Organization and Management

LESSON 1: Evolution of Management Theories

Management   
 getting things done through other people
 it implies that an organization, whether small, medium, or large, is composed of people
 a function that directs and coordinates the efforts of the people to accomplish goals and objectives by using
available resources efficiently and effectively
 it is also a process of accomplishing the organization’s goals by working with and through people
 its tasks include planning, organizing, staffing, leading or directing, and controlling

1910s-1940s: Management as Science

 developed in the early 20 century and focused on increasing productivity and efficiency through standardization,
th

division of labor, centralization, and hierarchy

 a very top down management with strict control over people and processes dominated across industries

1950d-1960s: Functional Organizations

 managers began to understand the human factor in production and productivity and tools such as goal-setting,
performance reviews, and job descriptions were born

1970s: Strategic Planning

 focus is from measuring function to resource allocation and tools like Strategic Planning, Growth Share Matrix,
and SWOT were used to formalize strategic planning processes

1980s: Competitive Advantage

 became a priority as well as tools like Total Quality Management (TQM), Six Sigma, and Lean Management were
used to measure processes and improve productivity
 employees were more involved by collecting data, but decisions were still made at the top, and goals were used to
manage people and maintain control

1990s: Process Optimization

 benchmarking and business process reengineering became popular in the 1990s
 organization-wide approach and strategy implementation took the stage with tools such as Strategy Maps and
Balanced Scorecards

2000s: Big Data

 a broad term for data sets so large or complex that traditional data processing applications are inadequate and
accuracy may lead to more confident decision-making and better decisions can mean greater operational
efficiency, cost-reductions, and reduced risk

Principles of Management
 a French management theorist, Henri Fayol (1841-1925) who developed the fundamental notion of principles of
management 

Fayol’s Principles of Management:

1. Division of work 
 whole work is divided into small tasks
 the specialization of the workforce according to the skills of a
person, creating specific personal and professional development within the labor force, and therefore increasing
productivity, which leads to specialization which increases the efficiency of labor
 by separating a small part of work, the worker’s speed and accuracy
in his/her performance increases
  applicable to both technical as well as managerial work

2. Authority and Responsibility

 authority means the right of a superior to give enhanced order to his subordinates
 responsibility means obligation for performance
 the principle suggests that there must be parity between authority and responsibility, they are co-existent together
and authority must commensurate with responsibility

3. Discipline
 refers to obedience, proper conduct in relation to others, respect of authority, etc
 essential for the smooth functioning of all organizations and also help shape the culture inside the organization
 absolutely necessary for enterprises to function well

4. Unity of Command
 this principles states that each subordinate should receive orders and be accountable to one superior
 if an employee receives orders from more than one superior, it is likely to create confusion and conflict
 also makes it easier to fix responsibility for mistakes

5. Unity of Direction
 all related activities should be put under one group, there should be one plan of action for them, and they should
be under control of one manager
 it seeks to ensure unity of action, focusing of efforts, and coordination of strength

6. Subordination of Individual Interest

 the management must put aside personal considerations and put company objectives first; therefore the interests
of goals of the organization must prevail over the personal interests of individuals

7. Remuneration
 workers must be paid sufficiently as this is a chief motivation of employees and therefore greatly influences
productivity
 quantum and methods payable must be fair, reasonable, and rewarding of effort
 paid to worker as per their capacity and productivity
 the main objective of an organization is to maximize the wealth and the net profit as well

8. The Degree of Centralization

 the amount of power wielded with the central management depends on company size
centralization implies the concentration of decision-making authority at the top management
decentralization is the sharing of authority with lower levels
 the organization should strive to achieve a proper balance

9. Scalar Chain
 refers to the chain of superior ranging from top management to the lowest rank
 the principle suggests that there should be a clear line of authority from top to bottom linking all managers at all
levels
 considered as chain of command
 gang plank, a concept in which a subordinate may contact a superior in case of an emergency, defying the
hierarchy of control

10. Order
 social order ensures the fluid operation of a company through authoritative procedure
 material order ensures safety and efficiency in the workplace
 order should be acceptable and under the rules of the company
11. Equity
 employees must be treated kindly, and justice must be enacted to ensure a just workplace
 managers should be fair and impartial when dealing with employees, giving equal attention toward all employees

12. Stability of Tenure of Personnel

 the period of service should not be too short and employees should not be moved from positions frequently
 an employee cannot render service if he/she is removed before he/she becomes accustomed to the work assigned
to him/her

13. Initiative
 using initiative of employees can add strength and new ideas to an organization
 on the part of employees, is a source of strength for an organization because it provides new and better ideas
 employees are likely to take greater interest in the functioning of the organization

14. Esprit de Corps

 refers to the need of managers to ensure and develop morale in the workplace; individually and communally
 team spirit helps develop an atmosphere of mutual trust and understanding
 helps to finish the task on time

Key Roles 
Fayol also divided the management function into five key roles:
 to organize
 to plan and forecast
 to command
 to control
 to coordinate

LESSON 2: THE PHILIPPINE BUSINESS ENTERPRISE

There is money in business. Other say, if we want to become rich, there was no need for a college education, a high school
diploma was enough.

In reality, not a few very successful business tycoons are even high school graduates. 
o Leonardo Sarao of the Jeepney industry is one of them. An elementary graduate.
o The founder and owner of National Book Store is only a high school graduate.

Entrepreneurial qualities

1. Risk-taking
2. Perseverance
3. Good Human relations

They are afraid of financial failure or insecurity. Thus, they prefer to be employees instead of employers.

The Private Business Enterprise is an engine of economic growth. This is true in a free-market economy.

 BUSINESS EXPLAINED
o Business – various concepts to diff. individuals.
 Selling of goods and services (for some)
 Production of goods and services (for some)
  Business as a social process which involves the assembly and utilization of resources to produce
goods and services in order to satisfy the needs of society. (According to Professor Lawrence
Gitman of Wright State University)

It is common knowledge that a business enterprise is organized to acquire profit.

It is the customer who determines what a business is

 What the business thinks it produces is not of first importance—especially not to the future of the business and to
its success.
 What the customer thinks he is buying, what he considers value is decisive.
 It determines what a business is
 What it produces and whether it will prosper.

Profit Maximization – a long-term goal. It is attainable when the business enterprise is able to create more customers and
maximize their satisfaction. This means more sales of quality of goods, together with good services and reasonable prices.

 BUSINESS BASIC RESOURCES

o Men. Who work in business enterprise? Most important in productive resources. The success or failure of
any business depends on them. All business basic resources are useless if people do not know how to use
them properly.
o Money. Funds are very important. Needed in putting up the business enterprise. To acquire materials and
machines. It is also needed to pay operating expenses, like salaries, electric, water and telephone bills
(service and utilities).
o Machines. Modern production requires the use of machines. More efficient and economical
o Materials. Needed in the creation of products.
o Methods. refer to technology or techniques of production
 3 types of technology
 Primitive
 Intermediate
 Modern technologies

 ECONOMIC SYSTEM MODELS

 Economic system – a set of economic institutions that dominates a given economy.  Ex. Of economic
institutions: financing, production, marketing, taxation, and profit maximization
 Basic Objective – to satisfy the economic needs of the people. 
 Criteria for evaluating the performance of an economic system are:
 Abundance, growth, stability, security, efficiency, justice, and economic freedoms
1. CAPITALISM – Factors of production and distribution are owned and managed by private individuals, its
essential features are:
1. Private property
2. Economic freedoms
3. Free competition
4. Profit motive
2. COMMUNISM – exactly opposite of capitalism. Factors of production and distribution are owned and
managed by the state. Essential features:
1. No one owns property privately.
2. Government is the only producer and seller.
3. There are no economic freedoms.
4. The profit motive is prohibited.
2. SOCIALISM – mixture of capitalism and communism.

 BASIC MARKET MODELS

o Theoretical frameworks for existing firms and industries.
1. Pure Competition. A market situation where there is a large number of independent sellers offering identical
products, like corn, rice, fish, vegetable, etc. 
2. Pure Monopoly. A market situation where there is only on producer or seller. Goods and services are unique in
the sense that there are no close substitutes. (Ex. Meralco).
3. Monopolistic Competition. It pertains to a market situation where there are a relatively large number of small
producers or suppliers selling similar but not identical products. Ex. Are banks, book publications drugs, tailoring
ships, gasoline stations, among others.
4. Oligopoly. To market situation where there are few firms offering standardized or differentiated goods and
services. Ex. Are producers or manufacturers of cars, diamonds, stelll, cement, airplanes, locomotives, and
others. 

 PHILIPPINE BUSINESS DEVELOPMENT 

o About 250,000 years ago, there were already inhabitants in the Philippines. They came from other Asian
countries by means of the land bridges. Long afterwards. More civilized migrants introduced agriculture
and handicrafts. This time, the people established their permanent settlements. Through the barter system,
they were able to satisfy their primitive needs.

 FREE-ENTERPRISE ECONOMY
o The Philippines business has already entered – since a few years ago- into an era of liberalization and
deregulation. 
o In a free - enterprise economy, there is free competition. 
One very good advantage of free competition is that it enhances economic efficiency in terms of
improved quality and services and lower prices.

 PHILIPPINE BUSINESS ENVIRONMENT

o Business environment – factors that affect the efficiency of a business enterprise.
 Ex. Of internal business environment are:
 Management
 Technology
 Facilities
 Financial incentives
 In the case of external business environment, these are:
 Peace and order
 Transportation, telephone, and electric facilities
 Monetary and fiscal policies
 Political, social, and economic conditions

 EXTERNAL ENVIRONMENT EXPLAINED

1. Peace and order. The principal target of investors is to earn profits. It is evident that no sensible
individual is going to put up his business in a place where crimes are rampant.
2. Transportation, telephone, and electric facilities. These are vital to the efficient operations of business.
Many foreign investors are reluctant to do their businesses here in the Philippines, although land, labor
and materials are comparatively cheaper, due to the limitations of such facilities.
3. Monetary and fiscal policies. Monetary polices refer to interest rates, legal reserve requirements, open-
market operations (buy and sell of government securities by the Bangko Sentral), among others. In the
case of fiscal policies, these pertain to taxation, borrowing, and expenditure of the government. 
4. Political, social and economic conditions. Political instability, such as frequent changes in government
officials, forms of government, and government laws, is not conducive to the efficient operations of
business enterprises. In the case of social conditions, when most of the members of society are very poor,
it is not good for business. For economic conditions like high level inflation and unemployment, these are
negative factors for business development.
  THE ROLE OF THE GOVERNMENT
o The government has the east interference in business affairs under capitalism, compared with socialism
and communism but the laissez faire business environment is no longer acceptable. 
Here are some major areas of government regulation of business enterprises:
1. Occupational safety
2. Fair labor practices
3. Consumer protection
4. Pollution prevention
5. Economic security

 BUSINESS FOR THE POOR

o The number of poor people in the Philippines is much higher than the number of rich ones.

LESSON 3: BUSINESS ORGANIZATIONS

 Many individuals, especially those with financial resources, prefer to go to business. As entrepreneurs – they have
the economic power to create jobs, products, and services. Its advantage is the unlimited economic and social
opportunities in business. Poverty did not discourage them to achieve their aspirations.
 Entrepreneurs must be
o Must have social skills
o Ability to relate well with customers, suppliers, and employees can make the difference between success
and failure.
o Must be innovative
o Hardworking
o A risk-taker
o With determination to succeed in life
o And for the sake of the children, such entrepreneurial qualities can be learned and developed

This chapter explains steps in starting a new businesses and gives basic information on the conduct of a feasibility study.

 BUSINESS ORGANIZATION EXPLAINED

o Any two or more persons can pool their resources, and work together to attain their common objective.
o In a big business organization, the right people for the right jobs must be employed. Such human factor
ensures the success of the organization.
 Japanese business enterprises are successful because they love their employees. They treat their
employees as human beings – not as machines.
 Andrew Carnegie – first as bobbin boy in a factory. Then became a telegraph messenger, a
telegraph operator, an assistant to a railroad division manager, at age 24 superintendent of the
Western Division of the Pennsylvania railroad Company. Finally became the owner of a giant
steel company. The inscription on his tombstone reads:

Here lies a man

Who knew how to enlist
In his service
Better men than himself.

 REASONS FOR GOING INTO BUSINESS

o They have the money
o There are abundant economic opportunities in business. 
o Such reasons are shallow
o Going into business is a serious and responsible venture

Aside from capital, the prospective entrepreneur should evaluate his interests, experiences, skills,
competitors, and the market. It is only a matter of resourcefulness and hardwork.
Criteria of sound investment must be applied.

1. Safety of the seed capital

2. Stability of income
3. Possibility of growth

Reasons why people go into business:

 Personal satisfaction. They enjoy excitement, challenge, and risk-taking.

 Family involvement. They feel it is their duty to continue the business of their parents, especially if it is
profitable and growing.
 Independence and power. They want to be the boss.
 Social activities. There are people who are really born socializers.
 Profit expectation. Some individuals are greatly motivated by the promise of profit, or the chance to
become rich.

 TEST FOR BUSINESS SUCCESS

o About you
 Why do you want to put up your own business?
 Do you have experience in the business you like to start?
 Have you worked as a manager before?
 Do you have a business training or education?
 Do you have capital for your business?
 About capital
 Do you know how much money you need for your business?
 Do you know how much credit you can get from you suppliers?
 Do you know where to borrow, in case your funds are not enough?
 Do you have an estimate of your net income per year?
 About a partner
 Do you need a partner who has the money and skills?
 Do you know the advantages and disadvantages in choosing single proprietorship, partnership, or
corporation as your business organization?
 Have you consulted an expert?
 About your customers
 Who are your customers?
 Do people need your business?
 Do people like to live in the place where you intend to put up your business?
 About your qualities
 Are you a self-starter?
 How do you feel about other people?
 Can  you lead others?
 Can you make decisions?
 Can you take responsibilities?
 Are you good in planning and organizing?
 Can people trust what you say?
 Are you hardworking?
 Is your health good?

 FORMS OF BUSINESS ORGANIZATIONS

The choice of a form of business organization depends on one’s resources, objectives, and perceptions. There are
business organizations that started small until they became giants.

 Apple Computer – two young engineers, Steven Jobs and Stephen Wozniah, started their personal
computer business with $1,350. They got their seed capital by selling an old Volkswagen van and a
 calculator. They used the garage of Jobs as their production site. One year after, Apple Computer became
a corporation. In only six years time, the business corporation with more than 4,000 employees and with
more than $1 billion annual sales.

3 Most common forms of business organizations in a capitalist economy:

1. Single/Sole proprietorship – This is owned and usually managed by one person. 

Advantages:
 It is easy to form and dissolve
 All profits belong to the business owner
 The owner is the boss
 Tax advantage and less government regulation

Disadvantages:

 Unlimited liability
 Lack of stability
 Limited access to credit
 Limited business knowledge and skills

2. Partnership – This is an association of two or more persons who are co-owners of a business.
Advantages:
 It is easy to organize
 Availability of more capital and credit
 The partners get all the profits
 More and better knowledge and skills

Disadvantages:

 Unlimited liability
 Lack of stability
 Management disagreement
 Idle investment

3. Corporation – It is an artificial being created by operation of law, having the right of succession, and the
powers, attributes, and properties expressedly authorized by law or incident to its existence.
Two types of corporation: Private or Close corporation and Open corporation.
Advantages:
 Limited liability
 Easy to raise capital
 Perpetual life
 Specialized management

Disadvantages:

 Difficult to organize
 Strictly regulated and supervised by the government.
 Some corporations are socially irresponsible.
 Formal and impersonal employer-employee relationship

Others – cooperative, joint venture, and syndicate

 THE COOPERATIVE: AN ENTERPRISE FOR THE POOR

Cooperative Code – a cooperative as a duly registered association of persons, with a common bond of
interest, who have voluntarily joined together to achieve a lawful common social or economic end.
 Objectives of cooperatives:
o To encourage thrift and savings among the members.
 o To generate funds and extend credit to the members for productive and provident purposes;
o To encourage among members systematic production and marketing;
o To provide goods and services and other requirements to the members;
o To develop expertise and skills among its members.
o To acquire lands and provide housing benefits for the members;
o To promote and advance the economic, social, and educational status of the members, and
o To establish, own, lease, or operate cooperative banks, cooperative wholesale and retail
complexes, insurance and agricultural/industrial processing enterprises, and public markets.

 Type of cooperatives
1. Credit cooperative
2. Consumers cooperative
3. Producers cooperative
4. Marketing cooperative
5. Service cooperative
6. Multipurpose cooperative

Organizing a cooperative

For membership, there should be a minimum of 15 natural person, they should be citizens of the
Philippines who are residing or working in the intended area of operation of the cooperative.

Before organizing a cooperative, the Core Group (leaders) should first study the ff factors:

 Felt need
 Volume and business
 Availability of qualified officers
 Adequacy of facilities
 Opportunities for growth

 ENTREPRENEURIAL SKILLS
1. Financial – The entrepreneur must be knowledgeable about the financial aspects of business decisions.
2. Marketing – The entrepreneur must be well-versed on the 4Ps of marketing: product, pricing, place, and
promotion.
3. Managerial skills – These are vital to the growth and success of the enterprise.
4. Overall personal decision-making process – The entrepreneur should have a thorough evaluation of
what is to be attained by going into business, and what human and financial resources are available and
necessary.

 PUT UP A NEW ENTREPRISE OR BUY?

Advantages of buying an established business:
1. It saves time, cost, and effort of looking for a location.
2. It has existing customers.
3. Uncertainties regarding physical facilities, inventory requirements, and personnel needs are reduced.
4. It may be available at a bargain price or cheap price due to quick sale.

Disadvantages:

1. Location may no longer be convenient to customers.

2. The present owner/business may have a bad image in the community.
3. Physical facilities may be outmoded, requiring expensive repairs or renovations.
4. The inventory may be obsolete and of poor quality.
 5. The price of the existing business may be too high.

Evaluating an existing enterprise

The prospective buyer should make inquiries from employees, customers, suppliers, competitors, and
banks. Here are some areas to evaluate:
1. Reasons for selling
o Retirement
o Illness
o Employment
o Opportunities somewhere
o Going abroad
o Financial problems
2. Earning power
o Profitability of the firm
o Financial statement for the last five years
3. Other factors
o Demand for the firm’s products/services
o Number of competitors
o Future trend of the industry
o Present location of the business

 STEPS IN STARTING A NEW BUSINESS

1. Plan the business. Conduct a project feasibility study or a market research to determine the viability or
profitability of your business which you are intending to put up.
2. Choose the most suitable form of business organization. 
3. Look for fair credit facilities; that are, if your funds are not enough. Compare their interest rates, terms of
repayments, and time of repayments.
4. Select a good business location.
5. Secure license, permit and other required documents for business operation. It is always good to comply
with legal requirements. You feel comfortable.
6. Set up records for financial, physical, and personnel resources.
7. Insure the business if necessary. This is a good way of protecting your investments against fire and other
possible causes of loss.
8. Promote your business
9. Manage your business well.
10. Perform your social responsibility

BASIC PHASES

Management 

Management aspect is aimed at designing the form of ownership (for new ventures) although in most cases this is
already predetermined, as well as the internal structure for managing the project. The project time-table may also be
presented in this section.

Marketing

Market study is aimed at determining and analyzing the demand and supply for the product/service in the past and
making projections of demand and supply in the future ascertaining its competitive position in the industry, and designing
the marketing program for the product/service.

Production

Production aspect describes the technology that will be used in making the product.
  Mechanical
 Chemical 
 Physical properties
 Plant location, layout and other facilities vital to the operation.

 Fro services, a description of the types of service(s) to be rendered:

 Equipment
 Supplies
 Facilities
 Manpower are required to render the service efficiently.

Financing

Financial aspect is meant to determine the cost of the project and cash requirement and the source and cost of
financing the project.

PART I: Planning and Decision Making

 For every goal-personnel or business-there are several ways of reaching it.
 The success of attaining such a goal primarily depends on good planning.
 Planning, in layman’s language, is thinking and looking ahead.
 Clearly, business management needs good planning, not only to survive business competition, but also to
maximize its performance in terms of satisfying its customers and stockholders.
 Planning is the first function of management. Without it, the other functions are most likely not in order.

Planning

 Planning as the process of establishing objectives and appropriate courses of action before taking action.
 The basic process of choosing our goals, and determining the ways of realizing them, taking into consideration
available resources-including time.
 Planning is preparing now for tomorrow.
 It exists in all levels of the business organization.
 Middle-level managers are concerned with the planning of the more specific objectives of implementing the
general goals of top-level management. 

Types of Plans
 Strategic plan – is focused on the entire business operations. 
o Involves the three levels of management.
o Top management formulates the corporate objectives while the lower levels of management develop
relevant objectives and plans on how to attain them.
 Tactical Plan – a series of tactical plans constitute a strategic plan.
o Divisions managers are involved in tactical planning which is shorter in time frames.
o They plan what to do, how to do it, and who will do it.
 Operating plan – provides the specifics as to how the strategic plan will be attained.
o Single use plan – is applicable to activities that do not repeat.
o Once the activity is finished, the plan is no longer needed. Examples of single-use plans are:
 Program
 Budget
 Ongoing plan – used for continuing situations, problems, and activities which are similar and consistent.
 Policy
 Procedure
 Rule

Principles of Planning
 Not a few government and business programs and projects fail because the principles of planning are ignored.
 However, the most important of all in planning is the human factor.
  The following are some principle of planning:
o Planning must be realistic
o Planning must be based on felt needs
o Planning must be flexible
o Planning must be democratic
o Planning must start with simple project
o Planning must include social responsibility

Basic Steps in Planning

 Establish objective
 Evaluate the environment
 Determine the best alternative strategy
 Implement the action plan
 Evaluation of results

Effective Planning
 Planning is effective if it produces the desired results.
 Secrets to successful planning?
o Apply the principles of planning.
o Identify and remove the possible barriers to successful planning.
o Barriers are:
 Incompetence in planning
 Lack of Dedication
 Incomplete and inaccurate information
 Short-sightedness
 Dependence on the planning department

Planning Tools
 Knowing and understanding future events and their effects on business are essential in planning.
 The ability to forecast accurately serves as eyes and ears to the future.
 It is evident that a good forecast is based on correct and complete information.

Types of Planning Tools

 Quantitative planning tools
 Qualitative planning tools

STEPS IN BUSINESS PLANNING

 Evaluate your personal resources and interests, and the resources of the community.
 Analyze your market
 Choose a proper business location
 Prepare a financial plan
 Prepare a production plan
 Prepare an organizational plan
 Prepare a management plan.

IMPORTANCE OF BUSINESS PLANNING

 Planning can eliminate business risks.
 Planning can minimize costs of production.
 Planning can detect the weaknesses of the business operations.

STEPS IN DECISION MAKING

 Define the problem
 Gather data about the problem
 Organize and analyze the data.
 Develop alternative solutions
  Analyze the alternatives
 Select the best alternative
 Implement and monitor the decision
 

PART II: Organizing

Plans establish the objectives of the organization. However, the key to the successful implementation of the plans
is a good organizational structure.

 Organizational structure transforms objectives into realities.

 When productive resources are properly organized in terms of allocation and utilization, peak performance of the
organization is attainable.

ORGANIZING DEFINED

 Is the process of arranging an organization’s structure and coordinating its managerial practices, and the use of
resources to achieve its goals – by Professor James Stoner.
 A management function that establishes relationships between activity and authority. – by Professor Warren
Plunkett. Have 4 distinctive activities:
o Determines the activities to be performed to achieve organizational objectives
o Clarifies the types of work and groups these into manageable work units
o Assigns the work to individuals and delegates appropriate authority
o Constructs a hierarchy of decision-making relationships.
 In plain language, organizing – the process of combining and coordinating productive resources in order to
accomplish efficiently and effectively the established objectives of the organization.

RELATIONSHIP BETWEEN PLANNING AND ORGANIZING

 The objectives of any organization are set up in the planning stage.

 It is also based on plans. In short, organizing as a basic function of management needs planning to place it in the
right direction.
 It is not possible to perform this efficiently without the use of planning.
 Both planning and organizing are dynamic processes.
 When organizational objectives change, planning and organizing have to be changed
for instance, whenever there are changes in resources and activities, the objectives and the organizational structure
have to be adjusted or modified.

THE IMPORTANCE OF ORGANIZING

 the success of organizing is the success of management. This means the accomplishment of objectives.
 Benefits of organizing:
o Clear and specific job description. Every employee knows what to do. The task and duty.
o Existence of coordination. Reduces or eliminates confusions and conflicts. For every designated task of
the organization, there is a person who has the authority to coordinate all plans for the said task.
o Presence of formal structure. By means of the organizational chart which diagrams the various
departments, functions, and positions, and which shows their relationships, the formal superior-
subordinate relationships are indicated. It also shows the whole management hierarchy. 

STEPS IN ORGANIZING

 Evaluate plans and objectives. Organizational objectives, together with the activities, are indicated in the plans.
 Identify the various activities. These are the activities to be performed to accomplish organizational objectives.
 Group similar or related activities. For efficiency, similar or related activities should be grouped under one
department or division. 
 Assign activities with appropriate authority. The various activities will be assigned to competent individuals.
  Design a hierarchy of relationships. These are the working relationships of the various components of the entire
organization. 

APPROACHES TO ORGANIZING

 The bottom line in selecting an organizational structure is that such structural design should enhance the most
effective and most efficient use of the productive resources of the organization.

o Functional Approach
 Most common and basic approach to organizing.
 Small enterprises which have limited product lines adopt the functional organization.
 Common departments (finance, production, marketing, and personnel)
 Advantages: 
 It makes supervision easier
 It is easier to mobilize specialized skills
 It is helpful in the efficient use of specialized resources.

 Geographic Approach
o Applicable to big organizations and giant business enterprises like the multinational corporations.
o The geographic structure is most suitable when different laws, policies,

 currencies, and cultures exist among the various regions.

 Product Approach
o Most large multiproduct corporations are structured on product organization, particularly for
products which require unique strategy, production process, or distribution system.
 Advantages:
 Product structure are faster decisions, better coordination, and higher product
visibility.
 Disadvantages:
 Higher cost of operations
 Each product division needs finance, production, marketing and personnel
operations.
 Customer Approach
 There are groups of customers which are different in their demands, preference, or needs.
Example, there is vice president in industrial , in consumer products and in military products.
 Matrix Approach
 Combines the functional organizational structure with a project team structure in which an
employee has two bosses, manager and to the project manager.

PRINCIPAL ORGANIZATIONAL CONCEPTS

 Authority – right to give orders and make decisions.

o Types of authority
 Line authority – a direct supervisory relationship between superior and subordinate. Moves from
top to the bottom of the organization.
 Staff authority – provides advice or technical assistance to top management or line managers.
No direct control over subordinates, or activities of other departments, except within the staff
manager’s own department.
 Functional authority – the authority delegated to the members of the staff department to control
the activities of the other departments that are related to specific staff responsibilities.

 Delegation – the assignment of formal authority from a superior to a subordinate.

 Two principles of effective delegation
 Scalar principle – clear line authority from the top level to the bottom level of the organization.
 Unity of command – each employee in the organization should report to only one supervisor.

 Span of Control – refers to the number of subordinates a manager should direct.

 No prescribed number for the span of control.
 The appropriate number under a supervisor depends on the qualifications of the manager and his
subordinates.

 Centralization – the extent of authority in an organization. If the authority for making decisions is in an
organization. At least one whom who have authority to decide.
 Decentralization – opposite of centralization, do empowerment, giving minor authority to lower levels.
 Some factors which influence the degree of decentralization:
 External environment – market, competitors, resources
 Size and growth rate of organization.
 Profile of the organization (competence, culture, attitudes, cost of decision)

INFORMAL ORGANIZATION
 Employees or member have their own groups. Although they do not have formal organization structures and
formal powers, are very influential in the operations of the formal organization.
 Informal Organization – group of individuals which has emerged out of personal and group needs of the
members.
o Horizontal groups – composed of employees in the same department, or across departmental lines which
operate at the same organizational level.
o Vertical groups – composed of employees from the different levels of the organization.

FUNCTIONS OF THE INFORMAL ORGANIZATION

 Employees need personal satisfaction in terms of security, affiliation, love, and other psychological fulfillment.
 Functions:
o Reinforce and sustain the cultural and social values of the members.
 They demonstrate and enhance values.
 Provide members the opportunities to satisfy their psychological needs.
 As a janitor, he is nobody, but as a champion in chess, he feels important and he gets appreciation
fro his superiors.
 Generate a faster system of communication
  From formal, communication through channels, while informal, there are employees who are
close to top management etc.
 Influence operation of the formal organization
 Informal groups can control the work performance of their groups by means of their collective
support, or cooperation with management policies.
 There are labor laws to protect employees, not easy to fire them.