Week 4

Introduction to Business
Fall 2012

Prepared by:

Topic Covered
1. Classical Management Theory
Classical Organizational Theory Theory of Bureaucracy

2.Understanding of Organizational Concepts

Organizational Chart Authority and Responsibility Delegation Span of Control

3. Classification of Internal Organizational Structures 4. Centralization v. Decentralization

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Emphasized on division of labor, the need to devise the best method of working & their view of man as rational economic animal.
Has three strands: Classical Organization Theory; Theory of bureaucracy; Scientific Management

Developed by Henri Fayol (1841-1925)

Concerned with the formal structure of organization. Focusing on technical efficiency of the organization to formulate valid principles of sound & effective management Principles:

Division of Work; Authority & Responsibility ; Discipline ; Unity of Direction ; Subordination of Individual ; Degree of Centralization ; Scalar Chain ; Fair System of Remuneration ; Order ; Equity ; Stability of tenure ; Subordinates ; Esprit de corps
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Given by Max Weber 1864-1924

Organizations can be an instrument of efficiency if based on certain principles; inflexible & impersonal Characteristics:
High degree of specialization ; hierarchy of well-

defined authority ; Duties are impersonal ; promotion based on qualification & merits ; formal rules & procedures ; written records of decisions made ; authority vested in positions ;
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Organization can be defined as:

The means by which management coordinates the efforts of employee to achieve objectives; The formalized, intentional structure of roles or positions; The planned coordination of resources to achieve a goal via division of labor and a hierarchy of authority and responsibility.
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The process of organizing involves:

A structuring of activities;

The allocation of roles;

The assigning of responsibility and authority; The devising of rules and system;

The provision of means for coordinating the

activities of various grouping of people and resources.

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Formal organization refers to the deliberately planned structure of roles within the organization. It is formal in the sense that it is official and planned, but this does not means that it is necessarily inflexible.

Informal organization is a network of personal and social relationships. It is not planned or official, but arises spontaneously as people associate with each other. The power of the group leader is personal and is given by the group.
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A pictorial representation of the formal organizational structure. It depicts the relationships between personal with in formal organization.

Board of Directors

Managing Director

Production Manager

HR Manager

Marketing Manager

Finance Manager

Dept. A

Dept. B

Engineering

Market Research

Sales Manager

Supervisor

Supervisor

Sales Team A

Sales Team B

An Organizational Chart: Showing Organization by Functional Specialism

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A pictorial representation of the formal organizational structure. It depicts the relationships between personal with in formal organization.

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Authority is the legitimate exercising of power, which, in turn, is the ability to exercise influence over objects, people and situations.
it is vested in positions, not people; it is accepted by subordinates;

it flow down the vertical hierarchy.

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Line Authority
Staff Authority Functional Authority

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 The subordinate must posses sufficient skills and

experience; The objective must be defined and understood; The subordinate should be given sufficient authority and responsibility, but both should be clearly defined; There should be a clear schedule for completion of the task; The subordinate should be given sufficient discretion to act; The authority and responsibility of the subordinate should be announced.
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the ideal span of control is therefore not fixed but is dependent on;
The nature of the task, with repetitive work

permitting the supervision of larger numbers of subordinates; The ability and experience of the people concerned; The effectiveness of communications; The cohesiveness of the team; The degree of delegation exercised; Physical conditions, such as the proximity of the people concerned.
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 Possessing a boarder base of skills than is required

in tall organization Being adaptable Developing team skills

Cross functional teams Self dependent teams

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1.
2. 3. 4.

5.
6.

Entrepreneurial structure organized around the owner-manager; Functional structure organized in terms of functional area of management; Product based organized by product; Geographically based organized by regions; Market segment based organized by customer types; Matrix organization
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 A centralized organization is one in which most

decisions are taken at the centre or at the upper levels of the organization. This leaves little discretion and autonomy for the periphery or lower levels. one in which there is considerable delegation and autonomy is the periphery or at the lower levels. It is important to realize that centralization is not necessarily related to geographical spread of an organization. It is quite possible for a multi-plant firm to be highly centralized, whereas a single-site organization can be highly decentralized.
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A decentralized organization, on the other hand, is

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Advantages
Greater control Economies in staffing Economies of

Disadvantages
Excessively bureaucratic Rigidity Delays in decision

specialization Easier communications

making Loss of initiative Stifles personal development

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Advantages
Decisions made where

Disadvantages
Loss of control Loss of some economies

the action is Recognition of local conditions Improved morale Personal development More responsive to the environment

of scale Development of a narrow departmental view

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Q1: What is meant by hierarchical organization? Q2: Analyze the advantages of a productbased or divisionalized structure over a functional structure.
Q3: Assess the adverse consequences of rigid hierarchical structure.
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