Chapter 4

Functions of Management: Organizing

Overview
Definitions Characteristics of Organization Nature Importance of Organizing Process of Organizing Span of Controlling

Overview
Departmentation
Concept
Importance/ Benefits

Factors to be considered
Bases/ Methods of departmentation

Structure of an Organization
Line & Staff organization

Overview
A committee form of organization Matrix Structure

Formal & Informal Organization Delegation of Authority

Elements Distinction amongst Authority, Responsibility & Accountability Importance

Overview
Decentralization
Concept & Definitions
Characteristics

Importance

Re Engineering of an Organization

Definitions of Organizing
The form of every human association for attainment of a common purpose. James Mooney Organization is a system of co-operative activities of two or more persons. Chester Barnard

Organization has 2 interpretation: I. Organization as a Structure

It is deliberately created Is in the shape of a pyramid & provides a framework Structural relationships Refers to the organizing function of mngt. Implies arrangement in an orderly manner

II. Organization as a Process

Characteristics of Organization
Modern organizations are too large to have direct contact between employer & employee Involves division of work Requires co ordination Needs huge investment All organizations have a mutually agreed process Has a proper system of working
Well defined hierarchical levels, chain of command, etc

Differentiation amongst different tasks and thus individuals involved is a must

Nature of Organization
Collection of individuals Individuals use their resources to achieve organizational objectives

Entire work is divided into small activities & each activity is

assigned to the right person

Division of work is done on different bases viz. area, functions,

products, etc

Nature of Organization
Division of work leads to specialization All individuals work towards the achievement of common goals

Organizing includes grouping of activities, assignment of

duties, collecting of requisite resources, establishing the chain

of command, etc
Business Organization is an Art as well as a Science

Importance of Organization
Enables specialization Provides role clarity Avoids duplication of work Helps to achieve co ordination Optimum utilization of resources Facilitates growth & expansion Stimulates creativity Optimum use of technology Reduction in cost Aids mngt in accomplishing organizational objectives

Process of Organizing
Determination of Objectives Reporting System Delegation of Authority

Identification of Work involved

Allocation of Duties

Measuring Performance

Activity Analysis

Classification of Activities

Span of Controlling
Is defined as the number of subordinates under one manager It is the number of subordinates that can be controlled efficiently by one manager Wider Span of Control implies A manager has many subordinates There are few organizational levels Narrow Span of Control implies Fewer subordinates Many organizational levels

Span of Controlling
Narrow Span
Benefits
Close supervision Effective control Quick communication

Limitations
Excess involvement of superiors in subordinates work Many levels of mngt Higher operating cost

Span of Controlling
Wider Span
Benefits
Superiors have to delegate Policies must be clear Careful selection of subordinates

Limitations
Delay in decision making Loss of control Requires exceptional managers

Span of Controlling
Factors affecting Span of Control
i.e. no.of subordinates a manager can control
Similarity of functions Complexity of functions Geographical closeness of employees Need of Direction & Co ordination Capability of subordinates

Extent & Policy of centralization

Adequacy of Authority delegated Competency & training managers

Departmentation
Concept
Also known as Departmentalization Refers to the division of the whole enterprise into different groups with a view to facilitate administration of the enterprise It leads to grouping of both functions & personnel who are assigned to carry out the allocated activity Is the grouping of homogeneous activities into one organization unit on the basis of special & continuous nature of activities A department may be called a division, branch, regiment, section, etc. A department is headed by a departmental manager

Departmentation
Importance/ Benefits
Specialization Increased Efficiency Effective Administrative Control

Fixation of Responsibility
Development of Managerial Talent Easy Evaluation of Work Effective Economy & Proper Budgeting Independence in Decision - Making

Departmentation
Factors to be considered in Choosing a Basis of Departmentation
Should give advantages of specialization to the enterprise Should lead to grouping of activities Costs involved Should make the task easy Should facilitate co ordination & co operation in the organization Should meet sale service requirements Should cause minimum/ no conflicts Should give due weightage to key areas Should involve human considerations like cultural patterns, informal groups, etc Should be in line with the staffing pattern Should enable special attention to activities that require it

Departmentation
Bases/ Methods
1. By Single Numbers i.e. the no. of persons pursuing a set of activities Followed in the Army

2. By Time Morning, afternoon, evening shift Used in organizations having operations 24 x 7 Often used in combination with number method

Departmentation
Bases/ Methods 3. Departmentation by Enterprise Function
M.D. Accounts & Finance

Production

Sales

Purchase

R&D

4. Departmentation by Territory of Geography

Eg: Railways, Post & telegraph, etc.
M.D. Northern Region Eastern Region Western Region Southern Region

Departmentation
Bases/ Methods 5. Departmentation by Customer Group
M.D.

Domestic Customers

Overseas Customers

Wholesale Customer

Retail Customer

Wholesale Customer

Retail Customer

Departmentation
Bases/ Methods 6. Departmentation by Product

M.D.

Ginning Department

Spinning Department

Weaving Department

Dyeing & Printing Department

Departmentation
Bases/ Methods 7. Departmentation By Process or Equipment
M.D. Product A Product B

Production

Production

Purchase

Purchase

Sales

Sales

Finance

Finance

Structure of Organization
Line & Staff Type of Organization
Line functions are those which have a relationship for accomplishing the objectives of the organization. Staff refers to those elements of the organization which provide advice & service to the line. Staff service means the service of advice or counsel

as distinguished from the function of authority &

command.

Structure of Organization
Line & Staff Type of Organization Features:
Planning & Execution Role of Authority Guidance Control Possibility of Conflict
Planning is entrusted to staff Execution is entrusted to line Line Managers have authority to take decisions Staff have no such authority Staff provides guidance to the line executives

Staff has control over the line executives

There is a high possibility of conflict between the staff & line due to difference in status & authority

Structure of Organization
Line & Staff Type of Organization
Benefits:
Less burden due to division of work Highly qualified staff services Right decisions as taken in consultation with staff Scope for specialization Provides an opportunity for training of employees Leads to unity of control as line managers are responsible for the work assigned Flexibility in the organization Solution to problems of the line managers Suitable for large organizations

Structure of Organization
Line & Staff Type of Organization
Limitations:
Delay in decision making Passing of the blame Conflict due to difference in status Costly Complex Lacks discipline Confusion due to dual command Undue dependence on staff Lack of accountability

Structure of Organization
A Committee Form of Organization
A committee is a group of people who meet by the plan to discuss or make a decision for a particular subject Types:
Line or Staff Permanent & Temporary Formal & Informal Standing or Ad hoc
General Advisory Joint Advisory Plant Advisory Sales Advisory Co ordination Purchase Advisory

Structure of Organization
A Committee Form of Organization
Advantages:
It facilitates co ordination
It helps in transmission of information It helps to obtain solution of problems

It is helpful in the consideration of authority

Participation & Motivation Avoid Action A check on misuse of Powers Expertise Team Spirit It develops awareness of the problems

Structure of Organization
A Committee Form of Organization
Disadvantages:
It is an expensive device It is indecisive in action

Decisions on the basis of compromise

Irresponsible in nature Dominance of a few persons Suppression of ideas Difficult to maintain secrecy

Structure of Organization
A Matrix Structure
Concept: Combination & interaction of project & functional structures Functional & lines of authority are super imposed with each other & shared by both functional as well as project managers (PM) PM are responsible for overall direction & integration of activities & resources In matrix organizations, cross functional teams are used Vertical & horizontal lines of authority are combined & the authority flows in both directions i.e. down & across Is more democratic with emphasis on independence of departments & co - operation

Structure of Organization
A Matrix Structure
Advantages:
Increased co ordination & control Full utilization of available resources Response to dynamic environment Excellence in inter disciplinary specialization Top mngt spends more time for strategic planning & policy

formulation
Improving motivation & personal development

Structure of Organization
A Matrix Structure Disadvantages:
Violation of unity of command principle Administrative costs Pressures of work Difficult to achieve balance between techinical & administrative aspects

Formal & Informal Organization

Distinction
Point of Distinction 1. Formation: 2. Emphasis: 3. Purpose: 4. Behaviour of Members: Formal Organization Created by mngt Is on terms of authority & functions. Achievement of organizational goals Informal Organization Emerges spontaneously Is on people & their relationships. Satisfaction of social & cultural needs

Standards of behaviour are Standards of behaviour are prescribed & enforced by evolved by mutual consent mngt among the members Well defined structure of tasks & relationships Establishes official lines of communication No clear cut structure; forms a complex network of relations. Establishes informal lines of communication

5. Structure:

6. Communication:

Formal & Informal Organization

Distinction
Point of Distinction 7. Leadership: Formal Organization Managers are leaders by virtue of their superior position. Informal Organization Leaders are chosen

8. Stability:
9. Adherence to Rules:

Is stable & predictable

Violation of rules may lead to penalties. Exists independently

Is neither stable nor predictable

There is no such punishment for violation of rules. Exists within the framework of formal organizations May tend to remain smaller. The no. of members are limited. Has a horizontal flow

10. Interdependence:

11. Size: 12. Number of Members: 13. Flow of Authority:

May grow to an immense size. There is a long list of members. Flows from top to bottom

Delegation of Authority
Concept
Authority implies
The right to give orders and the power to enact obedience The formal right to exercise control

Delegation of Authority implies

Conferring authority from one executive to another in order to accomplish particular assignment Is the granting of authority for the right to decision making in certain defined areas & charging the subordinate with responsibility for carrying on assigned task

Delegation of Authority
Elements
Authority
The legal right to command & enforce compliance

Responsibility
Amount of work expected to be performed by an individual Obligation to perform tasks

Accountability
Obligation on the subordinate to account for the responsibility assigned Answerability of the subordinate

Delegation

Delegation of Authority
Distinction amongst Authority, Responsibility & Accountability
Point of Distinction 1. Meaning: Authority It is the power of a person to take decision. It originates from law. Responsibility It is the amount of work expected to be performed by a subordinate. It originates from mutual relations of superior & subordinates. Accountability It is the answerability of the subordinate to his superior. It originates out of responsibility.

2. Origin:

3. Order:

Authority & Authority & Accountability responsibility follow responsibility follow follows each other. each other. responsibility. Can be delegated It is a power to command. Cannot be delegated It is a duty to be performed. Cannot be delegated It is an obligation to report.

4. Delegation: 5. Nature:

Delegation of Authority
Importance
Reduces Load of Managers

Basis of Relations
Improves managerial effectiveness Motivation Development of Managers Organizational Growth

Team Spirit
Spurs Initiative Satisfaction of Need

Decentralization
Concept & Definition
Is delegation of authority to take decisions at the lower level

of mngt
Authority is exercised as near as possible to the point where

problems originate
Decentralization is the systematic & consistent delegation of authority to the levels where the work is performed. Allen The process of decentralization denotes the transference of authority from higher level to a lower level. L.D. White

Decentralization
Characteristics
Decision making done at lower levels Functions are affected by lower level decisions Less check is required on the decision Centralized controls are designed to find out that responsibility is properly performed

Decentralization
Importance
Relief to top mngt Development of Executive Ability Prompt Action

Effective Communication
Better Decisions Boosts Morale New Techniques Effective Control

Re - Engineering
Concept:
The fundamental rethinking & radical redesign of business processes to achieve dramatic improvements in critical contemporary measures of performance, such as cost, quality, service & speed.

Key Aspects:
Fundamental Rethinking Radical Redesign Dramatic Results Focus on Business Processes

Re - Engineering
Re Energizing the System Transformation Process

Inputs Human Capital Technology

Human System

Business Process System Technol ogy System i.e. IT Mngt System

Outputs Products Services

Profits
Satisfaction Goal Integration

Other Goal Inputs

of stakeholders

Information Handling Process

Stakeholders Employees Customers Suppliers Govts. Shareholders
External Variables Opportunities Constraints

Enterprise Boundary