CHAPTER 4

THE ORGANIZING FUNCTION

In planning, managers set their objectives and determine exactly what to do to attain
these objectives. Of course, no one person can implement all the plans of a modern
organization or one person cannot do everything necessary to meet the goals set forth in
those plans. Planning, consequently, requires organizing the efforts of many people. It
forces us to address several basic questions:
 What specific tasks are required to implement our plans?
 How many organizational positions are needed to perform all the required
tasks?
 How should these positions be grouped?
 How many layers of management (Organizational levels) are needed to
coordinate them?
 How many people should a manager supervise directly?
The answers to these and other questions enable us to create an organizational
arrangement, a structure, for putting plans into action.
Organizing - is a management function that involves arranging human and non-human
(physical) resources to help attain organizational objectives. It is the management
function that establishes relationship between activity and authority. The end result of an
organizing process is an organization.
Organization - is the total system of social and cultural relationship among peoples who
are joined together to achieve some specific common objectives. It is a whole consisting
of unified parts (a system) acting in harmony to execute tasks to achieve goals
effectively and efficiently.

The Organizing Process

The organizing process has the following steps.
1. Identification of objectives
This is to understand clearly the objectives of the organization, i.e. to reconsider the objectives established
during planning and identify the specific objectives to be pursued.
2. Identification of the specific activities needed to accomplish objectives
Knowing the objectives clearly makes the identification of activities needed clear and
simple. Here we ask what work activities are necessary to accomplish the identified
organizational objectives. Creating a list of tasks to be accomplished begins if we
identify clearly what objective is to be accomplished or met. This identification of specific
activities needed is called division of labor.
3. Grouping of activities necessary to attain objectives
The series number of activities listed and/or identified must be grouped together. That is,
this involves grouping together of activities in accordance with similarities (homogeneity)
of the activities, interdependence, job characteristics or any other grouping criteria, and
this result in departments and the process is called Departmentation. Grouping of similar
activities is based on the concept of division of labor and specialization.
4. Assigning group of activities (work) and delegate the appropriate authority
Management has identified activities necessary to achieve objectives, has classified and
grouped these activities into major operational areas and has selected a departmental
structure. The activities now must be assigned to individuals who are simultaneously
given the appropriate authority to accomplish task.
5. Provision for coordination/Design a hierarchy of relationships

CHAPTER 4: ORGANIZING 1
This step requires the determination of both vertical and horizontal operating
relationships of the organization as a whole. The vertical structuring of the organization
results in a decision-making hierarchy showing who is in charge of each task, of each
specialty area, and the organization as a whole. Levels of management are established
from bottom to top in the organization. These levels create the chain of command, or
hierarchy of decision-making levels, in the company.
The horizontal structuring has two important effects.
i. It defines the working relationships between operating departments
ii. It makes the final decision on the span of control (the number of subordinates under
the direction of each manager).
The result of this step is a complete organization structure. This structure is shown
visually by an organization chart.

Importance of Organizing
a. Organizing promotes collaboration and negotiation among individuals in a group.
Thus, it improves communication within the organization.
b. Organizing sets clear-cut lines of authority and responsibility for each individuals or
departments. It helps employees to know their responsibilities and concentrate on the
key tasks at hand. It specifies who is responsible for what.
c. Organizing improves the directing and controlling functions of managers. It
enables management to effectively control the work and workers.
d. Organizing develops maximum use of time, human, and material resources. It also
enables for proper work assignment for individuals in pursuit of common goal.
e. Organizing enables the organization to maintain its activities coordinated so that the
efforts of managers and employees can be well integrated and directed towards an
end; i.e. to accomplish organizational goal.

Types of Organizations
There are two types of organizations: Formal and informal
Formal organization - is the intentional, deliberate or rational structures of roles in a
formally organized enterprise. It is characterized by well-defined authority - reporting
relationships, job titles, policies, procedures, specific job duties and a host of other
factors necessary to accomplish its respective goals.
It is represented by a printed chart that appears in organizational manuals and other
formal company documents called organization chart. Organization chart is a diagram
of formal relationship which shows how departments are tied together along the principal
lines of authority. Formal organization has consciously designed durable and inflexible
structure. Formal organization may have legal personality.
Informal organization - is a network of personal and social relationships that arises
spontaneously as people associate with one another in a work environment. It is an
unofficial network of personal and social relations developed as a result of association or
working together. E.g. the Chess group, the Morning Coffee group, the Bowling team, etc.
It operates outside formal authority relationships. It doesn’t have legal personality.
Informal organization develops within the formal organization. It is composed of all the
informal groupings of people with in a formal organization (it is not only the domain of
workers; managers form informal groups that cut across departmental lines). Informal
organization has a structure which is loosely designed, highly flexible and spontaneous.
In such an organization, the pattern of information flow, the exact nature of relationships

CHAPTER 4: ORGANIZING 2
 among the members, and the goals of the organization are unspecified. However, to
identify the existence of informal organizations and their composition we can use two
tools: a Sociogram and an Interaction Chart.
A Sociogram is a diagram of group attraction. The Sociogram is developed through a
process asking members whom they like or dislike and with whom they wish to work or
not to work. It is based on the belief that group interactions are the result of people's
feelings of like and dislike for another.
An Interaction Chart is a diagram that shows the informal interactions people have with
one another. For any specific person, the chart can show with whom the person spends
the most time and with whom the person communicates informally.
Members in most informal organizations change with time, i.e. when people highly vary in
income level, educational background, status, etc they tend to leave the original group
and join the new one. Members are bonded together through the need for one another’s
company and the fact that they find their memberships beneficial to them in one way or
another, i.e. mutual benefit is the bondage between or among members.
The informal organization presents a challenge for a manager because it consists of
actual operating relationships not prescribed by the formal organization and, therefore,
not shown on the company’s organizational chart.
Types of Groups in the Informal Organization
The informal organization is often looked at as groups of people. Informal groups may be
described as horizontal, vertical, or mixed. These titles indicate whether the group
members come from the same or different levels of formal organization.
Horizontal Groups:
 Include persons whose positions are on the same level of the organization i.e. they are
groups that are formed by peers.
 The groups can consist of all the members in the same work areas or membership
developed across departmental lines.
 Members may be all management or non-management personnel.
 Horizontal groups are the common kind of informal groups by virtue of the ease of
accessibility.
 Membership in a horizontal group is usually mutually beneficial to individuals - “You
help me and I will help you”. People in the same or related work areas often share the
same problems, interests, and concerns.
Vertical Groups:
 Include people on different levels of the formal organization’s hierarchy.
 These people always come together within the same department (work areas).
 A vertical group can consist of a supervisor and one or more of his/her employees. It
may also be formed through skip - level relationships - a top-level manager may
associate with a first level manager.
 Their relationships can be the result of outside interests or various employment
relationships.
Mixed Group:
 It is a combination of two or more persons whose positions are on different levels of
the formal organization and in different work areas.
E.g. A Vice-President may develop a close relationship with the director of computer

CHAPTER 4: ORGANIZING 3
 services in order to get preferential treatment.
A production manager may cultivate an informal, social relationship with the director
of maintenance for the same reason.
 Mixed groups often form because of common bonds outside work.

Why people form informal groups?

Informal groups are formed for different reasons
1. Need for satisfaction
People have needs that in some cases are not met through the formal organization. The
opportunity to fulfill security, affiliation, esteem, and sometimes self-actualization needs
can encourage people to look out and join others in an informal group. They provide the
opportunity to satisfy needs.
2. Proximity and interaction
A common reason people join groups is that they work near one another. This can be either through
working in close proximity physically or because of frequent interaction. Horizontal informal groups are
prime examples of this.
3. Similarity
People may join informal groups because they are attracted to other people who are
similar to themselves. Several persons with the same attitudes or beliefs may join one
group. Other factors or similarity can be personality, race, sex, economic position, age,
educational background etc.
* In informal group/organization one is not limited to one informal organization because
there may exist still unsatisfied needs by involving in one/two informal organization.
Why informal groups exist?
Informal groups remain in existence because they serve four major functions:
1. They maintain the social and cultural values of the group members.
Individuals in the group are likely to share the same beliefs and values as a result of
background, education, or cultural heritage. The many areas about which the group
may have beliefs are reinforced and maintained by the group environment. Such belief
areas are, for example, the work ethics.
2. They provide group members the opportunity for status fulfillment and social
interaction.
Individuals can receive what the formal organization cannot or has not chosen to
provide. “I am just another figure” feeling (identity crisis) may be avoided by informal
group. E.g. an individual whose post is a technician may assume a position of head for
a volleyball team.
3. They provide information for their members
The informal group develops its own system and channels of communication parallel
to management’s formal channels. The ability to acquire access to information for
members is a major function of informal groups. Crucial information can be obtained
through informal communications.
4. They influence the work environment
Informal groups regulate or influence the behavior, dress, or work standards of
their members through positive means-acceptance, support, and affiliation or through
negative methods – threats of ostracizing non-complying members. The informal
group can also regulate or influence the actions of management and other informal
groups.

The Impact of Informal Organization on the Formal Organization

The groups that compose the informal organization can affect the formal organization

CHAPTER 4: ORGANIZING 4
negatively and positively.
The Negative Impacts
i. Resistance to change: The informal organization can resist change. In an effort to
protect its values and beliefs, the informal group can place roadblocks in the path to
any modifications in the work environment. The informal group shows its resistance
through hampering its implementation.

ii. Conflict: The informal group can create two “masters” for an employee. In an
attempt to satisfy the informal group, the employee may come in conflict with the
formal organization.
E.g. The Company may allow 10 minutes for coffee break; however, the informal
group may extend it to 30 minutes for the employee’s social satisfaction. There, the
employee’s social satisfaction is in conflict with the employer’s need for productivity.
iii. Rumor: The informal communication system - the grapevine - can create and process
false information or rumors. The creation of rumors can upset the balance of the
work environment.
iv. Pressure to conform: The norms that the informal groups develop act as a strong
inducement toward conformity. The more cohesive the group, the more accepted are
the behavioral standards. Non-conforming in the person’s reference group can result
in gentle verbal reminders from the group but can escalate to harassment –
ostracism.

The Positive Impacts

Despite the possibility of these problems, informal groups do have the potential to be
helpful to managers.
i. Makes the total system effective: If the informal organization blends well with the
formal system, the organization can function more effectively. The ability of the
informal group to provide flexibility and instantaneous reactions will polish the plans
and procedures developed through the formal organization.
ii. Provides support to management: The informal organization can provide support to
the individual manager. It can fill in gaps in the manger’s knowledge through advice or
through performing the work, for example, budgeting and scheduling. By performing
effectively and positively, it can build a cooperative environment. This, in turn, can
mean more delegation to the employees and less time spent by the manager
controlling employee behavior.
iii. Provides a useful communication channel: The informal organization provides
employees with the opportunity for social information, for discussing their work, and
for understanding what is happening in the work environment.
iv. Encourages better management: Managers should be aware of the power of the
informal organization in what is actually a check and balance system. Planned
changes should be made with an awareness of the ability of the informal group to
make the plan successful or unsuccessful.
v. Provides stability in the environment: The informal organization can provide
acceptance and belonging. This feeling of being wanted by the group can encourage
employees to remain into environment, thus reducing turnover. Additionally, the
informal organization provides a place for a person to vent frustrations. Being able to
discuss them in a supportive environment may receive emotional pressures.

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 Major Elements of the Organizing Function
Division of Labor
When joint accomplishment of a grand task is the goal of many people, this overall task
must be split into its component jobs and apportioned among the people involved. It is
only after these jobs are correctly done that the grand task can be achieved. The degree
to which the grand task of the organization is broken down and divided into smaller
component parts is referred to as division of labor. Division of labor is performed in light
of organizational objectives. It begins by determining (sub tasks) called jobs that are
necessary to accomplish the identified objectives. These sub tasks could include ongoing
tasks which are part of the regular routine for running any business such as hiring and
record keeping or tasks unique to the nature of the business; such as assembling,
machining, storing, inspecting, selling, advertising, computer programming.
After determining the sub-tasks, sub-tasks will be defined by enumerating the activities
that each individual sub-tasks would entail in terms of what the incipient sub task
performer is expected to do. This is called job description. Job description is an account
of activities what the sub-task performer is expected to perform and the associated
authority and responsibility relationships among jobs. The sub-task assigned to the sub
task performer is called job. Thus by doing so individuals specialize in doing part of the
task rather than the entire task, i.e. division of labor in effect is the assignment of various
portion of a particular task among organizational members.
In short, division of labor involves:
 Breaking down a task into its most basic elements
 Training workers in performing specific duties
 Sequencing activities so that one person's efforts build on another's

Advantages of Division of Labor

1. It enables a person performing a task to become highly proficient in a relatively short
time; as a result efficiency and productivity increases.
2. Decreased transfer time. It saves the time that is always lost in changing from one job
to another.
3. Less wastage of materials in the learning process including time.
4. Ease of supervision. When employees are performing similar simplified tasks it will
require the superior to have a narrow range of skills to effectively oversee
subordinates.
5. Training is more easier with specialization and takes shorter period. Plus, it decreases
training cost.

Disadvantages of Division of Labor

6. Boredom and fatigue caused by monotonous, repetitive tasks because the work
becomes less challenging.
7. Specialization would result in workers' having limited knowledge.
8. Creates communication barriers. Specialists develop their own language and
customs, which can hamper communication across departments.
9. Specialization sometimes causes workers to think more in terms of their department
or function instead of the company. Becoming engrossed in their own tasks, they lose
sight of the company's mission.
10. Specialization leads to time-oriented confusion. Production department, for instance,
are commonly short-run oriented; research and development departments are

CHAPTER 4: ORGANIZING 6
 concerned with the long term. Consequently, production departments typically
evaluate their performance in the short run, where as R&D efforts may go
unrecognized for several years.
11. Different specialties often formulate rules, policies, and procedures that conflict with
those of other operational units.
Departmentation: Meaning and
Bases

Departmentalization - All organizations, regardless of their size or mission, divide their

overall operations into sub-activities and then combine these sub-activities into working
groups. This is called Departmentation.
Department - is a distinct area, division, or branch of an organization over which a
manager has authority for the performance of specified activities. It is a unit formulated
as a result of the Departmentation process.
The physical and mental limitations of individual managers to effectively oversee and
coordinate activities beyond a given limit partly justify the need for departmentation.
Departmentation is not an end by itself but is simply a method of arranging activities to facilitate the
accomplishment of objectives.

Bases for Departmentation

Since organizations are different in their activities, objectives and areas in which they
operate, there are different bases for departmentation. The most common bases are
function, territory, product, customer, and process

I. Departmentation by Function
It is the grouping together of activities in accordance with the functions of an enterprise -
on the basis of similarity of expertise, skills or work activities. In other words, jobs that
call for certain skills or the use of similar working methods will be put together. It is
probably the most common base for departmentation and is present in almost every
enterprise at some level in the organization structure. It asks the question “what does the
enterprise/organization do” what kind of activities.
E.g. Human resources, production, marketing, finance, etc.
It is the responsibility of top management to identify the activities needed for the
attainment of organizational goals and then groups these activities into distinctive units,
each one dealing with functionally similar activities and then assign them to people who
can perform them efficiently and effectively.
Advantages:
1. It is a logical reflection of functions.
2. It maintains power and prestige of major functions of the organizations. Assigns
responsibility of each function to the head of that function by providing individual
status and prestige to major functional areas.
3. It follows principle of occupational specialization, thereby promoting efficiency in the
utilization of people. Simplifies to fill vacant positions.
4. It simplifies training. Train functional specialists by indicating special abilities
required.
5. Provides unity of command for closely related activities.
6. Managers have an easier time coordinating and planning because all the jobs that

CHAPTER 4: ORGANIZING 7
 report to them are similar in content.
7. Promotes specialization and operational efficiency. Because closely related activities
and employees are grouped together, functional departmentation permits effective
economies of scale.
Disadvantages
1. De-emphasis of overall company objectives - narrow focus may develop. Identification
with the department and its objective is often stronger than identification with the
organization and its objectives.
2. Over specializes and narrow viewpoints of key personnel.
3. Reduce coordination and communication between (among) functions.
4. Decisions are concentrated at the top management, creating delay.
5. Limits development of general managers.

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 II. Departmentation by Territory/ Geography
 Groups activities on the basis of geographic region or territory.
 Is common in enterprises that operate over wide geographic areas i.e. it is attractive
to large-scale firms or other enterprises whose activities are physically or
geographically dispersed. The logic is that all activities in a particular area or region
should be assigned to a manager. This individual would be in charge of all operations
in that geographic area.
 Can be used by business, government, NGOs, or other enterprises.
Geographic departmentalization works best when different laws, currencies,
languages and traditions exist and have a direct impact on the ways in which business
activities must be conducted.
Advantages
1. Places emphasis on local markets and problems; better face to face communication
with local interests or allows the company to address needs or characteristics of
consumers that are particular to that area.
2. Encourages local participation in decision-making
3. Improves coordination of activities in a region
4. Takes advantage of economies of local operations
5. Furnishes measurable training ground for general managers. Managers are
responsible for the activities in that geographic area. Decision concerning that region
will be made of that level and not forwarded up the chain of command.
6. Encourages decentralized decision-making.
Disadvantages
1. Requires more persons with general manager abilities
2. Duplicates staffs, services, or effort.
3. Tends to make maintenance of economical central services difficult and may require
services such as personnel or purchasing at the regional level
4. Increases problem of top management control
III. Departmentation by Product (Line)
It is the grouping and arrangement of activities around products or product groups.
Departmentation by product should be considered when attention, energy and efforts
need to be focused on an organization’s particular products. This can be true if each
product requires a unique strategy or product process or distribution system or capital
sources.
 This approach works well for an enterprise which engaged in very different types of
products.
E.g. Textile products - Nylon products, woolen products, silk products, cotton products
Petroleum refining - kerosene, diesel,
Electronics - Radios, TVs, Computers
Advantages
1. Places attention and effort on product line
2. Facilitates use of specialized skill, capital facilities and knowledge
3. Permits growth and diversity of products and services
4. Places responsibility for profits at the division level
5. Furnishes measurable training ground for general managers
Disadvantages
1. Requires more persons with general manager abilities

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2. Tends to make maintenance of economical central services difficult - duplication of
business functions within each product line. Each needs marketing, personnel,
finance, and production operations, which may be so specialized they are unable to
serve more than one product line or division.
3. Presents increased problem of top management control

IV. Departmentation by Customer

It is a grouping of activities around customers. This grouping reflects a primary interest
in customers. Customers are the key to the way activities are grouped when each of the
different things an enterprise does for them is managed by one department head. This
makes economic sense when the customers are distinct enough in their demands,
preferences, and needs. It helps organizations meet the special and widely varying needs
of customers. It can be used in medical institutions such as hospitals and clinics -
emergency services, out patient services, inpatient services, x-rays; retail stores- men's
clothing, women's clothing, children's clothing.
Advantages
1. Encourages concentration on customer needs
2. Gives customers the feeling that they have an understanding supplier
3. Develops dexterity in customer area
Disadvantages
1. May be difficult to coordinate operation between competing customer demands
2. Requires managers and experts in customers’ problems
3. Customer groups may not always be clearly defined
4. The possibility of underemployment of facilities and labor specialized workers in
customer groups

V. Departmentation by Process
Manufacturing firms often group activities around a process or type of equipment. This is
when special skill is needed to operate different machines. Making plywood, for example,
involves several sequential processes: poling (removing bark from logs); sawing logs in
to 8’ lengths, heating; veneer stripping and stamping veneer sheets in to 4' segments;
drying and grading according to quality; gluing plies together; finishing and bundling.
Advantages
1. Achieves economic advantage
2. Uses specialized technology
3. Simplifies training
Disadvantages
1. Coordination of departments is difficult
2. Responsibility for profit is at the top
3. Is unsuitable for developing general mangers

VI. Departmentation on Combined Base

It is a base in which multiple bases are used at different organizational levels of a
particular organization.

Delegation of Authority
Authority - is the right to commit resources (that is, to make decisions that commit an organization’s
resources), or the legal (legitimate) right to give orders (to tell someone to do or not to do something)

CHAPTER 4: ORGANIZING 10
 - is the right to make decisions, carry out actions, and direct others in matters related
to the duties and goals of a position
-is the formal right of a superior to command and compel his subordinates to perform
a certain act. All managers in an organization have authority. It provides the means of
command.
Generally, level of authority varies with levels of management. Higher-level managers
have greater authority, with ultimate power resting at the top. Authority decreases all the
way to the bottom of the chart, where positions have little or none. Authority is vested in
a manager because of the position he/she occupies in the organization, that is why we
say, “authority comes with the territory.”
When an organization gives one of its members authority, or the legitimate right to use
power over others, it carries with it the burden of responsibility. Responsibility means
being held accountable for attainment of the organization’s goal. Authority is derived
from the person’s official position in the organization. The person who occupies the
position has its formal authority as long as he/she remains in the position. As the job
changes in scope and complexity, so should the amount and kind of formal authority
possessed. Even though a manager has formal or legitimate authority, it is wise to
remember that the willingness of employees to accept the legitimate authority is a key to
effective management. Chester Bernard called this Acceptance Theory of Authority.

Delegation of Authority - is the downward pushing of authority from superiors to

subordinates to make decision within their area of responsibilities. It is the process of
allocating tasks to subordinates, giving them adequate authority to carry out those
assignments, and making them obligated to complete the tasks satisfactory. Delegation
is a concept describing the passing of formal authority to another person. It is the
assignment of part of a manager’s work to others, along with both the responsibility and
authority necessary to achieve expected results.
Delegation is necessary for an organization to exist. Just no one person in an enterprise
can do all the tasks necessary for accomplishing a group purpose, so is it impossible, as
an enterprise grows, for one person exercise all the authority for making decisions.
In delegating authority a manager doesn’t surrender his power because he does not
permanently dispose of it; delegated authority can always be regained. This is called
recovery of delegated authority. Reorganization inevitably involves some recovery and
redelegation of authority. In a shuffle in an organization, rights are recovered by the
responsive head of the firm or a department and then redelegated to managers of new or
modified departments.

The Process of Delegation

Delegation of authority has the following steps:
1. Assignment of tasks
Specific tasks or duties that are to be undertaken are identified by the manager for
assignment to the subordinate. The subordinate is then approached with the assignment
(task).
2. Delegation of authority
In order for the subordinate to complete the duties or tasks, the authority necessary to do
them should be delegated by the manager to the subordinate. A guideline for authority is
that it be adequate to complete the task - no more and no less.

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 3. Acceptance of responsibility
Responsibility is the obligation to carryout one’s assigned duties to the best of one’s
ability. It is the obligation created when someone accepts task assignments together with
the appropriate authority. Responsibility is not delegated by a manager to an employee,
but the employee becomes obligated when the assignment is accepted. The employee is
the receiver of the assigned duties and the delegated authority; these confer
responsibility as well.
4. Creation of accountability
Accountability is having to answer to someone for your results or actions. It means taking
the consequences - either credit or blame. It is the requirement to provide satisfactory
reasons for significant deviations from duties or expected results. When the subordinate
accepts the assignment and the authority, s/he will be held accountable or answerable
for actions taken. A manager is accountable for the use of his/her authority and
performance. The manager is also accountable for the performance and actions of
subordinates.
The manager should take the time to think through what is being assigned and to confer
the authority necessary to achieve results. The subordinate, in accepting the assignment
becomes obligated (responsible) to perform, knowing that s/he is accountable
(answerable) for the results.

Importance of Delegation
1. It relieves the manager from his/her heavy workload: Delegation frees a manager from
some time consuming duties that can be adequately handled by subordinates and lets
the manager devote more time to problems requiring his/her full attention (lets the
manager concentrate on strategic issues). Enables managers to perform higher level
work.
2. It leads to better decisions: Since subordinates are closer to real “firing line” activities
and problems than superiors, they have more realistic information and better
understanding. The realistic information that subordinates have may lead them to
make better decisions.
3. It speedup decision-making: Decisions made by lower level managers usually are
timelier than those that go through several layers of management.
4. It helps subordinates to train and builds moral: Subordinate managers can reach their
full potential only if given the chance to make decisions and to assume responsibility
for them.
5. It encourages the development of professional managers: Had there not been any
delegation, professional managers wouldn’t have been produced.
6. It helps to create the organization structure: If there were no delegation of authority is
an organization, there would exist only the president/CEO/ top-level manager. And an
individual cannot create an organization.

Factors Determining Delegation

Managers cannot ordinarily be for or against decentralization of authority. They may
prefer to delegate authority, or they may like to make all the decisions. Some factors that
affect the degree of centralization or decentralization- delegation of authority- are:
1. The history and culture of the organization: Whether authority will be
decentralized frequently depends upon the way the business (organization) has been
built. Those enterprises that, in the main, expand from within show a marked tendency
to keep authority centralized. On the other hand, enterprises that result from mergers

CHAPTER 4: ORGANIZING 12
and consolidations are likely to show, at least first, a definite tendency to retain
decentralized authority. In other words, organizations which were centralized or
decentralized at their establishment tend to centralize and decentralize authority to
repeat what they have done before. When centralized organization is changed into
decentralization and the vice versa people, feel discomfort.
2. The nature of the decision: The costlier and the riskier the decision is, the more
centralized the authority will be. Cost may be reckoned directly in birr and cents or in
such intangibles as the company’s reputation, its competitive position or employee
morale. The fact that the cost of mistake affects the decentralization isn’t necessarily
based on the assumption that top managers make fewer mistakes than subordinates.
They may make fewer mistakes, since they are probably better trained and in possession
of more facts, but the controlling reason is the weight of responsibility. Delegating
authority is not delegating responsibility; therefore, managers typically prefer not to
delegate authority for crucial decisions.
3. Availability and ability of managers (Lower level managers): A real shortage of
managers would limit decentralization of authority, since in order to delegate, superiors
must have quantified managers to whom to give authority. In addition to the availability
of lower level managers, the quality of the existing lower level managers (subordinates)
has impact on centralization or decentralization. Hence, the competency to carry out and
exercise the delegated authority has some effects. Some managers lack confidence in
their subordinate or fear the consequences or criticism of having subordinates make bad
decisions.

4. Management philosophy: The willingness of managers to delegate authority and

limit the degree of decentralization or the desire to do the job by herself/himself. The
character and philosophy of top executives have an important influence on the extent to
which authority is decentralized. Sometimes top managers are despotic, tolerating no
interference with the authority they jealously hoard. At other times, top managers keep
authority not merely to gratify a desire for status or power but because they simply
cannot give up the activities and authorities they enjoyed.
5. Size and character of the organization: The larger the organization, the more
decisions to be made, and the more places in which they must be made, the more
difficult it is to coordinate them. These complexities of organization may require policy
questions to be passed up the line and discussed not only with many managers in the
chain of command but also with many managers at each level, since horizontal
agreement may be as necessary as vertical clearance.
Slow decisions - show because of the number of specialists and managers who must be
consulted - are costly. To minimize the cost, authority should be decentralized wherever
feasible. Also important in determining size is the character of a unit. For
decentralization to be thoroughly effective, a unit must possess a certain economic and
managerial self-sufficiency.
6. Geographic dispersion of operations: Geographic dispersion of operations makes
decentralization more necessary because top executives frequently find it impossible to
keep abreast of the details of what is going on at various locations. Moreover, managers
on site may be in a better position to assess local situations and make appropriate
decisions.
7. Environmental uncertainty: Environmental uncertainty tends to produce a need for

CHAPTER 4: ORGANIZING 13
more decentralization. In this case, the fast pace of change interferes with top
management’s ability to assess situations with the speed necessary to make timely
decisions.

Problems in Effective Delegation

Despite of the advantages, many managers are reluctant to delegate authority and many
subordinates are reluctant to accept it. Both these barriers hinder effective delegation.
Reluctance to delegate/Problems from Managers
There are a number of reasons that managers commonly offer to explain why they do not
delegate. Some are:
1. Fear of loss of power - Some managers fear when they delegate authority because
they expect that they will be substituted/replaced by their subordinates if
subordinates have got the experience and skill of decision-making.
2. “I can do it better myself” fallacy: Some managers have an inflated worth of
themselves and think that they do everything better than their subordinates.
3. Lack of confidence in subordinates: The perception of managers that my
subordinates just are not capable enough. When managers delegate authority to their
subordinates they do also delegate responsibility. That is, managers are accountable
for the actions of their subordinates and may fear the blame if subordinates fail, if
subordinates lack knowledge and skill.
4. Fear of being exposed: Some managers fear that their subordinates do too good job
as compared with themselves i.e. feel threatened that competent subordinates may
perform too well and possibly make the manager look poor by comparison.
5. Difficulty in briefing: Many times managers are reluctant to delegate authority if they
conclude that the time for briefing is more than the time for decision-making or if they
believe they lack the time to train subordinates. “It takes too much time to explain
what I want done”.

Reluctance to Accept Delegation/problems from subordinates

1. Fear of failure and criticism: Subordinates who fear criticism or dissemble for mistake
are frequently reactant to accept delegation. The solution for this problem can be
teaching subordinates when they make mistakes than criticizing or dismissing.
2. Subordinate may believe that the delegation increases the risk of making mistakes but
doesn’t provide adequate rewards for assuming greater responsibility: Lack of
incentive or reward for assuming a greater workload. Accepting delegation frequently
means that they will have to work harder under greater pressure. Without appropriate
compensation subordinates may be unwilling to do so.
3. Lack of adequate information and resources: If subordinate managers think that they
don’t have enough factual information on which to base a decision or other resources
necessary to carry out the assigned duties, they tend to decline/reject accepting
authority delegated.
4. If subordinates are already overworked
5. Lack of self-confidence
6. Believing / Thinking that decision-making is the boss’s job.

CHAPTER 4: ORGANIZING 14
 Overcoming the barriers in effective delegation
The most basic prerequisite to effective delegation is the willingness of managers to give
their subordinates real freedom to accomplish delegated tasks. Managers have to accept
the fact that there are usually several ways to solve a problem and that subordinates may
legitimately choose a path differently from their own. And, subordinates will make errors
in carrying out their tasks. But they must be allowed to develop their own solutions to
problems and learn from their mistakes. The solution to subordinates mistake is not for
the manager to delegate less, but to train or otherwise support subordinate more.
Improved communication between managers and subordinates will increase mutual
understanding and thus help to make delegation more effective. Managers who know the
abilities of their subordinates can more realistically decide which tasks can be delegated
to whom. Subordinates who are encouraged to use their abilities and who feel their
managers will “back them up” will in turn be more accepting of responsibility

Centralization and Decentralization

The terms centralization and decentralization refer to a philosophy of organization and
management that focuses on either the selective concentration (centralization) or the
dispersal (decentralization) of authority within an organization structure. Centralization or
decentralization is a relative concept when applied to organizations. They are tendencies
of delegation of authority.
Centralization - is the extent to which power and authority are systematically retained
by top managers.
If an organization is centralized:
- Decision-making power remains at the top
- The participation of lower-level managers in decision-making is very low
Decentralization - is the extent to which power and authority are systematically dispersed
/ delegated throughout the organization to middle and lower level managers. It is the
tendency to disperse decision-making authority in an organized structure.
 In a decentralized organization decision-making power is pushed downwards and
lower-level managers actively participate in decision-making process. That is, they are
not only called for implementation but also for decision-making.
Centralization and decentralization are not opposites rather they are
tendencies/proportions in delegation of authority. If they were opposites, there could be
absolute centralization or absolute decentralization, but there is no absolute
centralization or absolute decentralization. There could be absolute centralization of
authority in one person. But that implies no subordinate managers and therefore no
structured organization. Some decentralization exists in all organization, on the other
hand, there cannot be absolute decentralization, for if managers should delegate all their
authority, their status as mangers would cease, their position would be eliminated, and
there would, again, be no organization. Centralization and decentralization are
tendencies; they are qualities like “hot” and “cold”.
 Centralization and decentralization form a continuum with many possible degrees of
delegation of power and authority in between.
When decentralization is greater:
 The greater is the number of decisions made at lower level of the organization
 The more functions are affected by decisions made at lower levels

CHAPTER 4: ORGANIZING 15
 The less a subordinate has to refer to his/her manager prior to a decision and the less
checking required as decisions are made at the lower level.

Authority Relations in Organization

(Line, Staff, Functional)
In an organization different types of authority are created by the relationships between
individuals and between departments. There are three types of authority.
i. Line Authority
Line authority defines the relationship between superior and subordinate. It is a direct
supervisory relationship. It exists in all organizations as an uninterrupted score or series
of steps.
In line authority a superior exercises direct command over a subordinate. Line authority is
represented by the standard chain of command that starts with the most superiors and
extends down through the various levels in the hierarchy to the point where basic
activities of the organization are carried out.

ii. Staff Authority - is advisory in nature.

The function of people in a pure staff capacity is to give advice, expertise, technical
assistance, and support to help line managers to work more effectively in accomplishing
objectives. Advisory authority doesn’t provide any basis for direct control over the
subordinates or activities of other departments with whom they consult (Within the staff
manager’s own department, s/he exercises line authority over the department’s
subordinates).
E.g. Personnel, research and development, legal, plant maintenance, compost quality
control, etc.
 Staff authority is advisory and normally flows upward.

Line and Staff Departments: line and staff authority are concepts that describe the
authority granted to managers. Line and staff departments have different roles or
positions within the organization structure. Line departments, headed by line managers,
are the departments established to meet the major objectives of the organization.
Departments normally designated as line departments include production, marketing, and
finance. In functioning with employees and departments under their control, line
managers exercise line authority.
Staff departments provide assistance to the line departments and to each other. They
can be viewed as making money indirectly for the company through advice, service and
assistance. Staff departments are created on the basis of the special needs of the
organization. As an organization develops, its need for expert, timely, ongoing advice
becomes critical. Examples could be legal, personnel, computer service, etc.

iii. Functional Authority

It is the right which is delegated to an individual or a department to control specified
process, practices, or provinces or other matters relating to activities undertaken by
persons in other departments. If the principle of unity of command were followed without
exception, authority over these activities would be exercised only by their line superiors,
but numerous reasons - including a lack of specialized knowledge, lack of abilities to

CHAPTER 4: ORGANIZING 16
supervise processes, and danger of diverse interpretations of policies - explain why they
occasionally are not allowed to exercise this authority. It is delegated by their common
superior to a staff specialist or to a manager in another department.
Functional authority is not restricted to managers of a particular type of department. It
may be exercised by line, derive or staff department heads, more often the latter two,
because they are usually composed of specialists whose knowledge becomes the basis
for functional controls.
Example:
1. The Finance Manager can give direct command to the marketing manager of the same
level about financial affairs.
2. The Legal Advisor can give direct command to others concerning the legal affairs of
the organization.
3. The Personnel Manager can give direct command to others regarding recruitment,
selection, performance appraisal systems

Benefits of Staff
1. Staff managers provide advice for line managers, i.e. the advice of well-qualified
specialists in various areas of an organization’s operations can scarcely be
overestimated, especially as operations become more complex.
2. These specialists may be allowed to the time to think, to gather data, and analyze,
when their superiors, busy managing operations, cannot do so.
 As problems become more complex, staff analysis and advice becomes an urgent
necessity.

CHAPTER 4: ORGANIZING 17
 Conflict between Staff and Line Managers
For several reasons there is a conflict between line and staff managers. Some are:
1. Demographic factor: There is a general premise that staff mangers are younger, well
educated, firmly attached to their profession than their organization and want more
money, power and prestige. The older line officers dislike or receiving what they
regarded as instructions from someone so much younger than themselves.
2. Threats to Authority: Line managers consider staff managers as potential threats to
their authority, particularly if staff managers exercise functional authority.
3. Dependence on knowledge: Line managers feel discomfort and get frustrated when
they progressively depend on the advice of staff managers; i.e. they fell that they are
less important to the organization.
4. Staff managers may exceed their authority and attempt to give direct command to the
line managers.
5. Staff managers may attempt to take credit for ideas implemented by line managers;
conversely, line managers may not acknowledge the role of staff managers.
6. Staff departments are organizationally placed in a relatively high position to top
management.

Resolving Conflict
The line - staff problem is not only one of the most difficult that organizations face but
also the source of an extra ordinarily large amount of inefficiency, solving this
problem requires great managerial skill, careful attention to principles and patient
teaching of personal. Some ways of resolving the conflict include:
1. Understanding authority relationships: Managers must understand the nature of
authority relationships if they want to solve the problems of line and staff. Line
means making decisions and acting on them. Staff relationship, on the other hand,
implies the right to assist and counsel. In short the line may “tell”, but the staff must
“sell” (its recommendations).
2. Making line listen to staff: Although line-staff friction may stem from ineptness or
overzealousness on the part of staff people, trouble also arises when line executives
too carefully guard their authority and resent the very assistance they need. Line
manager should be encouraged or required to consult with staff. Enterprises would
do well to adopt the practice of compulsory staff assistance where in the line must
listen to staff.
3. Keeping staff informed: Common criticisms of staff are that specialists operate in a
vacuum, fail to appreciate the complexity of the line manager’s job, or overlook
important facts in making recommendations. Specialists should take care that their
recommendations deal only with part of a problem. Many critics arise because staff
assistants are not kept informed on matters in their field. Even the best assistant
cannot advise properly in such cases. If line managers fail to inform their staff of
decisions affecting its work or if they don’t pave the way through announcements and
requests for cooperation - for staff to obtain the requisite information on specific
problems the staff cannot function as intended.
4. Requiring completed staff work: Completed staff work implies presentation of a
recommendation based up on full consideration of a problem, clearance with persons
importantly affected, suggestions about avoiding any difficulties involved, and often,
preparation of the paper work - letters, directives, job descriptions, job specifications
so that a manager can accept or reject a proposal without further study, long
conferences, or unnecessary work.
5. Clear areas of responsibility and accountability for results.

CHAPTER 4: ORGANIZING 18
 Span of Management
Meaning: The term span of management is also referred to as a span of control, span
of supervision, span of authority or span of responsibility.
Span of management - refers to the number of subordinates who report directly to a
manger, or the number of subordinates who will be directly
supervised by a manager.
This varies from one situation to another. There is no magical number for the span of
control. There are various factors affecting the span of management. Based on the
number of subordinates who should report to a manager or the number of
subordinates that a superior should supervise, we can have Wide span of
management and Narrow span of management.

i. Narrow Span of Management

This means superior controls few numbers of subordinates or few subordinates
report to a superior. When there is narrow span of management in an organization, we
get:
 Tall organization structure with many levels of supervision between top management
and the lowest organizational level.
 More communication between superiors and subordinates.
 Managers are underutilized and their subordinates are over controlled.
 More trained managerial personnel and centralized authority.
Advantages
1. Close supervision and control
2. Fast communication between subordinates and superiors.
3. Easy to coordinate and control activities.
Disadvantages
1. Superiors tend to get too involved in the subordinates work
2. The problem of setting more trained managerial personnel
3. Excessive distance between lowest level and top level management. This kills intuitive
for top-level positions.
4. High costs due to many levels

ii. Wide Span of Management

This means many subordinates report to a superior or a superior supervises many
subordinates.
If the span of management is wide, we get:
 A flat organization structure with fewer management levels between top and lower
level
 Many number of subordinates and decentralized authority
 Managers are overstrained and their subordinates receive too little guidance and
control
 Fewer hierarchal level
Advantages
1. Superiors are forced to delegate
2. It initiates the development of clear polices
Disadvantages

CHAPTER 4: ORGANIZING 19
1. Tendency of overloaded superiors to become decision bottle necks
2. Danger of superior’s loss of control
3. Require exceptional quality of mangers

Span of Control Vs Levels of Management: If one wants to reduce the number of

hierarchical levels in an organization, the only way to do so without reducing the
number of employees at the bottom is to increase spans of control.

CHAPTER 4: ORGANIZING 20
 Relationship of centralization to span of control
The company’s philosophy of centralization or decentralization in decision-making
can influence the span of control of subordinate managers. A philosophy of
decentralized decision-making generally means that the span of management should
be wider for each manager. This is so because decision-making is forced down to
subordinates, thus feeling up a manager’s time commitments. This situation also
generally means fewer level of management in an organization.
Conversely, a philosophy of centralized decision-making should result in a narrower
span of control and more levels of management. If it is the philosophy of the company
to have managers make the majority of decisions, the mangers will closely supervise
their subordinates and delegate little. Contacts with subordinates should increase in
number and in length, thus narrowing the span of control.

Factors Determining an Effective Span of Management

The principle of span of a management states that there is no any specific number of
subordinates to be supervised by a manager. Rather, it states, there are factors that
affect the span of management. Some are:
1. Ability of the manger: The ability of the manager (supervisor) who is responsible for
supervising subordinates affects the span of a management. If the manager is well
trained and highly capable, receives assistance in performing her/his supervisory
activities, doesn’t have many additional non-supervisory activities to perform, and if
that manager defines tasks and responsibilities to subordinates clearly, the
appropriate span can be relatively broad (wide).
2. Manager’s personality: if managers strongly need to share power, they may prefer a
wider span of control. Some managers develop reputation as empire builders and
attempt to increase their spans.
3. The abilities of subordinates: The amount of training, experience, and ability that
subordinates have training directly related to a manager’s span of control.
Knowledgeable subordinates who work well on their own require less supervision than
inexperienced, poorly trained workers do. Well - trained subordinates require not only
less of their manager’s time but also fewer contracts with them.
4. Motivation and commitment: motivated employees take initiative and responsibility,
utilize and develop their skills committed to their job, devote more time and effort and
needs less of their supervisor’s time.
5. Need for autonomy: subordinates with high need for autonomy prefer to make
decisions by themselves (wider span) and vise versa is true for those who take every
problem to their superior for decision-making.
6. Type of work: Routines and simplicity of work. Managers supervising people with
simple and repetitive jobs are able to manage more immediate subordinates than are
those who supervise people with complex, non-repetitive tasks.
7. Geographic dispersion of subordinates: Normally, there is an inverse relationship
between a manager’s span of control and the geographic dispersion of his/her
subordinates. For example, a sales manager whose sales people are scattered over a
wide geographic region cannot supervise as many subordinates as a manager can
whose subordinates are in one building. This is especially true when the manger and
subordinates must meet on a regular basis.
8. The availability of information and control systems: If there are sophisticated
information and control systems, well-defined policies and plans, the manager can
supervise many subordinates and hence the span will be wide.

CHAPTER 4: ORGANIZING 21
9. Levels of management: The size of the most effective span differs by organizational
level.
 At the top level of management the span is wide, because
 The communication and conceptual skill that top level managers have.
 The nature of their work they deal with: general/broad policy control rather than
direct supervision.
 Their subordinates are relatively skillful.
 At the middle level of management the span is narrow, because they involve in policy
supervision and much more direct, personal contract with subordinates than top-level
managers.
 At the lower level of management the span is wide, because as managers of
operating employees, supervisors frequently supervise work that is not complex and
that rarely requires policy decisions. Instead, they will usually rely on rules and
procedures to help them solve the daily problems that arise.
10. Economic Factor: Narrow spans of management require not only more
supervisors (and their services) but also the added expense of executive offices,
secretaries and fringe benefits. However, the wide spans of a management require
few supervisors with their accessories. So, organizations should take cost into
consideration.

There are two major reasons why the choice of appropriate span is important.
(1) Span of management affects the efficient utilization of managers and the
effective performance of their subordinates. Too wide a span may mean that
managers are overextending themselves and that their subordinates are receiving too
little guidance or control. Too narrow a span of management may mean that
managers are under utilized.
(2) There is a relationship between span of management throughout the organization
and the organization structure. A narrow span of management results in a "tall"
organizational structure with many supervisory levels between top management and
the lowest level. A wide span for the same number of employees means fewer
management levels between the top and bottom.
The concept of an "optimal" span of management is the one that is neither too broad
nor too narrow. The concept of an optimal span of management suggested that
spans could be too broad or too narrow in specific instances.
The wider the span of management, the less direct supervision there is; the narrower
the span, the greater the number of managers and, therefore, the higher the cost in
salaries.

Organizational Structure
Meaning
 Organization structure is the structural framework for carrying out the functions of
planning, decision-making, controlling, communication, motivation, etc.
 Organization structure is the formal pattern of interactions and coordination designed
by a manager to link the tasks of individuals and groups in achieving organizational
goals. The word “formal” in this content refers to the fact that organization structures
typically are created by management for specific purposes related to achieving
organizational goals, and, hence, are official, or formal outcomes of the organizing
function.

CHAPTER 4: ORGANIZING 22
  Organization structure is the arrangement and interrelationship of the component
parts, and positions of an organization.
The process of developing an organization structure is sometimes referred to as
organization design.
The formal structure of an organization is of two-dimensional: The horizontal
dimension and vertical dimension.
The horizontal dimension identifies departments, units, and divisions on the same
level of a management. Whereas the vertical dimension refers to the authority
relationships between superiors and subordinates and it also identifies who is
responsible and accountable for whom.
One aid to visualizing organization structure is the organization charts.
Organizational Chart
 It is the means through which we depict the organization structure. Organization chart
is a line diagram that depicts the broad outlines of an organization’s structure. It
shows the flow of authority, responsibility, and communication among the various
departments which are located at different levels of the hierarchy. An organization
chart is a visual representation of the way in which an entire organization and each of
its components fit together
Organization charts vary in detail, but they typically show in visual form the various
major positions or departments in the organization, the way the various positions are
grouped into specific units, reporting relationships from lower to higher levels, and
official channels for communicating information.
Because organization charts facilitate understanding the overall structure of
organizations, many organizations have found them useful. Such charts are
particularly helpful in providing a visual map of the chain of command.
The organization chart can tell us:
- Who reports to whom (chain of command)
- The number of managerial levels
- How many subordinates work for each manager (the span of control)
- Channel of official communication through the solid lines that connect each job (box)
- How the organization is structured-by function, territory, customer, etc.
- The work being done in each job- the labels on the boxes
- The hierarchy of decision making- where a decision maker for a problem is located
- How current the present organization is (if a date is on the chart)
- Type of authority relationships- line authority, staff authority, and functional authority

President

V-P V-P
Marketing Production

GM GM GM GM GM
Sales Advertising Research Manufacturin Quality Control

Division Division Manager Manager

Sales Sales Product Consumer
Manager Manager Research Research
CHAPTER 4: ORGANIZING 23
 Example of an organization structure Manager Manager Manager
Operations Manufacturi Shipping

 In addition, the chart is a trouble-shooting tool. It can help managers locate

duplications and conflicts as a result of awkward arrangements. What the chart does
not show are the degree of authority, the informal communication channels
(grapevine), and the informal relationships.

CHAPTER 4: ORGANIZING 24