Chapter Four

The Organizing Function

4.1 Concepts of Organizing
• In planning, managers set their objectives and
determine exactly what to do to attain these
objectives.
• Planning, consequently, requires organizing the
efforts of many people.
 What specific tasks are required to implement our
plans?
 How should positions be grouped?
 How many organizational positions are needed to
perform all the required tasks?
 How many layers of management (Organizational
levels) are needed to coordinate them?
 How many people should a manager supervise
directly?
 4.1.1 The Organizing Process
The organizing process has the following steps.
a. Identification of objectives: identify the
specific objectives to be pursued
b. Identification of the specific activities needed
to accomplish objectives
c. Grouping of activities: grouping of activities
together in accordance with:
 similarities (homogeneity) of the activities, like
marketing, supply, finance
 interdependence, example by process
 job characteristics, like medical, engineering
d. Assigning group of activities (work) and
delegate the appropriate authority
e. Design a hierarchy of relationships/
Provision for coordination
• This step requires the determination of both
vertical and horizontal operating relationships
of the organization as a whole.
 4.1.2 Importance of Organizing
a. Organizing promotes collaboration and coordination
among individuals in a group.
• Thus, it improves communication within the
organization.
b. Organizing sets clear-cut lines of authority and
responsibility for each individuals or department’s.
c. Organizing improves the directing and controlling
functions of managers.
 It enables management to effectively control the
work and workers.
d. Organizing develops maximum use of time, human,
and material resources.
 It also enables for proper work assignment for individuals
in pursuit of common goal.
e. Organizing enables the organization to maintain its
activities coordinated so that the efforts of managers
and employees can be well integrated and directed
towards an end; i.e. to accomplish organizational
goal
 4.2. Types of Organizations: formal and informal
4.2.1 Formal organization
• Formal organization: is the intentional, deliberate
or rational structure of roles in a formally organized
enterprise.
• It is characterized by well-defined :
 authority,
 reporting relationships,
 job titles,
 policies, procedures, specific job duties, etc
• It has legal personality
4.2.2 Informal organization
• It is a network of personal and social relationships
that arises spontaneously as people associate with one
another in a work environment.
• It is an unofficial network of personal and social
relations developed as a result of association or
working together
• It operates outside formal authority relationships.
• It doesn’t have legal personality
[Link] Why people form informal groups?
a. Need for satisfaction
• People have needs that in some cases are not met
through the formal organization.

b. Proximity and interaction

• This can be either through working in close
proximity physically or because of frequent
interaction.
c. Similarity
• Similarity can be personality, race, sex, economic position,
age, educational background etc.
[Link] Why informal groups exist?: four major
functions:
a. They maintain the social and cultural values
of the group members
b. They provide group members the
opportunity for status fulfillment and social
interaction
c. They provide information for their
members
d. They influence the work environment
[Link] The Impact of Informal Organization on the Formal
Organization: +ve & -ve
a. The Negative Impacts
i. Resistance to change
ii. Conflict
• In an attempt to satisfy the informal group, the employee may
come in conflict with the formal organization;
 For example, 10 minutes for coffee break can be extended
to 30 minutes
iii. Rumor
• The informal communication system - the grapevine - can
create and process false information or rumors, which can be
devastative for an organization
b. The Positive Impacts
i. Makes the total system effective
• If the informal organization blends well with
the formal system, the organization can
function more effectively.
ii. Provides support to management
iii. Provides a useful communication channel
• The informal organization provides employees with the opportunity
for social information, for discussing their work, and for
understanding what is happening in the work environment.
iv. Encourages better management
• Managers should be aware of the power of the informal organization
in what is actually a check and balance system.
• Planned changes should be made with an awareness of the ability of
the informal group to make the plan successful or unsuccessful.
v. Provides stability in the work environment
• The informal organization can provide acceptance and belonging.
• This feeling of being wanted by the group can encourage employees
to remain into environment, thus reducing turnover.
4.3 Organizational Structure
4.3.1 Meaning
• Organization structure is the arrangement and
interrelationship of the component parts, and positions of an
organization.
• The formal structure of an organization is of two-
dimensional:
 The horizontal dimension and
 vertical dimension.
• The horizontal dimension identifies departments, units, and
divisions on the same level of a management.
• Whereas the vertical dimension refers to the authority
relationships between superiors and subordinates and it also
identifies who is responsible and accountable for whom
4.3.2 Organizational Chart
• Organization chart is a line diagram that depicts the
broad outlines of an organization’s structure.
• It shows the flow of authority, responsibility, and
communication among the various departments
which are located at different levels of the hierarchy.
• It is helpful in providing a visual map of the chain of
command.
• The organization chart can tell us:
 Who reports to whom (chain of
command)
 The number of managerial levels
 How many subordinates work for each
manager (the span of control)
 Channel of official communication
through the solid lines that connect each
job (box)
 How the organization is structured-by
function, territory, customer, etc.
 President

V.P marketing V.P production

Marketing
Promotion Manufacturing Quality control
Sales manager Research
manager Manager manager
Manager
 4.4 Departmentation: Meaning and Bases
4.4.1 Departmentation
• This process of grouping specialized activities in a
logical manner is called Departmentation
• Departmentation is not an end in it self but is simply
a method of arranging activities to facilitate the
accomplishment of objectives.
 4.4.2 Bases for Departmentation
• Since organizations are different in their activities,
objectives and areas in which they operate, there are
different bases for departmentation
• The different types of departmentation are:
function,
territory,
product,
customer, and
process
 [Link] Departmentation by Function
• It is the grouping together of activities in accordance with
the functions of an enterprise - on the basis of similarity of
expertise, skills or work activities.
• In other words, jobs that call for certain skills or the use of
similar working methods will be put together.
• It is probably the most common base for departmentation
and is present in almost every enterprise at some level in the
organization structure.
• It asks the question “what does the enterprise/organization
do” what kind of activities.
• E.g. Human resources, production, marketing, finance, etc.
 General
Manager

Marketing Finance Production HR

Manager Manager Manager Manager
[Link] Departmentation by Territory/ Geography
• Groups activities on the basis of geographic region or territory
• It is common in enterprises that operate over wide geographic
areas
• The logic is that all activities in a particular area or region
should be assigned to a manager.
• This individual would be in charge of all operations in that
geographic area.
• Geographic departmentalization works best when different
laws, currencies, languages and traditions exist and have a
direct impact on the ways in which business activities must be
conducted
 President

Southern Region
Western Region Central Region Eastern Region
Manager Manager Manager Manager

Engineering Production Finance Personnel

 [Link] Departmentation by Product [Line]
• It is the grouping and arrangement of activities around products or
product groups.
• Departmentation by product should be considered when attention,
energy and efforts need to be focused on an organization’s particular
products.
• This can be true if each product requires a unique strategy or
product process or distribution system or capital sources.
• This approach works well for an enterprise which engaged in very
different types of products.
• E.g.
 Textile products - Nylon products, woolen products, silk
products, cotton products;
 petroleum refining - kerosene, diesel;
 electronics - Radios, TVs, Computers;
 vehicles- car, truck and bus
 General
Manager

Car division Truck

Bus Division
manager Division

Production Finance Marketing Personnel

 [Link] Departmentation by Customer

• It is a grouping of activities around customers.

• This grouping reflects a primary interest in customers
• This makes economic sense when the customers are distinct
• It can be used in medical institutions such as hospitals and clinics:
 emergency services,
 out patient services,
 inpatient services,
 x-rays;
• retail stores:
 men's clothing,
 women's clothing,
 children's clothing.
• Normally, setting up departments by customers is not a primary form of
departmentation.
• It is used instead within some other framework, like wholesale, retail, export
and installment under marketing department.
 General
Manager

HR Manager Marketing Finance Production

Manager Manager Manager

Wholesale Retail Instalment Export

[Link] Departmentation by Process
• Manufacturing firms often group activities around a process
or type of equipment.
• This is when special skill is needed to operate different
machines.
• A textile factory may be classified in to Spinning, weaving,
processing, etc
 President

Production
manager

Spinning Dyeing Weaving Processing

 4.5 Span of Management
4.5.1 Meaning
• The term span of management is also referred to as
 a span of control,
 span of supervision,
 span of authority or
 span of responsibility
• Span of management - refers to the number of subordinates
who report directly to a manger, or the number of
subordinates who will be directly supervised by a manager
• There is no magical number for the span of control.
• Based on the number of subordinates who should
report to a manager or the number of subordinates
that a superior should supervise, we can have:
Wide span of management and
Narrow span of management
4.5.2 Types of span of control
a. Narrow Span of Management
• This means superior controls few numbers of subordinates or
few subordinates report to a superior.
• When there is narrow span of management in an organization,
we get:
 Tall organization structure with many levels of supervision
between top management and the lowest organizational
level.
 More communication between superiors and subordinates.
 Managers are underutilized and their subordinates are over
controlled.
 More trained managerial personnel and centralized
authority
Advantages
• Close supervision and control
• Fast communication between subordinates and superiors.
• Easy to coordinate and control activities.

Disadvantages
• Superiors tend to get too involved in the subordinates work
• The problem of setting more trained managerial personnel
• Excessive distance between lowest level and top level
management.
• High costs due to many levels
b. Wide Span of Management
This means many subordinates report to a superior or a
superior supervises many subordinates.
• If the span of management is wide, we get:
 A flat organization structure with fewer
management levels between top and lower level
 Many number of subordinates and decentralized
authority
 Managers are overloaded and their subordinates
receive too little guidance and control
 Dangers of superior's loses of control
 Fewer hierarchal level
Advantages
• Superiors are forced to delegate
• It initiates the development of clear polices

Disadvantages
• Tendency of overloaded superiors to become decision bottle
necks
• Danger of superior’s loss of control
4.5.3 Relationship of centralization to span of control

• The company’s philosophy of centralization or

decentralization in decision-making can influence the
span of control of subordinate managers.
• A philosophy of decentralized decision-making
generally means that the span of management should
be wider for each manager.
• This is so because decision-making is forced down to
subordinates, thus feeling up a manager’s time
commitments.
• This situation also generally means fewer level of
management in an organization
• Conversely, a philosophy of centralized
decision-making should result in a narrower
span of control and more levels of
management.
• If it is the philosophy of the company to have
managers make the majority of decisions, the
mangers will closely supervise their
subordinates and delegate little.
• Contacts with subordinates should increase in
number and in length, thus narrowing the span
of control.
• There are two major reasons why the choice of
appropriate span is important
Span of management affects the efficient
utilization of managers and the effective
performance of their subordinates.
Too wide a span of management may mean that
managers are overextending themselves and that
their subordinates are receiving too little
guidance or control.
Too narrow a span of management may mean
that managers are under utilized.
 There is a relationship between span of management
throughout the organization and the organization
structure
A narrow span of management results in a "tall"
organizational structure with many supervisory levels
between top management and the lowest level.
A wide span for the same number of employees
means fewer management levels between the top and
bottom.
• The concept of an "optimal" span of management is the
one that is neither too broad nor too narrow
• The concept of an optimal span of management suggested
that spans could be too broad or too narrow in specific
instances.

• The wider the span of management, the less direct

supervision there is;
• The narrower the span, the greater the number of
managers and, therefore, the higher the cost in salaries
4.6 Authority Relations in Organization (Line, Staff, Functional)
• In an organization, there are three types of authority:
 Line authority
 Staff authority
 Functional authority
4.6.1 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.
4.6.2 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 .
• E.g. Personnel, research and development, legal, plant
maintenance, etc.
• Staff authority is advisory and normally flows
upward
Line and Staff Departments
• 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.
4.6.3 Functional Authority
• It is the right which is delegated to an individual or a
department to control specified process, practices, or
provinces or other matters relating to activities
undertaken by persons in other departments.
• 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, performance appraisal
systems
4.7 Delegation of Authority, centralization
and decentralization

4.7.1 Meaning of Authority

• Authority it is the right to make decisions,
carry out actions, and direct others in matters
related to the duties and goals of a position
• It is the formal right of a superior to command
and compel his subordinates to perform a
certain act.
• Authority provides the means of command
• Generally, level of authority varies with levels of
management.
 Higher-level managers have greater authority, with
ultimate power resting at the top.
• Responsibility means being held accountable for attainment
of the organization’s goal.
• Authority is derived from the person’s official position in
the organization.
• Even though a manager has formal or legitimate authority, it
is wise to remember that the willingness of employees to
accept the legitimate authority is a key to effective
management.
4.7.2 Delegation of Authority
• it is the downward pushing of authority from superiors
to subordinates to make decision within their area of
responsibilities.
• It is the process of allocating tasks to subordinates,
giving them adequate authority to carry out those
assignments, and making them obligated to complete
the tasks satisfactory.
• Delegation is necessary for an organization to exist;
just no one person in an enterprise can do all the tasks
necessary for accomplishing a group purpose, so it is
impossible, as an enterprise grows, for one person
exercise all the authority for making decisions.
• In delegating authority a manager doesn’t
surrender his power because he does not
permanently dispose of it; delegated authority
can always be regained.
• This is called recovery of delegated authority.
[Link] The Process of Delegation
• Delegation of authority has the following steps:
a. Assignment of tasks
• Specific tasks or duties that are to be undertaken are identified by the
manager for assignment to the subordinate.
b. Delegation of authority
• In order for the subordinate to complete the duties or tasks, the authority
necessary to do them should be delegated by the manager to the subordinate.
• A guideline for authority is that it be adequate to complete the task - no more
and no less.
c. Acceptance of responsibility
• Responsibility is the obligation to carryout one’s assigned duties to the best
of one’s ability.
• It is the obligation created when someone accepts task assignments together
with the appropriate authority.
• The employee is the receiver of the assigned duties and the delegated
authority; these confer responsibility as well.
d. Creation of accountability
• Accountability is having to answer to someone
for your results or actions.
• It means taking the consequences - either
credit or blame.
• When the subordinate accepts the assignment
and the authority, s/he will be held accountable
or answerable for actions taken.
[Link] Importance of Delegation
a. It relieves the manager from his/her heavy workload:
• Delegation 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 (lets
the manager concentrate on strategic issues).
• Enables managers to perform higher level work
b. It leads to better decisions
• Since subordinates are closer to real “firing line” activities and
problems than superiors, they have more realistic information and
better understanding
• The realistic information that subordinates have may lead them to
make better decisions
c. It speed up decision-making
• Decisions made by lower level managers usually are timelier than
those that go through several layers of management
d. It helps subordinates to train and builds moral
• Subordinate managers can reach their full potential
only if given the chance to make decisions and to
assume responsibility for them.
e. It encourages the development of professional
managers
• Had there not been any delegation, professional
managers wouldn’t have been produced.
f. It helps to create the organization structure
• If there were no delegation of authority is an
organization, there would exist only the
president/CEO/ top-level manager.
• And an individual cannot create an organization.
4.7.3 Centralization and Decentralization
• The terms centralization and decentralization refer to
a philosophy of organization and management that
focuses on either the selective concentration
(centralization) or the dispersal (decentralization) of
authority within an organization structure.
• Centralization - is the extent to which power and
authority are systematically retained by top managers.
• If an organization is centralized:
 Decision-making power remains at the top
 The participation of lower-level managers in decision-
making is very low
[Link] Decentralization
• It is the extent to which power and authority are
systematically dispersed / delegated throughout the
organization to middle and lower level managers.
• It is the tendency to disperse decision-making authority in
an organized structure.
• In a decentralized organization decision-making power is
pushed downwards and lower-level managers actively
participate in decision-making process.
• Centralization and decentralization are not opposites rather
they are tendencies/proportions in delegation of authority.
• If they were opposites, there could be absolute
centralization or absolute decentralization, but there is no
absolute centralization or absolute decentralization.
• There could be absolute centralization of authority in
one person.
• But that implies no subordinate managers and
therefore no structured organization.
Centralization and decentralization form a continuum with
many possible degrees of delegation of power and authority in
between.

a. When decentralization is greater

• The greater is the number of decisions made at
lower level of the organization
• The more functions are affected by decisions
made at lower levels
• The less a subordinate has to refer to his/her
manager prior to a decision and the less checking
required as decisions are made at the lower level.
b. Factors Determining Delegation
• Some factors that affect the degree of centralization or
decentralization- delegation of authority- are:
i. The history and culture of the organization
• organizations which were centralized or decentralized at their
establishment tend to centralize and decentralize authority to
repeat what they have done before.
• When centralized organization is changed into decentralization
and the vice versa people feel discomfort
ii. The nature of the decision
• The costlier and the riskier the decision is, the more
centralized the authority will be.
• Cost may be reckoned directly in birr and cents or in such
intangibles as the company’s reputation, its competitive
position or employee morale.
• The fact that the cost of mistake affects the decentralization
isn’t necessarily based on the assumption that top managers
make fewer mistakes than subordinates; they may make
fewer mistakes, since they are probably better trained and in
possession of more facts, but the controlling reason is the
weight of responsibility.
• Delegating authority is not delegating responsibility;
therefore, managers typically prefer not to delegate
authority for crucial decisions.
iii. Availability and ability of managers (Lower level
managers)
• A real shortage of managers would limit decentralization
of authority, since in order to delegate, superiors must
have quantified managers to whom to give authority.
• In addition to the availability of lower level managers,
the quality of the existing lower level managers
(subordinates) has impact on centralization or
decentralization.
• Hence, the competency to carry out and exercise the
delegated authority has some effects.
• Some managers lack confidence in their subordinate or
fear the consequences or criticism of having subordinates
make bad decisions.
iv. Management philosophy: dictatorship, democratic, etc
• The willingness of managers to delegate authority and limit the
degree of decentralization or the desire to do the job by
herself/himself.
• Sometimes top managers are despotic /dictatorial, tolerating no
interference with the authority they jealously hoard.
• At other times, top managers keep authority not merry to gratify a
desire for status or power but because they simply cannot give up the
activities and authorities they enjoyed.
v. Size and character of the organization
• The larger the organization, the more decisions to be made, and the
more places in which they must be made, the more difficult it is to
coordinate them.
• These complexities of organization may require policy questions to be
passed up the line and discussed not only with many managers in the
chain of command but also with many managers at each level, since
horizontal agreement may be as necessary as vertical clearance.
vi. Geographic dispersion of operations
• Geographic dispersion of operations makes
decentralization more necessary because top
executives frequently find it impossible to
keep abreast of the details of what is going on
at various locations.
• Moreover, managers on site may be in a better
position to assess local situations and make
appropriate decisions.
c. Problems in Effective Delegation
• Despite of the advantages:
 many managers are reluctant to delegate authority and
 many subordinates are reluctant to accept it

i. Reluctance to delegate/Problems from Managers

• There are a number of reasons that managers commonly offer to explain why
they do not delegate. Some are:
 Fear of loss of power - Some managers fear when they delegate authority
because they expect that they will be substituted/replaced by their subordinates
if subordinates have got the experience and skill of decision-making.
 “I can do it better myself” fallacy: Some managers have an inflated worth of
themselves and think that they do everything better than their subordinates.
 Lack of confidence in subordinates: The perception of managers that my
subordinates just are not capable enough. When managers delegate authority to
their subordinates they do also delegate responsibility. That is, managers are
accountable for the actions of their subordinates and may fear the blame if
subordinates fail, if subordinates lack knowledge and skill
 Fear of being exposed: Some managers fear that their
subordinates do too good job as compared with
themselves i.e. feel threatened that competent
subordinates may perform too well and possibly make the
manager look poor by comparison.
ii. Reluctance to Accept Delegation/problems from subordinates
 Fear of failure and criticism: Subordinates who fear criticism or
dissemble for mistake are frequently reactant to accept delegation.
The solution for this problem can be teaching subordinates when they
make mistakes than criticizing or dismissing.
 Subordinate may believe that the delegation increases the risk of
making mistakes but doesn’t provide adequate rewards for assuming
greater responsibility: Lack of incentive or reward for assuming a
greater workload. Accepting delegation frequently means that they
will have to work harder under greater pressure. Without appropriate
compensation subordinates may be unwilling to do so.
 Lack of adequate information and resources: If subordinate managers
think that they don’t have enough factual information on which to
base a decision or other resources necessary to carryout the assigned
duties, they tend to decline/reject accepting authority delegated.
 Lack of self-confidence
 Believing / Thinking that decision-making is the boss’s job