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 organization’s 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 organization’s structu

Organizational Chart
President

Finance R&D Marketing Personal

Chemical Metal
Division Division

Personal Finance Personal Finance

Manufacturing Sales Manufacturing Sales

Structure is how we divide, group
and coordinate…
Six elements involved in org. design:
1) Work specialization—tasks divided into
separate jobs
2) Chain of command—line of authority
3) Span of control—how many employees
supervised
4) Centralization/decentralization—who
makes decisions
5) Formalization—standardized jobs?
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&D Marketing Personal

Chemical Metal
Division Division

Personal Finance Personal Finance

Manufacturing Sales Manufacturing Sales

2)Chain of Command: An
unbroken line of authority that
links all individuals and specifies
who reports
Authority - the rights to whom
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
 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/Decentrali
zation
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
1) Matrix Approach - groups jobs on the basis of product
or customer flow
2) Team Approach : entire organization is made up of
work teams
3) 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
An Example outputs.
of Product Org.

General Manager

Product A Product B Product C

Manager Manager Manager

Design Manuf. Design Manuf. Design Manuf.

DIVISIONAL APPROACH
C E O

P r o d u Pc t r o d u Pc t r o d u
D i v i s i o D n i v1 i s i o D n i v2 i s i o

R&D Finance Marketin

g
 GEOGRAPHICAL DIVISIONAL
APPROACH
Vice President
for Sales
Corporat
e 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
Project Responsibility
Functional Responsibility
Project A

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