Principles of Management Fundamentals of Organizing Copyright 2004

Principles of Management Fundamentals of Organizing Copyright © 2004 Prentice Hall, Inc. All rights reserved.

What Is Organizing? �Organizing �Arranging the activities of the enterprise in such a way that they systematically contribute to the enterprise’s goals. Must decide; -How to divide the work -Who does what? -Who reports to whom? -How to coord. organs activities. . Copyright © 2004 Prentice Hall. All rights reserved. 6– 2

Steps in the process of organizing The process of organizing consists of the following steps: � 1. Determining the activities to be performed to achieve the objectives of the organization. � 2. Identification of major functions to which these activities relate. � 3. Grouping and sub-dividing the activities within each function on the basis of similarity or relatedness. � 4. Establishing relationship among individuals and groups. Copyright © 2004 Prentice Hall. All rights reserved. 6– 3

Steps in the process of organizing - The activities which are performed by persons holding different positions must be related. - The responsibility, authority and accountability of each person must be well defined. This is necessary to avoid conflict and confusion and to ensure that work is performed as planned. - Establishing relationships among individuals and groups are, therefore, an important aspect of the organizing process. It would be useful at this stage to explain the meaning of responsibility, authority, and accountability. Copyright © 2004 Prentice Hall. All rights reserved.

Responsibility, Responsibility is the obligation of a subordinate to perform the assigned duties. When a subordinate accepts duties, he has to perform those duties in the manner desired by the superior. Duties are assigned to subordinates when a manager has to share the work with them. Authority, (will be further mentioned) When a person is given certain duties to perform, he must be given necessary authority also. Otherwise, he will not be able to do the work. A typist, for example, cannot do the typing job if he is not given the right to use facilities such as a place to sit in, a table, a chair, a typewriter, typing and carbon papers. Authority should always follow responsibility******* Copyright © 2004 Prentice Hall. All rights reserved. 6– 5

Accountability: (responsible for what they do and must be able to give a satisfactory reason for it) Accountability means answerability. That is, each person has to report to his superior how the work has been done and how authority has been used. Accountability is always upward. Each subordinate is accountable to his superior who in turn is accountable to his own superior. In this way, every person becomes accountable to top management. Accountability ensures that the work is done as planned and authority is properly used. An important principle of accountability is the principle of single accountability. A person should be accountable to one superior only. If a person is accountable to two or more persons, he may avoid the work or he may be in difficulty to decide whom to obey first. Copyright © 2004 Prentice Hall. All rights reserved. 6– 6

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. �Org. Chart also indicates the chain of command. Copyright © 2004 Prentice Hall. All rights reserved. 6– 7

Authority and the Chain of Command �The path that a directive and/or answer or request should take through each level of an organization (from bottom to top); also called a scalar chain or the line of authority. In short it represents the hierarchy of authority. �Authority �The legal right/power to take action, to make decisions, and to direct the work of others. �Corporation, authority stems from the owner to selected BOD (they represent their interests) Copyright © 2004 Prentice Hall. All rights reserved. 6– 8

Authority and the Chain of Command �Board Functions; - to choose top executives, - approve strategies & long-term plans - monitor performance to make sure mgmt is protecting their interests, - they delegate the CEO to run the company, - develop plans, hire subordinate managers, - enter into agreements. Copyright © 2004 Prentice Hall. All rights reserved.

Line and Staff Authority �Line Manager (The president, production, sales) �A manager who is (1) in charge of essential activities such as sales and (2) authorized to issue orders to subordinates down the chain of command. �Staff Manager (HR mngr) �A manager without the authority to give orders down the chain of command (except in his or her own department); generally can only assist and advise line managers in specialized areas such as human resources management. Copyright © 2004 Prentice Hall. All rights reserved. 6– 10

Line and Staff Authority �Functional Authority �Narrowly limited power to issue orders down the chain of command in a specific functional area such as personnel testing. In large organisations they are usually Line and Staff managers, in small organisations only line mngrs exists. Copyright © 2004 Prentice Hall. All rights reserved. 6– 11

The Informal Organization �The informal contacts, communications, and habitual ways of doing things that employees develop. Copyright © 2004 Prentice Hall. All rights reserved. 6– 12

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. Managers have 2 basic choices when organising the departments; a) Can organize around FUNCTIONS, b) Can organize around SELF-CONTAINED divisions/purposes. (containing or having everything that is needed within itself) Exp. Editor can appoint functional department heads for editing, production and. Copyright advertising. © 2004 Prentice Hall. All rights reserved. 6– 13

Organizing Departments by Function �Functional Departmentalization �A form of organization that groups a company’s activities around essential functions such as manufacturing, sales, or finance. Copyright © 2004 Prentice Hall. All rights reserved. 6– 14

Functional Departmentalization Copyright © 2004 Prentice Hall. All rights reserved. FIGURE 6– 15

Organizing Departments by Self. Contained Divisions/Purposes �Product Departmentalization �Grouping departments around a firm’s products or services, or each family of products or services; also referred to as a “divisional” organization. �Customer Departmentalization �Self-contained departments are organized to serve the needs of specific groups of customers. Copyright © 2004 Prentice Hall. All rights reserved. 6– 16

Divisional Organization for a Pharmaceuticals Company Copyright © 2004 Prentice Hall. All rights reserved. FIGURE 6– 2 6– 17

Customer Departmentalization, Grayson Steel Company Copyright © 2004 Prentice Hall. All rights reserved. FIGURE 6– 3 6– 18

Organizing Departments by Self. Contained Divisions/Purposes (cont’d) �Marketing-channel Departmentalization �Departments focus on particular marketing channels, such as drugstores or grocery stores. �Geographic (Territorial) Departmentalization �Separate departments are established for each of the territories in which the enterprise does business. Copyright © 2004 Prentice Hall. All rights reserved. 6– 19

Marketing Channel Departmentalization Copyright © 2004 Prentice Hall. All rights reserved. FIGURE 6– 4 6– 20

Divisional Organizations Facilitate Coordination Copyright © 2004 Prentice Hall. All rights reserved. FIGURE 6– 5 6– 21

Checklist 6. 1 Functional vs. Divisional Organizations þ Functional Organization Advantages 1. 2. 3. 4. þ It is simple, obvious, and logical. It fosters efficiency. It can simplify executive hiring and training. It can facilitate the top manager’s control. Functional Organization Disadvantages It increases the workload on the executive to whom the functional department heads report. 2. It may reduce the firm’s sensitivity to and service to the customer. 3. It produces fewer general managers. 1. Copyright © 2004 Prentice Hall. All rights reserved. 6– 22

Checklist 6. 1 (cont’d) Functional vs. Divisional Organizations þ Divisional Organization Advantages The product or service gets the single-minded attention of its own general manager and unit, and its customers may get better, more responsive service. 2. It’s easier to judge performance. 3. It develops general managers. 4. It reduces the burden for the company’s CEO. 1. Copyright © 2004 Prentice Hall. All rights reserved. 6– 23

Checklist 6. 1 (cont’d) Functional vs. Divisional Organizations þ Divisional Organization Disadvantages It creates duplication of effort. 2. It may diminish top management’s control. 3. It requires more managers with general management abilities. 4. It can breed compartmentalization. 1. Copyright © 2004 Prentice Hall. All rights reserved. 6– 24

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. �in which people with similar skills are pooled for work assignments. For example, all engineers may be in one engineering department and report to an engineering manager, but these same engineers may be assigned to different projects and report to a different engineering manager or a project manager while working on that project. Therefore, each engineer may have to work under several managers to Copyright © 2004 Prentice Hall. All rights reserved. 6– 25

Matrix Organization Departmentalization FIGURE 6– 6 Copyright © 2004 Prentice Hall. All rights reserved. 6– 26

Matrix Organizations Advantages Proponents of matrix management suggest that there are two main advantages First, it allows team members to share information more readily across task boundaries. Second, it allows for specialization that can increase depth of knowledge and allow professional development and career progression to be managed. Copyright © 2004 Prentice Hall. All rights reserved. 6– 27

Matrix Organizations Disadvantages Confusion of command. Power struggles and conflicts. Lost time in coordinating. Excess overhead for managing matrix functions. Copyright © 2004 Prentice Hall. All rights reserved. 6– 28

Departmentalization in Practice: A Hybrid �Why mix the types of departmentalization? �Hierarchical considerations � The relationship of top level departments to their subsidiary departments. � Efficiency � Product, customer, and territorial departments tend to result in duplicate sales, manufacturing, and other functional departments. �Common sense � Departmentalizing is still more an art than a science. Copyright © 2004 Prentice Hall. All rights reserved. 6– 29

A Hybrid Organization Copyright © 2004 Prentice Hall. All rights reserved. FIGURE 6– 7 a 6– 30

A Hybrid Organization (cont’d) Copyright © 2004 Prentice Hall. All rights reserved. FIGURE 6– 7 b 6– 31

The New Summer Tour Organization Copyright © 2004 Prentice Hall. All rights reserved. FIGURE 6– 8 6– 32

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. Copyright © 2004 Prentice Hall. All rights reserved. 6– 33

Spans of Control in Country-Based Organization Copyright © 2004 Prentice Hall. All rights reserved. FIGURE 6– 9 6– 34

Network-based Organizations �Organizational Network �A system of interconnected or cooperating individuals. �Informal Networks �Communication pathways and relationships between individuals in an organization that do not necessarily conform to the formal chain of command communication networks of an organization. Copyright © 2004 Prentice Hall. All rights reserved. 6– 35

Network-based Organizations (cont’d) �Formal Organizational Network �A recognized group of managers or other employees assembled by the CEO and the other senior executive team, drawn from across the company’s functions, business units, geography, and levels. �Electronic Organizational Networks �Networking through technology-supported devices such as e-mail, video-conferencing, and collaborative computing software like Lotus Notes. Copyright © 2004 Prentice Hall. All rights reserved. 6– 36

How Networks Reshape Organizations Copyright © 2004 Prentice Hall. All rights reserved. FIGURE 6– 10 6– 37

Network-based Organizations (cont’d) �Team-Based Organizations �Team �A group of people committed to a common purpose, set of performance goals, and approach for which they hold themselves mutually accountable. �Horizontal Corporations �A structure that is organized around customer-oriented processes performed by multidisciplinary crossfunctional teams rather than by formal functional departments. Copyright © 2004 Prentice Hall. All rights reserved. 6– 38

The Horizontal Corporation Source: John A. Byrne, “The Horizontal Corporation, ” Business Week, 20 December 1993, p. 80. © Copyright reserved. 2004 Prentice Hall. All rights FIGURE 6– 11 6– 39

Checklist 6. 2 Building Horizontal Organizations þ þ Make responsibilities overlap. Design individual jobs as broadly as possible, and keep the number of job titles to a minimum. Base rewards on unit performance to emphasize the importance of working together. Change the physical layout to promote collective responsibility. Let people see each other’s work. Redesign work procedures, provide computer terminals, use the e-mail network, and make sure managers are available. Copyright © 2004 Prentice Hall. All rights reserved. 6– 40

How to Create a Horizontal Corporation Source: Reprinted from the December 20, 1993, issue of Business Week by special permission. Copyright © 1993 by the Mc. Graw-Hill Companies, Inc. Hall. Copyright © 2004 Prentice reserved. All rights FIGURE 6– 12 6– 41

Other Organization Types �Federal Organization �An organization in which power is distributed between a central unit and a number of constituents, but the central unit’s authority is intentionally limited. �Virtual Organization �A temporary network of independent companies that use information technology to share skills, reduce costs, and provide access to one another’s markets. �Its success depends on each of the individual firms’ responsibility and self-interest to accomplish the network’s purpose. Copyright © 2004 Prentice Hall. All rights reserved. 6– 42

TGC’s Cellular Organization Source: Reprinted with permission of the Academy of Management Executive, from “Organizing in the Knowledge Age: Anticipating the Cellular Form, ” Raymond Miles, vol. 11, no. 4, © 1997; permission conveyed through Copyright Clearance Center, Inc. Copyright reserved. © 2004 Prentice Hall. All rights FIGURE 6– 13 6– 43