Lecture 3 - Organizing

8/2/2019 Lecture 3 - Organizing

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Organizing (Managing Structure andDesign of Organizations)

Many strategies and key business decision haveprofound effects on the structures and design of variousorganizations. A change in strategic direction due to amerger or acquisition or change in competitive strategyrequires the management team to rethink how to deploycompany resources.

Organizing is the deployment of resources to achievestrategic goals, and is reflected in: (1) the organizations division of labour that form jobs and departments, (2)formal lines of authority, and (3) the mechanisms usedfor coordinating diverse jobs and roles in theorganization.

Organizing follows the formulation of strategy. Whilestrategy indicates what needs to be done, organizing

shows how to do it.


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The Vertical Dimension ofOrganization Structure

Organization structure is a formal system ofrelationships that determines lines of authority(who reports to whom) and the tasks assigned toindividuals and units (who does what task andwith which department).

The vertical dimension of organization structureindicates who has the authority to makedecisions and who is expected to supervisewhich subordinates.

The horizontal dimension is the basis for dividingwork into specific jobs and tasks and assigningthose jobs into units such as department orteams.


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Unity of Command

The concept of unity of command isbased on one of Fayols principle ofmanagement; a subordinate should haveonly one direct supervisor. Multiple bossesmay give a subordinate conflictinginstruction or goals. In unity of command,

a decision can be traced back from thesubordinates of the manager who made it.


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Authority, Responsibility, andAccountability

Managers, teams, and employee have varyingamounts of authority, responsibility, andaccountability based on where they are in thevertical structure of the organization.

Authority is the formal right of a manager tomake decisions, give orders, and expect thoseorders to be carried out. A manager is an agentof the owners of the business.

The role of the manager encompasses decision-making authority to manage the workforce,resources and assets of the business in theowners best interests.

Authority is given to the position of the manager

not the person. It originates from top and flowsdown the vertical organizational hierarchy


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Responsibility is the duty to perform assigned tasks. Allemployees are expected to accept these responsibilitiesas a condition of employment.

Ideally, a managers responsibilities are matched withthe appropriate amount of authority so that the manageris in control.

The manager may delegate, or transfer responsibility to

a subordinate or team, but the manager is still in controlbecause the subordinate or team is subject to his or herauthority.

Managers delegate decision-making authority for sometasks in order to give themselves more time to focus onthe most important tasks and decisions.

A manager may delegate responsibilities tosubordinates, but he or she remains accountable for theactions of subordinates.


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Accountability means that a manager or otheremployee with authority and responsibility must be ableto justify results to a manager at a higher level in theorganizational hierarchy.

One way managers are held accountable for theperformance of their units is in periodic performanceappraisals. For example, a management by objectives(MBO) program can be used to compare planned goalswith achieved results.

There are two distinct types of authority: line and staffauthority. Line authority entitles a manager to directlycontrol the work of subordinates by hiring, discharging,

evaluating, and rewarding them. It is based on superior-subordinate authority

relationships that start at the top of the organizationhierarchy and extend to the lowest level. This provideswhat is called the chain of command. Line managersare the sales managers or production managers.


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Staff authority includes giving advice, makingrecommendations, and offering counsel to line

managers and other members of theorganization. Staff authority is based on expertise. Staff

managers help line managers achieve bottom-

line results, but they contribute only indirectly tooutcomes. For example, the accounting, legal and human

resource management staffs of a manufacturing

firm provide specialized advice on cost control,federal regulation and staffing requirements toline manager.

An organization chart summarizes the lines

authority in an organization.


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Span of Control A critical feature of the vertical structure of an

organization is the number of subordinates who report tomanager. This is called the span of control, and itdetermines the number of managers and number oflevels of management in an organization.

A manager with a small span of control supervises a

small number of subordinates (about 5 or 6) and he canclosely monitor the work of each subordinate. A tall vertical structure may have too many levels of

management separating frontline employees from topexecutives. It may cause the organization to perform

inefficiently because the company is not beingresponsive to the need of customers. Information often get distorted and poor decision is reach

if top executive is required to go through numerousintermediaries to learn what is happening.


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Span of Control Contd

Larger spans of control (ranging from 10 to 20 ormore subordinates) mean more responsibility ispushed to lower levels. A manager with a largespan of control may not be able to directly

monitor the behaviour of subordinates.

A large span of control works best when there

are routine tasks, highly trained subordinates,competent managers, similar jobs withcomparable performance measures, andsubordinate who prefer autonomy.


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Centralization and Decentralization

Centralization and decentralization arerelated to the degree of concentration ofdecision authority at various levels of theorganization.

Centralization means that decisionmaking authority is located at the top levelof the organization hierarchy.Centralization allows management tocoordinate the various parts of theorganization in a consistent manner.


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Centralization and DecentralizationContd

Decentralization means decision-makingauthority is pushed to lower levels in theorganization. Decentralization is oftenmore effective in rapidly changingenvironments where it is necessary to be

responsive to changing customer needsand tastes.

Decentralized decision-making authorityspurs innovation and risk taking byallowing individuals to control resourcesand engage in experimentation withouthaving to obtain the approval of higherauthorities.


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Advantages of Decentralization It enables top management to

concentrate on top priorities. It encourages managers initiatives It speeds up operational decisions without

further reference. Disadvantages of Decentralization Consistency is more difficult to achieve. Control becomes more difficult once

authority has been delegated. It encourages parochialism divisional or

sectional objectives are maximized at the

detriment of corporate objectives.


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Formalization The degree of written documentation that is

used to direct and control employees is thelevel of formalization present.

An organization with high formalizationprovides employee with many documents thatspecify the right way to conduct business withcustomers or interact with other employees.

These documents include policy manuals, jobdescription, procedures, memos, and rulesbooks.

A high degree of formalization encouragesemployees to do their jobs in standardizedand predictable ways.


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The Horizontal Dimension ofOrganization Structure

The horizontal basis for organizing jobsinto units in an organization is calleddepartmentalization. The three basicapproaches to departmentalization are

functional, divisional, and matrix.


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Functional Structure A functional structure places similar jobs

into departments. For example,engineering, production, marketing, and

finance department.

The functional approach work best in small

to medium-sized companies operating insomewhat stable business environmentswithout a great deal of change anduncertainty.


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Figure 1: Functional Departmental Structure

President

Engineering Production Finance Marketing


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Functional Structure Contd Advantages of functional structure

Decision authority is centralized at the top of theorganization. It enables employees to do specialized task, which

creates a high degree of efficiency. It causes employees to develop specialized expertise in

a functional area of the business, such as finance ormarketing. Disadvantages of functional structure There is communication barriers and conflict between

functional departments. It may be difficult to coordinate products and services,

which could result in diminished responsiveness to theneeds of customers.

When employees are assigned to functionaldepartments, they tend to identify with the functionaldepartment goals rather than with organizational goals orcustomer needs.


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Divisional Approach The divisional approach, sometimes called

the product approach, organizesemployees into units based on commonproducts, services, or markets

The divisional approach is used when acompany produces many products, orprovides services to different types ofmarkets, such as regional, domestic, andinternational markets, that requirespecialized knowledge.

The division structure allows employees todevelop expertise in both a function and aline of products or services.


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Figure 2 : Divisional Organization Structure

President

Computerdivision

Softwaredivision

Consulting sourcedivision

Production Marketing Finance Finance Marketing Production

Production Marketing Finance


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Divisional Approach Contd

Geographic-based division allows anorganization to focus on customer needs thatmay vary by geographic region or market. In thisapproach to organizing, the functional business

activities are coordinated by a division manager,who is responsible for products or servicesprovided to a specific area.

Customer-based division allows anorganization to focus on customer needs withina basic functional structure. With customerdivisions, each department contains employeeswho perform functional tasks for a specific type

of customer


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Divisional Approach Contd

Advantages of the divisional Approach Coordination among different business functions Improved and speedier service Accountability for performance Development of general manager and executive

skills Disadvantages of the divisional Approach

Duplication of resources by two or moredepartment

Reduced specialized in occupation skills

Competition among division.


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Matrix Approach

The matrix approach superimposes adivisional structure over a functional structurein order to combine the efficiency of thefunctional approach with the flexibility andresponsiveness to change of the divisionalapproach.

Each employee in a matrix unit reports to twobosses a functional manager and a productor project manager. This means that there aredual lines of authority in the matrixorganization.


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Figure 3: Matrix Organization Structure

President

Vice PresidentFinance

Vice Presidentoperation

Vice President salesand marketing

Region Amanager

Region Bmanager

Region Cmanager


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Matrix Approach Contd Advantages of the matrix approach Efficient utilization of scarce, expensive specialists Flexibility that facilitates starting new projects and

ventures quickly.

Development of cross-functional skills by employees Increased employee involvement in managementdecisions affecting project or product assignments.

Disadvantages of the matrix approach Employee frustration and confusion as a result of the

dual chain of command. Conflict between product and functional managers over

deadlines and priorities. Too much time spent on coordinating decision in

meetings.

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Lecture 3 - Organizing