Organizing (Managing Structure and Design of Organizations)

Many strategies and key business decision have profound effects on the structures and design of various organizations. A change in strategic direction due to a merger or acquisition or change in competitive strategy requires the management team to rethink how to deploy company resources. Organizing is the deployment of resources to achieve strategic goals, and is reflected in: (1) the organizations division of labour that form jobs and departments, (2) formal lines of authority, and (3) the mechanisms used for coordinating diverse jobs and roles in the organization. Organizing follows the formulation of strategy. While strategy indicates what needs to be done, organizing shows how to do it.

The Vertical Dimension of Organization Structure

Organization structure is a formal system of relationships that determines lines of authority (who reports to whom) and the tasks assigned to individuals and units (who does what task and with which department). The vertical dimension of organization structure indicates who has the authority to make decisions and who is expected to supervise which subordinates. The horizontal dimension is the basis for dividing work into specific jobs and tasks and assigning those jobs into units such as department or teams.

Unity of Command
The concept of unity of command is based on one of Fayols principle of management; a subordinate should have only one direct supervisor. Multiple bosses may give a subordinate conflicting instruction or goals. In unity of command, a decision can be traced back from the subordinates of the manager who made it.

Authority, Responsibility, and Accountability

Managers, teams, and employee have varying amounts of authority, responsibility, and accountability based on where they are in the vertical structure of the organization. Authority is the formal right of a manager to make decisions, give orders, and expect those orders to be carried out. A manager is an agent of the owners of the business. The role of the manager encompasses decisionmaking authority to manage the workforce, resources and assets of the business in the owners best interests. Authority is given to the position of the manager not the person. It originates from top and flows down the vertical organizational hierarchy

 Responsibility is the duty to perform assigned tasks. All employees are expected to accept these responsibilities as a condition of employment. Ideally, a managers responsibilities are matched with the appropriate amount of authority so that the manager is in control. The manager may delegate, or transfer responsibility to a subordinate or team, but the manager is still in control because the subordinate or team is subject to his or her authority. Managers delegate decision-making authority for some tasks in order to give themselves more time to focus on the most important tasks and decisions. A manager may delegate responsibilities to subordinates, but he or she remains accountable for the actions of subordinates.

 Accountability means that a manager or other employee with authority and responsibility must be able to justify results to a manager at a higher level in the organizational hierarchy. One way managers are held accountable for the performance of their units is in periodic performance appraisals. For example, a management by objectives (MBO) program can be used to compare planned goals with achieved results. There are two distinct types of authority: line and staff authority. Line authority entitles a manager to directly control the work of subordinates by hiring, discharging, evaluating, and rewarding them. It is based on superior-subordinate authority relationships that start at the top of the organization hierarchy and extend to the lowest level. This provides what is called the chain of command. Line managers are the sales managers or production managers.

 Staff authority includes giving advice, making recommendations, and offering counsel to line managers and other members of the organization. Staff authority is based on expertise. Staff managers help line managers achieve bottomline results, but they contribute only indirectly to outcomes. For example, the accounting, legal and human resource management staffs of a manufacturing firm provide specialized advice on cost control, federal regulation and staffing requirements to line manager. An organization chart summarizes the lines authority in an organization.

Span of Control
A critical feature of the vertical structure of an organization is the number of subordinates who report to manager. This is called the span of control, and it determines the number of managers and number of levels of management in an organization. A manager with a small span of control supervises a small number of subordinates (about 5 or 6) and he can closely monitor the work of each subordinate. A tall vertical structure may have too many levels of management separating frontline employees from top executives. It may cause the organization to perform inefficiently because the company is not being responsive to the need of customers. Information often get distorted and poor decision is reach if top executive is required to go through numerous intermediaries to learn what is happening.

Span of Control Contd

Larger spans of control (ranging from 10 to 20 or more subordinates) mean more responsibility is pushed to lower levels. A manager with a large span of control may not be able to directly monitor the behaviour of subordinates. A large span of control works best when there are routine tasks, highly trained subordinates, competent managers, similar jobs with comparable performance measures, and subordinate who prefer autonomy.

Centralization and Decentralization

Centralization and decentralization are related to the degree of concentration of decision authority at various levels of the organization. Centralization means that decision making authority is located at the top level of the organization hierarchy. Centralization allows management to coordinate the various parts of the organization in a consistent manner.

 Decentralization means decision-making authority is pushed to lower levels in the organization. Decentralization is often more effective in rapidly changing environments where it is necessary to be responsive to changing customer needs and tastes. Decentralized decision-making authority spurs innovation and risk taking by allowing individuals to control resources and engage in experimentation without having to obtain the approval of higher authorities.

Centralization and Decentralization Contd

Advantages of Decentralization It enables top management to concentrate on top priorities. It encourages managers initiatives It speeds up operational decisions without further reference. Disadvantages of Decentralization Consistency is more difficult to achieve. Control becomes more difficult once authority has been delegated. It encourages parochialism divisional or sectional objectives are maximized at the detriment of corporate objectives.

Formalization
The degree of written documentation that is used to direct and control employees is the level of formalization present. An organization with high formalization provides employee with many documents that specify the right way to conduct business with customers or interact with other employees. These documents include policy manuals, job description, procedures, memos, and rules books. A high degree of formalization encourages employees to do their jobs in standardized and predictable ways.

The Horizontal Dimension of Organization Structure

The horizontal basis for organizing jobs into units in an organization is called departmentalization. The three basic approaches to departmentalization are functional, divisional, and matrix.

Functional Structure
A functional structure places similar jobs into departments. For example, engineering, production, marketing, and finance department. The functional approach work best in small to medium-sized companies operating in somewhat stable business environments without a great deal of change and uncertainty.

President

Engineering

Production

Marketing

Finance

Figure 1: Functional Departmental Structure

Functional Structure Contd

Advantages of functional structure Decision authority is centralized at the top of the organization. It enables employees to do specialized task, which creates a high degree of efficiency. It causes employees to develop specialized expertise in a functional area of the business, such as finance or marketing. Disadvantages of functional structure There is communication barriers and conflict between functional departments. It may be difficult to coordinate products and services, which could result in diminished responsiveness to the needs of customers. When employees are assigned to functional departments, they tend to identify with the functional department goals rather than with organizational goals or customer needs.

Divisional Approach
The divisional approach, sometimes called the product approach, organizes employees into units based on common products, services, or markets The divisional approach is used when a company produces many products, or provides services to different types of markets, such as regional, domestic, and international markets, that require specialized knowledge. The division structure allows employees to develop expertise in both a function and a line of products or services.


Computer division

President

Software division

Consulting source division

Production Production Marketing Finance

Marketing

Finance

Production

Marketing

Finance

Figure 2 : Divisional Organization Structure

Divisional Approach Contd

Geographic-based division allows an organization to focus on customer needs that may vary by geographic region or market. In this approach to organizing, the functional business activities are coordinated by a division manager, who is responsible for products or services provided to a specific area. Customer-based division allows an organization to focus on customer needs within a basic functional structure. With customer divisions, each department contains employees who perform functional tasks for a specific type of customer

Divisional Approach Contd

Advantages of the divisional Approach Coordination among different business functions Improved and speedier service Accountability for performance Development of general manager and executive skills Disadvantages of the divisional Approach Duplication of resources by two or more department Reduced specialized in occupation skills Competition among division.

Matrix Approach
The matrix approach superimposes a divisional structure over a functional structure in order to combine the efficiency of the functional approach with the flexibility and responsiveness to change of the divisional approach. Each employee in a matrix unit reports to two bosses a functional manager and a product or project manager. This means that there are dual lines of authority in the matrix organization.

President

Vice President Finance

Vice President operation

Vice President sales and marketing

Region A manager Region B manager

Region C manager

Figure 3: Matrix Organization Structure

Matrix Approach Contd

Advantages of the matrix approach Efficient utilization of scarce, expensive specialists Flexibility that facilitates starting new projects and ventures quickly. Development of cross-functional skills by employees Increased employee involvement in management decisions affecting project or product assignments. Disadvantages of the matrix approach Employee frustration and confusion as a result of the dual chain of command. Conflict between product and functional managers over deadlines and priorities. Too much time spent on coordinating decision in meetings.