UNIT III
ORGANISING
Organizing Concept
The working connections vertical and flat relationship among people and gatherings that exist inside an association influence how its exercises are refined and facilitated. Compelling getting sorted out relies upon the dominance of a few significant ideas: work specialization, levels of leadership, authority, assignment, length of control, and centralization versus decentralization. A large number of these ideas depend on the standards created by Henri Fayol. Degree to which hierarchical assignments are isolated into discrete positions. Representatives inside every division perform just the undertakings identified with their particular capacity.
NATURE OF ORGANISING:
The main characteristics of an organizing are as follows:
1) Process: Organizing is a process undertaken to accomplish objectives. The process of organizing consists of the following steps:1) Defining goals/objectives of the organization 2) Identifying and grouping of activities 3) Defining and delegating authority and responsibility 4) Establishing relationships in the organization 5) Co-coordinating activities.
2) Goal oriented: Every organization has its own objectives and goals. Organizing is the function employed to achieve the individual goals of the employees with overall objectives of the firm.
3) Group of individual: Individuals form a group and the groups form an organization. Thus, organization is the composition of individuals and groups. Individuals are grouped into departments and their work is co-ordinate directed towards achievement of organization goals.
4) Integration: The organization divides the entire work and assigns the tasks to individuals in order to achieve the organizational objectives. Each one has to perform a different tasks of one individual must be co-ordinated with the tasks of others. Collectively these tasks at the final stage are called integration.
5) Continuity: An organization is a group of people in which they work together to achieve the goals of that organization. This relationship does not come to an end after completing the task. Organizing is a never ending process.
6) Decision Making: Top management has a right and power to take decisions. It is a task of a manager to get the things done from the subordinates in the most efficient and effective manner.
7) Common Targets: To level management set the overall goals for an organization. It is an integrated and collective effort from all the employees towards the achievement of common targets or goals setup by an organization.
8) Authority: Authority is the power to take decisions and to get the work done from the subordinates. Every manager in the organization must be given adequate authority so that he can take the right decisions to get the work done.
9) Responsibility: The manager who is provided with authority must made responsible. There must be a balance between authority and responsibility.
PROCESS OF ORGANISATION:
Process of organization, for sake of clarity of discussion and a far better comprehension of those, are classified in the following manner:
(I) Overall Principles:
(i) Principle of unity of objective
(ii)Principle of simplicity
(iii)Principle of flexibility
(II) Structural Principles:
(iv)Principle of division of work
(v)Principle of functional definition
(vi)Principle of optimum depart mentation
(vii) Principle of unity of direction
(viii) Span of management principle
(III) Operational Principles:
(ix) Principle of adequate delegation
(x) Scalar chain principle
(xi) Principle of unity of comment
(xii) Authority-level principle
Following may be a brief discuss each of the above-stated principles of organisation under appropriate categories:
(I) Overall Principles:
Under this classification, a number of the very fundamental principles of organization are included i.e. principles which are absolutely essential for an efficient and logical functioning of the organization.
A brief explanation of the principles under this category is as follows:
(i) Principle of unity of objective:
Very simply stated, this principle requires that individual and departmental objectives throughout the enterprise must be perfectly harmonized; which all objectives must be mutually supportive and collectively contributing to overall common objectives.
(ii) Principle of simplicity:
The observance of this principle requires that the management must, as far as possible, design a simple organizational structure. a straightforward structure facilitates a far better understanding of superior- subordinate relationships; and provides background for better co-operation among people.
(iii) Principle of flexibility:
While designing the organizational structure, the management must provide for in-built devices within the structure itself; which might facilitate changes within the organizational structure to be effected as and when environmental factors-internal and/or external- so demand.
(II) Structural Principles:
Structural principles of organization relate to those aspects of the organization, which have an impact on the structuring (or the development) of the organization; its fundamental design and shape.
Some of the important principles, during this context, could be the subsequent ones:
(iv) Principle of division of work:
Since the total work of the enterprise can't be performed by just one person; it's imperative that such work must be suitably divided among variety of persons. In fact, the total managerial work need to be divided among variety of managers; and the total operational work being divided among variety of operating personnel.
(v) Principles of functional definition:
The above stated principle implies that the role (or job) of each individual and of every department of the enterprise must be suitably defined, in terms of the-work content, the authority and facilities required for job performance and the relationship of the job with those of others, within the enterprise.
(vi) Principle of optimum depart mentation:
There are some ways and bases for creating departments within an organization. Consistent with the principle of optimum departmentation, departments in an organization must be so created and maintained-as to facilitate the simplest attainment of the common objectives of the enterprise.
(vii) Principle of unity of direction:
The principle implies that every group of activities having the same objective must have just one overall head and just one overall or master plan.
As a principle of organization, this concept of unity of direction must be so embedded in designing the organizational structure that for every group of similar activities, there's a provision for only one overall head-having authority over all personnel performing a similar function, anywhere, in the organization.
(viii) Span of management principle:
The span of management principle is variously called as- the span of control or the span of supervision. However, the phrase ‘span of management’ is that the widest; including also the notions of span of control and span of supervision.
The span of management principle implies that there's a limit to the number of subordinates; whose work might be effectively managed (controlled or supervised) by a superior.
(III) Operational Principles:
Operational principles of organization can be suggested to be those which have a bearing on the running or functioning of the organization.
Some important principles, under this category, are as follows:
(ix) Principle of adequate delegation:
By the principle of adequate delegation, we mean that every managerial position be given adequate (or necessary or requisite) authority-to enable the holder of the position i.e. the manager to cope successfully with the wants of his job.
(x) Scalar chain principle:
Scalar chain implies a chain of superiors-ranging from the highest rank to the lowest rank-in a corporation. The scalar chain forms the base of authority-responsibility relationships among managers and subordinates, within the organisation; thus promoting mutual understanding among superiors and subordinates at different levels of the organization.
As a principle of organization, scalar chain principle requires its incorporation into the design of the organisation, for ensuring smooth running of the enterprise life.
(xi) Principle of unity of command:
The above-sated principle implies that an employee must receive orders and instructions, only from one superior, at a time. The observance of this principle is desirable for reasons of removing doubts and confusions from the mind of the employees; and for facilitating exact fixation of responsibility on individuals for the results expected of them.
(xii) Authority-level principle:
The authority-level principle implies that managers at particular levels within the management hierarchy must decide only those matters which fall within the purview of the authority vested in their managerial positions.
A natural extension of this principle is that if a manager at any level of the management hierarchy comes across a matter not covered by his authority; the matter must either be referred upwards within the hierarchy or pushed down the hierarchy at the acceptable level for decision.
SIGNIFICANCE OF ORGANIZING
1) Ensures co-ordination: Due to good organization structure, co-ordination is possible in the organization. Co-ordination refers to interlinking of actions of the subordinates by the superior. The activities of the various individuals, and departments are combined together to accomplish company goals.
2) Optimum utilization of resources: Organization ensures optimum utilization of resources – human, financial and physical resources. The resources are put to best possible use.
3) Facilitates effective management: A properly designed organization facilitates effective management. It avoids confusion, delays and duplication of work. The work is systematically divided and grouped into several sections or units, so as to achieve desired results.
4) Motivates personnel: A sound organization avoids confusion, misunderstandings and overlapping of functions, and as such employees are motivated to produce better results. This is mainly because of good relations existing between the superiors and their subordinates in the organization.
5) Facilitates delegation of authority: A good organization structure enables the superiors to delegate authority to the subordinates. The superiors are in a position to delegate the proper degree of authority to the right subordinates. Without proper delegation, it would not be possible to conduct the activities of the organization smoothly and quickly.
6) Encourages initiative and innovation: Due to effective delegation of authority, there is freedom of self-expression. The subordinates are encouraged to show their initiative, which helps the organization to excel and grow.
7) Technological improvements: Sound organizations have contributed to the technological developments. Through research and development, the organizations come with new methods, new machines, and techniques, which can be effectively used for business activities.
8) Facilitates growth: Sound organizations achieve good success. This enables the organization to grow and diversify. Large progressive firms are the direct outcome of the success of effective organizing.
1. Authority: Authority can be characterized as the force and right of an individual to utilize and assign the assets effectively, to take choices and to provide arranges to accomplish the hierarchical destinations. Authority must be all around characterized. All individuals who have the authority should realize what is the extent of their power is and they shouldn't misutilize it. Authority is the option to provide orders arranges and completes the things. The high level administration has most prominent position. Authority consistently moves start to finish. It clarifies how an unrivaled completes work from his subordinate by obviously clarifying what is anticipated from him and how he should go about it. Authority should be went with an equivalent measure of obligation. Appointing the position to another person doesn't infer getting away from responsibility. Responsibility actually rest with the individual having the most extreme position.
2. Responsibility: Responsibility the obligation of the individual to finish the undertaking allocated to him. An individual who is given the duty ought to guarantee that he achieves the undertakings doled out to him. In the event that the undertakings for which he was considered capable are not finished, at that point he ought not to give clarifications or reasons. Duty without sufficient position prompts discontent and disappointment among the individual. Obligation streams from base to top. The center level and lower level administration holds greater duty. The individual considered liable for an occupation is responsible for it. In the event that he plays out the undertakings doled out true to form, he is headed for acclaims. While on the off chance that he doesn't achieve undertakings appointed true to form, at that point likewise he is responsible for that.
Relationship between Authority and Responsibility
Authority is the lawful right of individual or better than order his subordinates while responsibility is the commitment of individual to do his obligations according to principles of execution Authority streams from the bosses to subordinates, in which requests and directions are given to subordinates to finish the undertaking. It is just through power, a director practices control. In a manner through practicing the control the predominant is requesting responsibility from subordinates. On the off chance that the promoting director coordinates the business administrator for 50 units of offer to be embraced in a month. On the off chance that the above norms are not refined, it is the promoting supervisor who will be responsible to the CEO. Along these lines, we can say that power streams through and through and obligation streams from base to top. Responsibility is an aftereffect of duty and obligation is consequence of power. In this way, for each position an equivalent responsibility is appended.
Responsibility without power is a typical issue in associations with lopsided, conflicting administration. People who end up with obligation without power will consistently think that it’s a lot harder to succeed and will wind up in a tough situation more as often as possible than those with a solid position presence. This is to a great extent because of the interconnectedness of power and obligation with regards to making an association effective in general. Legitimate power exists to appoint assignments possible to meet the authoritative targets. When there is no position, the requirement of obligations and errands tumbles to the wayside, and representative endeavors stray from the way towards progress. In the event that an individual is given some degree of duty without adequate authority upholding that, they are likely not going to perform as well as could be expected, and could even neglect to achieve the errand by any means.
Conclusion
Authority and Responsibility are characteristic to hierarchical jobs and positions in totally different manners, however are cooperative and mutually dependent enough to make them both basic purposes of center for any effective organization. While allotting certain obligations to a representative, the necessary measure of power should likewise be presented on them so they can effectively finish it. Basically, the appointment of power must be viable in the event that it matches with the doled out obligation. In the event that an authority is given to a person that is a lot more prominent than the obligation, it at last outcomes in the abuse of power. Additionally, if obligation is appointed that is more noteworthy than the authority furnished with it, the assignments won't be completed appropriately. The essential objective of dealing with the connection among power and obligation in your business attempts is to discover the harmony between the two. As a delegator of power, it is your duty to locate the correct proportion of power to obligation that will yield an effective finish of errands reliably over your labor force.
Meaning Of Delegation of Authority
In order to define delegation of authority, we have to understand the meaning of the term. Delegation of authority is a process that enables a person to assign a task to others. As a manager or leader, you’re expected to perform several tasks and meet multiple deadlines. To ensure that you achieve your objectives on time, you delegate responsibility to your team members. In short, the meaning of delegation of authority is to entrust someone with tasks and share the overall responsibility.
Elements of Delegation Of Authority
There are three central elements involved in the process of delegating authority.
1. Authority
In the context of business organizations, authority is the right and power of an individual to assign resources efficiently, make decisions and give instructions to achieve organizational goals. This authority should be well-defined and shouldn’t be misused. There’s a co-dependent relationship between authority and responsibility, which is why authority should always be accompanied by an equal amount of responsibility to complete tasks successfully. However, the ultimate responsibility always rests with the person with the greatest authority.
2. Responsibility
Responsibility refers to the scope or duty of an individual to complete the task assigned to them. Someone who is entrusted with responsibility should take ownership of their tasks. It’s best not to make excuses or give explanations if the tasks aren’t fulfilled. Responsibility without adequate authority can lead to dissatisfaction and discontent. It’s best to not give someone too much authority and too little responsibility. Managers and leaders may be ultimately held accountable for the overall performance, but the more important responsibilities lie in the hands of employees.
3. Accountability
What is a delegation of authority without accountability? It’s a component that differentiates between an individual’s performance and the expectations that were set in advance. Unlike authority and responsibility, accountability can’t be delegated to others. Anybody who sets out to complete a task becomes accountable for their efforts and outcomes. For example, if Madan is given a task with adequate authority and he delegates the task to Mohan, the responsibility rests with Mohan but Madan is still accountable for the task.
Types of Delegation Of Authority
There are various types of delegation of authority. Let’s look into each type through different examples of delegation of authority:
1. Full Delegation
Often, recurring and repetitive jobs in organizations are fully delegated. For such tasks, there is minimal interference from managers and leaders, and team members are given maximum authority. Imagine you’re the Human Resources head at your organization. You conduct employee surveys every quarter and reuse a set of standard questions and follow a particular protocol to circulate the surveys. If new members join your team, you can hand over that task completely. You can communicate the objectives in advance and your team can present the final results after they collect the information.
2. Half Delegation
To delegate half a task seems like a bad idea but when done well, it can do wonders. Let’s take these two examples of delegation of authority and see how half delegation can work:
Imagine the ‘marketing’ and ‘sales’ teams are working towards the same goal. You can choose to delegate all marketing-related tasks to the marketing team and all sales- and partnership-related objectives to the sales team. They may collaborate and help each other but they would be accountable for their respective targets and deadlines. Ultimately, you can supervise their performance and make sure each team has met your expectations.
Suppose you want to hire new employees. Looking through hundreds of job applications isn’t easy, so you can delegate the preliminary task of looking through resumes and shortlisting them to your team members. You can then look at the shortlisted resumes. You may set certain expectations so that your team picks candidates with the required skills and expertise.
3. Outdoor Delegation
Outdoor delegation is most useful in case of collaborations with another organization. For example, if you work with an external agency, you can send your best negotiators to collaboratively develop a strategy. Once you receive a brief about the new business strategy with the necessary details, you can make the final decision without having to spend hours on the commute or negotiations.
4. Intervention
When you have limited time on your hands, intervention is the way to go. After you delegate tasks, you can check in with your team members every now and then. It’s a good way to track individual signs of progress. It’s especially beneficial when you have to work with new employees who don't have many years of experience behind them. For example, you can use the intervention method when you want to launch a new initiative. Ask your team to come up with ideas and present them to you for approval. Intervention is a time-saving technique.
5. Creative Delegation
Projects that require innovation should be delegated. When more people are involved, the chances of suggesting unique ideas are higher. One person’s creativity can push the creativity of the team. For example, if you are hosting Diwali celebrations at your office, you can either create a plan and delegate responsibilities for execution or ask your team to pitch their ideas. Both these ways are fitting examples of creative delegation.
Importance of Delegation Of Authority
The process of delegating authority is to ensure a well-functioning and productive workplace. The process can benefit you, your employees and the organization at large, if done properly. Here are some of the benefits that highlight the importance of delegation of authority.
1. Increased Productivity
Delegation helps employees finish tasks faster because the work is distributed among a group of individuals and everyone is responsible for their respective targets.
2. Personal Development
When you delegate tasks, your team members get a chance to showcase their skills and expertise in a particular area. With proper guidance, they can also improve their knowledge and skill sets.
3. Continuity
If you’re busy or absent from work, your team can help complete some of your work and ensure continuity and productivity.
4. Employee Motivation
When you assign new responsibilities, it shows that you trust your employees to take control. They’re encouraged and driven to fully utilize their potential.
5. Career Growth
The more you delegate tasks to different members of your team, the more they understand business goals and objectives. This gives way to potential promotion within the organization.
Conclusion
Delegation of authority can be tricky if it’s not executed properly. Harappa Education’s Navigating Workplaces course will teach you how to effectively manage conflicts and embrace different perspectives. The Culture Fit framework will guide you in your evaluation of workplace culture. Additionally, the Thomas Kilmann model will teach you the five essential ways of dealing with conflict. Master the skill of leading and influencing others and let your team flourish under your guidance.
CENTRALIZATION:
Centralization of authority refers to the concentration of decision making power at the top level of management. All important decisions are taken at the top level. Everything which goes to reduce the importance of subordinate is called centralization.
‘Centralization is the systematic and consistent reservation of authority at central points within the organization.’ – Louis A. Allen
Advantages of Centralization (Importance of Centralization):
Top management may prefer to reserve maximum authority with itself because of the following advantages:
1. It facilitates greater uniformity of action throughout the organization
2. It provides better opportunities for development of personal leadership
3. It facilitates integration of efforts and unites total operations of an enterprise
4. It helps in quick decision making which in turn facilitates effective handling of emergency situations
5. It reduces wastages of efforts by avoiding duplication of work
6. It makes control easier
7. It allows flexibility and rapidity of adjustments to changing conditions
Disadvantages of Centralization:
(a) It increases the burden of the top executives with routine functions and hamper their development
(b) It affects the initiative of the lower level management people
(c) It does not provide scope for employee participation in decision making
(d) There is no scope for specialization because an individual will have to look after many functions at a time.
DECENTRALIZATION:
It refers to the dispersal of decision making power to the lower level of the organization.
‘Decentralization refers to the systematic effort to delegate to the lowest levels all authority except that which can only be exercised at central points’. – Louis A. Allen
‘When authority is dispersed decentralization is present.’ – George Terry.
In large organizations it is not always possible for all activities to be organized from the centre. Hence, a certain amount of decentralization becomes necessary.
Advantages of Decentralization (Importance of Decentralization):
1. It is a good philosophy to motivate the mangers so that it results in better job satisfaction.
2. It increases the morale of lower level managers by satisfying their need for participation and independence.
3. It helps to meet the challenges and complexities of big enterprises and provides scope for growth and development.
4. It promotes quick decision making and avoids confusion
5. It provides training for future managers by giving them an opportunity to develop their skills.
6. It facilitates effective communication, because in decentralization set up span is wider with a few levels of organization.
7. It ensures effective control and supervision. As all activities are coordinated at the lower level, any sort of adjustment can be made at lower level itself. Thus, it gives complete freedom of action.
8. It gives a relief to the top management from concentrating on day-to-day affairs and permits them to concentrate on developmental activities.
Disadvantages of Decentralization:
a. It is costly because it requires competent people to be employed to accept authority. The success of a unit depends on the ability and capability of the head.
b. It may lead to inconsistencies, when every department or division does not adopt procedures uniformly.
c. It creates a problem of among various units or departments.
d. Differences of opinions of top management and unit head often lead to conflicts.
e. Among the departments hostility may be developed due to severe competition. This will hamper the sharing of knowledge and resources.
f. Economies of scale may not be realized as each unit becomes small and independent.
By and large, decentralization is suitable for large scale organizations operating in different geographical areas or dealing with multiple products.
Koontz and O’Donnell define a department as designating – “a distinct area, division, or branch of an enterprise over which a manager has authority for the performance of specified activities”. Most enterprises are involved in producing a product or a service for the benefit of others. The latter aspect requires marketing or distribution so that the persons for whom the product or service is intended will accept it if it satisfies his needs. These activities require money or sufficient capital or finance.
Departmentation means the grouping of similar activities and employees of organisation into various departments for the purpose of facilitating administration is called departmentation. It implies the division of total work of an organisation into individual functions and sub functions. It is the process of division of organisation into different parts known as departments.
As per views of Koontz and O’Donnell, “departmentation is a process of dividing the large monolithic functional organisation into smell and flexible administrative units.” The process of departmentation takes place at all levels in the organisation. The chief executive groups activities into major departments such as production, finance, marketing, and personnel.
These departments operate under the control of a manager known as departmental head who report directly to the chief executive. The departmental head has adequate authority over the activities and employees working there. He is ultimately responsible for the smooth functioning of the department.
He further assign duties to their juniors, for example, the marketing manager may divide his activities on the basis of activities like advertising, marketing research, customer service and so on. At the lower level, there may be sales assistants and sales representatives etc.
Organisation involves dividing and grouping of activities to be done in an enterprise. Division of work means the identification of activities which are to be done for the achievement of organisational goals. After identifying various activities, these are grouped together on some logical basis.
Departmentation is the process of grouping various activities into separate units of departments. A department is a distinct section of the business establishment concerned with a particular group of business activities of like nature. The actual number of departments in which a business house can be divided depends upon the size of establishment and its nature.
A big business enterprise will, usually, have more departments as compared to a small one. In the words of Allen, “Departmentation is a means of dividing a large and monolithic functional organisation into smaller, flexible, administrative units.”
A department is a work group combined together for performing certain functions of similar nature. The process of division of the enterprise into different parts is broadly called departmentalization. Departmentation leads to grouping of both functions and personnel who are assigned to carry out allocated functions.
Departmentalization describes the manner in which divided tasks are combined and allocated to work groups. The impact of departmentation is a delineation of executive responsibilities and a grouping of operating activities. Grouping of activities into manageable units is necessary at all levels in the enterprise. Their work must be so coordinated as to ensure contribution to the welfare of the organisation.
The job functions of employees need to be divided among them and combined in a logical way. Workers with related functions usually share a common work area and constitute a work unit. Departmentalization is the process of dividing the work of the organisation into various units or departments.
Grouping of activities is an essential step for the efficient functioning of the organisation. It involves the combining of jobs into effective work groups and combining of groups into identifiable units.
Efficiency of work flow depends on the successful integration of various units within the organisation. Division of work and logical combination of tasks should lead to departmentalization. A department is a work group combined together for performing certain functions of similar nature.
The process of division of the enterprise into different parts is called departmentation. Departmentation leads to grouping of both functions and personnel who are assigned to carryout allocated functions. Grouping of activities into manageable units is necessary at all levels in the enterprise.
Departmentation in Management – Importance
Departmentation is grouping of activities and employees into departments. It is division of a complex organization into smaller, flexible administrative units. It is a method of arranging activities to facilitate the accomplishment of organizational objectives.
Departmentation is essential/ important because of the following reasons:
1. Specialization:
Departmentation permits an organization to take advantage of specialization. It permits people to work in individual departments and gain experience and expertise in handling things over there. Jobs can be assigned to people who are best suited for delivering excellent results.
2. Expansion:
Organisations can cope with heavy work by simply dividing the same among a number of smaller, flexible departments. Organisations can grow only when additional departments are created to handle rush orders and specialized jobs demanding individual attention. In the absence of Departmentation, managers can control only a small group of people under their command.
3. Autonomy:
Departmentation permits people to think and act independently while working in an individual department. They have enough freedom to think and act on their own putting resources at their command to best use. When people are empowered to act in an autonomous way, they get enthused and begin to put their best foot forward.
4. Responsibility:
Departmentation helps people know their limitations. They know what to do and what not to do. They also know what they are supposed to do in order to meet targets and deadlines. When they fail to live up to expectations and go off the track it is easy to find out where things have gone wrong. Where job assignments are clear and you know who is responsible for what, accountability can be fixed fairly easily and quickly.
5. Appraisal:
The performance of people working in a department can be appraised easily against the assigned goals and targets. When they fail to deliver results, you can put the finger on the problem causing trouble. You can separate the wheat from the chaff easily.
6. Management Development:
Departmentation allows people to grow in a particular area or field. They can put in their best while working in a department fairly independently. They can put their skills, capabilities and talents to best use. Repeated operations in a micro area would help them gain mastery over the discipline. Over the years, they can also offer guidance, assistance and help to the younger executives reporting to them directly and thus, contribute to their growth.
7. Communication and Control:
Departmentation facilitates communication, coordination and control and contributes to the organizational success. Working in a department permits people to interact freely and communicate without any hurdles. They can coordinate their efforts with others in an attempt to reach goals. It becomes easy to find out where things have gone wrong, who is not able to pick up speed, how to plug the loopholes promptly. This, of course, would facilitate the control process.
Organizational Structure – Meaning and Definitions
A structure stands for the parts that are held together as a single whole on the basis of some relationship. In the context of strategic management, the term “structure” signifies a design that helps him to formulate and implement the strategies in an effective way.
Structure is very closely related to strategy and the environment, it is because the structure is a sub-mechanism or frame-work of relations or a sub-system that works under a supra system namely environment.
“Corporate Structure” or an “Organisational Structure” stands for the formal configuration between individuals and the group with regard to the allocation of tasks, responsibilities, and authority well within the organisation. An organisation structure is the way the tasks and sub- tasks needed to implement a strategy are arranged.
Organisation as a ‘Structure’ is the network of horizontal and vertical dimensions designed to accomplish the common objectives. It is the mechanism or the frame-work whereby people function and facilities are integrated to achieve preset goals. It is a group of people working together towards attaining the given goals.
Organizational Structure – Need and Importance
Sound organisation structure can contribute greatly to the survival continuity and stability of the enterprise.
The need and importance of organizing and organisational structure can be understood more precisely on the basis of the following points:
1. Facilitates Administration:
Sound organisation helps in the performance of management functions like planning, staffing, directing and controlling. Inadequate organisation may result in duplication of work and efforts and some of the important operations may be left out. Sound organisation facilitates the performance of various managerial functions by division of labour, consistent delegation or job definition and clarity of authority and responsibility relationship.
2. Promoters Growth and Diversification:
Sound organisation designed on scientific principles can create conditions conductive to planned expansion and diversification of the activities of the enterprise. It can help in keeping the various activities under control and increase the capacity of the enterprise to undertake more activities.
3. Co-Ordination:
Organisation is an important means of bringing co-ordination among the various departments of the enterprise. It creates clear-cut relationship between the departments and helps in laying down balanced emphasis on various activities. It also provides for the channels of communication for the coordination of the activities of different departments.
4. Optimum Use of Technological Innovations:
A sound organisational structure is flexible to give adequate scope for the improvement in technology. It facilitates introducing changes in the enterprise by modifying the authority and responsibility relationship in the wake of new developments.
5. Optimum Use of Human Resources:
Sound organisation matches the jobs with the individuals and vice-versa. It ensures that every individual is placed on the job for which he is best suited. This helps in the better use of individuals working in the enterprise.
6. Stimulates Creative Thinking:
An organisational structure based on clear-cut demarcation of authority, higher range of responsibility, discretionary freedom granted to personnel, incentives offered for specialized work, etc. will certainly foster the spirit of constructive and creative thinking. Such an atmosphere will give an opportunity for the staff to display their hidden creative talents which, in turn, will lift the enterprise to achieve higher goals of business.
7. Training and Development:
An effective organisation facilitates delegation of authority which is an important device for training and developing the personnel. Delegation of authority is also an important means of directing the subordinates. It prepares them to take more responsibilities whenever need arises.
Peter Drucker has rightly remarked, “Good organisation structure does not by itself produce good performance, but a poor organisation structure makes good performance impossible, no matter how good the individual managers may be…. A good organisation structure… is not the only thing that matters in managing…. But the right organisation structure is necessary foundation; without it the best performance in all other areas of management will be ineffectual and frustrated.”
It may be noted that there is no single organisation structure that works best in all kinds of situations. While designing an organisation structure, the management must consider external environment, objectives and strategies of the enterprise, types of human resources and the nature of technology.
Organizational Structure – Top 3 Forms: Functional and Multidivisional, Geographical and Matrix Structure (With Advantages and Disadvantages)
1. Functional and Multidivisional Structure:
A functional structure consists of a CEO who is supported by functional managers belonging to production, marketing, purchase, finance, personnel, R&D, etc. This structure enables the achievement of functional excellence, efficiency and specialization, but suffers from problems, such as, lack of product focus, long channels of communication, coordination problems, lack of importance given to overall corporate missions and objectives, and excessive involvement of the CEO in integrating decisions and actions across various functions.
As against this, the multidivisional structure (also called M – Form) consists of more than one operating division, each of which is a distinct business area. Here, the CEO delegates responsibilities for formulation and implementation of business-level strategies and managing day-to-day affairs to the respective divisional heads, thereby making the corporate office responsible for the development and implementation of the corporate-level strategy and for exercising strategic and financial controls.
Strategic control, as exercised by the corporate office, is defined as the process of target-setting and monitoring in relation to the key operating areas pertaining to each business division, which are otherwise autonomous. To do an effective job in this regard, the corporate office must have a proper understanding of the environment, strategy and operational issues relating to each distinct business area.
The financial controls, exercised by the corporate office ensure that each division achieves the target profit, cash-flows and ROI. Interdependence between the operating divisions (a normal feature in a company which has grown through a related diversification strategy) makes it difficult to exercise financial control, since attributing financial performance correctly to one or the other divisions may involve subjective discretion. This implies that there is a possibility of dilution of internal control when a firm pursues extensive product diversification using the resources of various divisions.
Of all the options available in the organisational structure, an M-Form is the one most used. Chandler identified this form of structure as an innovative response to problems of coordination and control which are normally faced in a functional structure. Other advantages include ease in evaluating business performance, less complexity in allocating financial resources, improved coordination, and availability of more time to the top management for concentrating on long-term strategic issues.
For diversified businesses (both related and unrelated), the M-Form structure is more useful vis-a-vis the functional structure, which works well when the firm is implementing single or dominant business strategies. Once an M-Form structure is put in place, a firm’s potential to enter a large number of diversified businesses (related/unrelated) increases.
Johnson and Scholes have listed the following advantages and disadvantages of functional and multidivisional structures:
FUNCTIONAL STRUCTURE:
Advantages:
a. The CEO in touch with entire operations,
b. Reduction/Simplification of control mechanisms,
c. Clarity of roles and responsibilities,
d. Specialists at senior and middle management levels, and
e. Efficiency and specialization.
Disadvantages:
i. Senior management overburdened with operational matters,
ii. Lack of attention to strategic issues,
iii. Difficulty in coping with diversity,
iv. Coordination between different departments and functions become difficult, and
v. Inability to adapt to changes.
MULTIDIVISIONAL STRUCTURE:
Advantages:
a. Focus on each business area (product-market),
b. Ease of evaluation of unit performance,
c. Facilitates acquisition/divestment of units,
d. Helps in drawing attention of the senior management to strategic issues, and
e. Facilitates development of general management competencies.
Disadvantages:
i. Possible confusion with regard to the extent of centralization and decentralization.
ii. Inter-divisional conflict and resulting sub-optimization.
iii. Problems of setting transfer prices for inter-unit trading.
iv. Duplication of resources.
v. Difficulty in coordination if there are too many divisions.
GEOGRAPHICAL STRUCTURE:
In a geographical structure, a firm’s overall geographical spread is divided into a certain number of homogeneous regions or territories, each headed by a regional or territorial head responding to the CEO. Each region, which deals with all the products of the company, is made by and large independent with the required resource support and is expected to pursue region specific strategies. Sometimes, a geographical structure is built-in within a functional or M-Form structure. For example, in cases where there are one or two centralized manufacturing facilities, the firm can have a functional structure below the CEO, but within the overall sales function, it can have a geographical structure.
MATRIX STRUCTURE:
A matrix structure is a combination of the structural options covered in (1) and (2) above. Such structures are chosen when there is a need for more than one consideration for designing the organisational structure (for example, there is no clear-cut preference for either functional specialization or product-market focus or geographical thrust). Normally a matrix structure reflects the need to recognize the simultaneous importance of at least two dimensions, such as, (i) product focus as well as geographical thrust, or (ii) product focus as well as functional specialization.
While there are certain advantages of a matrix structure, there are also certain disadvantages, as can be seen from the following:
Advantages:
a. Better quality of decision making since multiple perspectives are allowed to be built-in.
b. Face-To-Face contact helps in reducing the impact of bureaucracy.
c. Improved managerial motivation and development.
Disadvantages:
i. Dilution of priority, lack of ownership.
ii. Confused/unclear job and task responsibilities.
iii. Lack of focus in cost and profit responsibilities.
iv. Potential for conflict within the teams.
If managed well, by clearly spelling out which arm of the matrix should lead, and duly supported by the right managerial mind set and competencies (for example, the managers should be capable of collaborating across the matrix and they should be comfortable to work under ambiguity), a matrix structure can deliver the desired results. It can improve the quality of decision making in situations where exclusive emphasis on one dimension (be it product, function or geographical) is likely to undermine the overall interest of the organisation.
Combination of Structural Forms:
Very few companies adopt one or the other of the above alternatives in their pure form. Further, no organisation adheres strictly to one particular type of structure for all times to come.
A host of factors, such as:
(i) The strategy the company wishes to follow,
(ii) Its history, tradition and culture,
(iii) The profile of people and their skill level,
(iv) Managerial competencies and motivation,
(v) Requirements of planning, evaluation and control,
(vi) The need for collaboration/liaison between various functional/product/geographical groups for optimum decision making, etc., determine what kind of structure will be appropriate for the firm.
Experience shows that in most cases, the organisation structure chosen after taking into account the just mentioned factors tends to be a mixed one, reflecting the features of more than one of the three types of structure described before.
References:
- “Principles of Business Management” by Dan Voich and Daniel A. Wren
- “Principles of Business Management” by Dr. S. C. Saksena
