CHAPTER THREE

THE PLANNING FUNCTION

3.1. Introduction to planning
Meaning, nature and importance of planning

In chapter one we have learnt that planning is the management of organizations future in
uncertain environment. planning is the dynamic process of making decisions today about future
actions; and it is a selection or choice among alternatives as to: What missions or objectives be
achieved, What actions should be taken, What organizational positions be assigned, How the end
can be achieved, When to achieve it, Who is to do it, Where to do it. It bridges the gap between
where we are now and where we want to be.

What Is Planning?

Planning involves defining the organization’s goals, establishing strategies for achieving those
goals, and developing plans to integrate and coordinate work activities. It’s concerned with both
ends (what) and means (how).

Planning - is preparing today for tomorrow; it is the activity that allows managers to determine
what they want and how to get it: They set goals and decide how to reach them. Planning focuses
on the future: what is to be accomplished and how.
It answers six basic questions in regard to any intended activity:
F What (the goal or goals).
F When (the time frame in which it will be accomplished)
F Where (the place or places where the plans or planning will reach its conclusion).
F Who (which people will perform the tasks).
F How (the specific steps or methods to reach the goals).
F What resources (resources necessary to reach the goals).
Nature of Planning
 Planning is a continuous process:
• Planning deals with the future and the future is full of uncertainties.
• Effective plans have no end points. It is always subject to a revision.
• Planning involves interdependent set of decisions and concerns all managers:
• Planning commits the organization into the future
• Plans are arranged in a hierarchy
• Corporate (strategic) Plans
• Tactical plans
• Operational plans

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 Purposes of Planning

Planning seems to take a lot of effort. So why should managers plan?

Planning is important for every organization irrespective of its size, objectives, and location.
Decisions without planning would become random this may lead to failure of entire organization.
The followings are among the importance of planning:

1. It provides direction and sense of purpose

It is through planning that we can establish our objectives. Plans focus attention on specific
targets and direct employees effort toward important outcomes. Once organizations known what
they can do and can't do over the future, they began to set objectives based on their capacity and
the order of activities needed to accomplish their objectives. It provides direction and a common
sense of purpose. This shared purpose enables both employees and managers to coordinate,
unite, and guide their actions.
2. It reduces uncertainties and anticipates the future/ preparing for change
Planning is based on systematic and careful forecasts of future states of the economy, markets,
technology, etc to reduce uncertainties to the extent they occur according to expectation. Thus, it
is while planning that the manager should consider the potential areas for changes in the future;
rather than merely reacting to it. Managers should cope with changes in their own organizations
and functions in their environment through planning. Anticipating and preparing for possible
future changes enables managers to control their environment. In so doing, planning answers
“what-if” questions. In planning, managers develop several "what if" questions in order to
reduce the risk of unpredictable future, so far as we plan for the future. By asking what if
questions managers develop alternatives.
3. It provides basis for controlling
Standards /controlling mechanisms/ are developed during planning. It specifies what is to be
accomplished and provides a standard for measuring progress.
4. If forces managers see the organization as a system
While planning managers have to consider parts because the plan of one part (department)
affects the operation of the whole organization so far as parts of an organization are
interdependent.
5. It promotes efficiency
Planning provides the opportunity for a greater utilization of the available organizational
resources - because in planning we determine how many resources are necessary to reach the
goals, and how to use these resources.
6. It provides the base for cooperative and coordinated efforts
Management exists because the work of individuals and groups in organizations must be
coordinated, and planning is one important technique for achieving coordinated effort. Planning
provides the basis for organized and coordinated effort by defining the objectives of the
organization and the means for their achievement.
7. Developing managers

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The act of planning involves high level of intellectual activity. Those who plan must be able to
deal with abstract and uncertain ideas and information. Planners must think systematically about
the present and the future. Through planning, the future state of the organization can be
improved if its managers take an active role in moving the organization toward that future.
Planning then implies that managers should be proactive and make things happen rather than
reactive and let things happen. Through act of planning, managers not only develop their ability
to think futuristically but, to the extent that their plans are effective, their motivation to plan is
reinforced. Also, the act of planning sharpens manager's ability to think as they consider abstract
ideas and possibilities for the future. Thus, both the result and the act of planning benefit both the
organization and its managers.
8. It provides guideline for decision making
Decision sin an organization will be made in alignment with the plans and in accordance with
desired outcomes. Managers make decisions on problems of recurring nature based on strategies
and policies of the organization. Through specifying the actions necessary to accomplish the
goals of the organization, planning serves as a framework for decision-making. It forces
managers to make analytical thinking and evaluate alternatives through improved decisions.

Criticisms of Planning
It makes sense for an organization to establish its direction. But critics have challenged some of
the basic assumptions underlying planning. What are the primary criticisms directed at formal
planning?

F Planning may create rigidity. Formal planning efforts can lock an organization into
specific goals to be achieved within specific timetables. When these goals are set, the
assumption may be that the environment will not change during the time period the goals
cover. If that assumption is faulty, managers who follow a plan may face trouble. Rather
than remaining flexible—and possibly throwing out the plan— managers who continue to
do the things required to achieve the original goals may not be able to cope with the
changed environment. Forcing a course of action when the environment is fluid can be a
recipe for disaster.
F Plans cannot be developed for a dynamic environment. Most organizations today face
dynamic environments. If a basic assumption of making plans—that the environment will
not change—is faulty, then how can you make plans at all? Today’s business
environment is often chaotic at best. By definition, that means random and unpredictable.
Managing under those conditions requires flexibility, which may mean not being tied to
formal plans.
F Formal plans cannot replace intuition and creativity. Successful organizations are
typically the result of someone’s innovative vision. But visions have a tendency to
become formalized as they evolve. Formal planning efforts typically involve a thorough
investigation of the organization’s capabilities and opportunities, and a mechanical
analysis that reduces the vision to some type of programmed routine.

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 F Planning focuses managers’ attention on today’s competition, not on tomorrow’s
survival. Formal planning has a tendency to focus on how to capitalize on existing
business opportunities within an industry. It often does not allow managers to consider
creating or reinventing an industry. Consequently, formal plans with long timeframes
may result in lost market share and high catch-up costs when other competitors take
the lead.
F Formal planning reinforces success, which may lead to failure. Changing or discarding
previously successful plans is hard. It means leaving the comfort of what works for the
anxiety of the unknown. Successful plans, however, may provide a false sense of
security, generating more confidence in the formal plans than is warranted. Many
managers will not face the unknown until they are forced to do so by environmental
changes. By then, it may be too late!

Organizational objectives/goals
Goals and Plans

Planning is often called the primary management function because it establishes the basis for
all the other things managers do as they organize, lead, and control. It involves two important
aspects: goals and plans.

Goals (objectives) are desired outcomes or targets. They guide management decisions and
form the criteria against which work results are measured. That’s why they’re often described
as the essential elements of planning. You have to know the desired target or outcome before
you can establish plans for reaching it.

Plans are documents that outline how goals are going to be met. They usually include
resource allocations, schedules, and other necessary actions to accomplish the goals. As
managers plan, they develop both goals and plans.

F The term objective or goal indicate an end result to be sought and accomplished.

F Mission or purpose- reason for establishment of firms

Nature of objectives

 Goals are pre-determined or stated in advance

 Goals describe future desired results
 Goals should specific and measurable
 Goals should have time frames
 Goals should be reviewed
 Goals should be challenging but realistic
 Objectives have hierarchy (strategic, tactical and operational)
 Multiplicity of objectives

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  Integrating character (harmony between objectives)
 Network of objectives (interrelated and interdependent)
Objective Setting

Points to consider Include:

 Quantification (if possible)

 Indicate how the mission can be achieved
 Represent specific planned levels of achievement
 Provide precise points or states to be achieved
 Allow review and appraisal of achievement
 Make clear:
 What is to be accomplished
 How much is to be accomplished
 By when it is to be accomplished
 By whom it is to be accomplished
In short an objective should be Specific, Measurable, Achievable, Relevant and Time bound
(SMART)

F Specificity indicates clearly what needs to be achieved. Example: reduce delay.

F Measurability indicates the possibility to determine if the desired condition is fulfilled.

Example: Reduce delays by 40% by the end of 2012.

F Achievability indicates a consensus and commitment to the objectives among the major
stakeholders

F Relevance indicates objectives need to be achievable. It answers feasibility, the

availability of authority of the managers and the means of realization.

F Time bound indicates a clear understanding of the time scales associated with each
objective as defined. It is difficult to have commitment without time frame.

The Vision

 A vision or strategic intent is a view of a future reality that the organization seeks.
 Vision is a mental journey from known to the unknown, creating the future from a
montage of current facts, hopes, dreams, threats and opportunities.
 A vision is often expressed in a vision statement.
 A vision statement should answer the basic question, “What do we want to become?”

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The Mission
 Mission is defined as “the fundamental purpose of the organization & its scope of
operation.”
 Organization mission is written in terms of the general set of products & services the
organization provides & the markets & clients it serves.
An organization’s mission statement is a concise introduction to its work. It describes an
organization in terms of its:
 Purpose: what the organization seeks to accomplish (WHY DO WE EXIST?)
 Target Audience: the target group or beneficiaries of the organizations work (WHO DO
WE SERVE?)
 Business: the main method or activity through which the organization tries to fulfill this
purpose (WHAT SERVICES DO WE PROVIDE and HOW DO WE GO ABOUT
PROVIDING THEM?)

3.2. Types of Plans

Plans can be classified on different bases or dimensions. These are:
F Scope/breadth dimension,
F Time dimension, and
F Use/repetitiveness
1. Scope/Breadth Dimension
Scope refers to the comprehensiveness of the plan, or it refers to the level of management where
plans are formulated. This dimension creates hierarchy of plans. Based on scope/breadth we can
classify plans into: Strategic, Tactical and Operational.
i. Strategic plan
A strategic plan is an outline of steps designed with the goals of the entire organization as a
whole in mind, rather than with the goals of specific divisions or departments. Strategic planning
begins with an organization’s mission. A strategic plan defines the markets in which the
organization competes, what the customers in those markets want, and how the organization will
deliver products and services to satisfy what customers want. The purpose of strategic planning
is to move the organization from where it is to where it wants to be and, in the process, to
develop and maintain a competitive advantage within the industries in which it competes. The
strategic plan is concerned with the entire organization’s direction and purpose how it intends to
grow, compete, and meet its customers’ needs over the next few years.
Levels of Strategic Planning
Strategic planning occurs at three primary levels within the organization.
F the corporate
F business, and
F Functional levels

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 Each level can be distinguished by the focus of the strategic planning process, the participants
in the process, the specificity of the strategy, and the time horizon of the plan.
ii. Tactical Plans

Developed by middle managers, a tactical plan is concerned with what each of the major
organizational subsystems must do, how they must do it, when things must be done, where
activities will be performed, what resources are to be utilized, and who will have the authority
needed to perform each task. Tactical plans have more details, shorter time frames, and
narrower scopes than strategic plans; they usually span one year or less.
iii. Operational Planning

Operational planning focuses on determining the day-to-day activities that are necessary to
achieve the long-term goals of the organization. Operational plans outline the tactical activities
that must occur to support the ongoing operations of the organization. They are more specific
than strategic plans, address shorter-term issues. In general, plans can be categorized as
standing or single-use plans, depending on whether they address recurring issues or are specific
to a given set of circumstances.

2. Time Dimension

Time dimension refers to the time periods for which the planning is intended. Based on the
length of time a plan covers, we do have three types of plans: Long-range (five years or more),
medium-range (between one and five years) and short-range plans (one year or less).
Time dimension and scope dimension are the same except the former is about the length of time
that the plan covers and the later about the level of management where the plan is formulated.
All strategic plans are long-range plans.
All tactical plans are medium-range plans.
All operational plans are short-range plans.
3. Use Dimension

Use dimension refers to the extent to which plans will be used on a recurring basis, i.e. based on
how repeatedly/frequently a given plan is used. Based on this dimension we do have two types of
plans: standing plans and single use plans.
i. Single use plans
 Are developed to achieve specific purposes and dissolved when these have been
accomplished.
 They are developed for relatively unique and non-repetitive situation.
A. Program
B. Project
C. Budget

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A. Program specifies the objectives, major steps necessary to achieve these objectives, individuals
or departments responsible for each step, the order of the various steps, and resources to be
employed.

Program is characterized as:

 A one-time organizational goal.

 May take several years to complete.
 Large in scope and complex in nature
 May use standing plans and other single use plans to be effective?
Example: Building a new headquarters’
B. Projects

- It is a single use plan that is a component of a program or that is on a smaller scale than a
program.

Characteristics of project

 It is a plan for attaining a one-time organizational goal.

 Smaller in scope and complexity than a program; shorter time duration.
 Often one part of a large program
Example: renovate the office
: Setting up the company's internet
C. Budget
 Budgets are statements of financial resources set aside for specific activities in a
given period of time.
 It is a device to accomplish a program or a project.
 It can be considered as a part in a program or a project
ii. STANDING PLANS
Standing plans- are plans that provide an ongoing guidance for performing recurring activates.
F It is formulated to be used again and again.
F Standing plans allow managers to save time.
F Standing plans become valuable under relatively stable situations.

E.g. a bank can more easily approve or reject loan requests if criteria are established in advance
to evaluate credit ratings, collateral assets, and related applicant information.

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TYPES OF STANDING PLANS

A. Policies
B. Procedures
C. Rules
A. Policies
 It is a general guideline for decision making.
 It provides boundaries or limits within which decisions are made.
 While organization's goals decide 'what to do' policies deal with 'how to do'.
Example : Not to accept returned merchandise.
B. Procedure
 Procedures are statements that detail the exact manner in which certain activities must be
accomplished.
 It provides a detailed step by step instruction as to what should be done.
 Procedure is narrower in scope than policies.
Example,
1. Procedure for withdraw money from bank.
2. the procedure for handling orders.
3. Purchasing procedure in an organization
C. Rule
 Rules specify actions that must be taken or must not be taken with respect to a situation.
 Rules allow no discretion or judgment.
 Rules are the most explicitly stated(clearly stated) of standing plans
 Rules demand strict compliance
Example-No smoking
Similarities of policy, procedure and Rule
 They are directives to guide people’s behavior to the desired end.
 All are plans to be followed in the future.

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 Differences of policy, procedure, and rule
o Policy is guide to thinking.

o Procedures and rules are guides to action.

o Policies render freedom to make a judgment.

o Rules and procedures render no freedom.

o Rules guide action without specifying a time sequence.

o Procedures specify a time sequence.

o Although procedures may incorporate rules, rules do not incorporate procedures.

Characteristics of a Good Plan

 Objectivity
Planning should, first all, be based on objective thinking. It should be factual, logical and
realistic. It should be directed to achieving organizational goals rather than personal objectives.
 Futurity
Since a plan is a forecast of some future action, it must have the quality of futurity; otherwise, it
has little value as a basis for future action. If a plan is to be effective, it must foresee with
reasonable accuracy the nature of future events affecting the industry and the firm. The inability
to foresee future events, a human limitation that we cannot overcome, is the weak link in
planning process.
 Flexibility
Because no one can foresee the future, plans must have flexibility. They must adjust smoothly
and quickly to changing conditions without seriously losing their effectiveness. The more
difficult it is to predict the future, the more flexible the plans must be.
 Stability
 Stability is related to flexibility. A stable plan will not have to be abandoned because of long-
term changes in the company’s situation. It may be affected by long-range developments, but it
should not be changed materially from day to day.
 Comprehensive
 A plan must be comprehensive enough to provide adequate guidance, but not so detailed as to be
unduly restrictive. It should cover everything required of people, but not in such detail that it
inhibits initiative.
 Simplicity and clarity
 Although a good plan must be comprehensive, it should also be simple. A simple plan seeks to
attain its objective with the fewest components, forces, effects and relationships. A plan should
not be ambiguous. Lack of clarity makes understanding and implementation difficult.

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 Contingency planning is the development of alternative plans for use in the event that
environmental conditions evolve differently than anticipated, rendering original plans unwise or
unfeasible.
 Planning staff- is a small group of individuals who assist top-level managers in developing the
various components of the planning process.

3.3. Planning process

The planning process is different from one plan to another and one organization to another. The
steps generally involved in planning are:
1. Establishing goals/objectives/

The first step in planning process is to determine the enterprise objectives. These are set by upper
level managers after number of objectives has been carefully considered. The objective set
depends on the number of factors like mission of the organization, abilities of the organization
etc., once the organizations objectives are determined, the section wise or department wise
objectives are planned at the lower level.
2. Establishing planning premises

Planning premises are planning assumptions the expected environmental factors, pertinent facts
and information relating to the future such as general economic conditions, population trends,
competitive behavior etc. The planning premises can be classified as below:

F Internal and External premises

F Tangible and Intangible premises
F Controllable and non-controllable premises
4. Deciding the planning period

Once the long term objectives and planning premises are decided, the next task is to decide the
period of the plan. Some plans are made for a year and in others it will be decades. Companies
generally base their period on a future that can reasonably be anticipated. The factors which
influence the choice of a period are:

F Lead time in development and commercialization of a new product

F Time required for recovering capital investment or the payback period
F Length of commitment already made
5. Identification of alternatives

Courses of action available to a manager to reach a goal represent alternate paths to a destination.
When developing alternatives, a manager should try to create as many roads to each objective as
possible. These alternatives may be entirely separate ways to reach a goal, as well as variations
of one or more separate alternatives.

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6. Evaluation and selection of alternative

Once the alternatives are identified the next step is to evaluate the alternatives in the light of the
premises and goals and to select the best course or courses of action

7. Developing derivative/supportive plans/

Once the plan is selected; various plans are derived so as it support the main plan. These
derivative plans are formulated out of the main plan and therefore, they support. Once the plan
has been formulated, its broad goals must be translated into day-to-day operations of the
organization.
Middle and lower-level managers must draw up the appropriate plans, programs and budgets for
their sub-units.

8. Measuring and controlling the process

One should not allow plan to run on its own without monitoring its progress. Managers need to
check the progress of their plans so that remedial action can be taken to make plan work or
change the plan if it is unrealistic. Hence process of controlling is a part of any plan.

3.4. Planning Techniques

Managers use various tools and techniques to maximize the benefits of planning.

Forecasting: Attempting to predict the future and developing plans accordingly

Contingency planning: Identifying alternative plans for outcomes that are different than
expected
Scenario planning: Predicting various future outcomes and making plans for each
Benchmarking: Developing plans based on the practices of competitors

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 CHAPTER 5

THE ORGANIZING FUNCTION

5.1. Concept of organizing and organization

5.1.1 The concept of organizing

Organizing is the management function that establishes relationships between activity and
authority. Every enterprise continually wrestles with the problem of how to organize or
reorganize to pursue a new strategy, to respond to changing market conditions, or to successfully
respond to customer expectations. It wants to achieve systematic, continuing improvement what
the Japanese call kaizen. A company that has taken the time, energy, and money to develop
quality plans needs to organize its employees to attain these objectives and needs managers who
understand the importance of organizing.

 Organizing, like planning, is a process that must be carefully worked out and applied.
 This process involves deciding what work is needed, assigning those tasks, and arranging
them into a decision-making framework (an organizational structure).
 An organization without structure can result in confusion, frustration, loss of efficiency,
and limited effectiveness.

We defined organizing as arranging and structuring work to accomplish organizational goals.

It’s an important process, during which managers design an organization’s structure.
Organizational structure is the formal arrangement of jobs within an organization. This
structure, which can be shown visually in an organizational chart, also serves many purposes.
When managers create or change the structure, they’re engaged in organizational design, a
process that involves decisions about six key elements: work specialization, departmentalization,
chain of command, span of control, centralization and decentralization, and formalization.

5.1.2. The concept of organization

The term organization connotes different things to different people.

F To the sociologists, organization means a study of interactions of people, classes or

hierarchy of an enterprise.
F To the psychologists organization means an attempt to explain, predict and influence the
behavior of individuals in an enterprise.

An organization is a deliberate arrangement of people to accomplish some specific purpose. One

person working alone is not an organization, and it takes people to perform the work that's
necessary for the organization to achieve its goals. Organization is an entity that has a distinct

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purpose, includes people or members, and has some type of deliberate structure. Without
efficient organization, no management can perform its function smoothly. Sound organization
contributes greatly to the continuity and the success of organization. Poor organization structure
makes good performance impossible, no matter how good the individuals are.

5.2. Formal and Informal Organization

5.2.1. The Formal Organization

When managers create an organization, then, they are actually developing a framework in which
to create the desired product or service and provide a profit. This framework establishes the
operating relationships among people:

F who supervises whom

F who reports to whom
F what departments are formed, and
F What kind of work each department performs is clearly known.

This framework is known as a formal organization the official organizational structure that top
management conceives and builds. A formal organization does not just happen; managers
develop it through the organizing function of management.

5.2.2. Informal Organization

Informal organization is a network of personal and social relationships that arise spontaneously
as people associate with one another in a work environment. It consists of all the informal
groupings of people within a formal organization. Memberships in most informal organizations
change with time. Members join together through the need for or enjoyment of one another’s
company; they find membership beneficial to them in one or more ways. The informal
organization knows no boundaries. It cuts across the organization because it results from
personal and social relationships, not prescribed roles. The informal organization should not be
thought of as the domain of only workers. Manager’s form informal groups that cut across
departmental lines.

5.2.3. Informal and Formal Organizations Compared

The informal organization puts emphasis on people and their relationships; the formal
organization puts emphasis on official organizational positions. The leverage or clout in the
informal organization is informal power that attaches to the individual. In the formal
organization, the formal authority comes directly from the position; and the person has it only
when occupying that position. Informal power is personal and authority is organizational.
Informal power does not come from within a person but is, instead, given by group members;

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informal power does not follow the official chain of command. A manager probably has some
informal power along with his or her formal authority, but the manager does not necessarily have
more informal power than does anyone else in the group.

5.3. Organization chart

Organization chart is the visual representation of an organization’s structure. The organization

chart delineates the chain of command, indicates departmental tasks and how they fit together,
and provides order and logic for the organization. Every employee has an appointed task, line of
authority, and decision responsibility. It shows who people report to, and clarify four features of
the formal structure:

F tasks – the major activities of the organization;

F subdivisions – which departments are responsible for which tasks;
F levels – the position of each post within the hierarchy;
F Lines of authority – these link the boxes to show who people report to.

Organizational chart remains useful because it provides different important information

regarding:

F Who reports to whom- that, chain of command.

F Span of control- how many subordinates does a manager have
F Channels of formal communication shown by solid lines that connect each job(box)
F Activities in each position- The labels in boxes describe each individual ‘s activities
F The hierarchy of decision making - where the decision maker for a problem is located

Limitation of Organizational Chart

Organizational chart has some limitations since it doesn’t show:

F informal communication channel

F Informal relationship among workers
F Degree of authority holds by individuals

5.4. Work specialization

Adam Smith first identified division of labour and concluded that it contributed to increased
employee productivity. Early in the twentieth century, Henry Ford applied this concept in an
assembly line, where every Ford employee was assigned a specific, repetitive task.
Today we use the term work specialization to describe the degree to which tasks in an
organization are subdivided into separate jobs. The essence of work specialization is that an
entire job is not done by one individual but instead is broken down into steps, and each step is

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completed by a different person. Individual employees specialize in doing part of an activity
rather than the entire activity.

Work specialization makes efficient use of the diversity of skills that workers have. In
most organizations, some tasks require highly developed skills; others can be performed
by employees with lower skill levels.

Most managers today see work specialization as an important organizing mechanism but not as a
source of ever-increasing productivity. They recognize the economies it provides in certain types
of jobs, but they also recognize the problems it creates when carried to extremes, including job
dissatisfaction, poor mental health, and a low sense of accomplishment.

5.5. Departmentalization: Meaning and Bases

Another fundamental characteristic of organization structure is departmentalization, which is the

basis for grouping positions into departments and departments into the total organization.
Managers make choices about how to use the chain of command to group people together to
perform their work. Every organization will have its own specific way of classifying and
grouping work activities. The most common forms of departmentalization are:

1. Functional departmentalization: This approach can be used in all types of organizations,

although the functions change to reflect the organization’s purpose and work. It is the process of
grouping the activities of the organization into separate units or departments based on the
essential functions needed in the organization such as productions or operations, marketing,
finance, engineering and so on. Production department may, in turn, establish such units as
production scheduling, quality control, purchasing, and manufacturing units. Similarly,
marketing may establish sales, promotion and advertising, and logistics units; human resources
management into employment, training and development, compensation, labor relations, etc.

2. Product departmentalization: In this approach, each major product area is placed under the
authority of a manager who is responsible for everything having to do with that product line.
Each product requires special knowledge and placed under a separate department. Examples:

 Computer sales and computer services in the data processing division.

 Cosmetics and chemical divisions in the domestic operations appliance.
3. Geographical departmentalization

It is the process of grouping activities on the basis of geographic region or territory. Is common
in enterprises that operate over wide geographic areas i.e. it is attractive to large-scale firms or
other enterprises whose activities are physically or geographically dispersed. 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.

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 4. Process departmentalization: grouping jobs on the basis of product or customer flow. In
this approach, work activities follow a natural processing flow of products or even of
customers. For example, many beauty salons have separate employees for shampooing,
colouring, and cutting hair, all different processes for having one’s hair styled.
5. Customer departmentalization: groups jobs on the basis of customers who have common
needs or problems that can best be met by having specialists for each. There are advantages
to matching departmentalization to customer needs.
6. Matrix Departmentalization
 It is an organizational arrangement that developed because of the need for quick
completion of highly technical projects that required significant contributions by two or
more functional groups.
 It begins with functional stricture and then another structure organized by product or by
client /customer or by project is overlaid upon the original structure.
 The result is that employees are assigned to a basic functional department and, at the
same time, they are assigned to work on a particular product/project or for a particular
customer/client.
 The essence of matrix organization normally is the combining of functional and products
departmentalization in the same organization structure.

5.6. Span of Management

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.

This varies from one situation to another. There is no magical number for the span of control.
There are various factors affecting the span of management. 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.

I. 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.

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Advantages
i. Close supervision and control
ii. Fast communication between subordinates and superiors.
iii. Easy to coordinate and control activities.

Disadvantages
i. Superiors tend to get too involved in the subordinates work
ii. The problem of setting more trained managerial personnel
iii. Excessive distance between lowest level and top level management. This kills intuitive
for top-level positions.
iv. High costs due to many levels

II. 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 overstrained and their subordinates receive too little guidance and 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
 Require exceptional quality of mangers

Span of Control vs. Levels of Management: If one wants to reduce the number of hierarchical
levels in an organization, the only way to do so without reducing the number of employees at the
bottom is to increase spans of control.

Chain of Command

Suppose you were at work and had a problem with an issue that came up. What would
you do? Who would you ask to help you resolve that issue? People need to know who
their boss is. That’s what the chain of command is all about. The chain of command
is the line of authority extending from upper organizational levels to lower levels,
which clarifies who reports to whom. Managers need to consider it when organizing
work because it helps employees with questions such as “Who do I report to?” or

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“Who do I go to if I have a problem?” To understand the chain of command, you have
to understand three other important concepts: authority, responsibility, and unity of
command.

Formalization
Formalization refers to how standardized an organization’s jobs are and the extent
to which employee behavior is guided by rules and procedures. In highly formalized
organizations, there are explicit job descriptions, numerous organizational rules, and
clearly defined procedures covering work processes. Employees have little discretion
over what’s done, when it’s done, and how it’s done. However, where there is less formalization,
employees have more discretion in how they do their work.

5.7. Delegation, centralization and decentralization

5.7.1. Delegation

Delegating authority takes place as a company grows’ and more demands are placed on a
manager or because a manager wishes to develop subordinates’ skills. Delegation is the
downward transfer of formal authority from one person to another. Superiors delegate, or pass,
authority to subordinates to facilitate the accomplishment of work.

Importance of Delegation

No person can do it all in an organization. Therefore, managers should delegate authority to free
themselves from some management areas to be able to focus better on more critical concerns.
Having capable subordinates can increase the ability of a manager. Delegation is also a valuable
tool in training subordinates.

F When authority is truly shifted to the hands of non-managers and is accompanied by

Shared
Information, needed training, and Relationships based on mutual trust and respect
delegation
becomes empowerment.

Employees are given ownership of their tasks, along with the freedom to experiment and even
fail, without fear of reprisal.

Fear of Delegation

Some managers fear giving up authority or lack confidence in subordinates. Others worry that the
employee may perform the job better than they can, are impatient, or are too details oriented to let
go. Some managers simply don’t know how to delegate. Delegation is not only a tool for survival,

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it is recognized as one of the key factors in a manager’s success or failure. The process involves
two of the most critical concepts in management: responsibility and accountability.

Delegation Process

When managers choose to delegate authority, they create a sequence of events.

1. Assignment of tasks: The manager identifies specific tasks or duties to assign to the
subordinate, and then approaches him or her with those tasks.

2. Delegation of authority: For the subordinate to complete the duties or tasks, the manager
should delegate to the subordinate the authority necessary to do them. A guideline for the
amount of authority to be delegated is that it be adequate to complete the task no more and no
less.
3. Acceptance of responsibility: Responsibility is the obligation to carry out one’s assigned
duties to the best of one’s ability. A manager does not delegate responsibility to an employee
rather; the employee’s acceptance of an assignment creates an obligation to do his or her best.
4. Creation of accountability: Accountability has to answer to someone for your actions. It
means accepting the consequences either credit or blame of these actions. When a subordinate
accepts an assignment and the authority to carry out that assignment, he or she is accountable,
or answerable, for his or her actions.

Delegation does not relieve managers of responsibility and accountability. Managers are
responsible and accountable for the use of their authority and for their personal performance as
well as for the performance of subordinates. The manager should take the time to think through
what is being assigned and to confer the authority necessary to achieve results. The subordinate,
in accepting the assignment, becomes obligated (responsible) to perform, knowing that he or she
is accountable (answerable) for the results.

4.8.2. Centralization and decentralization

Centralization

Centralization is a philosophy of management that focuses on systematical retaining of authority

in the hand of higher level managers. It is the degree to which decision-making is concentrated in
top management's hands.

Decentralization
Decentralization is a philosophy of management that focuses on systematical delegation of
authority throughout the organization to middle and lower level managers. It is the extent to
which decision-making authority is pushed down the organization structure and shared with many
lower level employees.

If authority is decentralized:

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 F Greater number of decision will be made at lower level
F Important decisions are made at lower level, and
F Subordinates will refer less their superiors to make decisions.

The reverse is true if authority is centralized.

In centralization decision making criteria are limited to top level management. But In
decentralization are delegated to lower level. Centralized organizations have more levels of
management with narrow spans of control. Decentralized organizations have fewer levels of
management with wide spans of control giving employees more freedom of action.
The current trend is toward broadening decentralization. As competition intensifies the need for
organizations to be responsive increases. This has made employees, usually those at the lower
levels, who are closest to customers extremely important. They are an excellent source of
knowledge and implement changes that directly impact performance. Giving this group more
input into certain decision-making activities can result in increased firm performance.
Generally; tall organization structures are more of centralized. Flat organizations Structures are
more of decentralize.

5.8. Authority and power: source of power

5.8.1. Authority

Authority is the formal and legitimate right of a manager to make decisions, give orders, and
allocate resources. It holds the organization together, because it provides the means of command.
The person who occupies a position has its formal authority as long as he or she remains in that
position. As the job changes in scope and complexity, so should the amount and kind of formal
authority possessed. In any institution there has to be a final authority, that is, a “boss” someone
who can make the final decision. Hierarchy, and the unquestioning acceptance of it by everyone
in the organization, is the only hope in a crisis. Because authority plays, so central a role in
organizations, managers should fully understand its nature, sources, importance, variations, and
relationship to power. All managers in an organization have authority in different degrees, based
on the level of management they occupy.

5.8.2. Types of Authority

In an organization, three different types of authority are created by the relationships between
individuals and departments.

1. Line authority: it defines the relationship between superior and subordinate. Any manager
who supervises operating employees or other managers has line authority, allowing the
manager to give direct orders to those subordinates, evaluate their actions, and reward or
punish them.

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2. Staff authority: it is the authority to serve in an advisory capacity. Managers who provide
advice or technical assistance are granted advisory authority. This staff or advisory authority
provides no basis for direct control over the subordinates or activities of other departments
with which the person holding staff authority consults, however, within the staff manager’s
own department, he or she can exercise line authority over subordinates.
3. Functional authority: functional authority permits staff managers to make decisions about
specific activities performed by employees within other departments.

5.8.3. Power

Power is the ability to exert influence in the organization. Power is personal; it exists because of
the person. A person does not need to be a manager to have power. Some administrative
assistants of top managers have considerable power, but no authority. Managers can acquire
power from several different sources.

F Two managers could occupy positions of equal formal authority, with the same degree of
acceptance of this authority by their employees, and still not be equally effective in the
organization. Why? Because one manager possesses more power than the other.

Sources of power

1. Legitimate or Position Power: Holding a managerial position with its accompanying

authority provides a manager with a power base. The manager has the right to use this
legitimate power because of the position. The higher a manager sits in the organization
hierarchy, the greater is the perceived power (or, power thought by the subordinates to exist
whether or not it really does). Vice presidents wield or can wield a lot of power.
2. Reward Power: The opposite of coercive power, reward power comes from the ability to
promise or grant rewards. Managers have the ability to decide on raises, promotions, favorable
performance appraisals, and preferred work shifts.
3. Coercive Power: Coercive power is dependent on fear. A person reacts to this power out of
the fear of the negative results that may happen if one fails to comply. Managers, because of
their position, have the ability to punish by assigning unpleasant or boring work, withholding
raises or promotions, and suspending or dismissing an employee.
4. Referent Power: Referent power is based on the kind of personality or charisma an
individual
has and how others perceive it. A manager who is admired by others the latter perhaps
demonstrating this admiration by their desire to identify with or emulate the manager has
referent power. The manager can use this power effectively to motivate and lead others.
5. Expert Power: Persons who have demonstrated their superior skills and knowledge possess
expert power. They know what to do and how to do it. Others hope to stay on this expert’s
good side to be able to benefit from his or her expertise. A seasoned manager exercises power

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 with newcomers. Knowledge of budgets, systems, or company culture that others need
provides a basis for the manager’s power.

5.9. Line and staff authority

An important distinction in many organizations is between line authority and staff authority,
reflecting whether managers work in line or staff departments in the organization’s structure. Line
departments perform tasks that reflect the organization’s primary goal and mission. In a software
company, line departments make and sell the product. In an Internet-based company, line
departments would be those that develop and manage online offerings and sales. Staff
departments include all those that provide specialized skills in support of line departments. Staff
departments have an advisory relationship with line departments and typically include marketing,
labor relations, research, accounting, and human resources.
I. Line authority: line authority means that people in management positions have formal
authority to direct and control immediate subordinates.

II. Staff authority: staff authority is narrower and includes the right to advise, recommend, and
counsel in the staff specialists’ area of expertise. Staff authority is a communication
relationship; staff specialists advise managers in technical areas.

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