Chapter Three

Organizational Structure & System

 Outcome3:

Define business organizational structure and its basic elements; identify and explain different forms of
organizational structure;

Contents:

 Definitions and Principles of Organization

 Importance and Benefits of Organizing
 Organization Structure
 Line and Staff Relations
 Centralization vs. Decentralization
 Learning Organization

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 Essential Reading

 Bhattacharyya (2009). Organizational systems, design, structure and management. Himalaya Publishing
House. Chapter Six
Link:https://ebookcentral.proquest.com/lib/momp/detail.action?docID=3011256&query=organizational+syst
ems+design+structure+and+management

Recommended Reading
Management 6th Edition by Stephen P Robbins & Mary Coulter published by Prentice Hall International
Editions

Open Educational Resource

www.Saylor.org/site/textbooks/Principles%20of20Management .pdf

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 Organization
Organization refers to a collection of people, who are involved in pursuing defined
objectives.
It can be understood as a social system which comprises all formal human relationships.
The organization encompasses division of work among employees and alignment of tasks
towards the ultimate goal of the company.

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Definition 5

Louis Allen, “Organization is the process of identifying and

grouping work to be performed, defining and delegating
responsibility and authority and establishing relationships for the
purpose of enabling people to work most effectively together in
accomplishing objectives.”

In the words of Allen, organization is an instrument for achieving

organizational goals. The work of each and every person is defined
and authority and responsibility is fixed for accomplishing the
same.
 Characteristics of Organisation:
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1. Division of Work:

• Organisation deals with the whole task of business.

• The total work of the enterprise is divided into activities and functions.
• Various activities are assigned to different persons for their efficient accomplishment.

2. Co-Ordination:

• Co-ordination of various activities helps in integrating and harmonising various activities. Co-ordination also avoids
duplications and delays in the work

3. Common Objectives:

• All organisation work towards the achievement of business goals.

4. Co-operative Relationship:

• An organisation creates co-operative relationship among various members of the group members of various departments.

5. Well-Defined Authority-Responsibility Relationships:

• An organisation consists of various positions arranged in a hierarchy with well defined authority and responsibility.
 Organizing

Organizing is the second key management function

It entails defining jobs and working relationships, assigning different tasks

associated with the plans, arranging and allocating resources, design a structure
which distinguishes duties, responsibilities and authorities, scheduling activities,
in order to maintain smoothness and effectiveness in operations

According to Chester Barnard, “Organizing is a function by which the concern is able to

define the role positions, the jobs related and the co-ordination between authority and
responsibility. Hence, a manager always has to organize in order to get results.

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Importance of Organizing 8

Organizing is integral to
The importance of organizing is as
management as it facilitates the
smooth functioning of the under:
business.
 Importance of Organizing
9

Advantage of Describes work Effective Adaptation to Development of

Specialization: relationships: utilization of change: personnel:
resources: • Organizing encourages
• Organizing function creativity in
• Organization create • The definition of work • Organizing process executives. Delegation
ensures the best
department and assign relationships describes helps the organization of authority reduce
possible utilization of
job to the employees the flow of to survive and adapt their workload and
resources whether it is
on the basis of their communication and the changes, by making they get time to
human, material,
skills which helps them determine the superior- substantial changes in identify new methods
financial or technical.
to perform specific subordinate the strategies, to perform the work. It
This is because jobs
work on a regular basis relationship. This hierarchy, also enables them to
are assigned to the
and gives benefit of removes confusion and relationships, etc. explore new areas for
employees which avoid
specialization. chaos, in getting orders their growth and
overlapping and
and instructions. development.
duplication of work.
 Organization Structure 10

Organizational structure defines how activities such as task allocation, coordination,

and supervision are directed toward the achievement of organizational aims.

An organizational structure is a visual diagram of a company that describes what

employees do, whom they report to, and how decisions are made across the business.

Benefits of organizational structure :

Faster decision making

Multiple business locations
Improved operating efficiency
Greater employee performance
Eliminates duplication of work
Reduced employee conflict
Better communication
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 Types of Organization Structure
12

Line Organization

Types of Organization
Structure Line and staff Organization

Functional Organization Structure

Project Organization Structure

Matrix Organization Structure

 Line Organization
 Line organization has direct vertical
superior-subordinate relationship
which connects the position at each level.

 The authority flows downward and

accountability flow upward.

Authority is a power or right to give orders,

make decisions

Accountability makes an individual

answerable about the task or job he/she has
done.
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 Line and Staff Organization: 14

 A line-staff organization is a structure

that distributes work responsibilities
from upper management to lower-
level employees.

 The managers communicate their

expectations to the team.

 They establish targets and deadlines

for employees to finish work on time.
 Functional Organization

Functional organizational structure refers to the

structure in which different departments are created
on the basis of major functions performed in the
organization.
For example, Mr. Ali is managing director of
factory which manufactures washing powder. The
whole organization is divided into major functions
like production department, marketing department,
finance department and purchase department.

All activities related to production department are

grouped together like component manufacturing,
product assemble, and quality control

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 Project Structure Organization

 A project structure organizational structure

determine the hierarchy and authority of
people involved in a specific project.

 This organizational structure is temporarily

created for specific projects for a
particular period for the project to achieve the
goal.

Example developing a new product, specialize

in various functional departments such as
production, engineering, quality control,
marketing research etc. and will be ready to
work together.

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 Matrix Organization
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Matrix organization structure is a combination of functional organization and project organization.

For example, if a food company is launching a new brand of ice creams (New project), the production
team, research team and marketing team work together to launch the ice creams.

launching a new brand of ice creams

 Divisional Structure Organization
Geographical divisional org structure
 In a divisional structure, organizations are split into
divisions based on specific products, services or
geographies.
 In a geographical divisional organizations structure,
divisions are typically separated by location or sales
territories.
 In a product-based divisional organizations
Product-based divisional org structure
structure, divisions are organized by product line.

For example, retail company will have a health division,

beauty division, food division and admin and finance
division.
Each division would have their own finance , marketing ,
manufacturing , customer service, research and development
division.
Each division will put their efforts to develop their own
specific products and services.
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 Departmentalization
19

Departmentalization refers to the process of grouping activities into departments

Objectives of Departmentalization

• To specialize in activities
• To simplify the process and operations of the organization
• To maintain and control the activities

Departmentalization Departmentalization by Function

Methods

Departmentalization by Process
Of

Departmentalization by Product

Departmentalization by Territory
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 Departmentalization by Function 20

 Departments are created on the basis

of specific functions, such as
production, marketing, purchase,
finance etc.

 Similar activities related to a

function are combined in a single
unit, to give directions to the entire
group at once.
 Departmentalization by Process 21

 Departments are created on the basis of

specific process.

 Similar activities related to each process

are combined to form specific process
department

 Example: In cloth production

department, the activities are divided on
the basis of process. Such as Spinning,
weaving, dyeing and packing
 Departmentalization by Product 22

 Departments are created on the basis of

Product categories.

 Activities related to specific product

categories are combined into a particular
division.

 Example: Samung produce various type

of electronic products Like AC,
television, Laptop, mobile etc. They
have separate product division for AC,
television, Laptop, mobile etc.
 Departmentalization by Territory 23

 When the division is based on the

geographical area, it is called as
territorial departmentalization.

 This is suitable for the organizations,

that have widespread operations at
different locations.

 Example: Samung produce various type

of electronic products Like AC,
television, Laptop, mobile etc. They
have separate region like northern ,
southern, central for different products
 Meaning of Centralization
In Centralization the decision making authority remains with the top management.

The top management sets rules and procedures which are then communicated to the
lower-level employees, who are expected to follow the instruction coming from the top
management

For example,

In family business, father being the owners decide about the important matters like expansion of business
and all the rest of functions like product, finance, marketing, personnel, are carried out by the department
heads .

The department heads have to act as per instruction and orders of the father (owner). Therefore in this
case, decision making power remain in the hands of father (owner).

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 Meaning of Decentralization
Decentralization is a systematic delegation of authority to middle level and lower
level of management.

The main reason for decentralization is giving authority and responsibility to those
who know best — since they’re closer to stakeholders and have relevant information
available to them.

For example,

a personal banker who maintain customers accounts will be able to handle customer issues much faster
than the Top management

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 Learning organization
A learning organization is an organization that facilitates the learning of its
members and continuously transforms and grow itself.

Peter Senge, defines learning organizations as “organizations that encourage

adaptive and generative learning, encouraging their employees to think outside the
box and work in conjunction with other employees to find the best answer to any
problem.”

Three key aspects of a learning organization

• Learning Environment
• Learning Process & Practices
• Leadership

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