room
Figure 2
sales
manager

asst sales office

manager manager

salesman secretarys book mail

keepers room
THE CLASSICAL PRINCIPLES

• objectives • Delegation
• specialization • Unity of command
• coordination • The span of control
• authority • A short chain of command
• responsibility • Balance
• Efficiency
objectives

The organization should have a clearly defined objective ( or objectives).

Also, each position should have an objective logically related to one of
the overall objectives in such a way that if each jobholder attains the
objective prescribed for him the goals of the entire organization will be
reached.
specialization

So far as possible, the work of each person should be confined to a

single function, and related functions should be grouped together
under one head.
coordination

Means of coordinating all efforts toward the common goal must be

provided.
 authority
The organization must have a supreme authority and clear lines of authority
should run from that person (or group) down through the hierarchy. Such a line may
run from the chief executive to the vice-president in charge of manufacturing, to the
plant manager to the production manager, to the foremen, to the rank-and-file
factory employees. Similarly, another line Of authority may run from the chief
executive to the manager of marketing, to the general sales manager, to the
subordinate sales managers, to the salesmen. This principle is often referred to as
the “scalar principle” , and the resulting hierarchy is known as the “chain of
command”.
responsibility
Authority should be commensurate with responsibility: that is , when anyone is
made responsible for achieving a given objective, he should have enough authority
to take the steps necessary to reach it. This may be illustrated by a reference to
budgets. If an executive is given a budget and held responsible for keeping within it,
it is often found necessary to exclude certain expenses that will be charged against
his department in the accounting records simply because he has no part in the
decision to incur them. The expenses that he is made responsible for are those be
has been given authority to approve or disapprove.
Efficiency

The organization should be so planned that the objective can be

attained with the lowest possible cost which may mean either money
costs or human costs or both.
Delegation

Decisions should be made at the lowest Competitive level; that is ,

responsibility and commensurate authority should be delegated as far
down in the organization as possible.
Delegation

Let us say that A is B’s immediate superior and that B in turn, has a
subordinate C. B is free to delegate decisions to C, but he is still
accountable to A for the results of the decisions. It is part of B's
responsibility not to delegate decisions to the incompetent, and if his
judgment of C's competence was in error, he cannot expect A to excuse
him simply because he personally did not make a given mistake.
 Unity of command
Each person should be accountable to only one superior. In the example
above, C is accountable to B, while B is accountable to A. In the strict
observance of this principle, A will never tell C whal to do or correct him if
he doesn't do what he is supposed to do.If C makes a bad mistake, A will
talk not to C but to B about it , and B may pass along as much or as little of
the complaint as he deems wise. Similarly , C should not be permitted to go
to A with a request for help on a problem; he must go to B, even though B
may have to consult A before taking action.
The span of control
No superior should have more than six immediate subordinates whose
work is interrelated.( Some authorities use a different figure - say four or
eight) .
 A short chain of command
There should be as few levels of supervision between the supreme
authority in the organization and the rank and file as possible. Obviously, if
directions flow down from the top through the chain of command and
reports on what is actually happening follow the same channel , the longer
the chain the greater the chance that the directions or the reports will be
distorted on the way.
Balance

The organization must be continually surveyed to ensure that there is

reasonable balance in the size of the various departments, between
standardization of procedures and flexibility, and between centralization
and decentralization of decision making.
Balance is necessary also between the principle of the span off control
and the principle of the short chain of command, for shortening the span
of control generally means lengthening the chain of command.
 Characteristics of Organization
1. Organization is made up of a group of people

2. The group works under an executive head

3. Organization is a tool of management

4. It leads to division of work and responsibilities

5. It defines and fixes the duties and responsibilities of employees

6. It establishes a relationship between authority and responsibility and

controls the effort of the group

7. Organization is a step towards achievement of established goals

Process of Organisation

Step 1:

Overall objectives of an organisation are determined in this step.

Objectives determine the purpose of an organisation. A clear, precise

and complete description of desired objectives is necessary for
accomplishment of tasks in an efficient and effective manner.
Step 2:

After determining the desired objectives, listing of various activities

needed for executing them in forms of plans is done. This step consists of
subdividing the entire work into manageable units that are to be
performed by various individuals.
Step 3:

In this step, various activities are classified and grouped under various
categories or departments as per their core competencies such as
marketing, finance, purchase, operations, etc.
Step 4:

In this step, delegation of authority is done. Authority is the right given

to a superior for directing and guiding of subordinates to get work out of
them. It is seen that authority always flows from superiors to
subordinates in an organisation.
Step 5:

In this step, lines of responsibility between members of organisation

are made clear for its effective functioning. A subordinate has an
obligation and responsibility for performing the duties assigned to him.
In addition, a superior is also accountable for the acts of his
subordinates. Responsibility always flows from subordinates to
superiors.
Step 6:

Grouped activities are placed at appropriate levels in this step. Formal

authority relationships in horizontal, vertical and lateral directions
among various departments are worked out. Communication channels
are developed for facilitating interactions among various departments.
 Step 7:
In this step, required physical facilities like tools and equipment,
machinery and infrastructure are worked out. These are given to work
force to ensure that production is carried out as per plans. Also, good
working environment in terms of reasonable amount of work, adequate
lighting and ventilation needed, job satisfaction to employees, etc., are
worked out.
Step 8:

Finally, organisation chart is prepared that shows the formal

organisational structure.
 FORMAL
AND
INFORMAL
ORGANIZATION
Formal Organization

A formal organization means the intentional structure of roles in a

formally organized enterprise. Describing an organization as formal,
however, does not mean there is anything inherently inflexible or unduly
confining about it. If a manager is to organize well, the structure must
furnish an environment in which individual performance, both present
and future, contributes most effectively to group goals.
A formal organization must be flexible. There should be room for
discretion, for beneficial utilization of creative talents, and for
recognition of individual likes and capacities in the most formal of
organizations. Yet, individual effort in a group situation must be
channeled toward group and organizational goals.
 Informal Organization
Chester Barnard, author of the management classic “The Functions of the
Executive”, described an informal organization as any joint personal activity without
conscious joint purpose, although contributing to joint results. It is much easier to ask
for help on an organizational problem from someone you know personally, even if he
or she may be in a different department, than from someone you know only as a name
on an organization chart.

The informal organization is a network of interpersonal relationships that arise

when people associate with each other. Thus, informal organizations-relationships not
appearing on an organization chart-might include the machine shop group, the sixth
floor crowd, the Friday evening bowling gang, and the morning coffee "regulars."
Formal and Informal Organizations
Organizational Structure

“Organizational structure is defined as the framework that managers

devise for dividing and coordinating the activities of members of the
organization.” —James Stoner
Types of Organizations

1) Line organization

2) Line and staff organization

3) Functional Organization

4) Project Organization, and

5) Matrix Organization
 Line organization
Line organization is the oldest and simplest method of organization. This
type of organization is found to be suitable mostly for smaller firms. However,
the true form of line organization mostly exists in military systems. Line
organizations are also called ‘doing’ organizations where all activities from the
production to marketing of goods are controlled by the managers/owners.
In the case of companies with line authority, managers maintain direct control
over all the activities carried out in their respective departments. They are also
directly responsible for achieving the organizational goals and plans. In this type
of organization, a well-defined line of authority and communication flows
downwards from the top-level managers to the workers at the bottom through
various hierarchical levels. As such, authority will be greatest at the top level
and then gets gradually reduced through each successive level in the hierarchy.
Line organizations are ideal for slow-paced and stable organizations,
where moderately educated people are employed in significant
numbers. The authority of managers in line organization is primarily
legitimate and formal.
Merits of line organization

(a) It is a simple and “easy to understand” form of organization without any complex
organizational structure or chain of command.

(b) It encourages managers to act independently and improve their decision - making
ability.

(c) It facilitates an organization to make managers wholly accountable for all their
decisions and actions. Thus, they will be more careful while exercising their authority
and doing their duties.
(d) Since the whole department operates under the direct control of
one manager, it is easy to coordinate the activities within his area of
operation. Managers can also ensure better discipline among the
employees as they report to an undivided authority.
(e) As too many persons are not involved in the decision-making process,
managers in line organizations can make faster and timely decisions in
unstable environment. They can thus make the best use of available
opportunities to improve organizational interest.

(f) This structure can also be cost-effective as there will be less time and
resources spent on meetings and consultations. The cost of staffing can
also be less as there would be fewer or no advisors to assist the
managers of line organization.
Line Organizational Structure
 Limitations of line organization
(a) There may be less technical depth and specialization in the decisions of
managers in line organizations. This is because managers do not normally get
anybspecialized advice from experts while making decisions. So, there are more
chances that managers make arbitrary, hasty and unbalanced decisions.

(b) Since line organizations place greater emphasis on one-way top to bottom
communication, job involvement and satisfaction of employees at lower levels can
be less in these organizations. Employees at the lower levels may not get adequate
opportunities to communicate their complaints, suggestions and feedback to the
higher authorities.
(c) When absolute authority is vested with managers, they may tend to
misuse their position and authority detrimental to the organizational
interest. This method may encourage the employees to be passive and
too dependent on their managers. At the same time, it may encourage
the managers to be more autocratic and impulsive in their approach.
(d) When there is overreliance on line managers for administration and decision
making, organizations may not be able to nurture the administrative, leadership and
decision-making skills of non-managerial personnel in the organization. This can
affect the succession planning and leadership development programmes of the
organization.

(e) Effective coordination of activities across departments or divisions may be

difficult in this form of organization. This is because line managers without any
centralized advice may tend to focus more on their departmental issues and interest.
They may fail to consider the needs and interest of other departments with the right
perspectives while making decisions.
(f) The job of line managers may become tiring and exhaustive due to
heavy work pressure and greater demands from both the top
management and employees. This is because line managers are
expected to plan, implement, monitor and control the organizational
activities all by themselves.
Distinction between line and staff
The distinction between line and staff in business is similar to the
distinction between line and staff in armies. In either an army or a
business, the line organization is made up of those whose work
contributes directly to achievement of the fundamental goal, the staff of
those who assist the line in some way either by providing services or by
developing plans, giving advice, questioning plans, or auditing
performance.
The goal of an army is to win battles and wars; hence the line officers are those who
command the fighting groups, while staff officers are those who provide supplies,
transportation, and other auxiliary services and those who work on strategic plans.

Similarly, the main objective of a business is to make a profit by producing and selling
goods or services, and only those who perform or supervise these services are members
of the line organization.

However, if the company is a financial institution that draws a large part of its revenue
from investments, the financial executive may be considered a line man since his
function itself produces a profit.
Line authority

Line authority entitles a manager to direct the work of an employee. It is the

employer–employee authority relationship that extends from the top of the
organization to the lowest echelon, according to the chain of command, as
shown in fig. As a ink in the chain of command, a manager with line authority
has the right to direct the work of employees and to make certain decisions
without consulting anyone. Of course, in the chain of command, every manager
is also subject to the direction of his or her superior.
Chain of Command and Line Authority
 Keep in mind that sometimes the term line is used to differentiate line managers from
staff managers. In this context, line refers to managers whose organizational function
contributes directly to the achievement of organizational objectives.

In a manufacturing firm, line managers are typically in the production and sales functions,
whereas managers in human resources and payroll are considered staff managers with staff
authority.

Whether a manager’s function is classified as line or staff depends on the organization’s

objectives. For example, at Staff Builders, a supplier of temporary employees, interviewers
have a line function. Similarly, at the payroll firm of ADP, payroll is a line function.
As organizations get larger and more complex, line managers may find that they don’t have the time,
expertise, or resources to get their jobs done effectively. In response, they create staff authority
functions to support, assist, advise, and generally reduce some of their informational burdens. The
hospital administrator who cannot effectively handle the purchasing of all the supplies the hospital
needs creates a purchasing department, a staff department.

Of course, the head of the purchasing department has line authority over the purchasing agents
who work for him. The hospital administrator might also find that she is overburdened and needs an
assistant. In creating the position of her assistant, she has created a staff position.
Line versus Staff Authority
Line and staff organization

A line–staff organization is one in which the line manager gets

advice and assistance from the staff manager (also called advisor). This
kind of organization includes both line and staff positions in its
structure. Large and more complex organizations normally prefer
line−staff setup to improve the quality of the managerial decisions.
 The role of line authority in these organizations is to make decisions
and issue directives necessary for goal accomplishment. The role of
staff advisors is to offer advice to the line authorities when needed. The
staff departments in these organizations normally provide expert
advice and other specialized support services to the line managers. This
advice should enable line managers to make sensible, balanced and
technically superior decisions.
 Benefits of line−staff organizations
• This method enables the line managers to make well-informed and technically superior decisions with
the aid of specialized staff advisors. This method is capable of combining the unique features of line
departments like faster decisions, and direct communication with staff departments for specialized
advice and support services necessary for effective administration.

• Since thinking and acting are largely separated in line−staff organizations, line managers can devote
more time for administrative works including plan implementations and goal executions. This is possible
because they can leave activities like problems analysis, data gathering, information processing and
decision making to their staff advisors.

• This method eventually enables line managers to learn the techniques of effective decision making
through their contacts and consultations with staff experts. In this way, it provides training to the line
manager in decision- making aspects.
• Due to the involvement of staff advisors, decision-making processes are now
more methodical and disciplined. This should reduce the chances of decision
failures as line managers are prevented from making any arbitrary and hasty
decisions. The presence of knowledgeable advisors should make it easier for the
managers to solve even complex problems with ease and due care.

• Line−staff organization can help the management in achieving enhanced

productivity, performance and profitability of the organization. This is possible as
better and more accurate decisions mean reduced risk, better resource utilization
and less wastage, and improved job satisfaction for managers and subordinates.
 Limitations of line−staff organizations
• Even if authorities are clearly defined, the possibility of conflict between line managers and staff
advisors cannot be completely ruled out. This is because their understanding of the problem itself
can be different due to their dissimilar backgrounds and different approaches.

• This method can push up the cost of administration as organizations have to pay for their
specialist staff advisors in addition to the usual staff cost of line managers.

• Line managers blindly and indiscriminately following all the advice of the staff advisors are a
distinct possibility in these organizations. This can happen when line managers become too
dependent on the staff advisors.
• Since staff advisors often have little or no exposure to line managers’
tasks, responsibilities and difficulties, their advice may lack practicality.

• Since line managers alone get the recognition and appreciation for
best decisions and efficient administration, staff managers may lack
proper motivation to perform their job well.
Departmentalization

Subdividing work and workers into separate organizational units

responsible for completing particular tasks.
departmentation

The classical principles are designed to provide guidance for the

organizer, the manager who must answer such practical questions as

• How should the work be divided by departments and individuals?

• How much authority to make decisions should be given to each

jobholder?

• What means of coordination should be provided ?

 The classical principles do provide some guidance ; For example, the statement that
each person should, so far as possible, perform only a single function and related functions
should be grouped together gives a very general idea of how work should be divided .And
the span of control principle—whether one considers that the span should be limited to six,
eight or some other number-may also be of help in the division of work. Again the existence
of a chain of command—dictated by the scalar principle—means that there is some
provision for coordination since each manager will coordinale the work of those under him,
and his own efforts will be coordinaled with those of others on his level by their common
superior.
However, the classical principles leave many questions unanswered.

How does the organizer decide where one function leaves off and
another begins?

How does he decide which jobs are sufficiently related to be grouped

together in a single department or section.
The limitation on the number of subordinates that can be directly managed
would restrict the size of enterprises if it were not for the device of
departmentation.

Grouping activities and people into departments makes it possible to expand

organizations - at least in theory - to an indefinite degree. Departments,
however, differ with respect to the basic patterns used to group activities.
 DEPARTMENTATION BY ENTERPRISE FUNCTION
Grouping activities in accordance with the functions of an enterprise-functional
departmentation-embodies what enterprises typically do. Because all enterprises
undertake the creation of something useful and desired by others, the basic
enterprise functions are production (creating utility or adding utility to a product or
service), selling (finding customers, patients, clients, students, or members who will
agree to accept the product or service at a price or for a cost), and financing
(raising and collecting, safeguarding, and expending the funds of the enterprise). It
has been logical to group these activities into such departments as engineering,
production, selling or marketing, and finance.
 Functional organization
• Modified form of line organization

• Authority rests with functional heads

• Staffs are grouped and located by specialty into functional departments: each headed by a
functional manager. Each member of staff has one clear boss.

• Functional manager are specialists in their respective areas and is based on high degree of
specialization.

• This specialization leads to greater efficiency and refinement of particular expertise.

• The functional structure helps to focus on those departments that are critical for the success
of the enterprise.
Advantages of Functional organization

• Efficient use of resources

• Simplifies training

• Promotes professional development

• Centralized control of strategic decisions

• Improved quality of work

Disadvantages of Functional organization

• Limits development of general managers or all-round executives

• Restricted view of company objectives

• Difficulty in multifunctional decision making

• Promotes narrow specialization

• Makes industrial relationships more complex

Functional departmentalization

Organizing work and workers into separate units responsible for

particular business functions or areas of expertise.
Functional Departmentalization
Functional Departmentalization
 advantages
Functional departmentalization

First, it allows work to be done by highly qualified specialists. While the accountants in the
accounting department take responsibility for producing accurate revenue and expense figures, the
engineers in research and development can focus their efforts on designing a product that is reliable
and simple to manufacture.

Second, it lowers costs by reducing duplication. When the engineers in research and development
come up with a fantastic new product, they don’t have to worry about creating an aggressive
advertising campaign to sell it. That task belongs to the advertising experts and sales representatives
in marketing.

Third, with everyone in the same department having similar work experience or training,
communication and coordination are less problematic for departmental managers.
 disadvantages
To start, cross-department coordination can be difficult. Managers and
employees are often more interested in doing what’s right for their function than
in doing what’s right for the entire organization. A good example is the traditional
conflict between marketing and manufacturing. Marketing typically pushes for
spending more money to make more products with more capabilities to meet
customer needs. By contrast, manufacturing pushes for fewer products with
simpler designs so that manufacturing facilities can ship finished products on
time and keep costs within expense budgets.
Product Departmentalization

Product departmentalization organizes work and workers into separate

units responsible for producing particular products or services.
Product Departmentalization: UTC
Customer Departmentalization

Customer departmentalization organizes work and workers into

separate units responsible for particular kinds of customers.
Customer Departmentalization: Swisscom AG
Geographic Departmentalization

Geographic departmentalization organizes work and workers into

separate units responsible for doing business in particular geographic
areas.
Geographic Departmentalization: AB InBev Company
 Project Organization
Firms dealing with multiple products or different projects usually adopt project
organization.

It consist of an autonomous project team, existing independently of the rest of

organization.

The emphasis in project organization is on creation of teams for the

accomplishment of specific objectives.

The project team is assembled for a specific project under the action of project
manager.

The team is thus temporary and will be dispersed when the project is completed.
Project Organization
Advantages of Project Organization

• Flexibility

• Responsive to changing environment

• Encourages team work

Disadvantages of Project Organization

Projects can be of short duration leading to frequent change in

organization structure

Professionals prefer to be allied with their professional group rather

than being allied with a project

Trained professionals need not tolerate the insecurity of frequent

organization change
 Matrix Organization
• They are those that comes between fully functional and fully project organizational
structure.

• Staffs are grouped and located by speciality into functional units headed by a
functional manager.

• The project manager works with the functional manager for timely completion of
project.

• The matrix organization is an organization structure that establishes two chains of

command, one vertical and one horizontal, at the same time.

• It is intended to combine the advantages of functional structure and project structure.

Advantages of Matrix Organization

• Decentralized decision making

• Efficient use of functional managers

• Capable of adapting to fast environmental changes

• Flexibility
Disadvantages of Matrix Organization

Violates the principle of unity of command

High administrative costs

Requires tremendous horizontal and vertical co-ordination

Chances of interpersonal conflicts

Matrix Departmentalization

Matrix departmentalization is a hybrid structure in which two or more

forms of departmentalization are used together. The most common
matrix combines the product and functional forms of
departmentalization, but other forms may also be used.
Matrix Departmentalization: Procter & Gamble