DAIMSR

DR. AMBEDKAR INSTITUTE OF

MANAGEMENT STUDIES AND
RESEARCH

ORGANIZATIONAL BEHAVIOUR

Prof. Deepika Soni

 MODULE 01

Organizational Design

* Understanding organizations
* Basics of an organizational design
* Organization and stakeholders
* Organizations and environmental influences
* Organizational strategy
* Organizational design - Alternative structures
* Management process - Authority and Responsibility Relationship;
organizational control mechanisms; Organizational decision making

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 COURSE DETAILS

PROGRAM M.B.A
COURSE CODE 1T4
COURSE ORGANISATIONAL BEHAVIOUR
SEMESTER II
COURSE TYPE CORE
COURSE OBJECTIVE 1 Students will be able to explain the
concept of Organisation Design and
determine the factors that affect
Organisation Design.

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 ORGANISATION

1 Hard to see or feel.

We see outcroppings, such as a tall building, a computer workstation, or
2
a friendly employee.
3 The whole organization is vague and abstract and may be scattered
among several locations, even around the world.
4 Organizations touch us every day.
 We are born in a hospital.
 Have our birth records registered in a government agency.
 Educated in schools and universities.
 Are raised on food produced on corporate farms.
 Treated by doctors engaged in a joint practice,
 Buy a house built by a construction company and sold by a real estate agency.
 Borrow money from a bank.
 Turn to police and fire departments when trouble erupts,
 Use moving companies to change residences, and receive an array of
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benefits from various government agencies.
 ORGANISATION

The key element of an organization is not a building or a set

of policies and procedures; organizations are made up of
people and their relationships with one another. An
organization exists when people interact with one another to
perform essential functions that help attain goals

1 Division of labour & coordinated work.

2 The foundation upon which the whole structure of management is built.

3 A dynamic process, a structure of relationships of positions and jobs

4 For the realization of pre-determined common objectives.

5 Involves determination of assignment of roles to people, establishment of authority & responsibility relationships

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 ORGANISATION: DEFINITIONS

1 Social entities.

2 That are goal-directed.

are designed as deliberately structured and coordinated activity systems.

3
4 Are linked to the external environment.

According to Sheldon, "Organisation is the process of combining the work which

individuals or groups have to perform with facilities necessary for its execution, that the
duties so performed provide the best channels for efficient, systematic, positive and
coordinated application of available effort.“

In the words of Chester I Bernard, "Organisation is a system of co-operative activities of

two or more persons.“

Mc Ferland has defined organisation as, "an identifiable group of people contributing
their efforts towards the attainment of goals".

According to North Whitehead, "Organisation is the adjustment of diverse elements, so

that their mutual relationship may exhibit more pre-determined quality."
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 NATURE OF ORGANIZATIONS

ITEM DESCRIPTION

1. a system of consciously coordinated activities or forces of 2

or more persons.
2. social groupings deliberately created and constructed to seek
Organisation as a Group specific goals.
3. the relationships are determined through a certain structure.
This definition brings out the 5 essential characteristics of
organization:
o An organization always refers to people.
o An organisation is developed for people.
o People within organisation interact in one or another
way.
o These interactions are specified in accordance with a
formal structure.
o Interactions are ordered to achieve joint objectives.

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 NATURE OF ORGANIZATIONS

ITEM DESCRIPTION

1. Organisation is the process of establishing relationship

among the members of the enterprise.
2. The relationships are created in terms of authority and
Organisation as a Process responsibility. To organize is to harmonize, coordinate or
arrange in a logical and orderly manner.
3. Each member in the organisation is assigned a specific
responsibility or duty to perform and is granted the
corresponding authority to perform his duty.
4. The managerial function of organising consists in making a
rational division of work into groups of activities and tying
together the positions representing grouping of activities so
as to achieve a rational, well coordinated and orderly
structure for the accomplishment of work.

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 PROCESS OF ORGANISING

According to Louis A Allen, "Organising 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
organisational objectives."

Determination of Establishing
Assignment of duties
objectives relationships

Determining the
resources & factors of
Classification of
production and Delegating Authority
activities
putting them at one
place

Identifying the work Grouping the work

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 NATURE OF ORGANIZATIONS

ITEM DESCRIPTION

1. Acc to classical theorists, Fayol, Taylor and Weber, structure

is considered important to achieve organizational goals.
2. Manager determines the work tasks to get the job done. He
Organisation as a Structure writes job descriptions, puts people into groups, and assigns
them to supervisors.
3. He fixes goals, issues deadlines and establishes standards of
performances. He establishes a reporting system.
4. The whole structure takes shape of a pyramid. So
organisational structure describes the organisation's
framework & reveals the established pattern of relationships.
5. Acc to Koonts and O'Donnell, " Organization is a structural
relationship by which an enterprise is bound together & the
framework in which individual effort is coordinated.

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 Organizational Structure Pyramid

Top management

Executives

Middle management

Employees

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IMPORTANCE OF SOUND ORGANISATION

Optimum utilization of resources

Facilitates administration

Enhanced managerial efficiency

Growth, expansion and diversification

Specialization

Adoption of new technology

Better coordination

Training & development

Creativity & innovation

Effective administration & governance

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 PRINCIPLES OF ORGANISATION

A principle is a fundamental truth/fact that provides guidance to thinking and practice. A no of

principles have been developed in management to support executive and strategic thinking.

 The purpose of organization:

o Principle of unity of objective: An organisation structure is effective when it helps the achievement of
organisational objectives.

o Principle of organisational efficiency: An effective organisational structure must facilitate achievement of

objectives in minimum costs, and minimum or no wastage of resources, & optimum utilization of resources.
 The cause of organizing: Span of management/control is the basic cause of an organization’s structure.
o Principle of Span of control/management: A manager should have limited no of subordinates reporting to him
directly.

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 PRINCIPLES OF ORGANISATION

 The structure of organization (authority): Authority is cementing force in every organisation. It is

the means by which activities are synchronized under a manager. It helps in effective coordination and
cooperation.

o Principle of scalar chain: A scalar chain or chain of commands refer to unbroken line of authority from top to
bottom level. A clear chain facilitates communication.
o Principle of authority & responsibility: Adequate authority must be given to managers at lower level. Superior
must state clearly what he expects, when he expects & by whom. The subordinate must show good performance,
following the directives of manager. Responsibility is the obligation of a subordinate to perform a duty or task as
required by the superior. There must be parity between authority and responsibility.
o Principle of Unity of command: It states that for any given activity, an employee should be made accountable to
only one superior.
o Authority level Principle: Decisions within an authority should be made by those individuals and not be referred
upward in the organisation structure.
o Principle of Delegation of Authority: Authority refers to the rights inherent in a managerial position to give
orders and expect the orders to be obeyed. Delegation of authority is the process by which managers allocate
authority downward to the people who report to them.

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 PRINCIPLES OF ORGANISATION

 The structure of organization (Departmentation) The primary function of organising is to provide a

basic organisational structure in the form of departmental framework.

o Principle of functional definition: The duties, functions, tasks, authorities, responsibilities of every individual
must be stated clearly. People at all levels must know what they are supposed to do, when and for whom. They
must be aware of their behavioral limits.

 The Process of organizing: Process of organising becomes easy when we follow following principles:
o Principle of balance: Different departments and activities must be given balanced and proportionate emphasis
w.r.t their overall contributions to objectives
o Principle of flexibility: Organisational structure must be designed in flexible way. Changes must be able to be
applied as and when needed with minimum difficulty
o Principle of stability: Organisational structure should be reasonably stable and must be able to withstand changes
of dynamic environment.
o Principle of simplicity: Stricture must be simple to be followed by subordinates to enable them to follow their
orders, duties and responsibilities.

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 FORMAL ORGANIZATION

Definitions
the structure of jobs and
positions with clearly
defined functions and
relationships as
prescribed by the top
management.

Chester I Bernard -"a system of The formal organisation

consciously coordinated activities is built around four key
or forces of two or more persons. Everyone is assigned certain pillars. They are:
responsibility for the
It refers to the structure of well- performance of the given task Division of labor.
defined jobs, each bearing a and given the required Scalar and functional
definite measure of authority, amount of authority for processes.
responsibility and accountability carrying it out. Structure and
Span of control.

The essence of formal

organisation is conscious common
purpose and comes into being
when persons–Are able to
communicate with each [Link]
willing to act andShare a purpose.
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 FORMAL ORGANIZATION

Features
o Organisation structure is laid down by the top management to achieve organisational goals.
o Organisation structure concentrates on the jobs to be performed and not the individuals who are to perform jobs.
o Individuals are fitted into jobs and positions and work as per the managerial decisions. So formal relations in the
organisation arise from the pattern of responsibilities that are created by the management.
o Bound by rules, regulations and procedures.
o The position, authority, responsibility and accountability of each level are clearly defined.
o Organisation structure is based on division of labour and specialisation to achieve efficiency in operations.
o Is deliberately impersonal. The organisation does not take into consideration the sentiments of organisational
members.
o The authority and responsibility relationships created by the organisation structure are to be honoured by
everyone.
o In a formal organisation, coordination proceeds according to the prescribed pattern.

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 FORMAL ORGANIZATION

Advantages
o The formal organisation structure concentrates on the jobs to be performed. It, therefore, makes
everybody responsible for a given task.
o A formal organisation is bound by rules, regulations and procedures. It thus ensures law and order in the
organisation.
o Systematic working It is an official hierarchy of relations. So, it results in systematic and smooth
functioning of an organisation.
o No overlapping of work In formal organisational structure, work is systematically divided among various
departments and employees. So, there is no possibility of duplication or overlapping of work
o Coordination It results in coordinating the activities of various departments. Coordination proceeds
according to a prescribed pattern in the organisation structure.
o Creation of chain of command It clearly defines superior subordinate relationship, i.e. who reports to
whom. Communication has to follow a pattern of formal channels.

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 INFORMAL ORGANIZATION

Definitions
Relationship between people
in the organisation based on
personal attitudes, emotions,
prejudices, likes, dislikes etc

These relations dont develop

according to procedures and These groups are not pre- Not established by any
regulations laid down in the planned, but they develop formal authority, but
formal organisation; generally automatically within the arises from the personal
large formal groups give rise to organisation according to its and social relations of
small informal or social groups. environment. the people.

These groups may be

based on same taste,
language, culture or
some other factor.

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 INFORMAL ORGANIZATION

Features
o Informal organisation is not established by any formal authority. It is unplanned and arises
spontaneously.
o Informal organisations reflect human relationships. It arises from the personal and social relations
amongst the people working in the organisation.
o Formation of informal organisations is a natural process. It is not based on rules, regulations and
procedures.
o The inter-relations amongst the people in an informal organisation cannot be shown in an
organisation chart.
o In the case of informal organisation, the people cut across formal channels of communications and
communicate amongst themselves.
o The membership of informal organisations is voluntary. It arises spontaneously and not by deliberate
or conscious efforts.
o Membership of informal groups can be overlapping as a person may be member of a number of
informal groups.
o Informal organisations are based on common taste, problem, language, religion, culture, etc. it is
influenced by the personal attitudes, emotions, whims, likes and dislikes etc. of the people in the
organisation.
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 INFORMAL ORGANIZATION

Advantages
o It blends with the formal organisation to make it more effective.
o Many things which cannot be achieved through formal organisation can be achieved through
informal organisation.
o The presence of informal organisation in an enterprise makes the managers plan and act more
carefully.
o Informal organisation acts as a means by which the workers achieve a sense of security and
belonging. It provides social satisfaction to group members.
o An informal organisation has a powerful influence on productivity and job satisfaction.
o The informal leader lightens the burden of the formal manager and tries to fill in the gaps in the
manager's ability.
o Informal organisation helps the group members to attain specific personal objectives.
o Informal organisation is the best means of employee communication. It is very fast.
o Informal organisation gives psychological satisfaction to the members. It acts as a safety valve for the
emotional problems and frustrations of the workers of the organisation because they get a platform to
express their feelings.
o It serves as an agency for social control of human behaviour.
o Fulfils social needs: It gives due importance to psychological and social needs of employees.
o Correct feedback Through informal structure, the top level managers can know the real feedback of
employees on various policies and plans introduced by them.
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 ORGANIZATION DESIGN

Definitions
 Organizational design refers to managerial decisions that determine the structure and processes,
which in turn coordinate & control the jobs in an organisation.
 It is the administration and execution of an organization’s strategic plan. This means that the
organization’s strategy determines the optimal organizational design.
 Organizational design is about creating the best fit between the strategic choices of the organization
and the organizational setting.
 The outcome of organisational design decisions is a system of jobs, positions and work groups
determining the processes linked to them. These linking processes include authority relationships &
communications networks, in addition to specific planning & controlling techniques.
 Organizational design is determined by the strategic direction of the company, a.k.a. the vision,
mission, and goals of the company. These lead to strategies that the company competes on, which are
enabled through the organizational design.

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 ORGANIZATION DESIGN

Importance
 Organizational design refers to managerial decisions that determine the structure and processes,
which in turn coordinate & control the jobs in an organisation.
 It is the administration and execution of an organization’s strategic plan. This means that the
organization’s strategy determines the optimal organizational design.
 Organizational design is about creating the best fit between the strategic choices of the organization
and the organizational setting.
 The outcome of organisational design decisions is a system of jobs, positions and work groups
determining the processes linked to them. These linking processes include authority relationships &
communications networks, in addition to specific planning & controlling techniques.
 Organizational design is determined by the strategic direction of the company, a.k.a. the vision,
mission, and goals of the company. These lead to strategies that the company competes on, which are
enabled through the organizational design.

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 ORGANIZATION DESIGN

Importance
The production of goods & services takes place in an organisational setting because people
working together to produce them can create more value than people working individually.
People who work in organisations may become more productive & efficient
at what they do than people who work alone. Being part of a system
To create specialization & facilitates the development of skills and specialization & division of labor.
division of labor The collective nature of organisation allows individuals to focus on a
narrow area of expertise which allows them to become more skilled and
specialized at what they do.

Organizations are able to take advantage of the economies of scale & scope that result
from the use of modern automated & computerized technology. Economies of scale are
cost savings that result when goods & services are produced in large volume on
automated production lines. Economies of scope are cost savings that result when an
To use large scale organisation is able to use underutilized resources more efficiently because they can be
technology shared across different products or tasks. Economies of scope and scale can be achieved
when it is possible to design an automated production line to produce several different
types of products simultaneously. Toyota & Honda were the first carmakers to design
assembly lines capable of producing three models of a car instead of just one. GM &
Ford have followed the suit and have achieved impressive gains in efficiency

Pressures from the organizational environment in which they operate also make
To manage organizational organizations the favored mode for transforming inputs into outputs. An
environment organizations environment is the source of valuable input resources & is the
marketplace into which it releases output. It is also the source of economic, social,
political pressures that affect an organization’s ability to obtain these resources.
Managing complex environments is a task beyond the abilities of most individuals, but
an organization has the resources to develop specialists to anticipate or attempt 24 to
influence the many pressures from the environment. This specialization allows the
ORGANIZATION DIMENSIONS

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 ORGANIZATION DIMENSIONS

Organizations shape our lives, and well-informed managers can shape organizations. The first step for
understanding organizations is to look at dimensions that describe specific organizational design
traits. These dimensions describe organizations in much the same way that personality and physical
traits describe people. Organizational dimensions falls into two categories:

1. Structural Dimensions: describe the internal characteristics of an organization. They create a

basis for measuring and comparing organizations.

2. Contextual Dimensions: characterize the whole organization, including its size, technology,
environment, and goals. They describe the organizational setting that influences and shapes
the structural dimensions.

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 ORGANIZATION DIMENSIONS

Structural Dimensions

Pertains to amount of written documentation in the organization.

Formalization Documentation includes procedures, job descriptions, regulations, and
policy manuals. These written documents describe behavior and
activities. Formalization is often measured by simply counting the
number of pages of documentation within the organization. Large state
universities, for example, tend to be high on formalization because
they have several volumes of written rules for such things as
registration, dropping and adding classes, student associations,
dormitory governance, and financial assistance. A small, family-owned
business, in contrast, may have almost no written rules and would be
considered informal.

The degree to which organizational tasks are subdivided into separate

Specialization jobs. If specialization is extensive, each employee performs only a
narrow range of tasks. If specialization is low, employees perform a
wide range of tasks in their jobs. Specialization is sometimes referred
to as the division of labor.
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 ORGANIZATION DIMENSIONS

Structural Dimensions

Describes who reports to whom and the span of control for each
Hierarchy of Authority manager. The hierarchy is depicted by the vertical lines on an
organization chart. The hierarchy is related to span of control
(the number of employees reporting to a supervisor). When
spans of control are narrow, the hierarchy tends to be tall. When
spans of control are wide, the hierarchy of authority will be
shorter.
Refers to the hierarchical level that has authority to make a
Centralization decision. When decision making is kept at the top level, the
organization is centralized. When decisions are delegated to
lower organizational levels, it is decentralized. Examples of
organizational decisions that might be centralized or
decentralized include purchasing equipment, establishing goals,
choosing suppliers, setting prices, hiring employees, and
deciding marketing territories.
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 ORGANIZATION DIMENSIONS

Structural Dimensions

is the level of formal education and training of employees.

Professionalism is considered high when employees require long
periods of training to hold jobs in the organization.
Professionalism is generally measured as the average number of
years of education of employees, which could be as high as
twenty in a medical practice and less than ten in a construction
Professionalism company. Personnel ratios refer to the deployment of people to
various functions and departments. Personnel ratios include the
administrative ratio, the clerical ratio, the professional staff ratio,
and the ratio of indirect to direct labor employees. A personnel
ratio is measured by dividing the number of employees in a
classification by the total number of organizational employees.

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 ORGANIZATION DIMENSIONS

Contextual Dimensions

Can be measured for the organization as a whole or for specific

Size components, such as a plant or division. Because organizations
are social systems, size is typically measured by the number of
employees. Other measures such as total sales or total assets also
reflect magnitude, but they do not indicate the size of the human
part of the system.
Refers to the tools, techniques, and actions used to transform
Organizational technology inputs into outputs. It concerns how the organization actually
produces the products and services it provides for customers and
includes such things as flexible manufacturing, advanced
information systems, and the Internet.

Includes all elements outside the boundary of the organization.

Key elements include the industry, government, customers,
The Environment suppliers, and the financial community. The environmental
elements that affect an organization the most are often other
organizations.
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 ORGANIZATION DIMENSIONS

Contextual Dimensions

Define the purpose and competitive techniques that set it apart

Goals and Strategy from other organizations. Goals are often written down as an
enduring statement of company intent. A strategy is the plan of
action that describes resource allocation and activities for
dealing with the environment and for reaching the organization’s
goals. Goals and strategies define the scope of operations and the
relationship with employees, customers, and competitors.

The underlying set of key values, beliefs, understandings, and

norms shared by employees. These underlying values and norms
Culture may pertain to ethical behavior, commitment to employees,
efficiency, or customer service, and they provide the glue to hold
organization members together. An organization’s culture is
unwritten but can be observed in its stories, slogans, ceremonies,
dress, and office layout.

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 BENEFIT OF STUDYING
ORGANIZATION DIMENSIONS

 To design the organization in such a way as to achieve high performance and effectiveness.
 Managers adjust structural and contextual dimensions to most efficiently and effectively
transform inputs into outputs and provide value.
 Efficiency refers to the amount of resources used to achieve the organization’s goals. It is based
on the quantity of raw materials, money, and employees necessary to produce a given level of
output.
 Effectiveness is a broader term, meaning the degree to which an organization achieves its
goals. To be effective, organizations need clear, focused goals and appropriate strategies for
achieving them.
 Many organizations are using new technology to improve efficiency and effectiveness. For
example, the healthcare industry is striving to increase efficiency by using information
technology to reduce paperwork and streamline procedures. With new technology, one
physician’s office in Philadelphia says it can now handle more patients with three fewer office
employees.
 Information technology also helps the staff locate information more quickly and reduce
mistakes, leading to a higher quality of care and better customer service. the organization.

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 ORGANIZATIONS AND
STAKEHOLDERS

Organizations exist to create valuable goods and services that people need. But who decides what
goods and services an organization should create? How to divide the value that an organization
creates among different groups of people, such as employees, customers, consumers, shareholders
or others?

Organizations exist because they have some value & acceptability in various groups of
stakeholders, people who have interest, claim, or stake in an organization, in what it does and how
well it performs. In general, stakeholders are motivated to participate in an organization if they
receive inducements that exceed the value of the contributions they are required to make.
Inducements include rewards such as money, power, & organizational brand.

“A stakeholder is any group within or outside of the organization that has a stake in the
organization’s performance. The satisfaction level of each group can be assessed as an indication
of the organization’s performance and effectiveness”.

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 ORGANIZATIONS AND
STAKEHOLDERS

Stakeholders
Owners &
Community Customers
Stockholders

1. Financial return. 1. Good corporate 1. High-quality

citizen. goods/services.
2. Contribution to 2. Value.
community
affairs.

Suppliers Government Creditors

1. Obedience to
1. Satisfactory 1. Creditworthiness.
law &
transactions. 2. Fiscal
regulations.
2. Revenue from responsibility.
2. Fair
purchases.
competition.

Employees Creditors Union

1. Satisfaction.
2. Pay. 1. Efficiency. 1. Worker pay.
3. Supervision. 2. Effectiveness. 2. Benefits.
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 ORGANIZATIONS AND
STAKEHOLDERS

Organizations exist to create valuable goods and services that people need. But who decides what
goods and services an organization should create? How to divide the value that an organization
creates among different groups of people, such as employees, customers, consumers, shareholders
or others?

Organizations exist because they have some value & acceptability in various groups of
stakeholders, people who have interest, claim, or stake in an organization, in what it does and how
well it performs. In general, stakeholders are motivated to participate in an organization if they
receive inducements that exceed the value of the contributions they are required to make.
Inducements include rewards such as money, power, & organizational brand.

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 WALMART

Consider Wal-Mart. Customers love its efficiency and low prices, but the low-cost emphasis has caused

friction with suppliers. Some activist groups argue that Wal-Mart’s tactics are unethical because they force

suppliers to lay off workers, close factories, and outsource to manufacturers from low-wage countries. One

supplier said clothing is being sold at Wal-Mart so cheaply that many U.S. companies couldn’t compete even

if they paid their workers nothing. The challenges of managing such a huge organization have also led to

strains in relationships with employees and other stakeholder groups, as evidenced by recent gender

discrimination suits and complaints about low wages and poor benefits.

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 ORGANIZATIONAL STRATEGY

1. If structure is a means to achieve objectives, objectives are derived from the organization’s overall

strategy, it’s only logical that structure should follow strategy.

2. If management significantly changes the organization’s strategy, the structure must change to

accommodate.

3. Most recent strategy frameworks focus on three strategy dimensions—innovation, cost

minimization, and imitation—and the structural design that works best with each.

Imitation strategy

Innovation strategy

Cost-minimization strategy.

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 INNOVATION STRATEGY

1. To what degree does an organization introduce major new products or services?

2. Not all firms pursue innovation.

3. Competitive pay and benefits to attract top talents.

4. Risk-taking firms are innovators.

5. Mechanistic structures somewhat essential to benefit innovation.

6. Well developed communication channels, policies for enhancing long term commitment, clear

channels of authority.

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 COST-MINIMIZATION STRATEGY

1. Tightly controls cost.

2. Refrains from incurring unnecessary expenses.

3. Cuts prices in selling a basic product.

4. Strategy pursued by Walmart.

5. Characterized by fewer policies meant to develop commitment in among their workforce.

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 IMITATION STRATEGY

1. Characterized by minimization of risk and maximization of opportunity for profit.

2. Move new products or enter new markets only after innovators have proven their viability.

3. Example: mass-market fashion manufacturers copy designer styles.

4. Example: Hewlett Packard and Caterpillar.

5. Follow smaller and innovative competitors with superior products but only after competitors have

demonstrated the market is there.

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 STRATEGY-STRUCTURE
RELATIONSHIP

Sr. No. Strategy Structure Option

Organic, loose structure, low specialization, low

1 Innovation formalization, decentralized.

Mechanistic, bureaucratic, tight control,

2 Cost minimization extensive work specialization, high
formalization, high centralization.

Mechanistic and organic, mix of loose & tight

3 Imitation properties, tight controls over current activities,
looser control over new undertakings.

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 STRATEGY & ENVIRONMENT

1. Strategy is a specific pattern of decisions & actions that managers take.

2. Uses core competences to achieve a competitive advantage & outperform competitors.
3. Creates value for stakeholders by satisfying the needs & desires of stakeholders. (Customers,
employees, stockholders, etc.)
4. Stockholders want a company to set goals and develop an action plan that maximizes the long-run
profitability of the company and the value of their stock.
5. Customers are likely to respond to a strategy based on the goal of offering high-quality products
and services at appropriate prices.
6. Development of Core competences: skills and abilities in value-creation activities, such as
manufacturing, marketing, or R&D that allow a company to achieve superior efficiency, quality,
innovation, or customer responsiveness.
7. An organization that possesses superior core competences can outperform its rivals.

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 McDonald’s

McDonald’s, for example, used its existing core competences in the production of fast
food such as burgers and fries to provide fast food for the breakfast segment of the fast-
food domain. By investing in food-testing facilities, McDonald’s developed R&D
competences that led to the development of breakfast items (such as the Egg McMuffin,
burritos, and a variety of coffees and fruit drinks) that could be produced quickly. By using
its existing core competences in new ways, and by developing new competences,
McDonald’s continuously creates new breakfast foods that contribute greatly to its
revenues and profit.

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 SOURCES OF CORE COMPETENCES

Specialized Functional Possessed by organization’s

resources functional personnel.
E.g. Skills in Google’s S/w
development team, Skills of
R&D groups, Procter &
gamble’s expertise in new
Sources of Core product development.
Competences
Organizational

Company specific skills &

competence, Skills of Top
Coordination management, Vision of
abilities founder/CEO, Possession of
valuable & scarce resources
such as land, capital, machine
or technology or brand value
Organization’s ability to or reputation.
coordinate its functional &
organizational resources to
create maximum value.

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 CORE COMPETENCE

To be a source of competitive advantage, however, it is not sufficient that an organization

has high-quality functional resources; these resources must also be unique or special and difficult to
imitate—to be core competences. For example, Google’s claim to uniqueness rests in the breadth and
depth of the software talent it possesses. But suppose a rich competitor like Microsoft or Facebook
comes along and tries to hire Google’s best engineers, or DuPont lures away 3M’s scientists. If that
were to happen, those companies’
claims to uniqueness would disappear (and top researchers do frequently move to other
organizations). So to maintain its long-term competitive advantage, an organization needs
to protect the source of its functional competences. That is why Google gives its best people strong
property rights, including stock options that make them owners of the company, and why 3M is well
known for its generous long-term employment policies.

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 TYPES OF STRATEGIES

Corporate-level strategy
A plan to use and develop core competences so the organization not only can protect and enlarge its
existing domain but can also expand into new domains. Mercedes-Benz used its competences in R&D
and product development to
enter the household products and aerospace industries. Coca-Cola took its marketing skills and applied
them globally in the soft-drinks industry.
Corporate-level strategy is the responsibility of corporate-level managers—the top management team
of a multi business organization. Their responsibility is to take the value creation skills present in an
organization’s divisions and combine them to improve the competitive position of each division and of
the organization as a whole. Corporate strategists strive to find ways to merge and use the resources of
every division to create more value than could be obtained if each division operated alone and
independently. For example, Honda took its strengths in engine production developed first in its
motorbike and car divisions and then applied them to produce high-quality engines for products such
as jet skis, pressure washers, and lawn mowers.

Global expansion strategy involves choosing the best strategy to expand into overseas markets to
obtain scarce resources and develop core competences

46
 TYPES OF STRATEGIES

Business-level strategy
A plan to use and combine an organization’s functional core competences to position it so it has a
competitive advantage in its domain or segment of its industry.
Mercedes-Benz takes its skills in R&D and positions itself in the luxury segment of the car market
where it competes with BMW.
Coca-Cola uses its marketing skills to defend its niche against PepsiCo—an ongoing battle.
Business-level strategy is the responsibility of the top-management team (the CEO and vice presidents
in charge of the various functions).Their job is to decide how to position the organization to compete
for resources in its environment.
CBS, NBC, and ABC, for example, compete with Fox, CNN, and HBO and hundreds of other TV
channels to attract viewers (customers). Programming is the key variable that these companies can
[Link] rely on functional experts in their news, documentary, comedy, and soap opera
departments (among others) to scan the environment and identify future viewing trends so they can
commission programs that will give them a competitive advantage.
Because all of the TV networks are doing this and trying to outguess their rivals, programming is a
complex and uncertain process.

47
 ORGANIZATIONAL STRUCTURE

1. Defines how job tasks are formally divided, grouped, and coordinated.
2. Six key elements of designing organizational structure:

Formalization
Span of control
Chain of command
Departmentalization
Work specialization
Centralization & decentralization

48
 COMPONENTS OF ORGANIZATIONAL
STRUCTURE

Work specialization

Henry Ford became rich by building automobiles on an assembly line. Every Ford worker was assigned a specific,
repetitive task such as putting on the right-front wheel or installing the right-front door.
By dividing jobs into small standardized tasks that could be performed over and over, Ford was able to produce a
car every 10 seconds, using employees who had relatively limited skills.
Ford demonstrated that work can be performed more efficiently if employees are allowed to specialize.
We use the term work specialization, or division of labor, to describe the degree to which activities in the
organization are subdivided into separate jobs.
The essence of work specialization is to divide a job into a number of steps, each completed by a separate
individual.

49
 COMPONENTS OF ORGANIZATIONAL
STRUCTURE

Departmentalization

Once jobs have been divided through work specialization, they must be grouped so common tasks can
be coordinated.

The basis by which jobs are grouped is called Departmentalization.

Departmentation is a means of dividing a large and complex organisation into smaller

flexible administrative units.

It refers to horizontal differentiation in an organisation that is, the grouping of activities and
employees into departments.

It is the method of arranging activities state the accomplishment of objective.

50
 COMPONENTS OF ORGANIZATIONAL
STRUCTURE

Departmentalization

Departmentation is necessary because

1. It involves grouping of people and activities into single department.
2. It permits an organisation to take advantage of specialization
3. It enables a person to know the particular part which he is expected to play in the total activities of
company.
4. It facilitates Communication coordination and control improve the overall organisational success
5. it enable manager to locate the sources of information, skills and competence to take certain vital
managerial decisions.

51
 BASIS OF DEPARTMENTALIZATION

Departmentalization by Function

One of the most popular ways to group activities is by functions performed. A manufacturing manager
might organize a plant into engineering, accounting, manufacturing, personnel, and supply specialists
departments. A hospital might have departments devoted to research, surgery, intensive care,
accounting, and so forth. A professional football franchise might have departments entitled player
personnel, ticket sales, and travel and accommodations. The major advantage of this type of functional
departmentalization is efficiencies gained from putting like specialists together.

52
 BASIS OF DEPARTMENTALIZATION

Departmentalization by Simple Number

It was, once in history, an important method of Departmentation in tribes, clans, armies etc. Back then,

people did division of work on the basis of number of people in a group rather than skills and talents

and nature of task to be undertaken. The number of available persons are counted and are simply

divided into groups, each having its own supervisor/manager.

53
 BASIS OF DEPARTMENTALIZATION

Departmentalization by Place/Geography
(Territory or Geographical Departmentation)

1. Involves establishing an organization's primary units geographically while retaining significant

elements of functional design.
2. Permits locating many tasks required to serve a geographic territory under one manager, rather than
grouping functions under different managers or all tasks at one cultural office.
3. It facilitates adaptation to territorial differences. Large companies that distribute products on a
massive scale nationally or internationally often cannot coordinate all regions from headquarters.
Each region has different tastes, preferences, resources, facilities that demands personalized
products & services.
4. Helps in exploiting local business opportunities. Decisions regarding to product design, pricing and
marketing are usually left to the discretion of territorial managers.
5. Place design is popularly used by multinational corporations which need to be responsive to local
needs. In US soft drinks have less sugar then India or South America, so manufacturing process is
different in two locals. Geographic design can respond to these preferences in tastes easily.

54
 BASIS OF DEPARTMENTALIZATION

Departmentalization by Place/Geography
(Territory or Geographical Departmentation)

CEO

Europe Division
North America Division

UK Venezuela Italy USA jamaica Canada

HR Finance marketing

55
 BASIS OF DEPARTMENTALIZATION

Departmentalization by Product/Product Design

(Territory or Geographical Departmentation)

1. Adopted in case of multi-product enterprise.

2. The department is grouped according to diversified products. Each unit is relatively

self-contained & is headed by a product manager who is responsible for unit's
progress.
3. The manager who is in charge of product division has authority for product line on a
global basis.
CEO

President

Vice-president
(Production)

Product Division Product Division

(Refridgerators) Product Division
(Automobiles)
(Spare Parts)

S. America Africa Europe India

Australi
Japan
a

UK France Germany Spain

56
 BASIS OF DEPARTMENTALIZATION

Departmentalization by Time
In some organisations, that work round the clock, like Railways, Aviation, BPOs, Postal services,
Hospitals etc, departmentation is based on time. Often, employees of certain departments work in shifts
in such organisations, like Nurses, Doctors, TTEs, Railways Guards, Station Masters, Cabin Crew,
Pilots and certain Software engineers.

Vice
President

US Shift General Shift

UK Shift

57
 BASIS OF DEPARTMENTALIZATION

Project based Departmentalization

At times, a temporary department is created to achieve specific results or complete a specific project
which is time-bound. A team of different specialists from different functional areas is created and such
a department is called Project based Department. The team focuses all of its energies & skills on the
assigned project. Once the Project is completed the team is dismantled and members on deputation
return to their regular routine duties.

CEO

President

HR Markting Finance Project

and Sales Research UID

HR Admin Accounts Supervisors

58
 BASIS OF DEPARTMENTALIZATION

Matrix form of Organization

The most complex form of organisational design is Matrix one. Matrix design emerges when one
design is superimposed on the top of an existing, but different form. The resulting design is quite fluid,
with new matrix dimension being created, escalated , reduced or eliminated as required. This is a
permanent organisation designed to achieve specific results by using teams of specialists from different
functional areas. It is actually a hybrid structure combining both product functional & product
structures.
Three features makes matrix designs different from the traditional ones. First, there are managers who
report to two different matrix bosses. Second, there are matrix managers who share the subordinates.

Third there is one top manager who is expected to head the dual structure .

59
 BASIS OF DEPARTMENTALIZATION

Matrix form of Organization

60
 CHAIN OF COMMAND

1. The chain of command is an unbroken line of authority that extends from the top of the organization to the
lowest echelon and clarifies who reports to whom.
2. Authority refers to the rights inherent in a managerial position to give orders and expect them to be obeyed. To
facilitate coordination, each managerial position is given a place in the chain of command, and each manager is
given a degree of authority in order to meet his or her responsibilities.
3. The principle of unity of command helps preserve the concept of an unbroken line of authority. It says a person
should have one and only one superior to whom he or she is directly responsible. If the unity of command is
broken, an employee might have to cope with conflicting demands or priorities from several superiors.
4. A chain of command is an organizational structure that documents how each member of a company reports to
one another. At the top of the chart would be the founder, owner or CEO, and the people who report to them
would appear directly below. This pattern continues until every person or level of employment at the
organization is accounted for. This hierarchy changes over time as employees join and leave.

61
 CHAIN OF COMMAND

Traditional Chain of Command Structure

1. The chain of command is a very traditional way of structuring a company's authority levels.
2. A business owner or CEO holds the position at the top of a chain of command because they hold the top position
at the company. The next level down usually includes senior executives or individuals who are in vice
president roles over a part of the organization. These individuals report directly to the owner or CEO.
3. Under the upper management level, you may find individual managers or supervisors who are responsible for an
entire department or group of employees. These employees would appear under the middle-management level
and at the bottom of the chain of command to represent that their authority figure is their direct supervisor.
4. It's also common to find several ways to break down the hierarchy even further, depending on how large a
company is, how many departments it has and more. There may be more management levels or fewer,
depending on business needs.
5. The important thing to remember is that the farther at the bottom of the hierarchy your position is, the less
authority you may have. Those at the top of the hierarchy possess more control over organizational
developments and are in the position to make important decisions. They also carry more accountability and
responsibility for the company's success and all the individuals who fall under them in the chain of command.

62
 SPAN OF CONTROL

1. How many subordinates will directly report to manager? This question is answered by span of
management.
2. Depending upon the complexity of organisational activities and relationships amongst superiors
and subordinates, it becomes important the superiors manage an optimum number of subordinates
that result in optimum organisational output.
3. A manager cannot supervise unlimited no of employees. There is a limit to one's capacity to control
the work of different subordinates.
4. A manager's capability to manage a large no. of subordinates is constrained by knowledge, time,
energy etc.
5. The principle of span of management is a statement of the limitation of the number of people or
activities that a manager can effectively manage. It states that no single executive should have
more people looking to him for guidance & leadership that he can reasonably be expected to serve.

63
 SPAN OF CONTROL

To overcome biological limitations, every manager has to delegate work to as many subordinates as he
can effectively manage. Thus, span of management is the reason for Departmentation & delegation of
authority.

The number of subordinates that a superior can effectively supervise is known as span of management
or span of control. In the 19th and middle of 20th century, management writers determined 5 or 6 as the
optimum number that a manager could effectively manage at the upper level. Beyond this number,
managers faced problems like:

1. Overburdened with work.

2. Difficulty in coordinating the activities of large number of people.
3. Difficulty in controlling.

64
 FACTORS AFFECTING SPAN OF
CONTROL

1. Capacity of Superior: Capacity of a manager to plan, take decisions, lead, motivate communicate, control etc
affects the Span of management. A manager with more managerial capacity can manage more subordinates in a
given situation. A manager's attitudes and personality too affects the span of management.
2. Capacity of Subordinates (training) : Efficient & rained subordinates discharge their responsibilities without
much help from their superior. They only need broad guidelines. In such a case, span will be larger because
managers will not have to put lots of effort, time to manage them.
3. Nature of work: A superior's task is much simpler if the nature of work of subordinates & superior is alike. The
Span would be wider here. A superior must know what the jobs are, how they are performed in order to
effectively guide subordinates.
4. Degree of Centralization: Degree of centralization or decentralization affects the degree of superior's
involvement in decision-making. Higher the degree of decentralization, higher the span of management & vice-
versa. In a centralized working pattern, a superior is required to spend more time & energy as subordinates
require frequent guidance & consultation.
5. Degree & clarity of Planning: When subordinates performed which were effectively planned well in advance,
as per the set rules, policies, programs, procedures, methods and schedules, a manager's task reduces
considerably. As compared to non-planned activities, well planned activities expand the span of control. When
everything is clearly laid down, subordinates can carry out their assignments without direct supervision of
superiors and consequently, a superior can manage more employees.

65
 FACTORS AFFECTING SPAN OF
CONTROL

6. Communication Techniques: As against a F2F personal communication, the use of staff assistance
with electronic media like fax, phones, emails etc can expand the span of control. Personal
communication requires superior to spare more time & decreases span of control.
7. Use of Staff-assistance & Delegation of Authority: Use of staff assistance by delegating authority
reduces their workload & increases their span of control. Many of the managerial functions can be
discharged by these staff members- collecting information, processing communications, issuing orders
and instructions on their behalf.
8. Supervision from other managers: Classical theory suggest that one person should have only 1
manager, but now, trend is changing and employees receive some guidance from other departments/
managers too, which again is helpful for their reporting authority and increases the span of control.
9. Amount of Personal contact needed : In many instances, F2F meetings are necessary as not
everything can be completely handled with written reports, memorandums, policy statements, planning
documents, etc. Some issues can only be handled in personal meetings. However, if this time is reduced
somewhat by better training, better and stable policies, rules, procedures, grievance procedures, etc, the
span would increase.

66
 FACTORS AFFECTING SPAN OF
CONTROL

10. Similarity of Functions: If the subordinates are involved in the same or similar activities, then it is
possible for the manager to supervise more subordinates. Since the problems that may arise would be
similar in nature, these would be easier to handle. Conversely, if these subordinates are involved in
diversified operations, the situation would be more complex and hence the span of control would be
narrow.
11. Complexity of Functions: If the operations that the employees are performing are complex and
sophisticated and require constant supervision, then it would be more difficult for the manager to
manage too many employees and hence a narrow span of control would be desirable.
12. Direction and Coordination: The span of control would also be determined by the degree of
coordination required, both within the units and with units in other departments. If the units need
continuous directions and extra time of managers in coordinating these activities, then fewer
subordinates would be better supervised.
13. Geographical Closeness of Employees: The closer the subordinates are to each other in a physical
location, the easier it will be for the manager to manage more employees.

67
 SPAN OF MANAGEMENT AND
ORGANISATIONAL LEVEL

The span of management is related to the horizontal levels of the organization structure.
There is a wide and a narrow span of management. With the wider span, there will be less
hierarchical levels, and thus, the organizational structure would be flatter. Whereas, with
the narrow span, the hierarchical levels increases, hence the organizational structure would
be tall. In a wider span of control, a manager has many subordinates who report to him. In a
narrow span of control, a manger has fewer subordinates under him.

68
 ORGANISATIONS WITH NARROW SPAN

TALL STRUCTURE
A narrow span of control refers to a structure with few employees reporting to the manager, while a
wide span of control refers to a structure with many employees reporting to a supervisor.

69
 ORGANISATIONS WITH NARROW SPAN

ADVANTAGES
A narrow span of control refers to a structure with few employees reporting to the manager, while a
wide span of control refers to a structure with many employees reporting to a supervisor.

1. Better Control

2. More Time with Subordinates

3. Better Communication

70
 ORGANISATIONS WITH NARROW SPAN

DISADVANTAGES
Expensive The biggest disadvantage of narrow span of control is that it is expensive to implement
because in this case company has to employ more supervisors or managers to manage subordinates
which in turn leads to more expenses in the form of salary and other incentives for the company. In
simple words due to this system putting a strain on the financial position of the company only big
companies can think of adopting this strategy in their company.

Higher Number of Managers Another problem with this strategy is that due to higher number of
manager’s chances of conflict among managers rises because more managers means more ego clashes
besides there will be problem overlapping of instructions as chances are subordinates may have to
follow instructions from two superiors simultaneously leading to conflict of instructions which in turn
can create chaotic situation in the company.

Too much Interference Since there are many supervisors sometimes it may lead to too much
supervision or interference in day to day work of subordinates which in turn will create frustration and
confusion in the minds of subordinates which ultimately will affect their performance at work leading
to decrease in the overall efficiency of the company.

71
 ORGANISATIONS WITH WIDE SPAN

FLAT STRUCTURE

72
 ORGANISATIONS WITH WIDE SPAN

ADVANTAGES
1. It Is Cost Efficient As mentioned, in this organizational structure, there are fewer (or no) manager
layers between the executive and the staff. This means that there are less wages, fringe benefits, and so
on, to pay for management. Salary-related expenses are reduced, enabling the company to save money
as well as provide better pay for its workers.
2. It Promotes Faster Decision Making Another advantage about a flat organizational structure is
there are less decision-making hoops. Fewer people have to be consulted about a decision, allowing the
management to provide rapid response to any issues or concern. It creates a direct communication line
between the person sitting behind the desk (the owner or CEO) and the people on the front line (the
workers).
3. It Allows Clear Communication What usually happens when information is passed on through a
series of ears and mouths is that it ended up either distorted, puffed up, or deflated. When
communication is passed across many management layers, there is a high chance of
miscommunication. Flat organizational structure helps avoid this by allowing the upper management to
take direct input from employees, and vice versa.
4. It Requires Less Dominance and Supervision Many believe that a company’s head must be able to
monitor and manage anything and everything that is happening inside his or her organization, including
the employees. Some studies, however, show otherwise. This is because the less time managers have to
helicopter and micromanage their employees, the more productive employees can get in day as these
can give them a higher sense of responsibility.
73
 ORGANISATIONS WITH WIDE SPAN

DISADVANTAGES
1. Management Can Easily Lose Control As mentioned above, this structure is ideal for startups and
small business where the number of employees is still manageable. The system can pose a problem to
the whole organization when the ratio of employees to managers become too out of proportion. The
management can easily lose control when there are less people to put a brake to bad behaviors and less
individuals to support or back them up on their decisions.
2. Work-Relationship Could Struggle When managers have too many people to manage every day,
they may find it difficult to connect with their employees on a personal level, which is crucial in
maintaining trust and in stepping up the baseline of employees’ responsibility and accountability for the
work and the organization as a whole. This con can have a great impact on the issue of respect and
morale of an organization on levels of authority.
3. It Can Create Power Struggle Under this organizational structure, it is observed that employees
often lack a specific boss to report to, especially when the owner or CEO is not around. This can create
confusion and possible power struggles among management employees.

74
 ORGANISATIONS WITH WIDE SPAN

DISADVANTAGES
4. It Makes Employee Retention Difficult Who does not want a promotion? Excellent employees
who are looking for an improvement in their rank, aside from an increase in their salary, may find it
hard to find job satisfaction in this kind of organizational set up. They may end up looking for a job
somewhere else where they believe their efforts will be rewarded with a promotion.
5. It May Hinder Growth Change is often times difficult and poses a lot of what ifs. Because of this,
management may decide against new opportunities in an effort to maintain the structure which, as a
result, may limit the long-term growth of the organization.
6. There Is Less Motivation While a flat organization structure may lessen the problems caused by
unhealthy competition among employees, it makes it harder for ambitious workers to move up the
ladder as there is very little room up there. This could easily erode motivation, giving people no reason
to take the extra mile in their work.
7. Can Result to Role Confusion An employee may go to work for a flat organization expecting to
fulfill a defined role, but find out later that he or she needs to do many pieces of other jobs. This makes
it hard for workers to focus on their tasks and specialize at their jobs.

75
 CENTRALIZATION &
DECENTRALIZATION

Centralization refers to the degree to which decision making is concentrated at a single point in the
organization. In centralized organizations, top managers make all the decisions, and lower-level
managers merely carry out their directives. In organizations at the other extreme, decentralized
decision making is pushed down to the managers closest to the action.
The concept of centralization includes only formal authority—that is, the rights inherent in a position.
An organization characterized by centralization is inherently different structurally from one that’s
decentralized.
Management efforts to make organizations more flexible and responsive have produced a recent trend
toward decentralized decision making by lower level managers, who are closer to the action and
typically have more detailed knowledge about problems than top managers. Sears and JCPenney have
given their store managers considerably more discretion in choosing what merchandise
to stock. This allows those stores to compete more effectively against local merchants. Similarly, when
Procter & Gamble empowered small groups of employees to make many decisions about new-product
development independent of the usual hierarchy, it was able to rapidly increase the proportion of new
products ready for market.

76
 FORMALIZATION

1. Formalization refers to the degree to which jobs within the organization are standardized.
2. If a job is highly formalized, the incumbent has a minimal amount of discretion over what to do
and when and how to do it.
3. There are explicit job descriptions, lots of organizational rules, and clearly defined procedures
covering work processes in organizations in which there is high formalization.
4. Where formalization is low, job behaviors are relatively unprogrammed, and employees have a
great deal of freedom to exercise discretion in their work.
5. Standardization not only eliminates the possibility of employees engaging in alternative behaviors,
but it even removes the need for employees to consider alternatives.

77
 ORGANIZATIONAL
DESIGN (CHART)

1. The key aspects of the organisation, after division into different departments, are shown through
organization charts, which is a representation of a firm's structure.
2. Organisation chart is the pattern of network of relations between the various positions in an
organisation as well as between the persons who hold those positions is referred to as
"Organisation chart". Organisation data are often shown in the form of graphic chart.
3. They are a plan of working relationships. It shows who is to do the work, who is to direct and
supervise and who are to do the work.
4. Charts often reflect the organizational game plan for division of work. They give a complete &
intelligent guide to company's organisation; and indicate the flow of work & authority-
responsibility relationship.

78
 ORGANIZATIONAL DESIGN
(FEATURES)

1. Depict the organisation's formal structure & show only formal relationships.
2. Do not ensure good organisation or good management, merely because a chart in existence is no
guarantee for good relationships.
3. Essentially illustrate who reports to whom.
4. Merely shows the designations of the individuals they portray, thus no names appear, only
designations & functions are highlighted. Eg Sales manager, Production Manager, Financial
Advisor.
5. It is a graphic portrayed of positions in the enterprise and of the formal lines of communication
among them. It enables each executive and employee to understand his position in the organisation
and to know to whom he is accountable.
6. It is a diagrammatical presentation.
7. It shows principal lines of authority in the organisation.
8. It shows the interplay of various functions and relationships .
9. It indicates the channels of communication. 79
 ADVANTAGES OF
ORGANIZATIONAL DESIGN

1. Gives a clear picture of the organisational structure and the existing relationships.
2. Shows the lines of authority, responsibility and accountability.
3. Individuals can see who their associates are, to whom they report and from whom they get
instructions.
4. Improves organization by pointing out inconsistencies and deficiencies in certain relationships.
When management sees how its organisation structure actually looks, it may discover some
unintended relationships.
5. With the help of an organisation chart, outsiders can easily know the persons whom they have to
approach in connection with their work. This helps the outsiders to save their time and also to form
a better opinion of the concern.
6. By providing a clear picture of the lines of authority and responsibilities, they help to avoid
overlapping and duplication of authority and secure unity of command.
7. It serves as a valuable guide to the new personnel in understanding the organisation and for their
training.
8. It provides a framework of personnel classification and evaluation systems. They show to the
personnel what promotions they can expect, and what extra training is required for promotion to a
higher position.
80
 DISADVANTAGES OF
ORGANIZATIONAL DESIGN

1. Gives a clear picture of the organisational structure and the existing relationships.
2. Shows the lines of authority, responsibility and accountability.
3. Individuals can see who their associates are, to whom they report and from whom they get
instructions.
4. Improves organization by pointing out inconsistencies and deficiencies in certain relationships.
When management sees how its organisation structure actually looks, it may discover some
unintended relationships.
5. With the help of an organisation chart, outsiders can easily know the persons whom they have to
approach in connection with their work. This helps the outsiders to save their time and also to form
a better opinion of the concern.
6. By providing a clear picture of the lines of authority and responsibilities, they help to avoid
overlapping and duplication of authority and secure unity of command.
7. It serves as a valuable guide to the new personnel in understanding the organisation and for their
training.
8. It provides a framework of personnel classification and evaluation systems. They show to the
personnel what promotions they can expect, and what extra training is required for promotion to a
higher position.
81
 TYPES OF ORGANIZATIONAL
CHART

Top-to-down chart or vertical chart

Shareholders

Board of
Directors

Chief
Executive

Production Marketing HR Finance

manager manager manager manager

Supervisor Supervisor
I II

Foreman I Foreman II

82
 TYPES OF ORGANIZATIONAL
CHART

Left-to-right chart or Horizontal chart

Foreman I

Supervisor I
Production
Foreman II
manager
Supervisor II
Marketing
manager
Board of Directors Chief Executive

HR manager

Finance manager

83
 TYPES OF ORGANIZATIONAL
CHART

Circular Charts: Top positions for eg Chief Executive, are located in the centre of the concentric
circle. Different positions in the organisation are placed in such a way that the closer the position of
function to the centre, the more important the function. Thus, the distance from the centre indicates the
degree of closeness to the top position. Positions of successive echelons extend in all directions
outward from the centre. Positions of equal status lie at the same distance from the centre on the same
concentric circle. The following diagram illustrates the circular chart.

Chief
Executive

President

Departmental
head

84
 AUTHORITY & RESPONSIBILITY

Authority
A formal, institutional or legal power in a particular job, function or position that empowers
the holder of that job, function or position to successfully perform his task.

Authority refers to accepted power—that is, power that people agree to follow. People
listen to authority figures because they feel that these individuals are worthy of respect.
Generally speaking, people perceive the objectives and demands of an authority figure as
reasonable and beneficial, or true.

Responsibility is the obligation of a subordinate to perform a duty, which has been

assigned to him by his superior.
This shows that obligation is the essence of responsibility. In view of organizational set up,
the superior-subordinate relationship gives rise to this responsibility as the superior is
vested with the authority to get the specified work done by his subordinates.

85
 DEFINITIONS OF AUTHORITY

According to Barnard, “Authority is the character of a communication (order) in a formal

organization, by virtue of which it is accepted by a contributor to, or member of, the
organization as governing the action he contributes; that is, as governing or determining
what he does or not do, so far as the orga­nization is concerned.”

As Simon puts it, authority is the power to make decisions which guide the action of
another. It is a relationship between two individuals—one of them superior, and the other a
subordinate. The superior frames and transmits decisions, with the expectation that the
subordinates will accept and comply with them. The subordinate expects such decisions,
and his behaviour is determined by them.

86
TYPES OF AUTHORITY BY MAX
WEBER

Traditional

Max
Weber’s
Types of
Authority

Charismatic Legal

87
 TRADITIONAL AUTHORITY

• Power legitimized by respect for long-established cultural patterns, traditions, long-standing

beliefs & practices of a society.
• Comes from unwritten rules that are maintained over time.
• Is assigned to particular individuals because of that society’s customs and traditions.
• Granted to individuals regardless of their qualifications. They do not have to possess any special
skills to receive and wield their authority, as their claim to it is based solely on their bloodline or
supposed divine designation.
• Individuals enjoy traditional authority for at least one of two reasons. The first is inheritance, as
certain individuals are granted traditional authority because they are the children or other
relatives of people who already exercise traditional authority. The second reason individuals
enjoy traditional authority is more religious: their societies believe they are anointed by God or
the gods, depending on the society’s religious beliefs, to lead their society.
• An individual granted traditional authority can be intelligent or stupid, fair or arbitrary, and
exciting or boring but receives the authority just the same because of custom and tradition.
 RATIONAL-LEGAL
AUTHORITY

• Rational-legal authority derives from law and is based on a belief in the legitimacy of a
society’s laws and rules and in the right of leaders to act under these rules to make decisions
and set policy.
• This form of authority is a hallmark of modern democracies, where power is given to people
elected by voters, and the rules for wielding that power are usually set forth in a
constitution, a charter, or another written document.
• Whereas traditional authority resides in an individual because of inheritance or divine
designation, rational-legal authority resides in the office that an individual fills, not in the
individual per se.
For e.g. The authority of the president of the United States thus resides in the office of the
presidency, not in the individual who happens to be president. When that individual leaves office,
authority transfers to the next president.
 RATIONAL-LEGAL AUTHORITY

• Rational-legal authority derives from law and is based on a belief in the legitimacy of a
society’s laws and rules and in the right of leaders to act under these rules to make decisions
and set policy.
• Rational-legal authority helps ensure an orderly transfer of power in a time of crisis. When
John F. Kennedy was assassinated in 1963, Vice President Lyndon Johnson was
immediately sworn in as the next president. When Richard Nixon resigned his office in
disgrace in 1974 because of his involvement in the Watergate scandal, Vice President
Gerald Ford (who himself had become vice president after Spiro Agnew resigned because
of financial corruption) became president. Because the U.S. Constitution provided for the
transfer of power when the presidency was vacant, and because U.S. leaders and members
of the public accept the authority of the Constitution on these and so many other matters,
the transfer of power in 1963 and 1974 was smooth and orderly
 CHARISMATIC AUTHORITY

• Stems from an individual’s extraordinary personal qualities and from that

individual’s hold over followers because of these qualities.
• Such charismatic individuals may exercise authority over a whole society or only a
specific group within a larger society.
• They can exercise authority for good and for bad, as this brief list of charismatic
leaders indicates:
• E.g. Adolf Hitler, Mahatma Gandhi, Martin Luther King Jr., Jesus Christ,
Muhammad, and Buddha. Each of these individuals had extraordinary personal
qualities that led their followers to admire them and to follow their orders or
requests for action.
 CHARISMATIC AUTHORITY

• Weber emphasized that charismatic authority in its pure form (i.e., when authority
resides in someone solely because of the person’s charisma and not because the
person also has traditional or rational-legal authority) is less stable than traditional
authority or rational-legal authority. The reason for this is simple: once charismatic
leaders die, their authority dies as well. Although a charismatic leader’s example
may continue to inspire people long after the leader dies, it is difficult for another
leader to come along and command people’s devotion as intensely. After the deaths
of all the charismatic leaders named in the preceding paragraph, no one came close
to replacing them in the hearts and minds of their followers.
 RESPONSIBILITY

• The duty of the subordinate to perform organisational tasks, functions or activities assigned to
him.
• By responsibility we mean the work or duties assigned to a person by virtue of his position in
the organisation. It refers to the mental and physical activities which must be performed to
carry out a task or duty. That means every person who performs any kind of mental or physical
effort as an assigned task has responsibility. —Allen

• Authority and responsibility go side by side. When authority is delegated then some
responsibility for getting the assigned task is also fixed. One can delegate authority but not
responsibility.
 FEATURES OF RESPONSIBILITY

• Responsibility comes from superior-subordinate relationship..

• It always flows upward from juniors to seniors.

• It cannot be delegated.

• It is the obligation to complete the job as per instructions. Responsibility may be continuing

obligation or it may be discharged by accomplishing single task. Responsibility is a personal

attribute. No person can shift his responsibility by delegating his authority to others.

• Assignment of task or responsibility requires two or more people- first, the authority holding

person to assign the task or responsibility to his subordinates and demand accountability from

them w.r.t the tasks & responsibility assigned.

• Responsibility is a commitment of authority, therefore authority and responsibility should be

equal.
 AUTHORITY-RESPONSIBILITY
RELATIONSHIP

• Responsibility comes from superior-subordinate relationship.

• It always flows upward from juniors to seniors.

• It cannot be delegated.

• It is the obligation to complete the job as per instructions. Responsibility may be continuing

obligation or it may be discharged by accomplishing single task. Responsibility is a personal

attribute. No person can shift his responsibility by delegating his authority to others.

• Assignment of task or responsibility requires two or more people- first, the authority holding

person to assign the task or responsibility to his subordinates and demand accountability from

them w.r.t the tasks & responsibility assigned.

• Responsibility is a commitment of authority, therefore authority and responsibility should be

equal.
 ORGANISATIONAL CONTROL

• the process by which an organization influences its subunits and members to behave in ways
that lead to the attainment of organizational goals and objectives.
• Controls are put in place to make sure everything is on track and stays on track. Controls can be
as simple as a checklist, such as that used by pilots, flight crews, and some doctors.
• a function of management which helps to check errors in order to take corrective actions.
• done to minimize deviation from standards and ensure that the stated goals of the organization
are achieved in a desired manner.
• According to modern concepts, control is a foreseeing action; earlier concepts of control were
only used when errors were detected.
• Control is the process of comparing actual performance with established standards to correct
deviations. It is a process of comparing the actual performance with the set standards of the
company to ensure that activities are performed according to the plans and if not then taking
corrective action.
 ORGANISATIONAL
CONTROL:DEFINITIONS

‘Management control is a systematic effort to set performance standards with planning objectives,
to design information feedback systems, to compare actual performance with these predetermined
standards, to determine whether there are any deviations and to measure their significance, and to
take any action required to assure that all corporate resources are being used in the most effective
and efficient way possible in achieving corporate objectives’. – Robert J. Mockler.

‘Control of an undertaking consists of seeing that everything is being carried out in accordance
with the plan which has been adopted, the orders which have been given, and the principles which
have been laid down. Its object is to point out mistakes in order that they may be rectified and
prevented from recurring’. – Henry Fayol

‘Control is checking current performance against pre­determined standards contained in the plans,
with a view to ensure adequate progress and satisfactory performance’ – EFL Brech

‘Controlling is the measurement and correction of performance in order to make sure that
enterprise objectives and the plans devised to attain them are accomplished’. – Harold Koontz
‘Management is the profession of control’ – Stafford Beer
 ORGANISATIONAL CONTROL: FEATURES

1. Important management function

2. Continuous process
3. Mechanism
4. Dynamic process
5. Forward-looking:
6. Action-oriented:
7. Co-ordinate-integrated system
8. Goal- oriented
[Link] is Related to Planning
10. Essence of Control is Action
ORGANISATIONAL CONTROL: PROCESS

Establishment of
Measurement of
Performance
Performance
Standards

Comparison of
Analysis of
Performance against
Deviations
the Standards

Initiating corrective
Feedback
measures
 FEATURES OF EFFECTIVE ORGANISATIONAL
CONTROL MECHANISM

1. Accuracy.
2. Timeliness.
3. Flexibility.
4. Acceptability.
5. Integration.
6. Economic feasibility.
7. Strategic Placement.
8. Corrective action.
9. Emphasis on exception.
 DAIMSR
DR. AMBEDKAR INSTITUTE OF
MANAGEMENT STUDIES AND
RESEARCH

THANKS A LOT….
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