MB491 Unit 3

Unit 3Organization

Introduction

MeaningOrganizing is the process of identifying and grouping of activities required to attain the objectives, delegating authority, creating responsibility and establishing relationships for the people to work effectively. DefinitionOrganizing is the process of defining and grouping the activities of the enterprise and establishing the authority relationships among them”.

Purpose or importance or advantages of organization

• Ensures optimum use of man and material resources

• Facilitates co-ordination and communication • Permits optimum use of technological

innovations• Increase the efficiency of management• Facilitates growth and diversification • Simulates creativity and initiative• Facilitates development of managerial ability

The Organizing Process1. Identification and classification of required

activities2. Grouping of activities in light of resources and

situations3. Delegation of authority 4. Horizontal and vertical coordination of authority

and information relationships5. Enterprise objectives6. Supporting objectives, policies and plans7. Staffing

Defining Organizational Structure1. Organizational Structure

– The formal arrangement of jobs within an organization.– An organization's degree of complexity, formalization and

centralization.2. Organizational Design

– Constructions or changing of an organization's structure.– A process involving decisions about six key elements:

• Work specialization• Departmentalization• Chain of command• Span of control• Centralization and decentralization• Formalization

Organizational Structure

• Work Specialization– The degree to which tasks in the organization are

divided into separate jobs with each step completed by a different person.

• Overspecialization can result in human diseconomies from boredom, fatigue, stress, poor quality, increased absenteeism, and higher turnover.

Departmentation

Definition Koontz and O’Donnell defined “A

departmentation is a process of dividing the large monolithic functional organization into small and flexible administrative units”.

Departmentalization Strategies or typesor

Organization Structure types

• Functional – Grouping jobs by functions

performed

• Product– Grouping jobs by product

line

• Geographic– Grouping jobs on the basis of

territory or geography

• Process – Grouping jobs on the basis of

product or customer flow

• Customer– Grouping jobs by type of

customer and needs

• Numbers– Based on number of person

forming the department

• Time – Time of work (Shifts)

Functional departmentation • The grouping of common & homogeneous activities to form an

organizational unit is known as functional organization• Each department have a head with the title departmental manager• The functional departmentation will include both line function as

well as staff function

Production Marketing Accounts Personnel IT

Managing Director

Board of Director

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

Disadvantages

• Lack of responsibility for the end result• Overspecialization or lack of general management• It leads to increase conflicts and coordination problems among

departments Reduce Coordination between function

Product departmentation• Example : Dabur India Limited (Home care, Health care,

Personal care and Foods)

Car Division Truck Division Bus division Long vehicle

Chief Executive

productionMarketing finance HR

Advantages• Clear focus on market segment helps meet customers’ needs• Positive competition between divisions• Better control as each division can act as separate profit centre• Unprofitable products may be easily determined.• It is flexible and new product line can be added easily.

Disadvantages

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

Territorial /geographical departmentationExample : Coca-Cola Ltd (Central North American group,Western North American group, Eastern North American group and European group)

Eastern ZoneKolkata

Central ZoneKolhapur

Northern zoneDelhi

Southern zone Chennai

Western zoneMumbai

Head OfficeMumbai

jalandhar chandigarh New delhi ajmer

branch branch branch branch

• Advantage• Place responsibility at lower level• Place emphasis on local market & problem• Take advantage of economic of local operations• Better face to face communication with local interest• Improve coordination in a region• Serve local needs better

• Disadvantage• Communication problem between head office and

regional office due to lack of means of communication at some location.

• It leads to duplication of activities which may cost higher. • Coordination between various divisions may become

difficult.

5. Departmentation by process

• When production activities involve the use of several distinctive process ,these can be used as the base for grouping of activities.

spinning dyeing Weaving Packaging

Production Manager

• Advantage• Machine can be used effectively• No duplication of activities• Principle of specialization & division of labor is followed

• Disadvantages• More specialist are essential• Conflict in organization authority exists

4. Departmentation by customer• Customer based departmentation is basically market –oriented in

which department are created around the market served or around marketing channel

• customers are the key to the way activities are grouped.• Example: UCO bank (Home loans, Business loans, Vehicle loans

and Educational loans)

wholesale Retail Hire purchaseexport

Marketing Manager

Advantage • It fulfills the expectation & needs of customer• Better service to customer • Fully focus on customer

• Disadvantage• Their may be duplication of activities• Co-ordination is difficult• Conflict

Organization Structure (cont’d)

• Chain of Command– The continuous line of authority that extends from

upper levels of an organization to the lowest levels of the organization and clarifies who reports to who.


• Authority– The rights inherent in a managerial position to tell

people what to do and to expect them to do it.• Responsibility

– The obligation or expectation to perform .• Unity of Command

– The concept that a person should have one boss and should report only to that person.


• Span of Control– The number of employees who can be effectively and

efficiently supervised by a manager.– Width of span affected by:

• Skills and abilities of the manager• Employee characteristics• Characteristics of the work being done• Similarity of tasks• Complexity of tasks• Physical proximity of subordinates• Standardization of tasks

Span of control

• Direct single relationships- Supervisor has direct

relationship with his subordinates individually

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

• Cross relationship – A subordinate has relationship with another subordinate mutually.

X

Y Z

X

Y Z

Span of control

Direct single relationship = nDirect group relationship= n(2n-1-1)Cross relationship = n(n-1)Total relationship=

Wide and Narrow Structure

FLAT STRUCTURE• An organization with relatively few levels in its

hierarchy of authority. TALL STRUCTURE• An organization with relatively many levels in

its hierarchy of authority.

26

Flat Organization:31 members; 3 levels; average span of control is 5

Flat Organization

Advantages:• More Delegation of Authority• Development of Managers• Clear policiesDisadvantages:• Overloaded supervisors• Danger of superiors loss of control• Requirement of highly trained managerial personnel

28

Tall Organization:31 members; 5 levels; average span of control is 2

Tall Organization

Advantages:• Close supervision• Close control of subordinates

Disadvantages:• Too much control• Many levels of management• Excessive distance between lowest level and highest level, so slow communication

Factors determining effective span

1. Capacity of supervisor 2. Capacity of subordinates3. Nature of work4. Type of technology 5. Degree of decentalisation6. Degree of planning7. Communication techniques 8. Use of staff assistance9. Geographical closeness of employees 10. Supervision from others

Organizational Designs

• Traditional Designs– Simple structure

• Low departmentalization, wide spans of control, centralized authority, little formalization

– Functional structure• Departmentalization by function

– Operations, finance, human resources, and product research and development

– Divisional structure• Composed of separate business units or divisions with limited

autonomy under the coordination and control the parent corporation.

Organizational Designs (cont’d)

• Contemporary Organizational Designs– Team structures

• The entire organization is made up of work groups or self-managed teams of empowered employees.

– Matrix and project structures• Specialists for different functional departments are

assigned to work on projects led by project managers.• Matrix participants have two managers.

– Project structures• Employees work continuously on projects; moving on to

another project as each project is completed.

MARTIX DEPARTMENTATION

MARTIX DEPARTMENTATION

Advantages• Efficiently manage large, complex tasks• Effectively carry out large, complex tasksDisadvantages• Requires high levels of coordination• Conflict between bosses• Requires high levels of management skills

PROJECT ORGANISATION

PROJECT ORGANISATIONAdvantages :1. The participating specialists of the project team get opportunity for prompt,expeditious and effective accomplishment of the goals of the project. Thismotivates them to make maximum contribution to the execution of theproject2. It facilitates speedy communication between the project manager and theteam members3. It provides flexibility in handling various tasks.Disadvantages :1. The entire project becomes meaningless, if the project manager fails tocoordinate the activities of the project properly2. The members of the project organisation have to sever the contacts with themainstream organisational life. As such, they may be bypassed whenopportunities arise in their respective fields for promotion3. The job of the project manager becomes very difficult because he has todeal with specialists from a number of diverse fields.


• Contemporary Organizational Designs (cont’d)– Boundaryless Organization

• An flexible and unstructured organizational design that is intended to break down external barriers between the organization and its customers and suppliers.

• Removes internal (horizontal) boundaries– Eliminates the chain of command– Has limitless spans of control– Uses empowered teams rather than departments

• Eliminates external boundaries– Uses virtual, network, and modular organizational structures to

get closer to stakeholders.

Removing Boundaries

• Virtual Organization– An organization that consists of a small core of full-time employees

and that temporarily hires specialists to work on opportunities that arise.

• Network Organization– A small core organization that outsources its major business

functions (e.g., manufacturing) in order to concentrate what it does best.

• Modular Organization– A manufacturing organization that uses outside suppliers to provide

product components for its final assembly operations.

VIRTUAL ORGANISATION

VIRTUAL ORGANISATION or NETWORKSTRUCTURE

Advantages :1. Through virtual organisation it is possible to create “best-of-everything” organisation because each partner brings its “core competence.”2. A virtual organisation allows someone with an innovative idea and little money to successfully compete against large companies. This is possible because of flexible nature.Disadvantages :1. It reduces management’s control over the key parts of its

business2. The reliability of the partners may be doubtful.

Organizational Design Decisions

• Mechanistic Organization– A rigid and tightly controlled

structure• High specialization• Inflexible

departmentalization• Narrow spans of control• High formalization• Limited information

network (downward)• Low decision participation

• Organic Organization– Highly flexible and adaptable

structure• Non-standardized jobs• Fluid team-based

structure• Little direct supervision• Minimal formal rules• Open communication

network• Empowered employees


• The Learning Organization– An organization that has developed the capacity to

continuously learn, adapt, and change through the practice of knowledge management by employees.

– Characteristics of a learning organization• An open team-based organization design that empowers

employees• Extensive and open information sharing• Leadership that provides a shared vision of the organization’s

future, support and encouragement• A strong culture of shared values, trust, openness, and a sense

of community.


• Formalization– The degree to which jobs within the organization

are standardized and the extent to which employee behavior is guided by rules and procedures.

• Highly formalized jobs offer little discretion over what is to be done.

• Low formalization means fewer constraints on how employees do their work.

Formal and Informal organizations

Formal Organisation According to Allen “The formal organization is a system of well defined jobs, each bearing a definite measure of authority, responsibility and accountability”. Informal organisation

It is an organization which establishes the relationship on the basis of members interaction, communication, personal likings and disliking's and social contacts within as well as outside the organization.

Difference between Formal and Informal Organisations

Formala. It is created by the top

management.b. It is created to get the jobs of an

organisation performed in a planned and systematic manner.

c. It is managed by officially appointed managers.

d. Managers of formal organisation have formal authority.

e. Formal organisation is permanent and stable.

Informala. It is not created by top management.

It arises out of the natural desire of the people to associate.

b. It is formed to satisfy those needs of members which can not be satisfied through formal organisation.

c. Members of the informal group select some one as their leader to take care of the interests of the group members.

d. The authority of the leader of the informal group depends upon the combined support of group members.

e. Informal organisation is of temporary nature. It changes its size and membership from time to time.


• Centralization– The degree to which decision-making is concentrated

at a single point in the organizations.• Organizations in which top managers make all the decisions

and lower-level employees simply carry out those orders.

• Decentralization– Organizations in which decision-making is pushed

down to the managers who are closest to the action.• Employee Empowerment

– Increasing the decision-making

Centralization and Decentralization

Definition According to Luuis A. Allen has defined

both the terms as, “Centralization is the systematic and consistent reservation of authority at central points within an organization. Decentralization applies to the systematic delegation of authority in an organization-wide context”.

Advantages of Decentralization

• It reduces burden of the management • It encourages decision making • It facilitates the growth of the organization• It enables the department staff members to

complete work early • It emphasis on horizontal growth of the organization

thereby reducing number of management levels.• It promotes the establishment and use of broad

controls which may increase motivation.

Disadvantages of Decentralization

• It is difficult to have uniform policies and procedures

• There is an increase in complexity of coordination of decentralized organizational units.

• There is possibility of duplication of work.• Large number of members and supervisors are

required under this department. • It is not possible for small scale organizations.• It requires high degree of self motivation

Line and staff authority

According to Louis Allen line and staff authorities are, “Line functions are those which have direct responsibility for accomplishing the objectives of the enterprise and staff functions refer to those elements of the organization that help the line function to work most effectively in accomplishing the primary objectives of the enterprise”.

Line authority

• This is the simplest and the earliest form of authority. It is also known as “Military”, “traditional”, “Scalar” or “Hierarchical” form of authority.

• The line authority represents the structure in a direct vertical relationship through which authority flows.

Advantages of line authority

• It is simple and easy to understand • It is most economical and effective • Delegation of authority is clear• It facilitates unity of command • Channel of communication is clear • It ensures excellent discipline in the enterprise

Limitations of line authority

• The organization is rigid and inflexible • It neglects specialties • It overloads a few executives • It is limited to too small organization • It may not promote the own thinking of the

employees • It requires high type of supervisory personnel.

Staff authority

• Staff authority is exercised by a man over line personnel.

• Staff refers to those elements of the organization which helps the line to work more effectively in accomplishing the primary objectives of the enterprise.

• The function of the staff is to investigate the research and given advise to line, managers.

Benefits of staff authority

• Staff improves the quality of managerial decisions

• When the line operations is complex, the line people requires advise of staff personnel.

• Staff can help in coordinating various activities and in ensuring uniformity of action in certain matters.

• Staff carries out a critical evaluation of existing practices and procedures.

Limitations of staff authority

• Danger of undermining line authority • Lack of staff responsibility • Thinking in vacuum – sometime staff may not

having practicality • Managerial problems – due to multiple chain

of command

Functional authority or functional organization

According to Koontz and O’Donnell, “Functional authority is the right which an individual or department has delegated to it over specialized processes, practices, policies or other matters relating to activities undertaken by personnel in departments other than its own”.

Advantages of Functional authority

• Since a foreman is responsible for one function, he can perform his duties in a better way.

• This organization structure makes use of specialists to give expert advise to workers.

• Expert guidelines reduces accidents and wastages materials, man and machine hours.

• It relives the pressure needed to search a large number of all-round executives.

Limitations of Functional authority

• Co-ordination is difficult between various functional foreman.

• It violates unity of command principle.• Maintaining the discipline is difficult• It makes industrial relationship more complex• Workers remain confused about the authority

and activity of each foreman

Delegation of authority

• Delegation of authority is a process which enables a person to assign works to others and delegate them with adequate authorities to do it.

• According to Mc. Farland, “Delegation is a primary formal mechanism by which the network of authority relationship is established”.

Features of delegation

• It is authorization to a manger to act in a certain manner.

• It has dual characteristics.• A superior can not delegate entire authority to their

subordinate.• It does not implies reduction of entire authority of the

superior.• Authority can be withdrawn at any time.• It may be specific or general, written or oral.• It is created through the process of organising.

Types of delegation

1. Over delegation-Burdening the subordinates 2. Under delegation-lack of trust in

subordinates

Process of delegation

1. Determination of result expected2. Assignment of duties 3. Delegation of authority 4. Creation of obligation or accountability

Making delegation effective

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

MB491 Unit 3

Documents

Transcript of MB491 Unit 3