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Managing Contemporary
Organization
UNIT IV
Management Concepts
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UNIT IV
• Defining organization structure- Division of work,
Departmentalization, Hierarchy (Chain of
command and Span of Control), Co-ordination
• Authority, Responsibility & Delegation
• Centralization and Decentralization
• Common organizational Designs- Traditional
Designs (Simple, Functional, divisional),
Contemporary Designs (Team structures,
Matrix/project structures, boundary less
organization)
Management Concepts
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What Is Organizing?
• Organizing
– Arranging the activities
of the enterprise in such
a way that they
systematically contribute
to the enterprise’s goals.
Management Concepts
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Organization
• Common parlance --- organization ---institution - formal arrangement of work
among members with clear identification of
authority and responsibility so that
organizational goals are achieved optimally
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Organizing
• Structure
• Defines vertical and
Horizontal relationships
• Structure of network of
relationships
• Process
• Defines Relationships
amongst people in such
a way that
organizational goals are
achieved efficiently
• Differentiation and
Integration
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Nature of organization
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Structure of relationships
Managerial functions
Ongoing process
Encourages teamwork
Goal oriented
Adaptive in change
Situational
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Process of organizing
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Determination of objectives
Division of activities
Grouping of activities
Defining authority and responsibility
Coordination of activities
Reviewing and reorganizing
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Importance
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Facilitates administration
Growth and diversification
Creates synergies
Establishes accountability
Facilitates communication
Facilitates teamwork
Facilitates control
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Depicting the Organization
• Organization Chart
– A chart that shows the
structure of the
organization including
the title of each
manager’s position and,
by means of connecting
lines, who is accountable
to whom and who has
authority for each area
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Structure Variables
• Principles
• Departmentalization
– Chain of command
– Span of control
– Authority
– Power
– Responsibility
Management Concepts
– Functional
– Divisional
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Product
Customer
Geographic
Process
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Organization Design and
Structure
• Organization design
– A process in which managers develop or change
their organization’s structure
• Work specialization
– A component of organization structure that
involves having each discrete step of a job done by
a different individual rather than having one
individual do the whole job
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Concept of Organization Structure
Structure as
recurring
activities
Structure as an
influence on
behavior
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Organization Structure
• Three Components
– Formal reporting relationships
– Grouping of people and departments
– Design of systems to ensure effective
communication, coordination, and integration
Management Concepts
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What is an Organizational Structure
• The organizational structure defines the
organization's hierarchy of people and
departments as well as how information flows
within the organization.
• The organizational structure determines how
and when information is distributed as well as
who makes what decisions based on the
information available.
• How job tasks are formally divided, grouped
and coordinated.
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Organizational structure
• Organizational structure refers to the levels of
management and division of responsibilities
within a business, which could be presented in
an organizational chart.
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The importance of the Organizational
Structure
• The Organizational Structure is important
because it ensures that there is an efficient
operation of a business and it clearly defines
its workers and their functions.
• The organizational structure also helps define
the hierarchy and the chain of command.
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The Concept of Organization Structure
 Structure helps influence behavior and
relationships of jobs and functions
Structure defines recurring activities and
processes.
Structure provides a purposeful and goaloriented behavior.
Management Concepts
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Division of labor
• Division of labor and patterns of coordination, communication,
workflow, and formal power that direct organizational activities.
• Division of labor
–Subdivision of work into separate jobs assigned to different people
–Potentially increases work efficiency
–Necessary as company grows and work becomes more complex
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Division of Labor
• Division of labor – concerns the extent to
which jobs are specialized
• It is the process of dividing work into relatively
specialized jobs to achieve advantages of
specialization
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Division of Labor Occurs in Three
Different Ways:
1. Personal specialties
– e.g., accountants, software engineers, graphic
designers, scientists, etc.
2. Natural sequence of work
– e.g., dividing work in a manufacturing plant into
fabricating and assembly (horizontal specialization)
3. Vertical plane
– e.g., hierarchy of authority from lowest-level manager to
highest-level manager
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Organizational Structure: Control
• Chain of command
– The management principle that no person should report to more than
one boss
• Span of control
– The number of subordinates a manager can direct efficiently and
effectively
• Authority
– The rights inherent in a managerial position to give orders and expect
them to be obeyed
• Responsibility
– An obligation to perform assigned activities
• Power
– An individual’s capacity to influence decisions
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Chain of Command
Management Concepts
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Management Concepts
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Tall And Flat Organizations, And The
Span Of Control
• Span of Control
– The number of subordinates reporting directly to a
supervisor.
• Wide spans: larger number of direct reports.
• Narrow spans: fewer number of direct reports.
• Tall vs. Flat Organizations
– Tall organizations: more management layers and more
hierarchical controls.
– Flat organizations: fewer management layer and decision
making closer to the customer.
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span of control
• Number of people directly reporting to the next level
– Assumes coordination through direct supervision
• Wider span of control possible with other coordinating
mechanisms present
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Tall and Flat Organizations
• Tall structures have many levels of authority
and narrow spans of control.
– As hierarchy levels increase, communication gets
difficult creating delays in the time being taken to
implement decisions.
– Communications can also become distorted as it is
repeated through the firm.
– Can become expensive
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• Flat structures have fewer levels and wide
spans of control.
– Structure results in quick communications but can
lead to overworked managers.
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Authority
• Right to carry out the assigned tasks
(responsibilities)
• Power enjoyed by a person to influence his
subordinates, to direct them to work.
• Derived by the virtue of the position he holds
in the organization
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Types of Organizational Authority
• Line authority
– The position authority (given and defined by the
organization) that entitles a manager to direct the
work of operative employees
• Staff authority
– Positions that have some authority (e.g.,
organization policy enforcement) but that are
created to support, assist, and advise the holders
of line authority
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Types of Power
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Legitimate
Power based on one’s position in the formal hierarchy
Coercive
Power based on fear
Reward
Power based on the ability to distribute something that
others value
Expert
Power based on one’s expertise, special skill, or knowledge
Referent
Power based on identification with a person who has
resources or traits
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• Authority
• Formal rights of a
person to issue orders
and instructions to
subordinates
• Power
• Ability of a person to
issue orders and
instructions to
subordinates
Management Concepts
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Responsibility
• The task entrusted by the manager to his
subordinates.
• Moral commitment to the work assigned
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Departmentalization:
Creating Departments
• Departmentalization
– The process through which an organization’s
activities are grouped together and assigned to
managers; the organization wide division of work.
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Departmentalization
• Functional
– The grouping of activities by functions performed
• Product
– The grouping of activities by product produced
• Customer
– The grouping of activities by common customers
• Geographic
– The grouping of activities by territory
• Process
– The grouping of activities by work or customer flow
Management Concepts
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Mechanistic and Organic
Organizations
• Mechanistic organization
– The bureaucracy; a structure that is high in
specialization, formalization, and centralization
• Organic organization
– An adhocracy; a structure that is low in
specialization, formalization, and centralization
• Structure follows strategy
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Organizational structure
• Simple structure
– An organization that is low in specialization and
formalization but high in centralization
• Functional structure
– An organization in which similar and related
occupational specialties are grouped together
• Divisional structure
– An organization made up of self-contained units
Management Concepts
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Organizational structure
• Matrix structure
– An organization in which specialists from functional
departments are assigned to work on one or more projects
led by a project manager
• Team-based structure
– An organization that consists entirely of work groups or
teams
• Boundary less organization
– An organization that is not defined or limited by
boundaries or categories imposed by traditional structures
Management Concepts
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Functional Structure
– An organizational structure composed of all the
departments that an organization requires to
produce its goods or services
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Advantages
– Encourages learning from others doing similar
jobs.
– Easy for managers to monitor and evaluate
workers.
– Allows managers to create the set of functions
they need in order to scan and monitor the
competitive environment
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Divisional Structure
– Managers create a series of business units to
produce a specific kind of product for a specific
kind of customer
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• Product Structure
– Managers place each distinct product line or
business in its own self-contained division
– Divisional managers have the responsibility for
devising an appropriate business-level strategy to
allow the division to compete effectively in its
industry
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• Allows functional managers to specialize in
one product area
• Division managers become experts in their
area
• Removes need for direct supervision of
division by corporate managers
• Divisional management improves the use of
resources
Management Concepts
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• Geographic Structure
– Divisions are broken down by geographic location
• Global geographic structure
– Managers locate different divisions in each of the
world regions where the organization operates.
– Generally, occurs when managers are
pursuing a multi-domestic strategy
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• Global Product Structure
– Each product division takes responsibility for
deciding where to manufacture its products and
how to market them in foreign countries
worldwide
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• Market Structure
– Groups divisions according to the particular kinds
of customers they serve
– Allows managers to be responsive to the needs of
their customers and act flexibly in making
decisions in response to customers’ changing
needs
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• Product Team Structure
– Cross-functional team is composed of a group of
managers from different departments working
together to perform organizational tasks.
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Creating Matrix Organizations
• Matrix Organization
– An organization structure in which employees are
permanently attached to one department but also
simultaneously have ongoing assignments in
which they report to project, customer, product,
or geographic unit heads.
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Matrix Organization
Departmentalization
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Matrix Organizations
Advantages
• Access to expertise.
• Stability of permanent
department
assignments for
employees.
• Allows for focus on
specific projects,
products, or customers.
Disadvantages
• Confusion of command.
• Power struggles and
conflicts.
• Lost time in
coordinating.
• Excess overhead for
managing matrix
functions.
Management Concepts
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Abolishing Organizational Boundaries
• Boundary less Organization
– An organization in which management strips away
the “walls” which typically separate organizational
functions and hierarchical levels, through
the widespread use of
teams, networks, and
similar structural
mechanisms.
Management Concepts
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Virtual Organizations
• Virtual organization – a collection of
geographically distributed, functionally and/or
culturally diverse aggregations of individuals
that is linked by electronic forms of
communication
• Assembled and disassembled according to
needs
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Delegation of Authority
• Managers decide how much authority should
be delegated to each job and to each
jobholder
• Delegation of authority – process of
distributing authority downward in an
organization
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Reasons to Decentralize Authority
1. Relatively high delegation of authority
encourages the development of professional
managers
2. High delegation of authority can lead to a
competitive climate within the organization
3. Managers who have relatively high authority can
exercise more autonomy, and thus satisfy their
desires to participate in problem solving
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Reasons to Centralize Authority (1 of 2)
1. Managers must be trained to make the
decisions that go with delegated authority
2. Many managers are accustomed to making
decisions and resist delegating authority to
their subordinates
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Reasons to Centralize Authority (2 of 2)
3. Administrative costs are incurred because
new control systems must be developed to
provide top management with information
about the effects of subordinates’ decisions
4. Decentralization means duplication of
functions
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Centralization and Decentralization
• Centralization
– A function of how much decision-making
authority is pushed down to lower levels in an
organization; the more centralized an
organization, the higher the level at which
decisions are made
• Decentralization
– The pushing down of decision-making authority to
the lowest levels of an organization
Management Concepts
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Centralization
Formal decision making authority is held by a few
people, usually at the top
• Organizational crises
• Management desire for control
• Increase consistency, reduce costs
Decision making authority is
dispersed throughout the organization
• Complexity — size, diversity
• Desire for empowerment
Decentralization
Management Concepts
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Decentralize?
• Decentralized Organization
– Organizational authority for most departmental decisions is
delegated to the department heads.
– Control for major companywide decisions is maintained at the
headquarters office.
• Decentralization Rules:
– Decentralize decisions that affect only one division or area and
that would take a long time for upper management to make.
– Centralize decisions that could adversely affect the entire firm
and that upper management can fairly quickly and easily.
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DECENTRALIZATION: BENEFITS
WHEN LOW AND WHEN HIGH
Low Decentralization
(High centralization)
High decentralization
(low centralization)
Eliminates the additional responsibility not desired by people
performing routine jobs
Can eliminate levels of management,
making a leaner organization
Permits crucial decisions to be
made by individuals who have
the “big picture”
Promotes greater opportunities for
decisions to be made by people closest
to problems
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Organizing cont…
NB: The Importance of structure:
“Good
organization structure does not by itself
produce good performance but poor
organization structure makes good
performance impossible no matter how good
the individual managers may be”. (Drucker,
1989)
Management Concepts
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L&T organizational structure
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