Business organization and structure

Introduction

• Once planning is complete, plans must be put into action which involves organizing
• Organizing means coordinating activities so that objectives can be achieved
• Organizing as a management task is concerned with classifying/ allocating activities to divisions
• It also creates posts within those divisions and determines employees duties, responsibilities, and authority
• Organization is interdependent within the management process and must go hand in hand with planning, leading, motivating, and controlling
• It should consider the business environment which determines the business strategy
• This strategy determines structure; how a business is organized must change with the environment

Steps in the organizing process

• Gathering information
• Identifying and analyzing activities
• Classifying activities
• Allocating staff
• Assigning authority and responsibility
• Facilitating work

Principles of organizing

• Principles include co-ordination, chain of command, unity of command, span of control

Co-ordination

• Integration of business parts to achieve desired outcome
• Three elements:
  • Clear objectives
  • Well defined policies/procedures
  • Effective communication

Chain of command

• Line of authority that flows from the top of the business down to any employee
• Clarifies the order of reporting, avoids confusion, makes decision-making and communication better

Unity of command

• States that each employee should answer to, and take instructions from only their immediate superior

Span of control

• Refers to the number of direct subordinates reporting to any manager
• A manager's span of control is influenced by:
  • The manager's/ subordinates' training, qualifications and competence
  • The physical distances between employees
  • The degree of non-supervisory tasks in a manager's job description
  • The interaction required with the subordinates
  • The similarity of subordinates' tasks
  • The level of standardization of subordinates' tasks
  • The frequency of new problems
  • The strictness of control required

Authority

• Authority is the right to make decisions, issue orders, and utilize resources
• The types of authority a business uses will depend on structure
• Even when management possesses authority, their point of view may not always be what is best for the business ethically
• Management needs to be conscious of paying attention to their employee's feedback/ideas, so decisions are appropriate based on a complete picture of the daily activities

Types of Authority

• Include line authority, staff authority (advisory, compulsory, and co-operative authority), line-and-staff authority, functional authority, and project authority

Line authority

• Direct authority a manager has over an employee that is under their line of command

Staff authority

• Largely advisory usually on middle management level
• Three types of staff authority:
  • Advisory authority - Specialist knowledge is used, but the inputs of the specialist are not enforceable and only advice
  • Compulsory advice - A manager is compelled to listen to the specialist, but isn't compelled to carry out recommendations
  • Co-operative authority - Specialist has equal authority regarding a certain matter, and consensus between them/the manager must be reached before decisions are made

Line-and-staff authority

• Line managers and staff managers form a collaborative partnership
• Line departments will not be successful without the support of staff departments as they can be seen as internal

Functional authority

• The right that staff specialists have to give orders to line employees in an established area

Project authority

• Horizontal (sideways) authority of a project manager that can extend over many different departments

Responsibility

• The duty to do certain work
• Upon accepting a job, the employee takes responsibility for their actions
• The nature, scope (range), and details of job responsibilities should always be clear to the employee whether they are at a managerial level or not

Accountability

• Any means of ensuring that the employee who is supposed to perform an activity in fact performs it

Delegation

• The process by which managers allocate to subordinates the responsibility and authority to execute and make decisions for accomplishing objectives in certain situations

Centralization vs decentralization

• Centralization and decentralization of authority are management philosophies of delegation
• Centralization is the degree to which the decision-making power is concentrated at a single point in the organization
• Decentralization is the degree to which lower-level management provides input regarding the decision-making process or actually makes the decisions

Specialization

• Refers to the division of work to improve how goals are achieved
• Few employees have the skills, knowledge and expertise to perform every task, so they're appointed to work in divisions where special skills/ interests /knowledge can be applied

Divisionalization

• Means creating self-managing units within a business, and each division has its own:
  • General manager
  • Operations manager
  • Financial manager
  • Human resources manager
  • Marketing manager

Value Chain

• A functional structure can be organized around a business's value chain.
• Value chain - A series of activities from sourcing raw materials to delivering a product

Types of divisional structure

• Divisional structure can be based on products or geographic location
• Also on projects or consumer/client needs

Organizational structures

• Help the business to achieve goals by providing a framework for managers to divide responsibilities, allocate authority, coordinate activities, control performance, and hold employees accountable
• The environment influences the structural design of organizations
• Include the line, line-and-staff, functional, and divisional organizational structure, matrix, team, and network organizational structure

Line organizational structure

• Is a simple hierarchy where the lines of authority run vertically from the top to the bottom of the business

Line-and-staff organizational structure

• Has vertical lines of authority for its basic functions, but staff specialists are added to perform more complicated functions

Functional organizational structure

• Structure of line organization reflects basic functions of a business

Divisional organizational structure

• Aims to support self-contained divisions

Matrix organizational structure

• Uses both vertical and horizontal lines of authority
• The vertical functional line of authority provides control within functional departments
• The horizontal divisional line provides coordination across these functional departments
• Unity of command isn't always possible

Team organizational structure

• Cross-functional team - selected group of employees from different functional departments who meet as a team to solve shared problems
• Permanent team - group of employees from several functions with a permanent job of solving general problems

Network organizational structure

• Has its functions operated by separate businesses which are run by a small headquarters
• Instead of business functions under one roof, these services are provided by other businesses under contract
• These businesses are connected electronically (computers, internet, email) to the central office

The changing organization

• Today's businesses function in an 'economy of ideas' where change is introduced quickly
• Uncertainty occurs when the external environment is rapidly changing/complex
• An uncertain environment causes increased differences among divisions/departments, and an increased need for coordination between divisions
• It also causes a need for the business to adapt to change

Management for a changing organization

• In a changing organization, important energy comes from good, new ideas.
• Knowledge management - Using the intellect of the people who work for the business finding, unlocking, and sharing their expertise, skills, wisdom and relationships
• Communication among different divisions departments or other sub-units of the business must be of a high level
• Management changes have become a function critical to management
• For a business to adjust to market needs it may be needed to change organizational structure
• Businesses should realize they need to have an organizational structure that can respond quickly to the needs of the market
• Structure determines business strategy, so structure needs to change with the environment

Summary

• Today's organizations revolve around resources with people as the most important
• The process is all actions converting efforts into customer's value of productivity
• Organizing involves using certain principles for identifying and arranging a business's activities and resources
• This is done by structuring the business at horizontal and vertical levels by allocating duties, responsibilities and authority to workforce members/divisions
• An effective business structure contributed to achieving business objectives/encouraging cooperation
• A person can understand expansion of organizational structures by recognizing the organization's need to design systems which will enable workforce integration/ coordination