JIMMA

1
UNIVERSITY

JIMMA INISTUTE OF TECHNOLOGY

FACULTY OF MECHANICAL ENGINEERING
INDUSTRIAL MANAGEMENT AND ENGINEERING ECONOMY

Chapter 1.3:- Industrial Organization

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 CHAPTER 1.3: -
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Industrial Organization
Chapter Outlines
 Introduction
 Definitions Of Organization
 System Approach Applied To Organization
 Necessity Of Organization
 Essential Elements Of Good Organization
 The Process Of Organization
 Principles Of Organization
 Organizational Structure
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 3.1 INTRODUCTION
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 Every business needs to be organized for

effective and efficient performance.
 Once the objectives, strategies and necessary
plans to carry out are formulated, the next
phase in management process is that of
organization.
 Organization is thus a function of management
which basically deals with the establishment of
organizational structure.

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 3. INDUSTRIAL ORGANIZATION…
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 Organization is a backbone of management which

establishes relationship between people, work and
resources.
 Organization involves division of work among
people whose efforts must be coordinated to
achieve specific objectives and to implement
predetermined strategies.

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 3.2 DEFINITIONS OF
ORGANIZATION
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 A process of
 Identifying and grouping the work to be
performed,
 Defining and delegating the responsibility and
authority, and
 Establishing the relationships for the purpose of
enabling people work efficiently together in
accomplishing objectives.
 The form of every human association for the
attainment of a common purpose.
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 3.2 DEFINITIONS OF
ORGANIZATION…
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 A system of cooperative activities of two or more

persons.
 A process of defining and grouping the activities of
an enterprise and establishing the authority
relationship among them.
 The grouping of activities necessary to accomplish
goals and plans, and assignment these activities to
appropriate departments and positions for authority
delegation and coordination.

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 3.2 DEFINITIONS OF ORGANIZATION…
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 The process of combining the work which individuals or

groups have to perform with facilities necessary for its
execution, that the duties so performed are the best channels
for efficient, systematic, positive and coordinated
application of available effort.
 The rational coordination of the activities or roles of a
number of people for the achievement and some common
explicit purpose or goal, through division and labour of
function, and through a hierarchy of authority and
responsibility.
 Consists of people who carry out differentiated tasks which
are coordinated to contribute to the organization’s goals.

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 3.3 SYSTEM APPROACH APPLIED TO
ORGANIZATION
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 A business organization can be looked up

on as an open system as it influences and is
influenced by its environment continuously.
 It receives input from the society in the form
of men, materials, machinery, information,
thoughts, energy and finance. By utilizing
the efforts and skills of the persons, the raw
material is converted in to output of goals
and services required by the customers.
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 3. INDUSTRIAL ORGANIZATION…
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 The working of one part of the system is

dependent on the working of other parts of
the system.
 The changes in the environment affect the

performance of the system process.

 Environment of organization consists of

economic, social, cultural, political, legal,

technological, etc.

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 3. INDUSTRIAL ORGANIZATION…
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 The feedback of information and results is

utilized for corrective action.
 The feedback may be in the form of

orders, customer complaints, sales, etc.

This information is fed at the control points
and conversion processes.

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 3. INDUSTRIAL ORGANIZATION…
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Environment
Conversion
Input Output
Process

Feedback
Fig. 3.1 System Approach Applied to Organization

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 3.4 NECESSITY OF ORGANIZATION
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A good organization is necessary for the following reasons:

 Complexity of industry-increasing size, introduction of

modern machines, labour problems, ...

 Growing competition-tough competition existing in

market,
 Optimum utilization of resources-men, materials,

machines, can be used efficiently if there is organization.

 Fixation of responsibility and authority- individuals

will be provided with responsibility and authority with

defined duties,
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 3.4 NECESSITY OF ORGANIZATION…
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 Reduced labour problems-good employer-employee

relations if there is good organization,
 Coordination and directing efforts- a good
organization makes it possible to direct and coordinate
the efforts of individuals, departments, etc,
 Facilitates administration-management and operation
of the company will be facilitated,
 Stimulates creativity-sound organization stimulates
independent creative thinking and initiative by providing
well-defined areas of work with broad latitude of the
development of new and improved methods of doing
work.
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 3.5 ESSENTIAL ELEMENTS OF GOOD
ORGANIZATION
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The essential elements of good organization are:

 It must be helpful in achieving objectives,

 There must be a harmonious grouping of

activities,
 The activities of the organization must be

coordinated properly,
 An organization must be complete in all respects,

should include all the essential activities, there

should not be repetition of activities,
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 3.5 ESSENTIAL ELEMENTS OF GOOD
ORGANIZATION…
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 An organization should have an effective system

of communication,
 The span of control should be reasonable,
 Provision of expansion should be there,
 Clear and well defined policies and procedures,
 Employees’ satisfaction is essential,
 Proper division of authority and responsibility.

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 3. INDUSTRIAL ORGANIZATION…
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3.6 THE PROCESS OF ORGANIZATION

The logical steps involved in the process of organization
are:
 Determination of objectives, strategies, plans and policies,

 Determination of activities,

 Separation and grouping of activities,

 Delegation of authority and responsibility,

 Establishing inter-relationships,

 Providing physical facilities and proper environment,

 Preparation of organization chart.

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 3.7 PRINCIPLES OF ORGANIZATION
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Some of the important principles to be followed for

developing sound and efficient organization
structure are:
 Consideration of unity of objectives

The objectives must be clearly defined for the entire

enterprise, for each department and even for each
position in the organization structure. There must
be unity of objectives so that all efforts can be
concentrated on achieving the set goals at
minimum cost.

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  Principle of specialization - The organization
structure should be formulated in such a way that the
activities of the enterprise are divided according to
functions. Work should be distributed among the
persons very carefully on the basis of their skill,
experience and ability to do that work.
 Principle of authority - Lines of authority should be

clearly established in the structure of organization in

order to avoid overlapping, omission of facts, etc.
 Principle of coordination.

Coordination (between departments, sections...) is

necessary for unity of action.
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 Principle of span of control.

A single executive should not have more people looking
for him for controlling and guidance than he can
reasonably manage because the executive will have
limited time and energy/capacity.
The number of persons which can be effectively
supervised by a single executive or department head
should be limited to six in average firm; however
when the activities are routine and closely related the
span can be as large up to twenty
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  Principle of exception.
Only exceptionally complex matters should be referred
to executives for their decision and matters of routine
nature should be decided by subordinates themselves.
 Principle of flexibility.

The organization structure should be flexible enough to

permit slight alterations and expansions whenever
needed, due to changes in circumstances
 Principle of unity of command.

Each subordinate should have only one superior and dual

subordination should be avoided.

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  Principle of simplicity - The organization structure
should be simple with minimum number of levels. If
the organization has a large number of levels, the
problem of effective coordination and communication
may arise.
 Principle of responsibility - The superior should be
held responsible for the acts of his subordinates to
whom he has delegated authority.
 Principle of balance - There should be balance
between activities and sizes of various departments,
authority and responsibility, standardization of
procedures and flexibility, centralization and
decentralization, etc.
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 Principle of continuity
The organizational structure should be set in such a
way that it enables to continue its useful existence
for a longer period. This is possible if it is dynamic
and capable of adopting itself to the needs of
changing circumstances.

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 Principle of scalar chain. Organization is a vertical

hierarchy specifying various chains of command from
top to bottom level. The links of chain should be
continuous from top to bottom. The authority originating
from the top should flow below without interruption.
 Principle of parity between authority and
responsibility. Authority means the ability of the
superior to command. Conversely responsibility means
the obligation of the subordinates to a superior to
perform the assigned work.

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 Principle of efficiency. The organization structure

should enable the enterprise to attain objectives with
minimum cost and effort. It should allow the
optimum utilization of its scarce resources.
 Principle of communication. A good
communication subsystem is essential for smooth
flow of information. For better results it should have
free two-way communication. Not only executive
should pass down information to the subordinates,
there should be feedback
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 3.8 ORGANIZATIONAL STRUCTURE
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 Organizational structure is a skeleton or

framework that divides the total activities
in to related groups, develops superior
and subordinate relationships among the
persons by prescribing the authorities.
 Thus it indicates the hierarchy, authority
structure and reporting relationships.

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There are three main types of organizational

structure:
i. Functional structure,
ii. Divisional structure and
iii. Matrix structure.
Each structure has its own strong and weak points.

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 (i) Functional Structure
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 The employee will work in departments based on

what they are doing.
 It enhances the experience of each function.
 It saves us money because of the economies of
scale.
 It makes the coordination between different
departments more difficult than other structures.
 It also does not allow for flexibility because of the
centralization.
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Fig. 3.2 Functional Organizational Structure

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 3. INDUSTRIAL ORGANIZATION…
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Functional Organization

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Functional Organizations
When to Use
 Organizations with high relative stability of work
flow and limited product diversity - certain
manufacturing operations, process industries
 Startup companies
 Organizations with narrow product ranges, simple
marketing pattern and few production sites

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 3. INDUSTRIAL ORGANIZATION…
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Functional Organizations
(Pros and Cons)
 Permits hierarchy of Encourages excessive
skills centralization
 Facilitates
 Delays decision
making
specialization
Compounds
 Simplifies coordination
communication line loss
 Permits use of current
Restricts development
technologies and of managerial skills
equipment Limits12/17/21
personal growth
 3. INDUSTRIAL ORGANIZATION…
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ii. Divisional Structure 

 Divisional structure divides the employees based on
the product/customer segment/geographical location.
 This structure is a decentralized structure and thus
allows for flexibility and quick response to
environmental changes.
 It also enhances innovation and differentiation
strategies.
 On the other hand, this structure results in duplication
of resources.
 It does not support the exchange of knowledge
between people working in the same profession.
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 3. INDUSTRIAL ORGANIZATION…
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Fig. 3.3 Divisional Organizational Structure

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 3. INDUSTRIAL ORGANIZATION
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Product Organization
(Pros and Cons)
 High costs due to
 Focuses on end
products or layers, autonomy or
geographical regions duplicated facilities
 Requires management
 Facilitates coordination
talents
 Encourages
 Technical obsolescence
management
development of specialists
 Changes take time to
 Provides for
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 3. INDUSTRIAL ORGANIZATION…
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iii. Matrix Structure

 Matrix structure combines both structures.
 Some employees will have two managers:
functional manager and product manager.
 This type of structure tries to get the benefits of
functional structure and also of divisional
structure; however, it is not easy to implement
because of the dual authority.
 This structure is very useful for multinational
companies.

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Fig. 3.4 Matrix Organizational Structure

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Matrix Organization
(Pros and Cons)
 Dual reporting
 Project manager focus  Severe conflicts among
on schedule and cost,
managers
functional managers on
 Delicate balance of
quality/expertise
power (people versus
 Work load balance
money/time)
 Excellent for  Communications
individuals (to achieve
problems
exposure and
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interactions)
 Productivity
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 Productivity may be defined as the ratio

between output and input.
 Output means the amount produced or the

number of items produced and inputs are the

various resources employed, e.g, land,
building, equipment and machinery, materials,
labours, etc.

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 Factors Affecting Productivity
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 Factors affecting Productivity in

Manufacturing and Services Sectors
–Product and System Design
–Machinery and Equipment
–Skill and Effectiveness of the Worker
–Production Volume

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 Measurement of Productivity
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 The most common way is to express both outputs

and the inputs in monetary terms.
–Aggregate output = Gross sales= G(say); and
–Aggregate input= Cost= C (say)

 Thus total Aggregate Productivity =

Gross Sales/ Cost

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 Example Problem
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 Find the partial productivity and total

productivity for a company for which the
following data is available.
 Output = ETB 15000, Labour input =ET 4500,

Material input ET 3000, Capital input = 4500

ETB, Energy input = 1500 ETB, Other input
expenses = 750 ETB.

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 Leadership
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 Getting things done through others.

 It is the process of influencing and directing
people towards the accomplishment of a goal or
objective.
 We all practice leadership of some kind daily if
not hourly. When take the initiative and organize
a group of friends or coworkers for a fund rising
drive to help the needy or for a weekend together,
you have shown leadership.
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 Leadership traits
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 sense mission, Integrity,

 High character, Loyalty,
 Job competence, Commitment,
 Good judgment, Energy,
 Decisiveness and selflessness.

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 Functions of a Leader
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 Determines the goals of the organization.

 Educates the personnel and Works as

expert.
 Set the example for the others to follow.

 Provides counseling and guidance.

 Ensures work is done properly.

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 Enforces policies and regulations

 Acts as a spokesperson for workers

 Motivates the workers towards the goals.

 Facilitates open communication and

establishes performance standards.

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 Types of Leadership
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 Autocratic leadership style: A leader who makes

decisions without consulting others.
 Democratic leadership style: This leader includes
the subordinates in decision making.
 Free - rein leadership style: Minimal supervision,
most decision left to the subordinates.

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 Model Questions
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 Q1. Define Industrial Management and explain its

concept.
 Q2. Explain the process of organization.
 Q3. What are the application areas of industrial
management?
 Q4. What are the problems associated with
industrial management?
 Q5. List the functions of management and
explain the advantages of planning.
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 Q6. What are the characteristics of management?

 Q7. What are the levels of management and write
about middle management.
 Q8. What type of skills is necessary for a
manager and write about technical skills.
 Q9. List any six principles of organization and
explain about span of control.
 Q10. Enumerate different types of organization
structures and write about functional organization.
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 Q11. What do you mean by productivity and what

are factors affecting it?
 Q12. What is required to be a leader and List the
types of leaderships?

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