Organization
MRK 151
Chapter 3
Organization
Formal grouping of people and activities to facilitate
achievement of the firm's objectives.
Relationship of Objectives and
Organizational Levels
Socioeconomic
purpose
mission
Overall objectives of the
organization
More specific overall objectives
Division objectives
Department and unit objectives
Individual objectives: performance- personal development objectives
Organization Theory
Is the study of structure , functioning and performance of
organizations and the behavior of groups and individuals
within them.
Approaches
There are two approaches to understanding organization :
1- organization is understood as a dynamic process and a
managerial activity which is necessary for brining people
together and unifying them in the pursuit of common
objectives.
2- organization refers to the structure of relationship among
positions and jobs through which goals are sought to be
attained.
Common Features
1- division of labour
2-coordination
3-accomplishment
4-authority-responsibility structure.
Process of Organization
1- determination of objectives
2-enumeration of activities
3- classification of activities
4-fitting individuals to functions
5- assignment of authority for action
Activity Analysis
Recommended by Peter Drucker , is to discover the primary
activity of the proposed organization , for it is around this
only that other activities will be built.
Decision Analysis
Recommended by Peter Drucker , is particularly important
for deciding upon the number of levels or layers in the
organization structure.
Formal and Informal Organization
_Formal organization : refer to the structure of jobs and
positions with clearly defined functions and relationship as
prescribed by the top management and bound by rules ,
systems and procedures.
_informal organization: refer to the relationship between
people in an organization based not on procedures and
regulations but on personal attitude.
Importance of organization:
It is the foundation of management as well as its chief tool.
Principles of Organization
The basic principles:
1-unity of objectives
2-efficiency
3-span of management
4-division of work
5- functional definitions
6- scalar principle (chain of command)
7- exception principle
Principles of Organization
8- unity of command
9- unity of direction
10- responsibility
11- authority and responsibility
12- balance
13- flexibility
14- continuity
15- facilitation of leadership
Types of Organizations
1- military of line system
2- functional system
3- line and staff system
4- matrix system
5- hybrid design
Types of Organizations
Military of Line System
authority flows from the top to the lowest
General Manager
Manager:
South India
Division
Manager:
District 1
Manager:
South India
Division
Manager :
District 2
Manager :
District 3
Manager :
District 4
Types of Organizations
Military of Line System
The merits :
1- simplicity
2- unified control
3- strong discipline
4- fixed responsibility
5- prompt decision
6- flexibility
Types of Organizations
Military of Line System
The demerits:
1- overloading
2- lack of specialization
3- inadequacy of communication
4- scope for favoritism
5- suitability
Types of Organizations
Functional System
Most of the business have separate departments , each one of
these departments would serve the rest of the organization.
Types of Organizations
Functional System
The merits:
1- take advantage of specialization of functions.
2- higher efficiency : limited number of operations.
3- separation of mental and manual functions.
4- facilitates mass production through : specialization and
standards.
Types of Organizations
Functional System
The demerits:
1- unstable : making the worker wok under several different
bosses.
2- it is complicated in operation.
3- difficult for the management to fix responsibility.
4- conflict among foremen of equal rank.
Types of Organizations
Line and Staff System
the departments performing former group of activities are in
line ones , and those performing latter group of activities are
staff ones.
Types of Organizations
Line and Staff System
Types of Organizations
Line and Staff System
The merits:
1- planned specialization
2- quality decisions
3- prospect for personnel growth
4- training ground for personal
Types of Organizations
Line and Staff System
The demerits:
1- lack of well-defined authority
2- line and staff conflicts
3- suitability : not suitable for small organizations.
Types of Organizations
Matrix Organization
Matrix design features a multiple command structure in
which an individual may have any number of superiors ,
including one functional superior and one or more project
manager.
It is has been found to be successful under three major
situations:
1-strong environment pressure
2-share and integrate information with the company
3-limited resources to be shared
Types of Organizations
Matrix Organization
Types of Organizations
Matrix Organization
The merits:
1- involves and challenges matrix team members.
2- provides enlarged tasks for people.
3- develops employee skills
4- encourages people to identify with end products.
5- foster flexibility throughout the organization.
Types of Organizations
Matrix Organization
The merits:
6-motivates cooperation between the different
specializations.
7-provides for integration of organizational information.
8- fosters the development of managerial skills
9- frees top management for effective planning.
Types of Organizations
Matrix Organization
The demerits:
1- demands high level of interpersonal skills.
2- negative impact on morale when personnel are reshuffled.
3- foster confusion from multiple-command structure.
4- lead to power struggles between functional and project
managers.
5-causes to lose sight of broader organizational goals
6- causes duplication of efforts by project groups.
7- costly to implement and maintain.
Types of Organizations
Hybrid Organization
It is utilizes both functional and divisional departments:
Next example :
Functional department
Geographic department
Products department
Types of Organizations
Hybrid Organization
Bank
president
Executive
VP
Bank
operation
VP
Accounts
processing
VP
personnel
Executive
VP
Branch
operation
Branch
manager
City center
Branch
manager
Parkview
mall
branch
manager
North side
mall
Executive
VP
Loans and
investment
VP
Personal
leans
VP
Commercial
loan
Types of Organizations
Hybrid Organization
The advantages:
1-The whole organization enjoy benefits of both functional
and divisional structures.
2-Flexibility in the division and efficiency in the functional
department.
the disadvantage:
Create conflict between headquarter and divisional
functions.
Departmentation
Departmentation is two types: functional and divisional.
1- functional departmentation: involves grouping of people
on the basis of their overall function.
Advantages:
_ provides specialization
_ allows task assignments consistent with technical training
_ allows economic of scale
_ allows excellent coordination within functions
_ suited to suitable environment
_ facilitates top management in direction and control
Departmentation
Departmentation
_ Disadvantages:
_ poor communication across functional departments
_ slow response times to external changes
_ concentration of decisions at the top causing delay
_ difficulty in pinpointing responsibility
_narrow perspectives within functions
_fails to encourage creativity
Departmentation
2- divisional departmentation:
Can further be divided on the basis of : product , customer ,
and location.
(A) Product departmentation : it is the technique of creating a
division or department for each product or product line .
Departmentation
Advantages:
_provide high product visibility.
_suited for rapid change.
_allows parallel processing of multiple tasks.
_clearly defines responsibility.
_permits full time concentration on tasks.
_fosters the training of general managers.
Departmentation
Disadvantages:
_promotes neglect of long-term priorities.
_causes conflict between divisional tasks and corporate
priorities.
_fails to encourage the coordination of activities.
_allows in-depth competencies to decline.
Departmentation
(B) Customer departmentation: creating a division or
department for each of its customer groups.
advantages:
_ fosters an intense focus on the unique needs of the
customers.
_ promotes strong public image.
_ adaptive to environmental changes.
_ facilitates parallel processing of multiple tasks.
_ facilitates a strong marketing philosophy.
_ provide a clear placement of responsibilities.
Departmentation
Disadvantages:
_ create conflict between divisional tasks and corporate
priorities.
_ does not promote coordination.
_ wastes resources through duplication of effort.
_ tends to lessen top management control.
Departmentation
(C) geographical departmentation: require the creation of
divisions and/ or departments of fulfill the territorial needs of
an organization.
Advantages:
_ promotes concern for regional customer needs.
_ fast response to the environment.
_ promotes flexibility , focus on regional goals.
_ fosters coordination across functional departments.
_ aids in the development of general management.
Departmentation
Disadvantages:
_ fails to produce specialization.
_ encourages competition for resources.
_ tends to lessen top management control.
Centralization and Decentralization
Centralization : wherein much of the decision-making
authority is retained at the top of the managerial hierarchy.
Decentralization : wherein much of the decision-making
authority is pushed downward to the lower management
level.
Centralization and Decentralization
Advantages of centralization:
_ broad overview of business is easier to achieve.
_ strategic direction setting is easier.
_ gives absolute and clear control.
_ makes administration easier.
_ common standards can be fixed.
_ provides certain expert functions cost effectively.
_ conflicting decisions are easier to avoid.
_ economies of scale can be achieved.
Centralization and Decentralization
Advantages of decentralization:
_ business can act quickly.
_ decision-making is quicker , clearer , and understanding of
local conditions.
_ greater likelihood of innovation and creativity.
_ local responsibility and authority result in effective
development of managerial skills.
_lead to greater productivity and profitability.
_burden of administration and paper work are reduce.
Functional departments will be learner and easier to control.
Authority and responsibility
Authority is : legal , or rightful power that gives a right to
command or to act.
Responsibility : the obligation of a subordinate to whom a
duty has been assigned, to perform the duty.
Source of authority:
There are two theories :
_ the formal authority theory
_ the acceptance theory
Responsibility
responsibly arises from the superior- subordinate
relationship.
The informal relationship may have the effect of reducing
the influence and power of the manager .
Responsibility and delegation :
Responsibility can not be delegated . “accountability”
indicate liability for the proper discharge of duties by the
subordinate.
Principles of Delegation
1- principle of functional definition
2- scalar principle
3- authority-level principle
4- principle of unity of command
5- principle of parity
Mistakes in Organization
1- failure to plan properly
2- failure to clarify relationship
3- failure to delegate authority
4- failure to balance delegation
5- confusion of lines of authority and of information
6- authority without responsibility
Mistakes in Organization
7- responsibility without authority
8- careless application of staff device
9- misuse of functional authority
10- multiple subordination
11-misuse of service departments
12- overorganizing