Management Ch 7
Organizing Principles - Chapter 7
Learning Objectives
After studying this chapter, you should be able to:
Explain the relationship between planning and organizing.
Determine the importance of the organizing process.
List and discuss the five steps in the organizing process.
Describe and give an example of the four approaches to departmentalization.
Define authority, and explain how line, staff, and functional authority differ.
Explain the concept of power and its sources.
Explain the term "informal organization."
Compare the informal organization to the formal organization.
The Formal Organization
Purposes in creating an organization:
Developing a framework in which to create the desired product or service and provide a profit.
Establishes the operating relationships among people:
Who supervises whom
Who reports to whom
What departments are formed
What kind of work each department performs
Organizing Process
Definition: The management function that establishes relationships between activity and authority.
Result of the organizing process: An organization – a whole consisting of unified parts (a system) acting in harmony to execute tasks that achieve goals effectively and efficiently and accomplish the company’s mission.
Relationship Between Planning and Organizing
Organizing begins with and is governed by:
Plans that state where the organization is going and how it will get there.
An organization must be built, or an existing one modified to ensure that those plans are executed and objectives achieved.
Plans dictate how resources are to be unified and concentrated to effectively gain competitive advantage.
Forms of Growth Strategy
Downsizing:
Also known as rightsizing, it calls for shrinking both the size of the company and the number of employees.
Outsourcing:
The use of outside resources to perform a business process, such as payroll, insurance records, health claims, or credit card applications.
Benefits of Organizing
Clarifies the work environment.
Creates a coordinated environment.
Achieves the principle of unity of direction.
Establishes the chain of command.
Five-Step Organizing Process
Reviewing plans and goals.
Determining work activities.
Specialization or division of labor.
Classifying and grouping activities.
Assigning work and delegating authority.
Designing a hierarchy of relationships.
The Organizing Process in Action
Steps 1, 2, 3
Step 1: Reviewing plans and goals.
Step 2: Determining work activities.
Step 3: Specialization or division of labor.
Steps 4, 5
Step 4: Classifying and grouping activities.
Step 5: Assigning work and delegating authority.
Specialization of Labor / Division of Labor
Definition: Breaks a potentially complex job down into simpler tasks or activities.
Advantages of Specialization:
Work can be performed more efficiently.
Employees gain skill and expertise.
Facilitates the process of employee selection.
Decreases training requirements.
Allows managers to supervise more employees.
Disadvantages of Specialization:
Jobs can become too simplified.
Employees become bored and tired.
Safety problems and accident rates increase.
Absenteeism rises.
Quality of work may suffer.
Classifying and Grouping Activities
Process: Managers group tasks by the principle of functional similarity (or similarity of activity) in three steps:
Examine each activity identified – marketing, production, finance, human resources – to determine its general nature.
Group the activities into these related areas.
Establish the basic department design for the organizational structure.
Departmentalization
Definition: The basic organizational format or departmental structure for the company.
Types of Departmentalization:
Functional departmentalization: Creating departments based on the specialized activities of the business (e.g., finance, production, marketing, human resources).
Geographical departmentalization: Grouping activities and responsibilities according to territory.
Product departmentalization: Assembling the activities of creating, producing, and marketing each product into a separate department.
Customer departmentalization: Grouping activities and responsibilities in departments based on the needs of specific customer groups.
Departmentalization Examples
Geographical Departmentalization:
Southern Region
Western Region
Eastern Region
Northern Region
Product Departmentalization:
Helicopter Division
Systems Division
Elevator Division
Customer Departmentalization:
Pharmaceutical Products
Professional Products
Consumer Products
Designing a Hierarchy of Relationships
Vertical structuring: Results in a decision-making hierarchy that shows who is in charge of each task, each specialty area, and the organization as a whole.
Horizontal structuring:
Defines the working relationships between operating departments.
Determines the span of control of each manager.
Span of control: The number of subordinates under the direction of a manager.
Organization Chart
A complete organizational structure depicted visually includes:
Who reports to whom.
How many subordinates work for each manager.
The channels of official communication.
How the company is departmentalized.
The work being done in each position.
The hierarchy of decision making.
The types of authority relationships.
Major Organizational Concepts
Key Concepts:
Authority
Power
Organizing
Span of Control
Delegation
Centralization/Decentralization
Types of Authority
Line Authority:
The relationship between a superior and subordinate; any manager who supervises operating employees – or other managers – has line authority.
Staff Authority:
The authority to serve in an advisory capacity; it flows upward to the decision maker.
Functional Authority:
Authority that permits staff managers to make decisions about specific activities performed by employees within other departments.
Power
Definition: The ability to exert influence in the organization.
Sources of Power:
Legitimate Power: Derived from the positions individuals occupy in the formal organization.
Reward Power: Comes from the ability to promise or grant rewards.
Coercive Power: Dependent on the fear of negative results due to non-compliance.
Referent Power: Based on personality or charisma and how others perceive it.
Expert Power: Influence due to abilities, skills, knowledge, and experience.
Delegation
Definition: The downward transfer of formal authority from one person to another.
Delegation Process:
Assignment of tasks.
Delegation of authority.
Acceptance of responsibility.
Creation of accountability.
Span of Control
Notes: Proper span of control depends on several factors, including:
The complexity and variety of the subordinates’ work.
The ability of the manager.
The ability and training of the subordinates.
The supervisor’s willingness to delegate authority.
The company’s philosophy regarding centralization or decentralization of decision making.
Narrow and Wide Spans of Control
Illustration of Span of Control:
Diagram to show relationships and hierarchy between positions ranging from president to various Vice Presidents and subordinate levels.
Centralization versus Decentralization
Centralization:
A philosophy that focuses on systematically retaining authority in the hands of higher-level managers.
Decentralization:
A philosophy that emphasizes delegating authority throughout the organization to middle- and lower-level managers.
The Informal Organization
Definition: A network of personal and social relationships that arise spontaneously as people associate with one another in a work environment.
Characteristics:
Cuts across boundaries.
Influences both productivity and job satisfaction.
Group values and attitudes known as norms.
Cohesion characterized by a strong attachment to the group, measured by singleness of purpose and high degree of cooperation.
Comparison of Informal and Formal Organizations
Informal Organization:
Unofficial, created by interpersonal relationships.
Emphasis on people and their relationships.
Power is provided by the group.
Operates on power and politics.
Behavior is guided by group norms.
Control over individuals is through positive or negative sanctions.
Formal Organization:
Official, created by management.
Emphasis on official organization positions.
Authority is delegated by management.
Operates on authority and responsibility.
Behavior is guided by rules, policies, and procedures.
Control over individuals is through rewards and penalties.
Composition of an Informal Group
Diagrams representing the structure of informal groups, including Primary Group, Fringe Group, and Out-Status Group categories.
The Informal Organization – Positives and Negatives
Positives:
Makes the total system effective.
Provides support to management.
Provides stability in the workplace.
Provides a useful communication channel.
Encourages better management.
Negatives:
Develops pressure for conformity.
Creates conflicts.
Resists change.
Initiates rumors and processes false information.
Exposes weak management.
Key Terms
Accountability
Authority
Centralization
Chain of command
Coercive power
Cohesion
Customer departmentalization
Decentralization
Delegation
Departmentalization
Division of labor
Downsizing
Expert power
Formal organization
Functional authority
Functional definition
Functional departmentalization
Geographical departmentalization
Informal organization
Interaction chart
Lean
Legitimate power
Line authority
Line departments
Norms
Organization chart
Organizing
Outsourcing
Power
Product departmentalization
Referent power
Responsibility
Reward power
Sanctions
Span of control
Specialization of labor
Staff authority
Staff departments
Unity of command
Unity of direction