INTRODUCTION TO MANAGEMENT

CHAPTER FIVE
ORGANIZING
5.1 Meaning and Definition of Organization
What is organization?
Organizing is the process of identifying and grouping tasks to be performed, assigning responsibility and
delegating authority and establishing relationship for the purpose of enabling to work most effectively
together in the accomplishment of objectives.
The organizing functions have the following four distinct activities
1. It determines what work activities have to be done to accomplish organizational objectives
2. It classifies the type of work needed and groups the work in to manageable work units.
3. It assigns the work to individuals and delegates the appropriate authority
4. It designs a hierarchy of decision –making relationship.
Organizing results in an organization structure that can be thought of as a frame work that holds the
various functions together according to the pattern determined by management. An organization structure
is a tool of management to achieve plans.

5.2. THE ORGANIZATION PROCESS

Step 1: Consider Plan and Goals: plan and their goals affect organizing and it’s result, the organization
Step 2: Determine the work activity necessary to accomplish objectives: what work activities are
necessary to accomplish the identified organization objective? Identify all activities necessary.
Step 3: Classify and group activities:
I. Examine each activity identified to determine its general nature ( marketing , production, finance,
personnel etc)
II. Group the activities in to these related areas.
III. Establish the basic department design for the organization structure
In practice, the first two activities occur simultaneously: example personnel related activities include
hiring. Developing, recruiting and compensating
In this situation management has been classifying and grouping activities using the guidelines of
homogeneity or similarity of activity. Groping similar activities is based on the concept of division of
labor and specialization.
The last work is departmentalization: i.e. a decision is being made on the basic organizational format or
departmental structure for the company.
Step 4: Assigning Work and delegate appropriate authority: this step is critical in both the initial and
ongoing organization process. Principle of functional definition (in establishing departments, the nature,
purpose, tasks, and performance of the department) must first be determined as a basic for authority. It
means that the activity determine the type and quantity of authority necessary. Authority does not come
first, assignments of activities establishes the basis for authority.
Step 5: Design a hierarchy of relationship: this step requires the determination of both vertical and
horizontal operating relationships of the organization as a whole.
The vertical structuring of the organization results in a decision – making hierarchy showing who is in
charge of each task of each specialty area, and of the organization as a whole. Level of management
creates the chain of command, or hierarchy of decision – making level, in the company.

The horizontal structuring has two important effects:

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1. It defines the working relationships between operating departments.

2. It makes the final decision on the span of control (the number of subordinates under the direction) of
each manager
The result of this step is a complete organization structure. This structure is shown visually by an
organization chart
Note: the organization process like other managerial functions is an ongoing process.
Figure 4.1 Organizational charts showing organizational structure

President

Vice-president Vice-president

marketing production

General General manager General manager General manager General manager

manager advertise Research and quality control manufacturing
development

Sales Seles manager

Manager Manager
manager Manager
Electronics Manager Manager manufact shipping
appliance operation
Product consumer uring receiving
s
research research

Fig .4.1 shows us that a chart tell us :

Who report to whom- the chain of command
How many subordinates work for each manager ( span of control)
Channels of official communication through the solid lines that connect each job (box)
How the company is structured – by function, customer, or product for example.
The hierarchy of decision – making – where a decision maker for a problem is located
How current the present organization structure ( if date is on the chart)
Type of authority relationships.

5.3. Formal and Informal organization

5.3.1 Formal Organization
It is an organization, which is established with intentional structure of roles in a formally organized
enterprise. It is one, which is drafted by top management. It is the organization structure, which defines
everything clearly, and explicitly. It is consciously, deliberately, and rationally designed by management
to achieve predetermined objectives. Thus, formal organization has the following important points:

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• It is consciously brought in to existence for the achievement of predetermined objectives.

• Authority and responsibility are clearly defined.
• The line of communication is also formalized (It is shown in organization charts)
• The relationship of the superior and the subordinate is fixed. (it is deliberately impersonal it is
bureaucratic in nature and operated by the rules & regulations; personal issues are not entertained.)
• It exists in a written form

5.3.2 Informal Organization

It is a network of personal and social relations not established or required by the formal organization but
arising spontaneously as people associate with one another. It is undocumented and officially
unrecognized relationship between members of an organization that inevitably emerges out of the
personal & group needs of employees. It is an organization, which consists of small social groups and
friendly associations with in the formal organization. It is genuine that whenever formal organizations are
formed, informal social groups are created within its framework. Such groups are created on the basis of
similarity of status, interests, beliefs, attitudes, back grounds, etc. Such small groups are results of the
need of people for social interaction, & for friendly associations. They affect the formal organization
positively or negatively, however, management neither creates nor abolishes them. Therefore, managers
should learn how to live with it, how to influence it, and how to direct its energy and initiative towards
constructive channels.
Managers, to deal with informal organizations the following general suggestions are helpful: Managers
accept and understand the informal organizations, Consider possible effects on informal organizations
when they take any action and Integrate, as far as possible, and the interests of informal groups with those
of the formal organization.

5.4 Centralization and Decentralization

Centralization and Decentralization pertains to the hierarchical level at which decisions are made.
Centralization means that decision authority is located near the top of the organization, where as in
Decentralization decision authority is pushed down to the lower levels. Decentralization is the opposite
of centralization. In a centralized set up, decision making authority is concentrated in a few hands at the
top. Contrary to this, is a decentralized organization, there is dispersal of decision making authority.
Decentralization is the tendency to disperse decision-making authority in an organized structure. It is a
fundamental aspect of delegation, i.e., to the extent authority is not delegated, it is centralized.

Reasons for Decentralizing

i. One major reason for decentralizing is to tap the knowledge and expertise of managers; it provides the
basis for greater innovation. It does so because it allows for the utilization of specialized knowledge.
Additionally, it provides greater flexibility for the organization to respond to new ideas and test them.
ii. To enable the organization to respond to a social environment faster.
iii. To help participate non-managerial employees in decision making process, consequently, it can
increase such employees' performance and commitment to decisions and promote better overall relations
between non-managerial employees and managers.

Advantages: Relives top management of some burden of decision making and forces upper level
managers to let go, Encourages decision making and assumption of authority & responsibility, Gives
managers more freedom and independence in decision making, Makes comparison of performance of

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different organizational units possible, Promotes development of general managers And Aids in
adaptation to fast changing environment.

Limitations of Decentralization; It increases the chances that a lower-level manager will take
undesirable action, It decreases control and monitoring of subordinates' activities and also may hinder co
ordination between diverse units, Makes it more difficult to have a uniform policy, Can be limited by the
availability of qualified managers And Involves considerable expenses for training managers.

5.5. NATURE/ BASIC CONCEPTS IN ORGANIZING/ ORGANIZATIONAL STRUCTURE

5.5.1 Work Specialization/ Division of Labor refers the degree to which Tasks are subdivided into
separate individual job, Employees perform only the tasks relevant to their specialized function And Jobs
tend to be small, but they can be performed efficiently. Work specialization permits employees to be
specialized in a specific job and be more efficient. However, it isolates employees and makes jobs boring.
Many organizations prefer to enlarge jobs to provide more challenges to employees and do activities in
teams.

5.5.2 Chain of Command is unbroken line of authority that links all individuals in the organization and
shows who reports to whom. Chain of command is associated with two underlying principles. Unity of
command (each employee is accountable to only one supervisor) the scalar principles (clearly defined
line of authority that include all employees). The chain of command illustrates the authority structure of
the organization.

Authority, Responsibility, Accountability and Transparency and Delegation

 Authority; is the formal and legitimate right of a manager to make decisions, issue orders, and
allocate resources to achieve organizationally desired outcomes. Authority is distinguished by three
characteristics;
– Authority is vested in organizational positions, not people
– Authority is accepted by subordinates
– Authority flows down the vertical hierarchy

In an organization different types of authority are created by the relationships between individuals and
between departments. There are three types of authority.
i. Line Authority

Line authority defines the relationship between superior and subordinate. It is a direct supervisory
relationship. It exists in all organizations as an uninterrupted score or series of steps. In line authority a
superior exercises direct command over a subordinate. Line authority is represented by the standard chain
of command that starts with the most superiors and extends down through the various levels in the
hierarchy to the point where basic activities of the organization are carried out.

ii. Staff Authority - is advisory in nature.

The function of people in a pure staff capacity is to give advice, expertise, technical assistance, and
support to help line managers to work more effectively in accomplishing objectives. Advisory authority
doesn’t provide any basis for direct control over the subordinates or activities of other departments with
whom they consult (Within the staff manager’s own department, s/he exercises line authority over the

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department’s subordinates). E.g. Personnel, research and development, legal, plant maintenance, compost
quality control, etc. Staff authority is advisory and normally flows upward.

iii. Functional Authority

It is the right which is delegated to an individual or department to control specified process, practices, or
provinces or other matters relating to activities undertaken by persons in other departments. Functional
authority is not restricted to managers of a particular type of department. It may be exercised by line,
derive or staff department heads, more often the latter two, because they are usually composed of
specialists whose knowledge becomes the basis for functional controls. Example: The Finance Manager
can give direct command to the marketing manager of the same level about financial affairs. The Legal
Advisor can give direct command to others concerning the legal affairs of the organization. The Personnel
Manager can give direct command to others regarding recruitment, selection, and performance appraisal
systems
Accordingly, Line and Staff Departments: line and staff authority are concepts that describe the authority
granted to managers. Line and staff departments have different roles or positions within the organization
structure. Line departments, headed by line managers, are the departments established to meet the major
objectives of the organization. Departments normally designated as line departments include production,
marketing, and finance. In functioning with employees and departments under their control, line
managers exercise line authority. Staff departments provide assistance to the line departments and to each
other. They can be viewed as making money indirectly for the company through advice, service and
assistance. Staff departments are created on the basis of the special needs of the organization. As an
organization develops, its need for expert, timely, ongoing advice becomes critical. Examples could be
legal, personnel, computer service, etc.

 Responsibility; is the duty to perform the task or activity an employee (or a manager) as assigned,
Managers are assigned authority commensurate with responsibility. It is a problem if authority
exceeds responsibility or when the authority is limited compared to the responsibility.
 Accountability; means that people with authority and responsibility are subject to reporting and
justifying task outcomes to those above them in the chain of command. Accountability is the
mechanism through which authority and responsibility are brought into alignment.
 Delegation is the process by which managers use to transfer authority and responsibility to positions
below them in the line of command. Because of human limitation, a single person can't do all tasks
necessary for accomplishing a group purpose. By the same taken, as enterprises grow, it is difficult
for one person to exercise all the authority for making decisions. To solve these problems managers
share their authority and responsibility to their subordinates which is delegation. Managers get
things done through other people. Since top managers cannot personally oversee all the activities of
an organization, they delegate authority to their subordinate managers. It is this delegation of
authority that gives subordinate managers the means with which to act.
 The Importance of Delegation
o It frees a manager from some time-consuming duties that can be adequately handled by
subordinates and lets the manager devote more time to problems requiring his/her full attention.
o Decisions made by lower level managers are timelier than those that go through scalar layers of
management.
o Subordinate managers can reach their full potential of and only if they are given the chance to
make decisions and to assume responsibility for them.

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Delegation process involves; the allocation of Duties; duties are the tasks and activities that a supervisor
desires to have someone else do. Before authority can be delegated, the duties over which the authority
rests must be allocated to a subordinate. The delegation of authority; The essence of the delegation
process is empowering another person to act for the manager. This is a passing of formal rights to act on
behalf of another. The assignment of responsibility; When authority is delegated, we must assign
responsibility. That is, when one is given "rights", one must also be assigned a corresponding "obligation"
to perform. To allocate authority without responsibility creates opportunities for abuse, and of course, no
one should be held responsible for what he/she has no authority. The creation of accountability; To
complete the delegation process, the manager must create accountability; that is, subordinates must be
held answerable to properly carryout their duties. They must accept credit or blame for their action. So
while responsibility represents a subordinate's obligation to carry out what is assigned, accountability is
the obligation to his or her superior to carry out the assignment in a satisfactory manner. Subordinates are
responsible for the completion of tasks assigned to them and are accountable to their superiors for the
satisfactory performance of that work.

o Obstacles to Effective Delegation

It takes two parties for delegation to be effective, a manager willing to delegate and a subordinate willing
to accept operating responsibility. Either party can be an obstacle to effective delegation.
 Management Obstacle; There are, nevertheless, several reasons why managers hesitate to
delegate authority to subordinates.
– Some managers feel the need to be in total control of every aspect of the organization
– Others lack confidence in their subordinates
– Fear the consequences of having subordinates make decisions
 Subordinate Obstacles In some cases / instances, subordinates are reluctant to assume an equal
amount of responsibility because of either of the following reasons.
– Subordinates usually feel that making decisions is the boss's job.
– Subordinates fear criticisms for making bad decisions
– Subordinate managers do not have enough factual information on which to base a decision.
– Subordinates are already overworked
– Subordinates lack self-confidence.
– There is a lack of incentive or reward for assuming a greater workload

5.5.3 Span of Management /Span of Control/

It is refers to the number of subordinates that a single manager can directly, immediately and effectively
supervise. It is related to the levels. We can have wide span, which is associated with few organizational
levels; and a narrow span which results in many levels. It is the number of employees who report to a
supervisor. It is the characteristic of a structure that determines how closely a supervisor monitors
subordinates. The average span of control used in an organization determines whether the structure is
Narrow (Tall) and Wide (flat).

5.6. BASES OF DEPARTMENTALIZATION

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Departmentalization is a process of combining jobs in to groups. A manager must have a basis or

rationale for combining jobs. The most bases of departmentalization used by organizations are;
Functional departmentalization.
Geographic/ territorial/ departmentalization.
Product departmentalization.
Customer departmentalization.
Multiple bases for departmentalization.
Matrix departmentalization.
5.6.1. Functional Departmentalization
A function refers to the various responsibility areas of an organizational component. It is the process of
grouping the organization’s activities in to units in logical manner on the basis of essential functions that
must be performed to attain organizational objectives/ goals. These functions include marketing, finance,
operations, manufacturing, personnel, engineering etc
Fig 4.2 functional departmentalization of a business firm

President / general manager

Marketing Production Finance Personnel

Research &
development
Advantage
It logical, scientific and time- tested method because it groups like or similar activities together to
facilitate specialization.
Efficiency is fostered through specialization
It makes supervision easier, since each manager is an expert in only a narrow range of skills.
Tight control of all functional units is assured b/c the top managers are responsible for the end
results.
It simplifies training
Disadvantages
People in functional department may lose sight of the overall operations of the business, it in turn
invites employees to de- emphasizes the overall company objectives.
Workers may develop highly specialized skills, but not general managerial abilities.
Consequently, functional departmentalization is not an ideal training ground for top level
managers.
Although there is strong relationship with in a function, co- ordination b/n functions is reduced.
Sometimes conflict develops among departments as each unit competes for resources.
The geographic area served: or the type of product or product line produced may require a
different type of departmentalization.
Responsibility for profit is at the top.

5.6.2 Geographic / Territorial / departmentalization

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Is often referred as geographic area or territorial departmentalization, and it groups business activities on
the basic of geographic region or territory, enabling a firm to adopt to local customs and laws and to
survey customers more quickly. According to this kind of departmentalization all activities in a
geographic area are assigned to particular manager. This individual is in charge of all operations in that
geographic area. It is especially attractive to large – scale firms or other. Enterprise whose activities are
physical or geographically dispersed. The territorial basis frequently is used by firms whose operations
are similar from region to region.
Fig 4.3 Territorial departmentalization of an organization

President

Vice-president
Operation

Manager Manager Manager Manager

Region 1 Region 2 Region 3 Region 4

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

Disadvantages
Requirement more persons with general manager abilities/ it is costly to implement
Duplication problem of top management control. This is b/c of having flat span of management.
Sometimes, the decision to set up geographic department is based on economic considerations; such as
transportation costs for raw materials, for distribution, etc.

5.6.3. Product Departmentalization

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

Fig 4.4 product departmentalization

President
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Vice- president
production

Product A Product B Product C Product D

Advantages
It enables the enterprise to focus attention on product lines, making it easier for
management to see the efficiency and effectiveness of production determining which
product is profitable or not
It improves co- ordination between function relating to a particular product.
Furnishes measurable training ground for general managers.
Facilitates use of specialized capital, facilities, skills and knowledge.
Disadvantages
Requires more persons with general manger abilities
There is an ever – present danger of duplication of activities.
It presents increased problems of top management control.

5.6.4 Customer departmentalization

It is the grouping of enterprise activities based on customer’s interests. Companies that must provide
special services to different groups set up department by types of customers, using customer
departmentalization. For example, a manufacturer may have both an industrial products division for its
industrial customers and consumer products division for other consumers. An airlines company may
make departments its selling departments for travel agencies, government passengers, tourists and
customers. Normally, setting up departments by customers is not a primary form of departmentalization.
It used instead with in some other frame work.
Fig 4.5 -customer departmentalization.
General Manager

Production Marketing Finance Personnel

Wholesale Retail Installment Export

Advantage
Encourages concentration on customer needs.

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Giving customers feeling that they have an understanding supplier

Developing expertise in customer area
Disadvantage
May be difficult to coordinate operations b/n competing customer demands
Require managers and staff experts in customer problems
It may result in under utilization of resources in some department
Customer groups may not always be clearly defined.
There may be duplication of activities.
5.6.5. Multiple bases for departmentalization
The methods cited above for dividing work area not exhaustive, there are many other ways to combine
jobs in to departments. Furthermore, most large organizations are composed of departments using
different bases.
Fig 4.6. Multiple bases of departmentalization

President

Vice-president Vice-president Vice-president

Product A Product B Product C

Personnel Production Marketing

Department Department Department

Training Recruiting Assembly Fabricating

Northern Southern
region region

5.6.6 Matrix Organization / Grid Organization/ Project Organization

It is an organizational arrangement that developed b/c of the need for quick completion of highly
technical projects that required significant contributions by two or more functional groups. It begins with
functional structure and then another structure organized by product or by client / customer or by project
is over laid up on the original structure. The result is that employees are assigned to basic functional
department, and at the same time, they are to work on a particular project for a particular customer/ client.
The essence of matrix organization normally is the combining of functional and project / product
departmentalization in the same organization stricture. Example – building a bridge
Advantage
Since there are a number of managers. There are more channels of communication.
It is oriented toward end results (the project objective are clear).
Professional identification is maintained.
Resources are used efficiently b/c workers are assigned to different projects as needed
and groups can share equipment.

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Disadvantage
Conflicts in organization authority exists ( it lends itself to power struggles).
Possibility of disunity of command exists.
Higher administrative costs.
It also results in higher over head costs b/c more managerial positions are created.
Requires managers that are effective in human relation.

Fig 4.7 matrix organization

Director of engineering

Chief of Chief of Chief electrical Chief hydraulic

preliminary mechanical engineer engineer
design engineer

Project a
manager

Project B
manager

Project C
manager

Project D
manager

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