Chapter 2

Managerial Functions and

Organisational Structure

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Managerial Functions
There is a popular misconception surrounding the field of management: that it is merely a matter of
common sense. We want to make it clear that this assumption is far from accurate. When it comes
to the issue of effective management, a significant portion of what is often considered common
sense can be misleading or even incorrect. It might come as a revelation that the academic study of
management is filled with insights derived from extensive research, many of which challenge
conventional wisdom.

Who are Managers and Where Do They Work?

There is no specific model or set of rules determining who can become a manager. In today's world,
managers can range from those under 18 to individuals over 80 years old. They come from diverse
backgrounds, including both women and men and can be found working in various industries and
across all countries. Their roles vary from overseeing entrepreneurial start-ups to managing large
corporations, government agencies, hospitals, museums, schools, and non-profit organisations.
Some hold high-level executive positions, while others serve as supervisors or team leaders.
However, regardless of their roles, all managers have one key thing in common: they operate within
an organisational framework. An organisation is essentially a purposeful assembly of individuals
brought together to achieve specific goals.

Three characteristics of organisations

Regardless of their nature, all organisations share three fundamental characteristics. The first
defining feature of an organisation lies in its clear-cut purpose, usually outlined as a specific goal or
a set of objectives. The second distinctive aspect is the active commitment of its members to attain
these goals. This commitment is realised through decision-making and active involvement in work
tasks aimed at turning these desired objectives into a reality. Lastly, the third essential characteristic
is the organisation's structured framework, which establishes and regulates the conduct of its
members. Within this structure, rules, regulations, and policies often serve as guiding principles that
delineate permissible actions, while some members assume supervisory roles over others. Work
teams may be established or dissolved, and job descriptions can be formulated or modified to clarify
the responsibilities of organisational members. This structured environment provides the backdrop
against which managers carry out their managerial functions.

How are managers different from non-managerial employees?

In organisations, not everyone is a manager, as we can classify members into two main groups for
simplicity: non-managerial employees and managers. Non-managerial employees are individuals
who work directly on specific jobs or tasks without the responsibility of supervising others. These
employees may go by various titles, such as associates, team members, contributors, or even
employee partners.

On the other hand, managers are the individuals within an organisation tasked with guiding and
supervising the activities of other people to achieve the organisation's goals. A manager's primary
focus is not on personal achievement, but rather on assisting others in their work. This can involve
various roles, such as coordinating the efforts of a departmental team, leading the entire
organisation, or overseeing an individual's work. It may also entail coordinating work across different
departments or even with external parties, like contract employees or those working for the
organisation's suppliers.

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However, it is important to note that this distinction does not mean managers never engage in direct
task-related work. In some cases, managers may also have job responsibilities unrelated to
supervising others.

What titles do managers have?

Identifying the managers within an organisation should not be a complex task, as their roles,
although bearing various titles, can be broadly categorised into several key roles. These managerial
roles encompass top, middle, first-line, and team leaders.

Top managers occupy positions at or near the pinnacle of the organisational hierarchy. They wield
significant influence in shaping the organisation's direction, establishing policies, and defining
values that impact all organisation members. Titles commonly associated with top managers
include vice president, president, chancellor, managing director, chief operating officer (COO), chief
executive officer (CEO), or chairperson of the board.

Middle managers, situated between the top and lower levels of the organisation, play a pivotal role.
They often oversee other managers and may also supervise non-managerial employees. Middle
managers are responsible for translating the overarching goals set by top managers into specific,
actionable plans that lower-level managers can implement. Titles for middle managers can
encompass department or agency head, project leader, unit chief, district manager, division
manager, or store manager.

First-line managers assume the crucial role of directing the day-to-day activities of non-managerial
employees and/or team leaders. They are commonly referred to as supervisors, shift managers,
office managers, department managers, or unit coordinators.

It is worth highlighting the emergence of a specialised managerial role, particularly as organisations

increasingly utilize employee work teams. Team leaders are individuals entrusted with the
responsibility of guiding and facilitating the activities of a work team.

What is management?
In simple terms, management essentially encompasses the actions carried out by managers.
However, this straightforward statement does not provide a comprehensive understanding. A more
insightful explanation is that management entails the process of accomplishing tasks efficiently and
effectively, leveraging the efforts of others. To gain deeper insight, let's examine some key elements
within this definition.

Firstly, "process" refers to a series of ongoing and interconnected activities. In the context of
management, it pertains to the primary functions that managers perform—a topic we will delve into
further in the next section.

In their pursuit of innovation, managers aim to enhance both efficiency and effectiveness while
meeting the expectations of environmentally conscious younger consumers. Efficiency and
effectiveness are intertwined with how work is conducted and its outcomes. Efficiency entails
performing tasks correctly ("doing things right") and achieving optimal results with minimal
resources, given that managers often grapple with limited inputs such as people, finances, and
equipment.

However, being merely efficient does not suffice. Managers also prioritise the completion of
essential work activities, a concept referred to as effectiveness. Effectiveness entails "doing the right
things" by focusing on tasks that contribute to the organisation's goals. While efficiency relates to

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the means of accomplishing objectives, effectiveness revolves around achieving organisational
goals—the ends.

These principles can manifest through diverse managerial approaches.

Four functions approach

It is stated that managers perform specific activities, duties, or functions while guiding and
supervising the work of others. Here is what Fayol identified as the actions managers undertake: He
was the first to outline five common managerial activities, often abbreviated as POCCC, which
encompass planning, organising, commanding, coordinating, and controlling. In contemporary
management theory, these functions have been condensed into four activities: planning, organising,
leading, and controlling, often referred to as POLC.

Management roles approach

This perspective emphasises that managers take on certain "roles" as they oversee others.
Mintzberg, in particular, delineated and defined various managerial roles—distinct categories of
actions or behaviours expected of a manager. To grasp the concept of a "role," think about the
different roles you assume in your life, such as being a student, employee, volunteer, member of a
swim team, boyfriend/girlfriend, sibling, and so on, and the associated expectations and
responsibilities in each of those roles.

Skills and competencies approach

This approach focuses on the skills and competencies that managers require when overseeing
others. Researchers in this area have identified four fundamental management skills, which include:

• Conceptual skills: The ability to analyse and diagnose complex situations to understand
how various elements fit together and to facilitate sound decision-making.
• Interpersonal skills: Proficiency in collaborating effectively with individuals and groups by
means of communication, motivation, mentoring, delegation, and other interpersonal
interactions.
• Technical skills: Job-specific knowledge, expertise, and techniques essential for executing
work tasks. Depending on their managerial level, this may encompass industry knowledge
and a general understanding of organisational processes and products for top-level
managers, or specialised knowledge within their respective functional areas (e.g., finance,
human resources, marketing, computer systems, manufacturing, information technology)
for middle- and lower-level managers.
• Political skills: The capacity to build a power base and establish valuable connections to
secure necessary resources for their teams.
• Other critical managerial competencies encompass decision-making, team building,
decisiveness, assertiveness, politeness, personal responsibility, trustworthiness, loyalty,
professionalism, tolerance, adaptability, creative thinking, resilience, listening, and self-
development.

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Leader vs. manager
There are obvious similarities for leaders and managers as both of them focus on people by
motivating them to achieve the organisational goals. And both of them should balance between
efficiency and effectiveness. But let’s look at the differences that can more easily lead to their
understanding.

Managers focus on the present, which is accompanied by a strong desire for stability. Leaders look
in the future, often not respecting the status quo at all. Because of this, they also think in the long
term, where vision plays an important role. They offer an attractive picture of the future which can
stimulate colleagues to reach that status. For its creation, they ask why and what. Managers typically
think in the short-run (which could also be several, but not more than 5 years), and they tend to keep
and operate by the procedures. Supporting these practices, they are prone to operate with what and
how when they are taking questions just to ensure a high level of control. For operating within this
framework, they also use well-established practices, but can also imitate. On the contrary, leaders
are often originating and looking for new ideas. This is accompanied by a strong ability to delegate.
This results in having the necessary time to let work (and trust) their intuition, which also means
simplification even if looking at the broader context by not respecting the organisational boundaries.
Managers love complexity, which can be seen through only by a rational and clever mind. This is
also supporting their need for control. Typically, they think within the organisation, not considering
any further elements.

At the end of the list, we should just look at the elements of the leaders and managers and keep in
mind that these are characteristics and behaviours which can be used to describe an extreme and
pure status of management and leadership-related tasks. In reality, they do not exist in such a
distinguished form, but there are people who rather work along with the manager’s approach and do
not feel happy and confident in a leader’s approach and vice versa, there are people preferring the
leader approach who dislike the manager-related operations and situations.

The aspects influencing the managerial job

Until now, we have approached the role of a manager as if it were a universally applicable task. If
management were indeed a universally generic discipline, then the responsibilities of a manager
should remain consistent whether they hold a top-level executive position or serve as a first-line
supervisor, whether they work in a business firm or a government agency, whether it is within a large
corporation or a small business, and whether they are situated in different cities. But is this the
reality? Let's take a closer look to find out.

Level in the organisation

As managers ascend the organisational hierarchy, their roles tend to shift. They progressively
engage in more planning and gradually reduce their direct supervision of others. Regardless of their
managerial level, all managers are decision-makers. They engage in the fundamental functions of
planning, organising, leading, and controlling, but the allocation of time to each of these activities
can vary. Moreover, the focus of these managerial functions evolves with the manager's level. For
example, top-level managers concern themselves with designing the organisation's overall structure,
while lower-level managers concentrate on crafting the roles of individual employees and work
groups.

Profit versus not-for-profit

Managers across different types of organisations share common managerial responsibilities such
as decision-making, goal-setting, establishing effective organisational structures, recruitment,

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motivation of employees, ensuring the organisation's legitimacy, and building internal political
support for programme implementation. However, a significant distinction lies in how performance
is measured. In the business realm, profit, often referred to as the "bottom line," serves as a clear
and unambiguous measure of organisational effectiveness. In contrast, not-for-profit organisations
lack such a universally applicable measure, making performance evaluation more complex.
Nevertheless, this does not imply that financial considerations can be disregarded in not-for-profit
organisations, as they also need financial resources to sustain their operations. However, their
primary focus is not on generating profits for owners.

Size of organisation
Defining a small business lacks universal consensus because various criteria, such as the number
of employees, annual sales, or total assets, are used for classification. For our purposes, we will
characterise a small business as an independent entity with fewer than 250 employees, which may
not necessarily engage in innovative practices and has relatively modest influence within its industry.

Is the role of managing a small business distinct from that of managing a large one? Yes, there do
appear to be some differences. The fundamental role of a small business manager often revolves
around acting as a spokesperson. They devote substantial time to outward-facing actions, such as
negotiating with customers, securing financing from bankers, exploring new opportunities, and
fostering change. Conversely, managers in large organisations predominantly focus on internal
matters—deciding the allocation of available resources among organisational units.

Consequently, the entrepreneurial role, which entails seeking business opportunities and planning
for performance enhancement, seems to be less significant for managers in large firms, particularly
among first-level and middle managers.

Compared to their counterparts in larger organisations, small business managers are more likely to
adopt a generalist approach. Their roles encompass activities similar to those of a large
corporation's chief executive, coupled with many day-to-day responsibilities typically undertaken by
a first-line supervisor. Furthermore, the rigid structures and formality that characterise management
in larger organisations tend to give way to informality in smaller firms. Planning is often less
formalised, and organisational design is more straightforward and less structured. In small
businesses, control relies more on direct observation and less on sophisticated computerised
monitoring systems.

In essence, managers in both small and large organisations perform similar core activities, but the
manner in which they execute these activities and the distribution of their time among them differ.

Management concepts and national borders

The final overarching concern revolves around whether management concepts can be universally
applied across national boundaries. If these managerial concepts were entirely generic, they would
be applicable in any country worldwide, irrespective of economic, social, political, or cultural
disparities. However, studies comparing managerial practices across countries have generally not
provided strong support for the universality of management concepts.

Factors reshaping and redefining management

In the contemporary world, managers are grappling with shifting workplace dynamics, a
transforming workforce, evolving technology, and global uncertainties. Managers worldwide are
increasingly compelled to navigate these changing circumstances, resulting in an evolution in the

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way they manage. We wish to emphasise four specific areas that hold fundamental significance for
organisations and managers globally: customers, innovation, social media, and sustainability.

Customers in the managerial job

Customers are the lifeblood of most organisations, and their absence would render many entities
unsustainable. Traditionally, customer orientation has often fallen upon the shoulders of marketing
professionals. However, a growing trend underscores the significant impact of employee attitudes
and behaviours on customer satisfaction. Consider examples where an employee has either poorly
or exceptionally well treated you during a service encounter and how it influenced your perception
of the situation. Managers now recognise that delivering consistent, high-quality customer service
is indispensable for survival and success in today's fiercely competitive landscape. This recognition
extends the understanding that employees constitute an integral part of this equation. The
implication is clear: managers must cultivate a customer-responsive organisational culture where
employees are characterised by friendliness, courtesy, accessibility, knowledge, promptness in
addressing customer needs, and a willingness to go the extra mile to ensure customer satisfaction.

Innovation in the managerial job

Success in contemporary business depends on the ability to innovate. Innovation entails challenging
the status quo, exploring uncharted territory, and embracing calculated risks. Importantly, innovation
is not the exclusive task of high-tech or technologically advanced organisations; it is a requisite for
organisations of all types, sizes, levels, and domains. In the current landscape, fostering creativity is
not limited to innovative projects and start-ups but extends to various aspects of business, including
fundraising, publishing, and distribution. Given the challenges of today's environment, innovation
emerges as a critical imperative, necessitating managers to comprehend the what, when, where,
how, and why of fostering and promoting innovation throughout their organisations. Managers are
not only expected to cultivate personal innovation but also to nurture innovation among their
employees.

Importance of social media to the managerial job

You probably cannot envision a time when employees carried out their tasks without email or
Internet access. Nevertheless, about 20 years ago, as these communication tools were becoming
increasingly prevalent in workplaces, managers faced the challenges of establishing guidelines for
their usage. Today, the focus has shifted to social media, which are electronic communication
platforms wherein users form online communities to share ideas, information, personal messages,
and other content. Social platforms like Facebook, Twitter (X), LinkedIn, Tumblr, Instagram, and
others boast over a billion users. Furthermore, employees are not limited to using them during their
personal time but also for work-related purposes. Consequently, managers once again find
themselves wrestling with the development of guidelines for employee usage as they navigate the
potential advantages and problems of social media.

An increasing number of businesses are turning to social media not only to connect with customers
but also to manage their human resources and harness innovation and talent. This underscores the
potential power of social media. However, the potential dangers lie in how it is utilised. When social
media platforms serve as platforms for self-lauding employees to post about their achievements,
for managers to disseminate one-way messages to employees, or for employees to engage in
disputes or vent complaints about work-related issues, their utility decreases. To avoid this,
managers must recognise that social media is a tool that necessitates effective management to
yield benefits. While it is premature to draw definitive conclusions, it appears that managers who
actively engage with the system are achieving better store sales revenues than those who do not.

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Sustainability in the managerial job
The concept of sustainable management is emerging in the twenty-first century, which has
broadened corporate responsibility beyond efficient and effective management to strategic
responses to a wide array of environmental and societal challenges. Although "sustainability"
may have varying interpretations, the World Business Council for Sustainable Development
envisions a world where all inhabitants can lead fulfilling lives with adequate resources. From
a business perspective, sustainability is defined as a company's capacity to attain its business
objectives and enhance long-term shareholder value by integrating economic, environmental,
and social opportunities into its business strategies. Sustainability issues are gaining greater
emphasis on the business agenda. Managers at global corporations recognise that running
an organisation in a more sustainable manner necessitates making informed business
decisions based on (1) transparent communication with various stakeholders and an
understanding of their needs and (2) the incorporation of economic, environmental, and social
considerations into their pursuit of business objectives.

The organisational structure

In this chapter, we present the fundamentals of the organising function of management. We
define the concepts and their key components and explore how managers employ them to
create a structured environment in which organisational members can perform their tasks
efficiently and effectively. Once the organisation's goals, plans, and strategies are established,
managers must develop a structure that facilitates the achievement of those goals and
provides a framework for individuals to work optimally.

The six key elements in organisational design

Organising is described as the managerial function that determines what needs to be
accomplished, how it will be carried out, and who will be responsible for it; essentially, the
function that shapes the structure of the organisation. When managers establish or modify
the organisation's structure, they engage in organisational design. This process entails
making decisions about the level of job specialisation, the rules governing employee conduct,
and the level at which decisions are to be made. While organisational design decisions are
typically made by top-level managers, it is crucial for everyone involved to comprehend the
process. Why? Because each of us operates within some form of organisational structure, and
it is imperative to understand how and why things are accomplished. Furthermore, given the
evolving business landscape and the necessity for organisations to adapt, it is prudent to
grasp what future structures may entail—these will be the environments in which you will work.

Few management topics have experienced as much evolution in recent years as organising
and organisational structure. Managers are re-evaluating traditional approaches and exploring
new structural designs that best support and facilitate employees in carrying out the
organisation's work—designs that can achieve efficiency while maintaining flexibility.

The foundational concepts of organisational design, originally formulated by management

pioneers such as Henri Fayol and Max Weber, offered managerial guidelines to adhere to.
More than a century passed since many of these principles were first proposed. Given the
significant passage of time and the substantial changes that have occurred, one might
assume that these principles are largely obsolete today. Surprisingly, they remain valuable,
providing insights into the creation of effective and efficient organisations. However, it is
essential to acknowledge the limitations that have been identified over the years. In the

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following sections, we explore the six fundamental elements of organisational structure: work
specialisation, departmentalisation, authority and responsibility, span of control,
centralisation versus decentralisation, and formalisation.

Work specialisation
Work specialisation involves the division of work activities into distinct job tasks. (This is also
known as the division of labour.) Individual employees "specialise" in performing specific
portions of a task rather than the entire task, thereby increasing overall work output.

Work specialisation enables organisations to efficiently harness the diverse skills possessed
by their workers. In most organisations, certain tasks require highly developed skills, while
others can be executed by employees with lower skill levels. If all workers were engaged in
every step of a given process, they would need the skills necessary for both the most
demanding and the least demanding aspects of the task. Consequently, unless performing
the most highly skilled or sophisticated tasks, employees would be working below their skill
levels. Additionally, skilled workers receive higher compensation than unskilled workers, and
because wages tend to be set according to the highest skill level required, all workers would
receive highly skilled wages for performing simple tasks—an inefficient allocation of
resources. This concept explains why you rarely find a cardiac surgeon suturing a patient after
surgery; instead, surgical residents, who are learning the skill, typically handle that part of the
procedure.

Early advocates of work specialisation believed it could lead to significant increases in

productivity. At the beginning of the twentieth century, this generalisation was justified. As
specialisation was not yet widespread, its introduction almost always resulted in enhanced
productivity. However, it is possible to have too much of a good thing. At a certain point, the
human drawbacks—boredom, fatigue, stress, reduced productivity, lower quality, increased
absenteeism, and high turnover—outweigh the economic advantages.

Most contemporary managers view work specialisation as an important organising

mechanism because it promotes employee efficiency. Consider this when evaluating potential
job opportunities. Do you envision yourself thriving in a highly specialised role, or do you prefer
a variety of tasks?

Departmentalisation
Early management theorists argued that once decisions were made regarding which job tasks
would be performed by individuals, it was necessary to regroup common work activities to
ensure coordinated and integrated work processes. The way jobs are grouped together is
referred to as departmentalisation. There exist five common forms of departmentalisation,
though an organisation may adopt its own unique classification. The early theorists did not
advocate any single method of departmentalisation; rather, the chosen method or methods
would depend on what best contributed to the organisation's goals and the needs of individual
units.

One of the most widely used methods of grouping activities is functional

departmentalisation, which is based on the functions performed. For instance, a
manager might organise the workplace by segregating engineering, accounting,
information systems, human resources, and purchasing specialists into separate
departments. Functional departmentalisation can be applied in all types of
organisations, with only the functions adjusting to align with the organisation's

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 objectives and activities. The major advantage of functional departmentalisation lies
in achieving economies of scale by consolidating individuals with shared skills and
specialisations into common units.
Product departmentalisation focuses on major product areas within the corporation.
Each product falls under the authority of a senior manager, who is a specialist
responsible for all aspects of the product line. In the case of service-oriented
organisations, autonomous groupings would be created based on the services
provided. The advantage of product grouping lies in enhancing accountability for
product performance since all activities related to a specific product are overseen by
a single manager.
Employee grouping can also be dictated by the specific type of customer an organisation
aims to serve. For example, in an office supply firm, sales activities can be divided
into departments catering to retail, wholesale, and government customers. A large
law office can segment its staff based on whether they serve corporate or individual
clients. The logic behind customer departmentalisation is that customers within each
department share a common set of issues and needs that are best addressed by
specialists.
Geographic departmentalisation, on the other hand, groups activities based on
geography or territory. For example, the sales function may be divided into western,
southern, Midwestern, and eastern regions. This form of departmentalisation can be
particularly valuable when an organisation's customers are spread across a large
geographic area.
The final form is process departmentalisation, which groups activities based on
workflow or customer flow. This approach is commonly found in government offices
or healthcare clinics. Units are structured around the common skills required to
complete a specific process.

While most large organisations continue to employ the departmentalisation methods

proposed by early management theorists, many are also adopting cross-functional teams.
These teams consist of individuals from various departments and transcend traditional
departmental boundaries. Cross-functional teams have proven particularly valuable as tasks
have grown more complex and diverse skills are required to accomplish them.

Furthermore, in today's competitive landscape, management's focus has shifted towards

customers. Many organisations are placing greater emphasis on customer
departmentalisation to better monitor customer needs and respond to evolving requirements.

Authority and responsibility

To comprehend authority and responsibility, it is essential to be familiarised with the chain of
command – the hierarchical structure of authority extending from upper organisational levels
to lower ones, which clarifies reporting relationships. Managers must consider this aspect
when organising work, as it assists employees in determining questions like "Who is my
immediate supervisor?" or "Who should I approach if I encounter a problem?" So, what
precisely do authority and responsibility entail?

Authority means the inseparable rights vested in a managerial position to issue orders and
expect compliance. Early management theorists regarded authority as the glue holding an
organisation together. It was delegated down the hierarchy to lower-level managers, granting

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them specific rights while delineating limits within which they could operate. Each
management position carried distinct inherent rights acquired by the position's rank or title.
Consequently, authority is linked to an individual's position within the organisation and bears
no relation to an individual manager's personal traits. When a position of authority becomes
vacant, the departing individual loses the authority, which is then transferred to the position
and its new occupant.

When managers delegate authority, they must concurrently allocate corresponding

responsibility. In other words, when employees are granted rights, they also assume an
associated obligation to perform – and they will be held accountable for their performance.
Delegating authority without assigning responsibility and accountability creates opportunities
for misuse. Conversely, no individual should be held responsible or accountable for something
over which they hold no authority.

Early management theorists differentiated between two forms of authority: line authority and
staff authority. Line authority empowers a manager to direct an employee's work. It
constitutes the employer-employee authority relationship extending from the organisation's
upper segments to the lowest level, as dictated by the chain of command. As a link in this
chain, a manager with line authority possesses the right to oversee employees' work and make
certain decisions without seeking external input. Nevertheless, within the chain of command,
every manager remains subject to the directives of their superior.

It is worth noting that at times, the term "line" is employed to distinguish line managers from
staff managers. In this context, "line" pertains to managers whose organisational function
directly contributes to achieving organisational objectives. For instance, within a
manufacturing firm, line managers usually occupy roles in production and sales functions,
whereas human resources and payroll managers are considered staff managers possessing
staff authority. Whether a manager's function is classified as line or staff, it depends on the
organisation's objectives.

As organisations grow larger and more complex, line managers may find themselves lacking
the time, expertise, or resources to effectively fulfil their roles. Consequently, they establish
staff authority functions to provide support, assistance, guidance, and, in general, alleviate
some of their informational burdens. For instance, a hospital administrator who cannot
efficiently manage the procurement of all necessary supplies may establish a purchasing
department as a staff department. Naturally, the head of the purchasing department exercises
line authority over the purchasing agents under their supervision.

An employee reporting to two or more superiors may encounter conflicting demands or

priorities. Hence, early management theorists believed that each employee should report to
only one manager, a principle referred to as unity of command. In cases where unity of
command had to be violated, a clear separation of activities and the designation of a
supervisor for each task were always explicitly specified.

Unity of command was a logical guideline when organisations were relatively simple. In some
circumstances, it remains sound advice, and organisations continue to comply with it.
However, advancements in technology have granted access to organisational information
previously accessible only to top managers. Moreover, employees can engage with anyone
else within the organisation without going through the formal chain of command.
Consequently, strict compliance with unity of command, in some cases, imposes a level of

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inflexibility that hampers an organisation's performance and its ability to adapt to changing
circumstances.

Early management theorists considered authority an important concept, presuming that the
inherent rights associated with an individual's formal position within an organisation were the
primary source of influence. They believed managers possessed absolute power, a concept
that might have held true 60 – or even 30 – years ago when organisations were more
straightforward, staff less critical, and managers less dependent on technical specialists.
Under such conditions, influence was synonymous with authority, and the higher an
individual's position within the organisation, the greater their influence. Nevertheless, these
conditions no longer hold. Contemporary management researchers and practitioners
acknowledge that one need not occupy a managerial role to wield power, and power is not
perfectly correlated with one's organisational level.

Authority is a significant concept within organisations, but an exclusive focus on authority

presents a narrow, unrealistic perspective on influence. Today, we acknowledge that authority
represents merely one facet within the broader concept of power.

Authority and power are often used interchangeably, yet they differ. Authority entails rights
and derives legitimacy from an individual's position in the organisation. Authority is inherent
to the role. Power, on the other hand, pertains to an individual's capacity to influence
decisions. While authority forms part of the overarching concept of power, formal rights
stemming from an individual's position within the organisation constitute just one means by
which an individual can influence the decision-making process.

Span of control
To comprehend how effectively and efficiently a manager can oversee their employees, one
must delve into the concept of "span of control." This matter earned substantial attention from
early management scholars. While they never arrived at a definitive figure, the prevailing
preference leaned towards small spans, typically accommodating no more than six workers,
to facilitate close supervision. Nevertheless, some early theorists acknowledged that the
managerial level within the organisation was a contingent factor. They argued that as
managers ascend the organisational hierarchy, they confront a greater number of
unstructured problems. Consequently, top-level managers require a narrower span compared
to middle managers, and middle managers need a narrower span than supervisors. Over the
past decade, theories on effective spans of control have undergone some transformation.

Numerous organisations are broadening their spans of control. Determining the most
effective and efficient span of control now hinges on assessing contingency variables. The
different types of power are listed as follows:

Coercive power: Power based on fear.

Reward power: Power based on the ability to distribute something that others value.
Legitimate power: Power based on one's position in the formal hierarchy.
Expert power: Power based on one's perceived expertise, special skill, or knowledge.
Referent power: Power based on identification with a person who has desirable
resources or personal traits.

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Centralisation and decentralisation
When organising, one fundamental question is: "At which level should decisions be made?"
Centralisation pertains to the extent of decision-making occurring at upper organisational
levels, while decentralisation signifies the extent to which lower-level managers contribute
input or make decisions. Centralisation and decentralisation represent a continuum, not a
binary choice. Virtually no organisation is entirely centralised or decentralised. Overly
centralised decision-making, with only a selected few individuals having authority, or
excessively decentralised decision-making, where all decisions are pushed down to the level
closest to the issues, would render an organisation ineffective. Thus, it is crucial to examine
how centralisation was perceived by early management scholars and how it manifests in
today's context.

Early management scholars contended that centralisation within an organisation was

contingent upon specific circumstances, aiming for the optimal and efficient utilisation of
employees. In traditional hierarchies, power and authority predominantly resided at the
uppermost tier. Nevertheless, contemporary organisations have grown more intricate and
responsive to dynamic environmental changes. Consequently, many managers now argue for
decisions to be made by those closest to the issues, irrespective of their organisational rank.
In fact, over the past few decades, there has been a trend towards greater decentralisation in
organisations. Today, managers often select the degree of centralisation or decentralisation
that aligns best with the implementation of their decisions and the achievement of
organisational objectives. The suitable level of decentralisation varies among organisations
and their constituent work units. Empowering employees, allowing them the authority to make
decisions affecting their work and revise their approach, incorporates decentralisation.
However, it does not imply that top-level managers abandon decision-making entirely.

Formalisation
Formalisation refers to the extent to which an organisation standardises job roles and dictates
employee behaviour through rules and procedures. Highly formalised organisations result in
explicit job descriptions, numerous organisational regulations, and well-defined procedures
governing work processes. Employees possess limited discretion regarding what, when, and
how tasks are performed. Nonetheless, organisations today often rely less on rigid regulations
and standardisation to direct and regulate employee behaviour. Although a degree of
formalisation is necessary for consistency and control, many organisations have allowed
employees a degree of autonomy, granting them the freedom to make decisions that they
think best, given the circumstances. This does not entail discarding all organisational rules,
as some rules are crucial and should be explained to employees so they understand their
significance. However, employees may be afforded flexibility with other rules.

The two big types of formalisation are as follows:

Mechanistic organisation (or bureaucracy)

Rigid and tightly controlled structure

Combines traditional aspects of all six elements of organisational structure
High specialisation
Rigid departmentalisation
Clear chain of command

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Organic organisation

• Highly adaptive and flexible structure

• Collaboration (both vertical and horizontal)
• Adaptable duties
• Few rules
• Loose structure allows for rapid adjustment to change

Whilst some formalisation is necessary for consistency and control, many organisations
today rely less on strict rules and standardisation to guide and regulate employee behaviour.
For instance, consider the following situation. A customer enters a branch of a large national
parcel delivery chain and drops off a parcel for same-day shipping minutes after the store's
closing time. Although the counter clerk knows he is supposed to follow the rules, he also
knows he could process and dispatch the parcel without any issue and wishes to
accommodate the customer. So, he accepts the parcel and hopes that his manager will not
find out. Did this employee do something wrong? He did "break" the rule. But by "breaking" the
rule, he actually generated revenue and provided good customer service.

Given that there are numerous situations where rules may be too restrictive, many
organisations have allowed employees some latitude, granting them sufficient autonomy to
make those decisions that they consider best under the circumstances. It does not mean
discarding all organisational rules because there will always be rules that are important for
employees to adhere to—and these rules should be explained so employees understand why
it is essential to comply with them. However, for other rules, employees may be given some
leeway.

Types of organisational design

When making structural decisions, managers have a range of common designs to choose
from, including both traditional and more contemporary options. In the process of designing
an organisational structure, managers may opt for one of the traditional organisational
designs. These structures, namely simple, functional, and divisional, tend to have a more
mechanistic character.

Simple structure
Most companies in their early stages start as entrepreneurial ventures employing a simple
structure. This organisational design features low departmentalisation, wide spans of control,
centralised authority vested in a single person, and minimal formalisation. The simple
structure is primarily employed in smaller businesses, and its advantages are evident. It is
quick, flexible, cost-effective to maintain, and fosters clear accountability. Nevertheless, as an
organisation expands, it becomes increasingly inadequate because of its limited policies and
high centralisation, leading to information overload at the top. As the organisation grows,
decision-making slows down and may eventually grind to a halt as the sole executive struggles
to handle all decisions. Without adapting the structure to its size, the company can lose
momentum and eventually face failure. Another drawback of the simple structure is its
inherent risk, as everything depends on a single individual. In most cases, as small businesses
grow, they evolve away from simple structures. The structure tends to become more
specialised and formalised, introducing rules, specialisation of work, departmental divisions,
additional management levels, and increased bureaucracy. Two of the most widely adopted

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bureaucratic design options originate from functional and product departmentalisations and
are referred to as functional and divisional structures.

Functional structure
A functional structure is an organisational design that groups similar or related occupational
specialities together. This structure essentially applies functional departmentalisation to the
entire organisation. For instance, a Ltd. can organise its operations around functions such as
operations, finance, human resources, and product research and development.

The strength of the functional structure lies in the benefits derived from work specialisation.
Grouping similar specialities leads to economies of scale, reduces redundancy in personnel
and equipment, and provides employees with a sense of comfort and satisfaction as they can
communicate more effectively with their peers. However, the most apparent weakness of the
functional structure is that the organisation often loses sight of its broader interests while
pursuing functional objectives. No single function is entirely accountable for outcomes,
leading to isolation and limited understanding among members of different functions.

Divisional structure
The divisional structure is an organisational design form comprising separate business units
or divisions. In this structure, each division enjoys a degree of autonomy, with a division
manager holding authority over their unit and being accountable for its performance. However,
in divisional structures, the parent corporation typically functions as an external overseer to
coordinate and oversee the various divisions, often providing support services like financial
and legal assistance.

The primary advantage of the divisional structure is its focus on results. Division managers
bear full responsibility for a product or service, allowing headquarters staff to shift their
attention from day-to-day operational details to long-term strategic planning. On the other
side, the major drawback of the divisional structure is the duplication of activities and
resources. Each division, for example, may maintain its own marketing research department.
If centralised, an organisation's marketing research could be carried out at a fraction of the
cost required by divisionalisation. Consequently, the duplication of functions in the divisional
structure increases organisational costs and reduces efficiency.

Team structure
A team structure is one where the entire organisation is composed of work teams responsible
for the organisation's tasks. In this setup, employee empowerment holds significant
importance since there is no strict managerial hierarchy from top to bottom. Instead,
employee teams are responsible for designing and performing work in the best way they think
while being held accountable for all work performance outcomes in their respective areas. In
larger organisations, the team structure often complements the more common functional or
divisional structure. This enables the organisation to maintain the efficiency of a bureaucratic
system while also providing the flexibility of teams.

However, merely organising employees into teams is insufficient. Employees need to undergo
training to work effectively in teams, receive cross-functional skills training, and be
remunerated accordingly. Without a properly implemented team-based compensation plan,
many of the advantages of a team structure may be lost.

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Matrix and project structures
In addition to team-based structures, other contemporary designs gaining popularity are the
matrix and project structures. The matrix structure assigns specialists from various functional
departments to work on projects under the leadership of a project manager. Once employees
complete their work on an assigned project, they return to their functional departments. A
distinctive feature of this design is the creation of a dual chain of command because
employees in a matrix organisation have two managers: their functional area manager and
their product or project manager, who share authority. The project manager has authority over
the functional members within their project team in matters related to the project's objectives.
However, decisions regarding promotions, salary recommendations, and annual reviews
typically remain the responsibility of the functional manager. Effective communication and
coordination between both managers are essential for the matrix to work efficiently.

The primary strength of the matrix lies in its ability to facilitate the coordination of multiple
complex and interdependent projects while still benefiting from the economies achieved by
grouping functional specialists together. However, the major drawbacks of the matrix are the
confusion it can generate and the potential for power struggles. By dispensing with the
principles of a clear chain of command and unity of command, ambiguity is significantly
increased. Confusion may arise about reporting lines of authority and or power, leading to
power struggles.

Instead of a matrix structure, many organisations are adopting a project structure where
employees continuously work on projects. Unlike the matrix structure, a project structure lacks
formal departments where employees return upon project completion. Instead, employees
apply their specific skills, abilities, and experiences to other projects. Additionally, all work in
project structures is carried out by teams of employees.

Project structures are often more flexible organisational designs.

Advantages:

• Rapid deployment of employees in response to environmental changes.

• Absence of departmentalisation or a rigid organisational hierarchy that could slow
down decisions or actions.
• Managers functioning as facilitators, mentors, and coaches, working to eliminate or
minimize organisational obstacles and ensuring that teams have the necessary
resources to complete their work effectively and efficiently.

Disadvantages:

• Complexity of assigning people to projects.

• Inevitable task and personality conflicts that arise.

Boundaryless organisation
Another contemporary organisational design is the boundaryless organisation, an
organisation whose structure is not constrained by horizontal, vertical, or external boundaries
imposed by a predefined framework. Although the concept of eliminating boundaries may
seem unusual, many of today's most successful organisations find that they operate most
effectively by remaining flexible and unstructured, without a rigid and predefined structure.

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Boundaries can be categorised into two types: (1) internal boundaries—horizontal boundaries
imposed by work specialisation and departmentalisation, and vertical boundaries that
separate employees into organisational levels and hierarchies; and (2) external boundaries—
those separating the organisation from its customers, suppliers, and other stakeholders. To
minimise or eliminate these boundaries, managers might employ virtual or network structural
designs. A virtual organisation comprises a small core of full-time employees and outside
specialists hired temporarily as needed for project work.

Another structural option for managers seeking to minimise or eliminate organisational

boundaries is a network organisation. In this approach, the organisation uses its own
employees for certain work activities and relies on networks of external suppliers for other
product components or work processes. Manufacturing firms sometimes refer to this
organisational form as a modular organisation. This structural approach allows organisations
to focus on their core strengths by outsourcing other activities to companies specialising in
those areas. Many companies are adopting this approach for specific organisational work
activities.

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Chapter 2 - Key expressions

Expression Meaning Expression Meaning

(Hungarian) (Hungarian)
tekintély, hatalom,
authority middle managers középvezetők
felhatalmazás
boundaryless nonmanagerial
határtalan szervezet nem vezető dolgozók
organisation employees
organic
chain of command parancsnoki lánc organikus szervezet
organisation
coercive power kényszerítő hatalom organisation szervezet
tervezési
conceptual skills organisation design szervezeti felépítés
képességek
keresztfunkcionális
cross-functional teams organising szervezés
csoportok
customer
vevői szervezési elv political skills politikai képességek
departmentalisation
decentralisation decentralizáció power hatalom
munkaszervezés process folyamat alapú
departmentalisation
elve departmentalisation szervezési elv
divizionális product termék alapú
divisional structure
szervezet departmentalisation szervezési elv
effectiveness hatásosság referent power referencia hatalom
efficiency hatékonyság reward power jutalmazó hatalom
scientific tudományos
expert power szakértői hatalom
management menedzsment
egyszerű/egyvonalas
first-line managers vonalvezetők simple structure
szervezet
kis- és
formalisation formalizáltság small business
középvállalatok
functional funkcionális
span of control irányítási hatáskör
departmentalisation szervezési elv
funkcionális
functional structure team leaders csoportvezetők
szervezet
geographic terület alapú
team structure team szervezet
departmentalisation szervezési elv
személyközi
interpersonal skills technical skills szakmai képességek
képességek
legitimate power törvényes hatalom top managers felsővezetők
egység/egyedi
management vezetés unit production
termelés
parancsnoki
managers vezetők unity of command
alapegység
munka
matrix structure mátrix szervezet work specialisation
specializációja
mechanistic mechanisztikus
organisation szervezet

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