Unit 4: Organizing

Function of Management
Organizing: Arranging and structuring work to
accomplish the organization’s goals

Organizational design: Creating or changing

an organization’s structure

Organizational structure: The formal

arrangement of jobs within an organization

Organizational chart: The visual

representation of an organization’s structure
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.

 Work Specialization

 Work specialization: It is dividing work activities

into separate job tasks. Individual employees
“specialize” in doing part of an activity rather than
the entire activity in order to increase work output.

 It’s also known as division of labor, a concept

introduced in the management history module.

 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.
 Early proponents of work specialization believed that it could lead
to great increases in productivity.

 At the beginning of the twentieth century, that generalization was

reasonable. Because specialization was not widely practiced, its
introduction almost always generated higher productivity.

 The human diseconomies from division of labor—boredom,

fatigue, stress, low productivity, poor quality, increased
absenteeism, and high turnover—exceed the economic
advantages.

 Example: McDonald’s believes in specialization whereas

companies like American Express, Ford- Australia are use minimal
work specialization
 Departmentalization

After deciding what job tasks will be done by

whom, common work activities need to be
grouped back together so work gets done in a
coordinated and integrated way. How jobs are
grouped together is called
departmentalization.

Some examples are product departmentalization,

geographical departmentalization and functional
departmentalization. Five common forms of
departmentalization is as follows:
 Chain of Command

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
“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.
 Authority
 Authority refers to the rights inherent in a managerial
position to tell people what to do and to expect them to do it.

 Managers in the chain of command had authority to do their

job of coordinating and overseeing the work of others.

 Authority could be delegated downward to lower-level

managers, giving them certain rights while also prescribing
certain limits within which to operate.

 Chester Barnard, proposed another perspective on authority.

This view, called the acceptance theory of authority, says
that authority comes from the willingness of subordinates to
accept it. If the employee’s don’t accept it there is no
authority
Barnard contended that subordinates will accept
orders only if the following conditions are satisfied:

They understand the order.

They feel the order is consistent with the

organization’s purpose.

The order does not conflict with their personal

beliefs.

They are able to perform the task as directed.

The early management writers also
distinguished between two forms of authority:
line authority and staff authority.

Line authority entitles a manager to direct

the work of an employee. It is the employer–
employee authority relationship that extends
from the top of the organization to the lowest
echelon, according to the chain of command,
The term line is used to differentiate line managers
from staff managers.

In this context, line refers to managers whose

organizational function contributes directly to the
achievement of organizational objectives.

In a manufacturing firm, line managers are typically in

the production and sales functions, whereas managers
in human resources and payroll are considered staff
managers with staff authority.

Whether a manager’s function is classified as line or

staff depends on the organization’s objectives.
As organizations get larger and more complex, line
managers find that they do not have the time, expertise, or
resources to get their jobs done effectively. In response,
they create staff authority functions to support, assist,
advise, and generally reduce some of their informational
burdens.

For instance, a hospital administrator who cannot

effectively handle the purchasing of all the supplies the
hospital needs creates a purchasing department, which is
a staff function. Of course, the head of the purchasing
department has line authority over the purchasing agents
who work for him. The hospital administrator might also
find that she is overburdened and needs an assistant, a
position that would be classified as a staff position.
 Responsibility

When managers use their authority to assign

work to employees, those employees take on an
obligation to perform those assigned duties.

This obligation or expectation to perform is

known as responsibility. And employees
should be held accountable for their
performance! Assigning work authority without
responsibility and accountability can create
opportunities for abuse.
 Unity of Command

The unity of command principle (one of

Fayol’s 14 management principles) states that a

person should report to only one manager.
Without unity of command, conflicting demands
from multiple bosses may create problems
 Span of Control
How many employees can a manager efficiently and
effectively manage? That’s what span of control is all
about.

The traditional view was that managers could not—and

should not directly supervise more than five or six
subordinates. Determining the span of control is
important because to a large degree, it determines the
number of levels and managers in an organization

An important consideration in how efficient an

organization will be. All other things being equal, the
wider or larger the span, the more efficient an
organization is.
 Centralization and Decentralization

Centralization is the degree to which decision making

takes place at upper levels of the organization.

If top managers make key decisions with little input from
below, then the organization is more centralized.

On the other hand, the more that lower-level employees

provide input or actually make decisions, the more
decentralization there is.

Keep in mind that centralization-decentralization is not

an either-or concept. The decision is relative, not
absolute—that is, an organization is never completely
centralized or decentralized.
 Centralization
Environment is stable.
Lower-level managers are not as capable or
experienced at making decisions as upper-level
managers.
Lower-level managers do not want a say in
decisions.
Decisions are relatively minor.
Organization is facing a crisis or the risk of
company failure.
Company is large.
Effective implementation of company strategies
depends on managers retaining say over what
happens.
 Decentralization

Environment is complex, uncertain.

Lower-level managers are capable and
experienced at making decisions.
 Lower-level managers want a voice in
decisions.
 Decisions are significant.
Corporate culture is open to allowing managers
a say in what happens.
Company is geographically dispersed.
Effective implementation of company strategies
depends on managers having involvement and
flexibility to make decisions.
As organizations have become more flexible
and responsive to environmental trends, there’s
been a distinct shift toward decentralized
decision making.

This trend, also known as employee

empowerment, gives employees more
authority (power) to make decisions.
 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 formalization is low, employees

have more discretion in how they do their work.
 Traditional Organization Designs
Simple structure, which is an organizational design
with low departmentalization, wide spans of control,
authority centralized in a single person, and little
formalization.

Functional structure is an organizational design that

groups similar or related occupational specialties
together. You can think of this structure as functional
departmentalization applied to the entire organization.

Divisional structure is an organizational structure

made up of separate business units or divisions. In this
structure, each division has limited autonomy, with a
division manager who has authority over his or her unit
and is responsible for performance.
Simple Structure
Strengths: Fast; flexible; inexpensive to maintain; clear accountability.
Weaknesses: Not appropriate as organization grows; reliance on one
person is risky.

Functional Structure
Strengths: Cost-saving advantages from specialization (economies of
scale, minimal duplication of people and equipment);
employees are grouped with others who have similar tasks.
Weaknesses: Pursuit of functional goals can cause managers to lose
sight of what’s best for the overall organization; functional
specialists become insulated and have little understanding of what
other units are doing
Divisional Structure
Strengths: Focuses on results—division managers are responsible for
what happens to their products and services.
Weaknesses: Duplication of activities and resources increases costs and
reduces efficiency.
 Learning Structure

It is a kind of structure in which employees

continually acquire and share new knowledge
and apply that knowledge.

Advantages: Sharing of knowledge throughout

organization. Sustainable source of competitive
advantage.

Disadvantages: Reluctance on part of employees

to share knowledge for fear of losing their power.
Large numbers of experienced employees on the
verge of retiring.
 Contingency Factors Affecting Structural Choice

 Strategy and structure

Mechanistic: efficiency & stability; Organic: meaningful &
unique innovation

 Size and structure

Large Organization: more specialization, departmentalization,
centralization and formalization. Adding more employees
to a small organization makes it more mechanistic.

 Technology and structure

Woodward: Unit Production: Organic, Mass Production:
Mechanistic, Process Production: Organic

 Environmental uncertainty and structure

Stable and simple: Mechanistic, Greater the uncertainty:
Organic