Chapter 10

FUNDAMENTALS OF
ORGANIZING
 Class overview
1) Organizing the vertical structure
o Work specialization
o Chain of Command
o Authority, responsibility and delegation
o Span of management
o Centralization and decentralization
o Formalization
2) Departmentalization
o Approaches/structure to departmentalization
organizing the deployment of organizational
resources to achieve strategic goals. OR
the process of creating an organizations structure
organizational structure - the formal framework by
which job tasks are divided, grouped, and coordinated
1- the set of formal tasks assigned to individuals and
departments.
2-formal reporting relationships, including line of
authority, decision responsibility, number of
hierarchical levels and span of control.
3- the effective coordination of employees across
departments
 The visual representation

of an organizations structure

Organizational Chart
President

Finance R & DMarketing

Personal
Chemical Metal
Division Division
Personal FinancePersonal Finance

ManufacturingSalesManufacturing Sales
Structure is how we divide, group and
coordinate
Six elements involved in org. design:
1) Work specializationtasks divided into separate
jobs
2) Chain of commandline of authority
3) Span of controlhow many employees supervised
4) Centralization/decentralizationwho makes
decisions
5) Formalizationstandardized jobs?
6) Departmentalizationjobs grouped together
1) Work Specialization / Division of labor
The degree to which organizational tasks
are subdivided into individual jobs also
called Division of labor.

Identification of total set of organizational

tasks
Subdividing into individual jobs.

Efficiency is promised but it also results in

boredom of employees.
 Organizational Chart
President

Finance R & DMarketing

Personal
Chemical Metal
Division Division
Personal FinancePersonal Finance

ManufacturingSalesManufacturing Sales
2) Chain of Command: An unbroken line
of authority that links all individuals and
specifies who reports to whom
Authority - the rights inherent in a managerial position
to tell people what to do and to expect them to do it or
authority is the formal and legitimate right of a
manager to make decisions, issue orders, and allocate
resources to achieve organizational desired out comes.
oAuthority is vested in organizational positions, not
people
oAuthority is accepted by subordinates
oAuthority flows down the vertical hierarchy
2) Chain of Command (Cont)
Line authority: A form of authority in which
individuals in management positions have the formal
power to direct and control immediate subordinates.
Staff Authority: A form of authority granted to staff
specialists in their areas of expertise.

Responsibility - the obligation to perform any assigned

duties or the duty to perform the task or activity an
employee has been assigned

Unity of command - a person should report to only

one manager????
 Line & Staff authority
CEO
Secretary
PM Operations
Purchasing

Unit 1, Manager Unit 1, Manager

Personal
Operations
Purchasing
Operations
Personal
2) Chain of Command (Cont)

Accountability The fact that the people with

authority and responsibility are subject to reporting
and justifying task outcome to those above them in
the chain of command.
Delegation The process managers use to transfer
authority and responsibility to position below them
in the hierarchy.
3) Span of Management / Control: number
of employees that a manager can efficiently
and effectively manage or the number of
organizational members who report to a
manager
o Tall structure or Narrow span of control
means one manager supervises a small
number of members
o Flat structure or Wide span of
control means one manager
supervises many members
 Tall versus wide structure
Tall Structure
Or Narrow span of
Control: organizations
have many levels

Flat structure or Wide

span of Control :
organizations have few
levels
4) Centralization/Decentralization
Centralization: the degree to which decision
making is concentrated at a single point in the
organization
Decentralization
the degree to which decisions are made
by lower-level employees
distinct trend toward decentralized
decision making
Highly Centralized Authority

Authority given to a few top managers,

allowing decisions to be made by those
with the big picture
Facilitates development of a few
masters of knowledge
Provides non-decision makers the
freedom to perform technical tasks with
fewer distractions
 Decentralized Authority

Authority distributed throughout the organization

Allows those closest to problems and
opportunities to make decisions
Is received favorably by many organizational
members
 5) Formalization
the degree to which jobs within the organization are
standardized
standardization - removes the need for employees to
consider alternatives
extent to which employee behavior is guided by
rules and procedures
employee allowed minimal discretion in highly
formalized jobs
explicit job descriptions
clearly defined procedures
Mechanistic Organization
rigidly and tightly controlled structure
tries to minimize the impact of differing human traits
most large organizations have some mechanistic characteristics

Organic Organization
highly adaptive and flexible structure
permits organization to change when the need arises
employees are highly trained and empowered to handle diverse
job activities
minimal formal rules and little direct supervision
 Departmentalization

the basis on which individuals (positions) are

grouped into departments and departments into
total organizations.
2) Departmentalization: The basis by
which jobs are grouped together
1) Functional approach - groups jobs by functions
performed
2) Divisional approach - groups jobs by similar
organizational out puts
o geographical - groups jobs on the basis of territory or
geography
3) Matrix Approach - groups jobs on the basis of product
or customer flow
4) Team Approach : entire organization is made up of
work teams
5) Networking approach:
 Functional Approach:
People are grouped together in departments by common skills
and work activities, such as in an engineering department and
an accounting department.
Plant Manager

Manager, Manager, Manager, Manager, Manager,

Engineering Accounting Manufacturing Human Resources Purchasing

Functional
Grouping CEO

Engineering Marketing Manufacturing

Advantages of Functional Organization
Structure

Allows economies of scale

Enables in-depth knowledge & skill development
Enables organization to accomplish functional goals
Is best with only one or few products
It offers a way to centralize decision making
Good communication and coordination among
employees
 Disadvantages of Functional Structure
Slow response time to environmental
changes
May cause decisions to pile on top
(delayed response)
Poor coordination among departments
Results in less innovation & motivation
Restricts view of organizational goals
 Divisional Approach
An organization structure in which departments
are grouped based on similar organizational
outputs. An Example of Product Org.

General Manager

Product A Product B Product C

Manager Manager Manager

Design Manuf. Design Manuf. Design Manuf.

DIVISIONAL APPROACH
CEO

Product Product Product

Division 1 Division 2 Division 3

R&D Finance Marketing

 GEOGRAPHICAL DIVISIONAL
APPROACH
Vice President
for Sales
Corporate
staff

Sales Director, Sales Director, Sales Director, Sales Director,

Western Region Southern Region Midwestern Region Eastern Region
 Strengths of Divisional Organization
Structure
STRENGTHS:
Suited to change in unstable environment
Leads to client satisfaction
Involves coordination across functions
Allows units to adapt to differences in products,
regions, clients
Best in large organizations with several products
Decentralizes decision-making
Performance can easily be pinpointed
 Disadvantages of Divisional
Organization Structure
Eliminates economies of scale in functional
departments (duplication of resources)
Poor coordination across product lines
Eliminates in-depth competence & technical
specialization (depts are small)
Makes integration & standardization across
product lines difficult
 Horizontal Matrix Organizational
Structure
Definition: An organization structure that
utilizes functional and divisional chains
of command simultaneously in the same
part of the organization.
Two chains of command:
horizontal: functional line of responsibility
vertical: the project line of responsibility
 Matrix Org.
Managing Director

Director of Finance Manufacturing Engineering

Projects
Functional Responsibility
Project A Project Responsibility

Project B

Project C

Project D
 Matrix Organizational Structure

Project manager: total responsibility and

accountability for project success.
Functional managers have the
responsibility to achieve and maintain
high technical performance of the
project.
Advantages of Matrix Organization (1)
Good team interaction
Consolidation of objectives
Multilateral flow of information
Lateral mobility for job advancement
Opportunity to work on a variety of
projects
Efficient sharing and utilization of
resources
Advantages of Matrix Organization (2)
Reduced project cost due to sharing of
personnel
Continuity of functions after project
completion
Stimulating interactions with other
functional teams
Cooperation of functional lines to
support project efforts
Advantages of Matrix Organization (3)
Home office for personnel after
project completion
Equal available of company
knowledge base to all projects
Disadvantages of Matrix Organization
Slow matrix response time for fast-
paced projects
Independent operation of each project
organization
High overhead cost due to additional
lines of command
Potential conflict of project priorities
Problems of multiple bosses
Complexity of the structure