Unit III - Organizing PDF

ORGANIZING Page | 1  FUNCTIONS OF MANAGEMENT Learning Objectives: 1. Understand the nature and essence of organization. 2. Discuss thoroughly the concept of organizing. 3. Explain the importance, nature, and characteristics of organizing. 4...

ORGANIZING Page | 1  FUNCTIONS OF MANAGEMENT Learning Objectives: 1. Understand the nature and essence of organization. 2. Discuss thoroughly the concept of organizing. 3. Explain the importance, nature, and characteristics of organizing. 4. Enumerate the process of organizing. 5. Define different principles embedded in organizing as a function of management. 6. Describe organizational structure and its different types. SEQUENTIAL FUNCTIONS OF MANAGEMENT Controlling Planning Directing/ Organizing Leading I. ORGANIZING A. Definition  A process that initiates implementations of plans by clarifying jobs, working relationships and effectively deploying resources for attainment of identified and desired results (goals).  It is the process that refers to identifying and grouping of activities to be performed, defining and delegating authority, specifying responsibility and establishing relationships to enable people to work together effectively in accomplishing objectives (Louis A. Allen).  Involves the grouping of activities necessary to accomplish goals and plans, the assignment of these activities to appropriate departments and the provision of authority, delegation and co-ordination (Koontz and O'Donnell). Page | 2   Involves division of work among people whose efforts must be co-ordinated to achieve specific objectives and to implement pre-determined strategies.  It is the process of bringing together physical, financial and human resources and developing productive relationship amongst them for achievement of organizational goals (Henry Fayol).  The establishment of effective behavioral relationships among persons so that they may work together effectively and gain personal satisfaction in doing selected tasks under given environmental conditions for the purposes of achieving some goal or objective (George R. Terry)  The backbone of management.  Two concepts of organizing: a) Organizing as a Process  Organizing is not a function that can be performed at a single stroke, but it is a chain of various functions. It includes getting information about objectives, deciding various activities and grouping them, determining important activities, allowing authority and responsibility and others.  Organizing is related to human beings and human conduct deeply affected by conditions of work, their competency and capability, changes in the internal and external environment of the organization.  The process of organizing had also to be changed according to these changes. Hence, organizing as a process can also be described as dynamic element. b) Organizing as a Structure of Relationships  Organizing is treated as a structure of relationships. Authorities and responsibilities of employees are defined as well as the creation and establishment of mutual relationships of employees working on various posts.  Relationships lay down as to who is the superior and who is the subordinate. Various posts in different departments of the organization are mostly permanent. Therefore, organization ass a structure of relationship is called static element.  As a structure of relationships; organization can be of two types: formal and informal organization. B. Nature or Characteristics of Organizing 1. Division of Work  The basis of an organization.  There can be no organization without division of work.  Under division of work the entire work of business is divided into many departments and then further sub-divided into sub-works. Page | 3   This helps to make the work being carried out in a simpler and efficient manner leading to specialization and increased employees’ efficiency.  By repeating a small part of work, the individual acquires speed and accuracy in in its performance.  This principle holds true for technical as well as managerial tasks. 2. Coordination  Under organizing different persons are assigned to different works but the aim of all these persons happens to be the same - the attainment of the objectives of the enterprise.  Organization ensures that the work of all the persons depends on each other’s work even though it happens to be different. The work of one person starts from where the work of another person ends.  To this end, an organization has to adopt adequate methods to ensure that there is proper coordination of the different activities performed at various work points. This means establishment of correct and adequate relationships between an employee and his work; one employee with another and one department or sub-department with another. 3. Plurality of Persons  Organization is a group of many persons who assemble to fulfil a common purpose.  A single individual cannot create an organization. 4. Objectives  Any organization structure is bound together by the pursuit of specific and well- defined objectives.  There are various parts of an organization with different functions to perform but all move in the direction of achieving a general objective.  An organization cannot exist for long without objectives and goals. 5. Well-defined Authority and Responsibility  A chain is established between different posts right from the top to the bottom.  Every individual working in the organization is given some authority for the efficient work performance and responsibility in case of unsatisfactory work performance. 6. Organization is a Structure of Relationship  Relationship between persons working on different posts in the organization is decided – it is decided as to who will be the superior and who will be the subordinate. 7. Organization is a Machine of Management  The efficiency of all the functions depends on an effective organization.  In the absence of organization no function can be performed in a planned manner. Page | 4  8. Organization is a Universal Process  Organization is needed both in business and non-business organizations.  Also, organization will be needed where two or more than two people work jointly. 9. Organization is a Dynamic Process  Organization is related to people and the knowledge and experience of the people to undergo a change.  Organization is not a process that can be decided for all times to come but it undergoes changes according to the needs. C. Importance or Advantages of Organizing 1. Increases Management Efficiency  A good and balanced organization helps the managers to increase their efficiency.  Managers, through the medium of organization, make a proper distribution of the whole work among different people according to their ability. 2. Proper Utilization of Resources  Through the medium of organization optimum utilization of all the available human and material resources of an enterprise becomes possible. 3. Sound Communication  Communication is essential for taking the right decision at the right time.  However, the establishment of a good communication system is possible only through an organization. 4. Facilitates Coordination  In order to attain successfully the objectives of the organization, coordination among various activities in the organization is essential. 5. Increase in Specialization  Under organization the whole work is divided into different parts.  Competent persons are appointed to handle all the sub-works and by handling a particular work repeatedly they become specialists. 6. Helpful in Expansion  A good organization helps the enterprise in facing competition.  For example, when an enterprise starts making available good quality product at cheap rates, it increases the demand for its products. 7. Encourages Creativity and Initiation 8. Adaptation of new technology 9. Facilitates training and development of managerial personnel 10. Facilitate administration Page | 5 D. Organizing Process Determination of objectives 1 Enumeration of activities 2 Classification of activities 3 Delegation of authority 4 Assignment of duties 5 1. Determination of Objectives  It is the first step in building up an organization.  Organization is always related to certain objectives. Therefore, it is essential for the management to identify the objectives before starting any activity.  Objectives must be clearly stated so as to understand the very purpose and existence of the business. 2. Enumeration of Activities  If the members of the group are to pool their efforts effectively, there must be proper division of the major activities.  The first step in organizing group effort is the division of the total job into essential activities.  For example, it is divided as production, financing, purchasing, marketing, personnel, and others. 3. Classification of Activities  Classify activities according to similarities and common purposes and functions by taking the available human and material resources into account.  Closely related and similar activities are grouped into divisions and departments and the departmental activities are further divided into sections.  For example, marketing may be one department in which packing, dispatching, sales, and consumer service may be sections. 4. Assignment of Duties  Specific job assignments are made to different subordinates for ensuring a certainty of work performance.  Each individual should be given a specific job to do according to his ability and made responsible for that.  He should also be given the adequate authority to do the job assigned to him. 5. Delegation of Authority  Since so many individuals work in the same organization, it is the responsibility of management to lay down structure of relationship in the organization. Page | 6 II. PRINCIPLES OF ORGANIZING  Good organization is based upon a careful planning of: o What is to be done? o Who is to do it? o Who is to supervise it? o How is to be done most efficiently?  Good organization results in the creation of well balanced, low-cost, teamwork that performs the necessary work.  The organization of business activities is a continuing process. It should not be static, rigid or fixed. It should be flexible and adaptable to changing objectives of the enterprise. Due to the existence of great varieties of organization, there can be no standard principles which could be followed in all individual circumstances.  However, there are certain principles which have more or less universal application and which may be used as guidelines for organizing a business: 1. Principle of Unity of Objectives  The organization is a mechanism to achieve the goals.  The objective of an enterprise should be clearly laid down as well as the method of achieving it in order for the organizers to determine the type of organization that is needed.  There must be unity of objectives so that all efforts can be concentrated on the set-goals.  Organizational structure and generated operations must be measured against the effectiveness in achieving set objectives. 2. Principle of Specialization  Effective organization must include specialization.  Optimum output can be obtained when each person concentrates on doing the thing for which he/she is best qualified.  Precise division of work facilitates specialization.  Organization should emphasize on the law of specialization.  However each area of specialization must be interrelated to the total integrated system by means of coordination in all departments and activities. 3. Principle of Co-ordination  Co-ordination expresses the principles of organization.  Co-ordination is the orderly arrangement of group effort to provide unity of action in the pursuit of common purpose. It is the beginning and end of all organized efforts.  A manager is mainly a coordinator. Co-ordination is a facilitative function helping integration of the basic managerial functions – Planning, Organizing, Directing and Controlling Page | 7   Organization involves division of work among people whose efforts must be coordinated to achieve common goals.  Coordination aims at higher efficiency and effectiveness. 4. Principle of Scalar Chain  The chain of authority must be clearly defined for sound organizational purposes. It is called a chain of command.  The line of authority flows from the highest executive to the lowest managerial level and the chain of command should not be broken.  Every subordinates must know as to who is his supervisor and to whom policy matters beyond his own authority must be referred to, for decision. 5. Principle of Authority and Responsibility  Authority o Managers do their tasks and make directions by practicing their legal authority o It is the legal right that managers/supervisors have in order to use it in making orders and supervise employees o Three Kinds of Authority inside the Organization: i. Line Authority – the authority of a manager over his immediate subordinates. Subordinates are required to implement the orders/decisions made by the manager. ii. Functional Authority – that person is allowed to make orders/decisions to employees from different departments because of his/her specialization not as a direct manager. iii. Staff Authority – persons who have this authority provide only the needed advice and recommendations to the top management of the organizations, not to make orders to subordinates.  Responsibility o Employees must follow their supervisors who made the orders and require doing what they need to do. o Responsibility to perform a task is given to a subordinate by the supervisor and if the subordinates commits mistake, the supervisor is answerable to his/her superiors. He cannot escape the responsibility by saying that mistake was committed by a particular worker. o The responsibility of higher authority for the acts of his subordinates is absolute. Page | 8 6. Principle of Centralization and Decentralization  Centralization o All power and decision making process is on one person’s hand in the organization (form the top management of the organization). o Advantages of Centralization i. Easy to coordinate and combine policies and practices ii. Helping the administrator to look at all the work iii. Easy to control within the organization (one system of control iv. No duplication of decisions o Disadvantages of Centralization i. Selfishness in making decisions ii. Decreasing ambitions form subordinates/employees (not sharing in decision making) iii. It may take much time to make a decision, or to get the job done iv. Long waiting from lower level of the organization to get the green light from the top management  Decentralization o The power and decision making would be distributed in more than one level, person, or department. o Advantages of Decentralization i. Sharing employees in the decision making process ii. Increasing the satisfaction and motivation of the employees by allowing them to make decisions iii. Quick accomplishment of work iv. Decreasing the burdens of the top management o Disadvantages of Decentralization i. Duplicating decisions, work, and services ii. Exploiting the authority, negatively, from some subordinates iii. Decrease the central control 7. Principle of Efficiency  The organizational structure should enable the enterprise to attain objectives with the lowest possible cost.  An efficient organization structure operates without wasting its scarce resources. It permits maximum use of its human resources and their talents. Page | 9 8. Principle of Delegation  The chief executive cannot do the whole work of the organization himself and hence, he takes assistance from others to accomplish the objectives. He divides the whole work into a number of activities and groups then on the basis of similarity and thus he creates a number of departments.  The delegation is the process through which they are tied together by establishing relationships between them for co-operative and integrated action. Delegation may be vertical or horizontal.  Delegation of Authority o It is a process that superior or managers assign some of his tasks to his subordinates with some authority to do the tasks. o Many managers do the delegation to decrease the pressure on them and focus on certain activities. Also, it promotes the idea of sharing in decision-making and encouraging subordinates to take this opportunity and responsibility.  This process ties together the whole organizational structure for integrated and co-operative action. If delegation of authority is not carefully done, the very existence of the organization is in danger and chaos and confusion may be raised. 9. Principle of Unity of Command  The core of this principle is that a man can serve only one boss. It means that instructions and directions to a subordinate must come for one person only.  Each subordinate must have one superior, to whom he should be answerable. This helps in avoiding conflict in command and fixing responsibility. According to this principle, each person should be accountable to a single superior.  No one in the organization should have more than one boss. It clarifies authority – responsibility and relationship. 10. Principle of Span of Control  Span of Control o The maximum number of employees or subordinates that can be supervised effectively by a person  The span of control should be limited to a reasonable number according to circumstances.  A span of control of six subordinates has been considered desirable. There is a limit to the number of subordinates which a manager can manage effectively.  Grouping must ensure that each supervisor and manager is not over burdened with subordinates. Page | 10 11. Principle of Balance  There should be reasonable balance in the size of various departments, between standardization of procedures and flexibility between centralization and decentralization.  Similarly, there should be balance between the principle of control and the chain of command. 12. Principle of Communication  A good communication network is essential for smooth flow of information and understanding for effective business performance.  The line of authority offers a standing channel for downward an upward communication. 13. Principle of Personnel Ability  People constitute an organization.  Proper selection, placement and training are essential.  Management structure must encourage management development programme and ensure optimum use of human resources. 14. Principle of Exception  Recurring decisions should be handled in a routine manner by the lower level manager, whereas problems involving unusual matters should be referred to the higher level.  The executives at the higher level of an organization have limited time and capacity. They should not be bothered by routine problems which can as well be managed by subordinates. 15. Principle of Flexibility  The structure of an organization must be flexible so that adjustments necessitated by changed circumstances may be planned and incorporated in it.  The organization is expected to provide build-in devices to facilitate growth and expansion without dislocation.  It should be adaptable to changing circumstances. It should not be rigid or inelastic. 16. Principle of Departmentalization  It enables the division of activities into specialized groups to attain organizational objectives.  A good organization involves precise and systematic distribution of work and responsibilities between managerial group and administrative group.  Departmentalization maintains balance and harmony in the working of the organization. 17. Principle of Division of Work  Specialization in the organizational functions is necessary for the most effective attainment of objectives. Page | 11   Specialization depends on division of work. Total activities of the enterprise should be divided and grouped into departmental, sectional and individual activities to facilitate division of work. 18. Principle of Definiteness  Each activity must contribute to the primary or basic goals of an enterprise with minimum effort and maximum efficiency on the part of the employees.  This contribution should be well-defined and definite. 19. Principle of Discipline  Discipline is vitally important in all types of organizations. In absence, it is difficult to achieve success. 20. Principle of Simplicity  The organization should be kept as simple as possible so that there should not be any confusion and misunderstanding among the superiors and subordinates. 21. Principle of Leadership  Organization structure should create a favourable environment or situation in which the manager can most effectively lead and motivate his subordinates. III. CLASSIFICATION OF ORGANIZATION  The organization can be classified on the basis of authority and responsibility assigned to the personnel and the relationship with each other’ A. Formal Organization  Formal organization clearly defines the duties, responsibilities, authority and relationships as prescribed by the top management.  The inert-relationship of staff members can be shown in the organization chart and manuals under formal organization.  Characteristic of Formal Organization 1) It is properly planned. 2) It is based on delegated authority. 3) It is deliberately impersonal. 4) It provides division of labour. 5) Organizational charts are drawn. 6) Unity of command is maintained. 7) The responsibility and accountability at all levels of organization is clearly defined. Page | 12   Advantages of Formal Organization 1) The definite boundaries of each worker are clearly fixed resulting in reduced conflict among workers. 2) Overlapping of responsibility is easily avoided and the gasps between the responsibilities of the employees are filled up. 3) Buck passing is very difficult under the formal organization. 4) Normally exact standards of performance are established under the formal organization. 5) A sense of security arises from classification of the task. 6) There is no chance of favouritism in evaluation and placement of the employee. 7) It makes the organization less dependent on one man.  Disadvantages of Formal Organization 1) In certain cases, the formal organization may reduce the spirit of initiation. 2) Sometimes authority is used for the sake of convenience of the employee without considering the need for using the authority. 3) It does not consider the sentiments and values of the employees in the social organization. 4) The formal organization may reduce the speed of informal communication. 5) It creates the problems of coordination. B. Informal Organization  Informal organization is an organizational structure which establishes the relationships on the basis of the likes and dislikes of offices without considering the rules, regulations and procedures.  Friendship, mutual understanding and confidence are some of the reasons for existing informal organization.  The informal organization relationship or informal relationship give a greater job satisfaction and result in maximum production.  Characteristics of Informal Organization 1) It arises without any external cause. 2) It is social structure formed to meet personal needs. 3) It has no place in organization chart. 4) It acts as an agency of social contract. 5) This organization can be found on all levels of organizations within the managerial hierarchy. 6) The rules and traditions of informal organizations are not written but are commonly followed. 7) It develops from habits, conduct, customs and behaviour of social groups. 8) It is one of the parts of total organization. 9) There is no structure or definiteness to the informal organization.  Advantages of Informal Organization 1) It fills up the gaps and deficiency of the formal organization. 2) Informal organization gives satisfaction to the workers and maintains the stability of the work. Page | 13  3) It is a useful channel of communication. 4) The presence of informal organization encourages the executives to plan the work correctly and act accordingly. 5) It also fills up the gap among the abilities of the managers.  Disadvantages of Informal Organization 1) It has the nature of upsetting the morality of the workers. 2) It acts according to mob psychology. 3) It indirectly reduces the efforts of management to promote greater productivity. 4) It spreads rumour among the workers regarding the functioning of the organization unnecessarily.  Difference between Formal and Informal Organization FORMAL ORGANIZATION INFORMAL ORGANIZATION It arises due to delegation of authority. It arises due to social interaction of people. It gives importance to terms of authority It gives importance to people and their and functions. relationships. It is created deliberately. It is spontaneous and natural. It arises from man’s quest for social It is created for technological purposes. satisfaction. Rules, duties and responsibilities of workers No written rules and duties are followed are given in writing. It comes from outsiders who are superior in It comes from those persons who are objects the line organization. of its control. Formal authority flows form upwards to Informal authority flows from upwards to downwards. downwards or horizontally. The formal authority is attached to a The informal authority is attached to a position. person. It grows to the maximum size. It tends to remain smaller. It is permanent and stable. No permanent nature and stability. Page | 14 IV. ORGANIZATIONAL STRUCTURE  It shows the authority and responsibility relationships between the various positions in the organization by showing who reports to whom.  It is an established pattern of relationship among the components of the organization. A. Organizational Chart  Shows the internal structure of an organization or company  Three main types of organizational chart: 1. Hierarchical  The most common type and it gives rise to the synonym hierarchy chart  A hierarchy is where one group or person is at the top, while those with less power are beneath them, in the shape of pyramid Shareholders Board of Directors Director Production Investment Marketing Technical Human Resource Department Department Department Department Depatment Research Brand/Advertising Product Design Production Planning Training Group Department Creative Department Research Technical/Industrial Planning Trade Marketing Development Recruiting Team Design Department Department Engineering Technical Audit Production Promotions/Media Office Support Department Department Public Relations Technical Service Compensation and QA Manager Department Benefits Customer Service Maintenance Market Analyst Department 2. Matrix  This is usually seen when individuals have more than one manager  Characteristics: i. Project manager should to more than one of the superiors. ii. There should be agreement between the managers regarding the authority of utilizing the available resources. iii. There should be common willingness among the authority holders to face the conflict with a view to resolve them. Page | 15   Advantages i. Achievements of objectives ii. Best utilization of resources iii. Appropriate structure iv. Flexibility v. Motivation  Disadvantages i. Complex relationship ii. Struggle for power iii. Excessive emphasis on group decision-making iv. Arising conflict resolution v. Heterogeneous CEO General Manager Director of Marketing Operations Engineering Sales Manager Pojects Manager Manager Manager Sales Team Marketing Operations Engineering Poject 1 Member Team Member Team Member Team Member Sales Team Marketing Marketing Engineering Project 2 Member Team Member Team Member Team Member Sales Team Marketing Marketing Engineering Project 3 Member Team Member Team Member Team Member Sales Team Marketing Marketing Engineering Project 4 Member Team Member Team Member Team Member 3. Flat  This type is sometimes referred to as horizontal organizational chart.  It has little or no levels of middle management and typically consists of two levels; the top administrators and the workers.  In companies like this, the workers have more responsibility and are more directly involved in decision-making. Department Head Manager 1 Manager 2 Manager 3 Staff 1 Staff 2 Staff 3 Staff 4 Staff 1 Staff 2 Staff 3 Staff 4 Staff 1 Staff 2 Staff 3 Staff 4 Page | 16 B. TYPES OF ORGANIZATION 1. Line Organization  Line organization is the simple and the oldest type of an organization, where the decision making authority flows from top to bottom.  Characteristics: i. Consists of vertical relationship ii. Authority flows from top to bottom iii. Departmental heads are given full freedom to control their department iv. Operation of this system is very easy v. Each member had direct command over his subordinates vi. The superior takes decisions within the scope of his authority  Advantages: i. Simplicity ii. Division of authority and control iii. Unity of control iv. Discipline v. Flexibility vi. Direct communication vii. Coordination  Disadvantages: i. Lack of specialization ii. Lack of initiatives iii. Dictatorial iv. Scope of favouritism v. Instability Board of Directors General Manager Purchase Production Financial Sales Manager Manager Manager Manager Purchase Foreman Supervisor Superintendent Assistant Workers Workers Workers Workers Page | 17 2. Functional Organization  Functional organization was proposed by F.W. Taylor to overcome the limitations of line organizations. This type of organization has various specialists for various functions.  The directions of work are decided by function and not mere authority.  The workers under a functional unit are accountable not only to the functional specialist but to the other specialist but to the other specialists as well as well as from whom they receive instructions.  Characteristics: i. The work is divided according to the specified functions ii. Authority is given to the specialist to give orders to a specific function iii. Functional authority can give orders throughout the line with reference to specified areas iv. The decision are take in consultations with the functional authority  Advantages: i. Benefit of specialization ii. Efficiency iii. Adequate supervision iv. Reduce the workload v. Cooperation  Disadvantages: i. Complex relationship ii. Centralization iii. Ineffective coordination iv. Increase overhead expenses v. Lack of responsibility Top Project Manager Financial Business General Manufacturer Technical Page | 18 3. Line and Staff Organization  Line and staff organization has tried to use the advantages of both the line and the functional type of organization to overcome their demerits  Line authority refers to authority which passes from the highest level to the lowest level.  Staff authority is not part of the chain of command but to provide support, advice and expertise to line authority  Line employees are responsible for achieving the basic or strategic objectives of the organization, while staff plays a supporting role to line employees and provides services.  Types of Staff: i. Personal staff – a person who assists another person in the performance of a work effectively ii. Specialized staff – these officers render services to the line officers at all levels of the organization iii. General staff assistant – these are groups of people who provide service to top management in specialized matters.  Advantages: i. Promotes efficient working of line officers ii. Balanced decisions iii. Expert advice iv. Benefit of specialization v. Unity of action  Disadvantages: i. Line and staff conflicts ii. In case of communication gap between line and staff officers, the degree of cooperation among them decreases. iii. There is no such authority with the staff officers which can compel line officers to accept General Manager Consultant Assistant Manager Legal Adviser Operations Marketing Finance Personnel Manager Manager Manager Manager Page | 19 4. Departmentalization  Grouping the various positions or activities into manageable units such as into department.  A process of horizontal clustering of different types of functions and activities on any one level of the hierarchy.  Reason for forming departments: i. Specialization of work ii. Simplification of managerial task iii. Limitations on the number of subordinate that can be directly controlled by superiors.  Types: a) Function – all jobs that pertain to the same activity are grouped. President Marketing Finance Production Personnel b) Product – all activities related to a particular product or product group are put together. President Foods Apparels Appliances Cosmetics c) Geographic – activities are grouped based on a particular geographic area. President NCR CAR REGION V ARMM Page | 20  d) Customer – grouping of activities in accordance to all needs of various customers. President Consumers Traders Fast-food Processors e) Process – Grouping jobs on the basis of product or customer flow. President Lay outing Cutting Sewing Finishing 5. Span of Control  The number of subordinates that can be managed efficiently and effectively by a superior in an organization.  It suggests how the relations are designed between a superior and a subordinate in an organization.  Deciding the span of control is important for coordinating different types of activities effectively.  Two types: a. Narrow span of control  It means a single manager or supervisor oversees few subordinates.  It gives rise to a tall organizational structure. b. Wide span of control  Wide span of control means a single manager or supervisor oversees a large number of subordinates.  It gives rise to a flat organizational structure. Page | 21 6. Work Specialization  The degree to which tasks in the organization are sub-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. High Productivity Low Work Specialization High “Good order is the foundation of all things” Ω Edmund Burke Ω Page | 22