Management Chapter 4

CHAPTER FOUR

THE ORGANIZING FUNCTION

After the end of this chapter, you will be able to:

 Discuss the fundamental characteristics of organizing, including such concepts as

 work specialization,
 chain of command,
 span of management, and
 Centralization versus decentralization.
 Identify how structure can be used to achieve an organization’s strategic goals.
 Illustrate how organization structure can be designed to fit environmental uncertainty.

4.1. Concept of organizing and organizations

After planning, consequently requires the organizing function in order to arrange important and relevant
resources.

It forces us to address several basic questions:

What specific tasks are required to implement our plans?

How many organizational positions are needed to perform all the required tasks?

How should these positions be grouped?

How many layers of management (organizational levels) are needed to coordinate them?

How many people should a manager supervise directly?

The answers to these and other questions enable us to create an organizational arrangement and a structure, for
putting plans into action.

Organizing is the deployment of organizational resources to achieve strategic goals. The deployment of resources is
reflected in the organization’s division of labor into specific departments and jobs, formal lines of authority, and
mechanisms for coordinating diverse organization tasks. It is a management function that involves arranging human
and non-human (physical) resources to help attain organizational objectives. It is the management function that
establishes relationship between activity and authority. The end result of an organizing process is an organization.
Organizing is important because it follows from strategy.

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4.2. The organizing process has the following steps.

1. Identification/ reviewing of goal

2. Identification of the specific activities task needed to accomplish the goal

3. Grouping of activities necessary to attain objectives

4. Grouping of activities according to their similarities to form department

5. Assigning work and delegating authorities

6. Provision for coordination/Design a hierarchy of relationships

Importance of organizing

 Organizing promotes collaboration. Thus, it improves communication within the organization.

 Organizing sets clear-cut lines of authority and responsibility

 Organizing improves the directing and controlling functions of managers.

 Organizing develops maximum use of time, human, and material resources.

 Organizing enables the organization to maintain its activities coordinated

The organizing process leads to the creation of organization structure, which defines how tasks are divided and
resources deployed. Organization structure is defined as (1) the set of formal tasks assigned to individuals and
departments; (2) formal reporting relationships, including lines of authority, decision responsibility, number of
hierarchical levels, and span of managers’ control; and (3) the design of systems to ensure effective coordination of
employees across departments.

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The characteristics of vertical structure are portrayed in the organization chart, which is the visual representation of
an organization’s structure.

A sample organization chart for a water bottling plant is illustrated below.

Organization Chart for a Water Bottling Plant

The organization chart can tell us

 Who reports to whom (chain of command)

 The number of managerial levels

 The span of control.

 Channel of official communication

 How the organization is structured by function, territory,…

 The work being done in each job

 The hierarchy of decision-making

 Type of authority relationships line authority, staff authority, and functional authority.

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Work Specialization

Organizations perform a wide variety of tasks. A fundamental principle is that work can be performed more
efficiently if employees are allowed to specialize. Work specialization, sometimes called division of labor, is the
degree to which organizational tasks are subdivided into separate jobs. Employees within each department perform
only the tasks relevant to their specialized function. When work specialization is extensive, employees specialize in
a single task. Jobs tend to be small, but they can be performed efficiently. Work specialization is readily visible on
an automobile assembly line where each employee performs the same task over and over again. It would not be
efficient to have a single employee build the entire automobile, or even perform a large number of unrelated jobs.

Despite the apparent advantages of specialization, many organizations are moving away from this principle. With
too much specialization, employees are isolated and do only a single, boring job. Many companies are enlarging
jobs to provide greater challenges or assigning teams so that employees can rotate among the several jobs performed
by the team.

Formal and Informal Organizations

Formal organization

The formal organization represents the classification of activities within the enterprise, indicates who reports to
whom

Characteristics of formal organization

 It is properly planned

 It is based on delegated authority.

 It is deliberately impersonal

 Organizational charts are usually drawn

 Unity of command is normally maintained

 It provides for division of labor.

 The responsibility and accountability at all levels of organization is be clearly defined.

Informal organization

Informal organization is an organizational structure which establishes the relationship on the basis of the likes and
dislikes of officers without considering the rules, regulations and procedures.

Characteristics of informal organization

 Arises voluntarily.

 It is a social structure formed to meet personal needs.

 has no place in the organization chart

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 It acts as an agency of social control.

 can be found on all levels of organization

 The rules and traditions are not written but are commonly followed.

 Develops from habits, conduct, and behavior of social groups.

 Informal organization is one of the parts of total organization

3.3. Major elements of the organizing function

A. Departmentalization
B. Delegation of authority
C. Centralization and decentralization
D. Span of management
A. Departmentalization

Another fundamental characteristic of organization structure is departmentalization, which is the basis for
grouping positions into departments and departments into the total organization. Managers make choices about how
to use the chain of command to group people together to perform their work. Departmentalization is a means of
dividing the large and complex organization into smaller, flexible administrative unit. Department – is a distinct
area division or branch of an organization over which a manager has authority for the performance of specified
activities.

The Bases of Departmentation

The most common bases of departmentation used by organizations are:

1. Functional Departmentation
2. Product Departmentation
3. Geographic / Territorial Departmentation
4. Customer Departmentation
5. Process Departmentation
6. Matrix /project/ and task force
1. Functional Departmentation

Functional structure is the grouping of positions into departments based on similar skills, expertise, work
activities, and resource use. A functional structure can be thought of as departmentalization by organizational
resources, because each type of functional activity—accounting, human resources, engineering, manufacturing—
represents specific resources for performing the organization’s task. People, facilities, and other resources
representing a common function are grouped into a single department.

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Advantages:-

 It is logical, scientific and time-tested method because it groups like or similar activities together which
facilitates specialization. (efficiency is fostered through specialization.)
 It makes supervision easier, since each manager is an expert in only a narrow range of skills.
 Tight control of all functional units is assured, because the top managers are responsible for the end results.
 It simplifies training.

Disadvantage:

 People in a functional department may lose sight of the overall operations of the business; it in turn invites
employees to de-emphasize the overall company objective.
 Workers may develop highly specialized skills, but not general managerial abilities. Consequently,
functional departmentalization is not an ideal training ground for top level managers.
 Although there is strong relationship between within a function, coordination between functions is reduced.
 Sometimes conflict develops among departments as each unit competes for resources.
 The geographic area served; or the type of product or product line produced may require a different type of
departmentation.
 Responsibility for profit is at the top.

Despite its disadvantages, it is widely used by various managers.

2. Product Departmentation

It is the grouping of activities on the basis of product or product line. It is adopted by (commonly used by)
manufacturers who produce and sell a number of product lines made up of several different items; such as drug,
food, clothing, machines, automobiles. etc.

In contrast to the functional approach, in which people are grouped by common skills and resources, the divisional
structure occurs when departments are grouped together based on organizational outputs. The divisional structure is
sometimes called a product structure, program structure, or self-contained unit structure. Each of these terms means
essentially the same thing: Diverse departments are brought together to produce a single organizational output,

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whether it be a product, a program, or a service to a single customer. Most large corporations have separate divisions
that perform different tasks, use different technologies, or serve different customers.

Advantage:

 It enables the enterprise to focus attention effort on product lines, making it easier for to management to see
the efficiency and effectiveness of production determining which product is profitable or not.
 It improves co-ordination between functions relating to a particular product.
 Furnishes measurable training ground for general managers.
 Facilitates use of specialized capital, facilities, skills and knowledge.

Disadvantages:

 Requires more persons with general manager abilities.

 There is an ever-present danger of duplication of activities.
 It presents increased problem of top management control.
3. Departmentation by Geographical Area/Territory

It is often referred to as area or territorial Departmentation, and it groups business activities on the basis of
geographic region or territory, enabling a firm to adapt to local customs and laws and to survey customer more
quickly. It is especially attractive to large-scale firms or other enterprises whose activities are physically or
geographically dispersed.

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Advantages:

 Results in great saving in time and money. The enterprise can benefit from lower freight, lower rents and
lower labor costs. Thus, it takes advantages of economics of local operations (places emphasis on local
markets and operations)
 Places responsibility at lower level (There will be quick decision.)
 Places measurable training ground for general managers.
 Better face to face communication with local interests.

Disadvantages:

 Requires more persons with general manager abilities /it is costly to implement./
 Duplication of effort
 Increase problem of top management control (This is because of having flat span of management.)
Sometimes, the decision to set up geographic departments is based on economic considerations; such as,
transportation costs for raw materials, for distribution, etc.
4. Customer Departmentation

It is the grouping of enterprise activities based on customers' interests. Companies that must provide special services
to different groups set up departments by types of customers, using customer departmentation. For example, a
manufacturer may have both an industrial products division for its industrial customers and consumer products
division for other consumers. An airlines company may make departments its selling departments for travelling
agencies, government passengers, tourists and other customers. Normally, setting up departments by customers is
not a primary form of departmentation.

Advantages:

 Encourages concentration on customer needs

 Giving customers feeling that they have an understanding supplier
 Develops expertise in customer area.

Disadvantage:

 May be difficult to coordinate operations between competing customer demands.

 Requires managers and staff expert in customer's problems
 Customer groups may not always be clearly defined.
 There may be duplication of activities
5. Process or Equipment Departmentation

It is the grouping of enterprise activities according to the products' manufacturing process. This method of
departmentation is logical and used when the machines or equipment used require special skill for
operating and are of large capacity which eliminate organizational diving or have technical facilities
which strongly suggest a concentrated location.

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For example, a textile factory. may be classified in to Spinning, Walling, processing, etc.

 Economic and Technological considerations are the foremost reasons for adopting
process departmentation.
 It is mostly found in production departments.

President

ProductionManager

Spinning Dyeing Weaving Processing

Advantage:

 Achieves economic advantage

 Uses specialized knowledge
 Simplifies training

Disadvantage:

 Coordination of departments is difficult

 It is unsuitable for developing general managers

6. Matrix Departmentation

- It is an organizational arrangement that developed because of the need for quick completion of highly technical
projects that required significant contributions by two or more functional groups.

- It begins with functional stricture and then another structure organized by product or by client /customer or by
project is overlaid upon the original structure.

- The result is that employees are assigned to a basic functional department and, at the same time, they are assigned
to work on a particular product/project or for a particular customer/client.

- The essence of matrix organization normally is the combining of functional and product departmentation in the
same organization structure.

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Advantage

Since there are a number of managers, there are more channels of information

 It is oriented toward end results. (The project objectives are clear.)

 Professional identification is maintained.
 Resources are used efficiently because workers are assigned to different projects as needed and groups or
projects can share equipment.

Disadvantage

 Conflict in organization authority exists (it lends itself to power struggle).

 Possibility of disunity of command exists
 It also /results in higher over head costs because more managerial positions are created.
 Requires manager effective in human relations.
B. Span of Management

The span of management is the number of employees reporting to a supervisor. Sometimes called the span of
control, this characteristic of structure determines how closely a supervisor can monitor subordinates. Research over
the past 40 or so years shows that span of management varies widely and that several factors influence the span.
Generally, when supervisors must be closely involved with subordinates, the span should be small, and when
supervisors need little involvement with subordinates, it can be large.

The following factors are associated with less supervisor involvement and thus larger spans of control:

 Work performed by subordinates is stable and routine.

 Subordinates perform similar work tasks.
 Subordinates are concentrated in a single location.
 Subordinates are highly trained and need little direction in performing tasks.
 Rules and procedures defining task activities are available.
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 Support systems and personnel are available for the manager.

 Little time is required in nonsupervisory activities such as coordination with other departments or planning.
 Managers’ personal preferences and styles favor a large span.

The average span of control used in an organization determines whether the structure is tall or flat. A tall structure
has an overall narrow span and more hierarchical levels. A flat structure has a wide span, is horizontally dispersed,
and has fewer hierarchical levels. Having too many hierarchical levels and narrow spans of control is a common
structural problem for organizations. The result may be routine decisions that are made too high in the organization,
which pulls higher-level executives away from important long-range strategic issues, and it limits the creativity and
innovativeness of lower-level managers in solving problems. The trend in recent years has been toward wider spans
of control as a way to facilitate delegation. The following chart illustrates how an international metals company was
reorganized.

The following charts show tall and flat organizations.

C. Delegation of Authority

Authority and Power

Authority is the formal and legitimate right of a manager to make decisions, issue orders, and allocate resources to
achieve organizationally desired outcomes. Authority is distinguished by three characteristics:

1. Authority is vested in organizational positions, not people. Managers have authority because of the positions
they hold, and other people in the same positions would have the same authority.

2. Authority is accepted by subordinates. Although authority flows top-down through the organization’s hierarchy,
subordinates comply because they believe that managers have a legitimate right to issue orders. The acceptance

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theory of authority argues that a manager has authority only if subordinates choose to accept his or her commands. If
subordinates refuse to obey because the order is outside their zone of acceptance, a manager’s authority disappears.

3. Authority flows down the vertical hierarchy. Positions at the top of the hierarchy are vested with more formal
authority than are positions at the bottom.

Reading Assignment

Identify and discuss different sources of power and authority.

Responsibility is the duty to perform the task or activity as assigned. Typically, managers are assigned authority
commensurate with responsibility. Accountability is the mechanism through which authority and responsibility are
brought into alignment. Accountability means that the people with authority and responsibility are subject to
reporting and justifying task outcomes to those above them in the chain of command.

Delegation is the process managers use to transfer authority to positions below them in the hierarchy.

Most organizations today encourage managers to delegate authority to the lowest possible level to provide maximum
flexibility to meet customer needs and adapt to the environment. Delegation is the downward pushing of authority
from superiors to subordinates to make decision within their area of responsibilities.

The process of delegation of authority

Delegation of authority has the following steps

1. Assignment of tasks

2. Delegation of authority

3. Acceptance of resistibility: is the obligation to carryout one’s assigned duties to the best of one’s ability.

4. Creation of accountability: is the fact that the people with authority and responsibility are subject to
reporting and justifying task outcomes to those above them in the organizational hierarchy.

Line and Staff Authority

An important distinction in many organizations is between line authority and staff authority, reflecting whether
managers work in line or staff departments in the organization’s structure.

Line departments perform tasks that reflect the organization’s primary goal and mission. In a software company,
line departments make and sell the product. In an Internet-based company, line departments would be those that
develop and manage online offerings and sales.

Staff departments include all those that provide specialized skills in support of line departments. Staff departments
have an advisory relationship with line departments and typically include marketing, labor relations, research,
accounting, and human resources.

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Line authority means that people in management positions have formal authority to direct and control immediate
subordinates.

Staff authority is narrower and includes the right to advise, recommend, and counsel in the staff specialists’ area of
expertise. Staff authority is a communication relationship; staff specialists advise managers in technical areas.

For example, the finance department of a manufacturing firm would have staff authority to coordinate with line
departments about which accounting forms to use to facilitate equipment purchases and standardize payroll services.

D. Centralization and Decentralization

Centralization and decentralization pertain to the hierarchical level at which decisions are made. Centralization
means that decision authority is located near the top of the organization. With decentralization, decision authority
is pushed downward to lower organization levels. Organizations may have to experiment to find the correct
hierarchical level at which to make decisions.

I. Centralization-is the extent to which power and authority are systematically retained by top managers.

If an organization is centralized

 Decision-making power remains at the top

 The participation of lower-level managers in decision-making is very low

II. Decentralization - Is the extent to which power and authority are systematically dispersed throughout the
organization to middle and lower level managers.

When decentralization is greater:

 The greater is the number of decisions made at lower level of the organization

 The more functions are affected by decisions made at lower levels

 The less a subordinate has to refer to his/her manager prior to a decision.

Decentralization is believed to relieve the burden on top managers, make greater use of employees’ skills and
abilities, ensure that decisions are made close to the action by well-informed people, and permit more rapid response
to external changes. However, this trend does not mean that every organization should decentralize all decisions.
Managers should diagnose the organizational situation and select the decision-making level that will best meet the
organization’s needs.

Factors that typically influence centralization versus decentralization are as follows:

1. Greater change and uncertainty in the environment are usually associated with decentralization.
2. The amount of centralization or decentralization should fit the firm’s strategy.
3. In times of crisis or risk of company failure, authority may be centralized at the top.

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