STUDY MATERIAL - MBA (AI&DS)

MANAGEMENT PRINCIPLES AND PRACTICES

MODULE - II
ORGANISATION
CONCEPT OF ORGANISATION
The term organisation means different things to different people. In order to clarify
someone’s doubt it is better to go through the different heads to understand it, like-
Organisation as-
 An Entity - Here organization is referred as an enterprise as a whole. i.e. collection
of resources fro achieving common objectives.
 Group of people - When organization is referred to as a group of people, it is
mostly referred to as different groups created either formally or informally.
 A structure - Organisation is no more than the framework within which the
responsibilities of management of an enterprise are discharged. According to this
definition, organization sets up the scope of activities of the scope of activities of the
enterprise by laying down the structure of relationships. It is the skeleton framework
of an enterprise, designed to achieve is common goals.
 A process - “Organisation involves identification and grouping the activities to be
performed and dividing them among the individuals and creating authority and
responsibility relationships among them for the accomplishment of organizational
objectives.”
 A function of management - As a process organisation refers to one of the
important functions of management. It is a process of determining, arranging,
grouping and assigning the activities to be performed for the attainment of common
objectives.
ORGANISATION STRUCTURE
Organisation structure refers to the network of relationships among individuals and
positions in an organisation. It is the skeleton framework of an enterprise. It is a group
of interacting and interdependent individuals working toward a common goal. An
Organisation Structure shows the authority and responsibility relationships between the
various positions in the organisation by showing who reports to whom.
DESIGN (STRUCTURAL CONFIGURATION)
The process of designing the structural configuration of Organisation involves the
following steps: -
Step-I: - Identification of activities: -The organisation structure is developed to
achieve objectives. Therefore, first of all, the activities necessary for the
accomplishment of objectives are determined. While identifying and classifying
activities, management must ensure that-
 All the necessary activities are performed.
 There is no unnecessary duplication in performing activities.
 The different activities are performed in a coordinated manner.

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Step-II: - Grouping of activities: - Clearly related and similar activities are grouped
together to form departments, divisions and sections. Grouping may be done on several
bases depending on the requirements of the situation. Such grouping of activities is
called departmentation.
Step-III: - Assignment of duties: - Each group of related activities is assigned a
position most suited for it. While assigning duties, the requirements of the job and the
competence of the individual should be properly matched together. The process of
assigning duties goes up to the last level of the organisation. It creates responsibility
and ensures certainty of work performance.
Step-IV: - Delegation of Authority: - It creates superior-subordinate relationships
between various positions in the organization. Such relationships and channels of
communication should be clearly defined. Every individual should know clearly from
whom he is to take orders and to whom he is accountable for his performance.
Peter Drucker has suggested three specific ways to find out what kind of structure is
needed to attain the objectives of an enterprise. They are- a). Activities to be
performed, b). The decisions to be made and c). The relations to be established.
a) Activities Analysis: - The first stage in designing an organization structure is to
identify and analyse the activities needed to achieve the objectives of the
organization. The next step is to divide and subdivide them into smaller
homogeneous and manageable units so that they can be assigned to different
individuals.
b) Decisions to be made: - The next stage in designing the organization structure is
to identify the decisions needed to achieve the objectives and to classify these
decisions according to their kind and character. Drucker suggested four criteria for
determine the nature of decisions, such as-
 Degree of futurity: - A decision which commits the organization for a long period
in future is a major decision and should be taken by the top management.
 Impact: - The decisions affects several functions, it is of high order and should
be taken at a higher level of authority. If the decision affects only one function, it
may be taken by the lower level.
 Qualitative factors: - A major decision involves several qualitative or intangible
factors.
 Periodicity: - Major decisions are unique and should be taken immediately and
the minor decisions are repetitive and are taken frequently.
c) Relations Analysis: - It involves what contributions a manager has to make and
what contribution he will require from other managers.
DETERMINANTS OF ORGANISATION DESIGN:
Since organizations have different characteristics and requirements, it would not be
possible to identify an ideal organization structure that would fulfill all the diversified

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MANAGEMENT PRINCIPLES AND PRACTICES
needs. But while designing the organizational structure, management should consider
the following factors-
a) Goals: The goals of an organisaton play a decisive role in designing its structure.
An organisation structure should be made in such a way that it should facilitate the
achievement of organisational goals in most efficient and economical way. As the
goals of any organisation help in drag out the different activities and tasks to be
perform & what the organisation seeks to achieve.
b) Strategy: Strategy is a contingent short-term plan to achieve the organisational
objectives. And it involves the decisions as to which sector the organisation will
enter, how will it compete and where to compete. And strategies are formulated
after careful analysis of Threats and opportunities of the environments and within
that the organisation has to build its strengths and avoid weaknesses. So above all,
these factors lead to determine different tasks, activities and sub activities related to
designing an organisation structure.
c) Size: It is another factor in designing the organisation structure. As an organisation
grows in size, there is a tendency to greater specialization. The number of subunits
increases and more levels are created in the hierarchy.
d) People: The organisation structure is a major source of satisfaction for the
employees. Therefore, the organisational design should reflect the thinking and way
of working of the employees. Organisation structure makes contributions to
employees’ motivation and performance. Therefore tasks, roles and the network of
relationships should be designed around people.
e) Technology: If the technology is routine and simple; a less complex structural
design is needed. The technology restricts the amount of discretion, which can be
given to subordinates, hence influence organisation structure.
f) Environment: The different environmental factors (both internal and external)
should be taken into consideration while designing the organisation structure. As
nowadays every organisation is an open system. Again, firms operating in a simple
and stable environment tend to have simple and organic structures- wherein jobs
roles and relationships are not rigidly defined. On the other hand, firms operating in
a complex and dynamic environment are forced to adopt more differentiation and
integration in their structures.
PRINCIPLES UNDERLYING IN DESIGNING ORGANISATION STRUCTURE:
The principles are guidelines for planning an efficient organisation structure. Therefore,
a thorough understanding of the principles of organisation is essential for good
organisation. And the basic principles of organisation are as follows: -
a) Consideration of objectives: An organisation structure is sound when facilitates
the accomplishment of objectives. Therefore, the organisation as a whole and every
part of it must geared to the basic objectives of the enterprise.

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b) Specialization and Division of works: The activities of every member of the
organisation should be confined, as far as possible, to the performance of a single
function.
c) Span of control: Every manager should have a limited number subordinates
reporting to him directly. Generally, the span should be narrow for complex work
and wide for simple and routine work. Span should be neither too wide nor too
narrow.
d) Scalar Principle: There should be a clear chain of command extending from the top
to the bottom of the organisation. Every subordinate should know who is his
superior and who are his subordinates.
e) Functional Definition: The duties (functions), authority and responsibility of every
position should be clearly defined so as to avoid duplication of work and overlapping
of functions.
f) Exception principle: Only exceptional matters which are beyond the authority of
lower level should be referred to higher levels. Executives at lower levels should
deal with routine matters. This is also known as authority level principle.
g) Unity of command: Each subordinate should have only one superior, whose
command he has to obey. This is necessary to ensure discipline and to fix
responsibility for results.
h) Balance: A proper balance between centralization and decentralization should be
kept. Each function in the organization should be developed to the point at which the
value received is at least equal to costs.
i) Efficiency: The organsation structure should facilitate the achievement of
objectives at minimum possible cost. It should permit the optimum use of resources.
j) Flexibility: The organization structure should be flexible enough to accept any kind
of changes in the environment and technology. At the same time it should be stable
to withstand changes.
k) Continuity: Proper arrangements should be made for the training and development
of executives.
l) Facilitation of leadership: Organisation structure should be so devised that there
is enough opportunity for management to give effective leadership to the enterprise.
m) Parity of Authority and Responsibility: In every position, the authority and
responsibility should correspond. Adequate authority should be delegated to all
levels and whatever authority is delegated the person should be held responsible.
n) Coordination: The organization structure should facilitate unity of effort and
coordination among different individuals and groups. Channels of communication
should be open and clear.
DISFUNCTIONALITIES OF ORGANISATION STRUCTURE:
A sound organization structure has so many merits to an organization. Still there
happens to arise some disfunctionalities in it, such as-

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a) Authority misused has a negative impact on operation of an organization.
b) Since responsibility is an obligation that a person accepts, it can’t be delegated to
the subordinates. Occurrence of it misleads the whole organization.
c) Some time superiors unwilling to delegate (because of overconfidence, lack of
confidence, laziness and suppressing character); which in turn create negative
impact over organization structure.
d) While delegation of authority can be a highly motivating factor for some
subordinates, others may be reluctant to accept it because of some reasons. (Such
as- when the same subordinates did any mistake before and in a fear to avoid the
authority, unwilling to take additional pressure apart from regular duties and lack of
self-confidence).
e) Decisions on wide or narrow span of control sometime create bad environment in
the organization.
f) Decisions on adaptation of Centralization and Decentralization sometime mislead
the whole organization structure.
g) Application of right principles at right stage in organization level is a crucial factor.
Any deviation will definitely create some ill effect on organization structure.
h) Improper arrangement of determinants of organization structure has negative impact
on the whole system.

CENTRALISATION
Centralization is the systematic and consistent reservation of authority at central points
within the organization. Here the power and direction are concentrated at the top level.
Little delegation of authority is there. Most of the decisions are taken at the top level
instead of the point where the work is being one.
Importance of centralization
Most organization starts with centralization of authority initially. Such an arrangement
helps the manager to be in touch with all operations and facilitates quick decision-
making. Centralization may be essential for a small organization to survive in a highly
competitive world. Centralization forces managers to develop an overall organization
prospective, instead of a parts mentality, leading to better decisions. More centralized
decisions also reduced total management costs.
 Factors responsible for centralization: -
a) To facilitate personal leadership
b) To provide integration
c) To achieve uniformity of action
d) To handle emergencies.
e) To improve efficiency by avoiding duplication.

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 Advantages of Centralization: -
a) It is a means for adopting and enforcing uniform policies and it achieves
coordination and conformity, since all decisions are taken at one central point.
b) The quality of decisions is expected to be very high, as the top executives who
are having the requisite experiences will take all decisions.
c) Centralization makes it easier to achieve balance among the activities of
different departments and functional areas.
d) Centralization results the optimal utilization of human and physical resources.
e) Centralization can be highly motivating and morale boosting factor for executives
at the top level.
 Disadvantages of Centralization: -
a) There is a delay in decision-making, because all the decisions are taken at the
top level.
b) There may be problems in communication, because there are several layers
between the top management and the lower level management.
c) There is a scope of authority misused at the top level.
d) There occurs zero development at the lower level management, as they are not
involving in the decision-making.
e) Fortunes of the organization depend upon the health and validity of top-level
executives.
DECENTRALISATION
Decentralization means dispersal of decision-making power to the lower levels of
organization. Decentralization applies to the systematic delegation of authority in an
organization wide context. It is the distribution of authority through out the organization.
Again decentralization refers to the systematic effort to delegate to the lowest levels all
authority except that which can only be exercised at central points. Effective
decentralization requires a proper balance between dispersal of authority among lower
levels and adequate control over them.
There are three ways to assign authority and responsibility to lower level people of an
organization. And these three types of decentralizations are as follows:
 PROFIT CENTRE - It is a responsibility center, whose budgetary performance is
measured by the difference between revenues and costs, i.e. profits.
 COST/EXPENSE CENTRE - It is a responsibility center, where budgetary
performance depends on achieving goals by operating within standard cost
limits.
 INVESTMENT CENTRE - It is a responsibility centre, whose performance is
evaluated on the basis of return on investment.
DEGREE OF DECENTRALIZATION:
There are three criteria to measure degree of decentralization, such as-

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A. What kind of authority is delegated?
B. How far down in the organization it is delegated?
C. How consistently it is delegated?
Earnst Dale has given four tests to measure the degree of decentralization, such as-
 Number of decisions - The greater the number of decisions made at lower
levels, the grater the degree of decentralization
 Importance of decisions - The more important are the decisions made at lower
levels; higher is the degree of decentralization
 Effects of decisions - More the functions affected by decisions made at lower
levels, higher is the degree of decentralization. A company that permits both
financial and personal decisions at lower levels is more decentralized than the
company, which permits only operational decisions.
 Checking of decisions - Decentralization is greater when there is no checking
of decisions made. It is comparatively less when superiors have to be informed
of decisions. It is the least when superiors are informed before decisions are
made.
FACTORS DETERMINING DECENTRALIZATION:
The following factors determine the degree of decentralization of a particular
organization:
a) Size and complexities of an organisation - In a large and complex organization,
there is greater need for decentralization. But in a relatively small and simple
organisation, top management can make most of the decisions.
b) Dispersal of operation - When the production and sales of an enterprise are
geographically scattered, centralized control becomes very difficult and there is a
greater pressure for decentralization of authority. But if all activities are located in
one building centralized control is much easier.
c) Degree of diversification - In a company having several diverse production lines,
decentralization is not only necessary but also beneficial. High degree of
standardization, on the other hand, results in decentralization.
d) History of the enterprise - An organisation, which has grown internally, is likely to
retain its structure to some extent. On the contrary, if it has expanded through
amalgamation or absorption, it is likely to be more decentralized.
e) Outlook of the top management - When the top executives believe in individual
freedom, there will be high degree of decentralization. But if top management is
conservative and prefers centralized control it is likely to centralize authority.
f) Availability of competent personnel - It is advisable to decentralize authority only
when managers at lower levels are able and experienced. Lack of trained
executives will restrict decentralization.

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g) Nature of functions - Generally, basic functions like production and sales are more
decentralized than staff functions like personnel, finance, research and
development.
h) Communication systems - An effective communicative system is required to
coordinate and control the activities of operational units. In case communication
system is ineffective, centralization should be advocated.
i) Planning and Control procedures - If the organisation has clear rules, regulations,
objectives; superiors are willing to allow subordinates to make decisions
independently. Decentralization system can be successful, when there is a sound
system of control.
j) Complexities of the situations - When business conditions are highly uncertain, high
degree of freedom to operating units may endanger the very existence of the
enterprise.
DECENTRALIZATION VS. DELEGATION
Basis Delegation Decentralization
Definition It is a process It is the end result of delegation
Scope It can take place from one person It takes place when delegation is
(superior) to another made to all the employees (at all
(subordinate) and be a complete levels) at a particular level (Top
process level)
Control The person who delegates Control is exercised in a general
authority keeps the power to manner. The authority to control
control with himself may also be delegated to the
lower levels
Compulsion It is essential for management It is optional. Management may
process, if an executive wants to or may not find it necessary to
get the help of others in getting decentralize authority
things done
Relationship It establishes superior It is a step towards creation of
subordinate relationship semi-autonomous units
Philosophy It is a technique of management It is a basic philosophy of
to get work done management, which influences
the design of O.S
Advantages of Decentralization:
a) Relief to top management.
b) Motivation of subordinates.
c) Quick decisions.
d) Facilitates growth and diversification.
e) Executive development.
f) Effective communication.
g) Efficient supervision and control.

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Disadvantages of Decentralization:
a) Expensive one.
b) Difficulty in control and coordination.
c) Lack of uniformity.
d) Not suitable for Narrow product lines.
e) Failure in facing External uncertainties.

TYPES OF ORGANISATIONAL STRUCTURE

FORMAL AND INFORMAL ORGANIZATION:
BASIS FORMAL ORGANISATION INFORMAL ORGANISATION
It refers to the organization
structure deliberately created by
management for achieving the It refers to the pattern of
objectives of the enterprise. activities, interactions and human
It is a system of consciously relationships, which arise
coordinated activities of two or spontaneously due to social and
more persons toward a common psychological forces operating at
CONCEPT
objective. the work place.
The concept of formal It arises naturally on the basis of
organization is built around four friendship or some common
pillars, namely- interest, which may or may not
i) Division of labour, ii) scalar and be related with work.
functional processes iii).
Structure & iv). Span of control.
ORIGIN Created deliberately. Arise spontaneously.
NATURE Planned and official. Unplanned and unofficial.
It has no predetermined
objectives. It is created only
It is continuously created to
OBJECTIVE because of informal relationships
achieve predetermined
among people in the formal
objectives.
organisation.
GOALS Profits and service to the society. Satisfaction of members.
SIZE Large Small
Definite official hierarchy of
Structure less, impersonal and
STRUCTURE relations- mechanical and
emotional.
rational organizational structure.
Formal organisation follows the
CHAIN OF Informal organisation doesn’t
official chain of command, which
COMMAND have a fixed chain of command.
can’t be changed.
CONTINUITY Stable Instable and dynamic.
FOCUS Built around jobs. Built around people and their jobs
AUTHORITY Position flows, top down. Personal flows, bottom up.

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CONTROL
Rigid rules and regulations. Group norms and values.
PROCESS
Well-defined and official paths.
COMMUNIC Unspecified channels. Two-way
One-way and slow flow of
ATION and fast flow of information.
information.
The managers who have formal Informal leaders are not
LEADETRSH
authority provide leadership to appointed, but choosen by the
IP
the workers. group members.
PATTERN It develops social norms of
It has a prescribed pattern of
OF behaviour through mutual
behaviour for its members.
BEHAVIOUR concent.

LINE ORGANIZATION
Line organization represents the hierarchical arrangement, in a direct vertical
relationship through which authority flows. Otherwise known as scalar and military
organization. The quantum of authority is high at the top and reduces at the bottom
gradually. Every department is self-contained and works independently of other
departments. Every person in the organization is in the direct chain of command.

GENERAL MANAGER

PRODUCTION MANAGER FINANCE MANAGER MARKETING MANAGER

SUPERINTENDENT ASST. FINANCE MANAGER ASST. MARKETING MGR

FOREMAN ACCOUNTANTS SALES SUPERVISORS

ADVANTAGES:
a) Simplicity: More simple to establish and operate. Easy to understand. Authority and
responsibilities are simple, direct and clear.
b) Prompt Decision: It facilitates prompt decision-making.
c) Effective Discipline: Each position is in direct control of immediate superior.
Therefore it is easy to maintain discipline in the whole organization.
d) Orderly communication: Communication flows directly and clearly.
e) Unified control: As the discipline is effective due to unified control only.
f) Economical: It is quite economical because staff specialties are not required.
g) Fixed Responsibility: Every manager is held responsible for the results of his unit.
h) Coordination: As there is an unity of command and effective communication system,
the coordination will be very good.

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DISADVANTAGES:
a) Lack of Specialization: There is no scope of specialization. A manager has to
perform variety of function, which might not be interrelated.
b) Overloading: As managers are overloaded with works, they do not find time for
innovation and creativity.
c) Autocratic approach: The line of authority is direct and requires obedient in the part
of subordinates. As a result, decisions are arbitrary and there is no scope of
favoritism.
d) Low Morale: The opinions and grievances of the subordinates are not properly
coordinated top the superiors, as there is no scope for that, which result the loss of
morale of the subordinates.
e) Rigidity: Discipline is emphasized so much that it may be difficult to change.

LINE AND STAFF ORGANIZATION:

In Line and Staff organization, the authority flows in a vertical line in the same manner
as in the line organization. In addition, staff specialists are attached to the line positions
to advise them on important matters. These specialists don’t have power of command
over subordinates in other departments. They are purely of advisory nature. When the
work of the line executives increases; they need advice, information and help from staff
specialists. Therefore, staff positions are created to support the line managers.

GENERAL MANAGER

PRODUCTION MANAGER

REPAIRS AND
QUALITY CONTROL
MAINTENANCE
. INSPECTOR
MANAGER

SUPERINTENDENT
Staff Positions
Line Position

ADVANTAGES:
a) Specialized Knowledge: Line managers get the benefit of specialized knowledge of
staff specialists at various levels.

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b) Relief to Top Executives: Staff carry out detailed investigation and supply
information to line executives. Therefore, the burden of line executives is reduced.
c) Quality Decisions: The decisions taken by the executives are more qualitative, as
they are based on the sound information provided by the staff specialists.
d) Flexibility: Line and staff organization ate more flexible than the Line organization.
As the organisaton expands, staff can be added to help the line managers. There is
more opportunity for advancement because a greater variety of responsible jobs are
available.
DISADVANTAGES:
a) Line Staff conflicts: The biggest demerit is the conflict arise between the line and
staff executives.
b) Confusion: In actual practice, it is very often very difficult to define clearly the
authority relationships between line and staff. In the absence of clear allocation of
duties, coordination it happens.
c) Ineffective Staff: Staff executives are not accountable for any results. Therefore,
they may not take their tasks seriously. They may also be ineffective due to lack of
command of authority.
d) Expensive: Line and Staff organization is quite expensive for small firms because
several experts have to be employed.
LINE ORGANIZATION VS. LINE AND STAFF ORGANISATION

Sl. No. Line Organization Line and Staff Organisation

Line refers to those positions,Staff refers to those positions, which

which have the responsibility of
have responsibility for providing
01 achieving the prime objectives of
advice and service to the line in
the organization. attainment of organizational
objectives.
There are no experts to assist There are official experts, known as
02 and advice the line officials. staffs, to assist and advice the line
officials.
03 There is strict discipline. There is very less strictness in
discipline.
There is no scope for friction There is always a risk of friction
04
between line and staff. between the line and staff executives.
It is not based on planned It is based upon planned
05
specializations. specializations.

FUNCTIONAL ORGANIZATION
As organization grows in size, line organization proves inadequate and it becomes
necessary to introduce specialization. Under functional organization, the organization is
divided into a number of functional areas. Each function is managed by the functional

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expert in that area. Every functional area serves all other areas in the organization. For
example- the purchase department handles purchases for all departments.
The executive in charge of a particular function issues orders throughout the
organization with respect to his function only.
Thus, an individual in the organization receives instructions fro several functional
heads.

GENERAL MANAGER

MARKETING PRODUCTION FINANCE

MANAGER MANAGER MANAGER
.

E1 E2 E3 E1 E2 E3 E1 E2 E3

-
ADVANTAGES:
a) Specialization: Functional organization promotes logical division of work. Every
functional head is an expert in this area and all workers get the benefit of his
expertise.
b) Reductions of workload: Every functional head looks after one function only and,
therefore, burden on top executive is reduced.
c) Better control: One man control is done away with and there is joint supervision of
works. As a result functional control becomes more effective.
d) Easier Staffing: Recruitment, selection and training of managers is simplified
because each individual is required to have knowledge of one functional area only.
e) Quality Decisions: The decisions taken by the executives are more qualitative, as
they are backed by the specialization they have.
DISADVANTAGES:
a) Double command: A person is accountable to several superiors. As a result, his
responsibility and loyalty get divided.
b) Complexity: There are many cross relationships, which create confusion.
c) Delay in decision-making: A decision problem requires involvements of several
specialists. Therefore, decision-making process in functional organization is very
slow.

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d) Problem of succession: Executives at lower levels don’t get opportunities of all
around experience. This may create problem of succession to top executive
positions.
e) Expensive:- As a large number of functional specialists is required, functional
organization is expensive.
f) Lack of coordination: A functional manager tends to have a limited perspective. He
thinks only in terms of his own department rather than of the whole enterprise.
Interfunctional conflicts will arise due to lack of coordination.

DIVISIONAL ORGANIZATION:
Growth through expansion of same line of business forces the organization to go for
functional structure. But, growth though geographic and product diversification
necessitates the adoption of Divisional structure. Otherwise it is called as profit
decentralization.
Divisional structure is similar to dividing an organization into several smaller
organizations but it is not quite same, since each smaller organization is not completely
independent. Each unit is not a separate legal entity; it is still a part of organization. And
each unit is directly accountable to the organization.
Basis of Divisional Structure:
Traditionally, the organizations went for product wise and territory wise diversification,
but nowadays, many organizations have moved from these bases to create divisions on
the basis of strategic business units. So the three ways of divisionalisation are as
follows-
a) Product wise: Here, each major product or product line is treated as separate unit.
Each unit has its own functional structure for various activities necessary for the
product.
b) Territorial Wise: - Here, regional offices are established as separate units. Each
regional office has its own set of functional departments and operates under the
strategic policies and guidelines established by the corporate management.
c) Strategic Business Unit: - The fundamental concept here is to identify the
independent product/market segments served by an organization, since each
product/market segment has distinct environments. Thus different SBUs are
involved in distinct strategic business areas with each area serving the distinct
segment of the environment.
ADVANTAGES:
a) Divisional structure emphasizes on the end result, that is, on product, or customer
through which revenue is generated in the organization.

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b) Since a division focuses its attention on a particular product or service, its
performance measurement is easier as the performance can be measure in the light
of contribution made by the division.
c) There is a higher level of management motivation, because managers work in the
environment of autonomy.
d) Through divisional structure, more managers with general outlook can be developed
who can easily take up the job at the corporate level. Thus, there is no problem in
managerial succession.
e) Each product/ customer is able to get specialized service, because a division
focuses the attention exclusively for it.

MANAGING DIRECTOR

CORPORATE LEGAL RESEARCH FINANCE

PLANNING SERVICES DEVELOPME

CONSUMER CHEMICAL ELECTRONICS

PRODUCT DIVISION DIVISION

MANUFACTURIN MANUFACTURIN MANUFACTURIN

G G G

MARKETING MARKETING MARKETING

PERSONAL PERSONAL PERSONAL

DISADVANTAGES:
a) It is a costly structure, because all the facilities have to be arranged for the divisions.
b) There is a lack of functional specialization, so most of the professionals do not feel
satisfied with this.
c) The control system is a major problem in divisional structure, though each unit is
measured by its contributions to organization. Because of poor information system
monitoring.

Dr. Amaresh C Nayak, Asso. Prof. (HR & OB)

 STUDY MATERIAL - MBA (AI&DS)
MANAGEMENT PRINCIPLES AND PRACTICES
MATRIX ORGANIZATION:
A Matrix Organization is a hybrid grid structure. It is two-dimensional pattern developed
to meet the problems of growing size and complexity of undertakings. And such
undertakings require an organization structure more flexible and technically oriented
than the traditional line and staff structure.
“Any organization that employes a multiple command system that includes not only the
multiple command structure but also related support mechanism, an associated
organizational culture and behaviour pattern; is called as a matrix structure.”
In matrix organization structure, a project manager is appointed to coordinate the
activities of the project. Personal are drawn from their respective functional
departments. Upon completion of the project, these people may return to their
respective departments for further assignment. Thus, each functional staff has two
bosses- his functional head and the project manager of the concerning project. Thus
the staffs are to follow two instructions. And a proper coordination is required at each
stage.
Similarly, matrix superior has to share the facilities with others. He reports in a direct
line to the top, but doesn’t have a complete line of command below.
MANAGING DIRECTOR

PRODUCTION MARKETING PERSONNEL FINANCE

PROJECT PRODUCTION MARKETING PERSONNEL FINANCE

A

PROJECT B PRODUCTION MARKETING PERSONNEL FINANCE

PROJECT PRODUCTION MARKETING PERSONNEL FINANCE

C

LINE AUTHORITY
PROJECT AUTHORITY

Dr. Amaresh C Nayak, Asso. Prof. (HR & OB)

 STUDY MATERIAL - MBA (AI&DS)
MANAGEMENT PRINCIPLES AND PRACTICES
ADVANTAGES:
a) Matrix organization focuses attention and resources on a single project. This leads
to better planning and control, which, in turn, help in completion of projects in time.
b) It is more flexible than the traditional functional organization.
c) It stresses authority of knowledge rather than status. Therefore services of
professional can be better used.
d) Matrix structure provides motivation to personnel engaged in project. It also
improves communication by encouraging direct contact between project manager
and functional group.
e) Most efficient use of resources is possible as functional and project managers jointly
use common resources.
DISADVANTAGES:
a) It violates the principle of unity of command as functional groups receive orders from
both functional and project managers.
b) The organizational relationships become very complex and there is great confusion
among personnel.
c) Coordination of people drawn temporarily from different functional departments
becomes very difficult. It is not a homogeneous group and in the absence of
functional head, the project manager can’t control its functioning.
d) Joint decision-making and sharing of resources are required. In the absence of spirit
of understanding and accommodation, vital decisions delayed.
e) Administrative costs are very high.

Dr. Amaresh C Nayak, Asso. Prof. (HR & OB)