CHAPTER 4: ORGANIZING

At the end of this chapter you will be able to

 Understand the concept of organization and organizing
 Discuss about authority and responsibility
 Understand the importance of span of management
4.1. CONCEPT OF ORGANIZING AND ORGANIZATION
The management process starts from planning; i.e., in planning, objectives that are going to
be achieved are identified / established and courses of action have been determined. Then, the
manager continues his activities by giving practical shape to the activities/works to be
performed identifying the roles where by workers are supposed to play, and making known to
the group what their duties and responsibilities are therefore, to design and maintain such
systems of roles is the managerial function of organizing.
To begin with the definition of organizing, there is no universally accepted definition of
organizing. Different authors gave various but supplementary definitions. Among others the
following are a few:
 It is the establishing of effective behavioral relationships among persons so that they may
work together efficiently and gain personal satisfaction in doing selected tasks under
given environmental conditions for the purpose of achieving some goals and objectives.
 It is one of the functions of management, the one concerned with choosing what tasks are
to be done, who is to do them, how the tasks are to be grouped, who is to report to whom
and where decisions are to be made.
 It is the grouping of activities necessary to attain objectives, the assignment of each
grouping to a manager with authority to supervise it, and the provision of co-ordination
vertically and horizontally in the enterprise structure.
 It defines the part, which each member of an enterprise is expected to perform and the
relation between such members to the end that their consorted endeavor shall be most
effective to the purpose of the enterprise.
 Organizing is the part of managing that involves establishing an intentional structure of
roles for people to fill in an organization.
Hence, it is a function of identifying, classifying, grouping, and assigning various activities
and prescribing authority relationships to create an organism or structure capable of
accomplishing predetermined objectives.

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 Tasks under organizing function
➢ Identify work to be done to achieve organizational objectives.
➢ Assigns tasks and responsibilities associated with individual jobs.
➢ Coordinates diverse organizational tasks.
➢ Clusters jobs into units.
➢ Establishes relationships between individuals, groups and departments.
➢ Establishes formal lines of authority.
➢ Allocates and deploys organizational resources
4.2. FORMAL AND INFORMAL ORGANIZATIONS
 The design (framework) of an organization can be divided into two categories: The
formal and informal organization.
A) Formal Organization: Chester I Bernard defines formal organization as, "a system of
consciously coordinated activities or forces of two or more persons. “It refers to the
structure of well-defined jobs, each bearing a definite measure of authority, responsibility
and accountability."
 It is an organization, which is established with intentional structure of roles in a formally
organized enterprise. It is one, which is drafted by top management. It is the organization
structure, which defines everything clearly, and explicitly. It is consciously, deliberately,
and rationally designed by management to achieve predetermined objectives. This type of
organization is built by the management to realize objectives of an enterprise and is
bound by rules, systems and procedures.
Thus, formal organization has the following important points:
 It is consciously brought in to existence for the achievement of predetermined
objectives.
 Authority and responsibility are clearly defined.
 The line of communication is also formalized (It is shown in organization charts)
 The relationship of the superior and the subordinate is fixed. (It is deliberately
impersonal it is bureaucratic in nature and operated by the rules & regulations;
personal issues are not entertained).
 It exists in a written form.
B) Informal Organization: It is a network of personal and social relations not established or
required by the formal organization but arising spontaneously as people associate with one
another. It is undocumented and officially unrecognized relationship between members of an

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organization that inevitably emerges out of the personal & group needs of employees. It is an
organization, which consists of small social groups and friendly associations with in the
formal organization. It is genuine that whenever formal organizations are formed, informal
social groups are created within its framework. Such groups are created on the basis of
similarity of status, interests, beliefs, attitudes, back grounds, etc.
Such small groups are results of the need of people for social interaction, and for friendly
associations. They affect the formal organization positively or negatively, however,
management neither creates nor abolishes them. Therefore, managers should learn how to
live with it, how to influence it, and how to direct its energy and initiative towards
constructive channels. Managers, to deal with informal organizations the following general
suggestions are helpful:
 Managers accept and understand the informal organizations
 Consider possible effects on informal organizations when they take any action.
 Integrate, as far as possible, the interests of informal groups with those of the formal
organization.
4.3. ORGANIZATIONAL STRUCTURE AND CHARTS

Organizational Structure: can be defined as the arrangement and interrelationship of the

component parts and positions of a company. It is the established pattern of relationships
among different components or parts of the organization. An organization structure shows the
authority and responsibility relationships between the various positions in the organization by
showing who reports to whom. Organization involves establishing an appropriate structure
for the attainment of organizational objective. It is an established pattern of relationship
among the components of the organization. The structure of an organization is generally
shown on an organization chart. It shows the authority and responsibility relationships
between various positions in the organization while designing the organization structure, due
attention should be given to the principles of sound organization.

Significance of Organization Structure

1) Properly designed organization can help improve teamwork and productivity by providing
a framework within which the people can work together most effectively.
2) Organization structure determines the location of decision-making in the organization.
3) Sound organization structure provides well defined patterns of authority.
4) Organization structure provides the pattern of communication and coordination.
5) The organization structure helps a member to know what his role is and how it relates to

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 other roles.
4.4. Principles of Organizational Structure
The following are the main principles that a manager has to keep in mind while formulating
an organizational structure.
1. Consideration of objectives: The objective of the organization influences the
organization structure. There must be unity of objective so that all efforts can be
concentrated on the set goals.
2. Specialization: Effective organization must include specialization. Precise division of
work facilitates specialization.
3. Co-ordination: Organization involves division of work among people whose efforts must
be coordinated to achieve common goals and objective. Co-ordination is the orderly
arrangement of group effort to provide unity of action in the pursuit of common purpose.
It is the establishment of proper and adequate relationships between an employee and his
work, one employee to another or to the group, and one department or sub-department and
another.
4. Clear unbroken line of Authority: It points out the scalar principle or the chain of
command. The line of authority flows from the highest executive to the lowest managerial
level and the chain of command should not be broken.
5. Responsibility: Authority should be equal to responsibility i.e., each manager should have
enough authority to accomplish the task.
6. Efficiency: The organization structure should enable the enterprise to attain objectives
with the lowest possible cost.
7. Delegation: Decisions should be made at the lowest competent level. Authority and
responsibility should be delegated as far down in the organization as possible.
8. Unity of Command: Each person should be accountable to a single superior. If an
individual has to report to only one supervisor there is a sense of personal responsibility to
one person for results. A business organization must have a single head in whom all
authority and responsibility is concerned.
9. Span of Management: it also refers as span of management or span of control refers to
the number of subordinate reporting directly to the executive. No superior at a higher level
should have more than six immediate subordinates. The average human brain can
effectively direct three to six brains (i.e., subordinates).
10. Communication: A good communication sub-system is essential for smooth flow of
information and understanding and for effective business performance. It is the transfer of

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 information among people to achieve organizational goals. Successful communication is
good for business and for us too. Every organizing function should be able to create an
organization, which has its own channels and methods of communication. Since
management is concerned with working with people and unless there is common
understanding between people, goals cannot be achieved; effective communication is vital
for management. Channels of communication could be formal, informal, upward,
downward or horizontal.
11. Flexibility: The organization is expected to provide built in devices to facilitate
growth and expansion without dislocation and to cope with the changes and reach to its
objective an organization must be designed with sufficient amount of flexibility. It should
not be rigid or inelastic.
4.5. Departmentalization
Departmentalization is a part of the organizing process. In the context of management, it
means dividing and grouping the activities and employees of an enterprise into various
departments. All organizations divide their overall operations in to sub activities and combine
these sub activities in to working groups. This grouping process of specialized activities in a
logical manner is called departmentalization. It implies the division of the total work of
an enterprise into individual functions and sub functions. Then, either on the basis of
similarity of work, or efficiency, these various functions or sub-function is grouped together
into work units. It results:
 In division of work
 In organizational units to be manageable size and
 Utilization of managerial ability based on specialization to secure maximum results.
The basic need of departmentalization arises from the limitation on the number of
subordinates that can be directly managed by a superior. If there is no departmentalization, it
would seriously put limitations on the size of the organization.

The Bases of Departmentalization

The most common bases of departmentalization used by organizations are:

A) Functional departmentalization
B) Product departmentalization
C) Geographic/Territorial departmentalization
D) Process departmentalization

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 A) Functional departmentalization
Functions refer to the various responsibility areas of an organizational component. It is the
process of grouping the organization's activities in to units in logical manner on the basis of
essential functions that must be performed to attain organizational objectives. These functions
include marketing, finance, operations, manufacturing personnel, engineering etc. A
functional structure can work well for a firm that is active in a single line of business and
focuses on a single geographic area. But problems can develop once the firm expands into
different businesses or geographies.

Advantages
✓ It is logical, scientific and time-tested method because it groups like or similar activities
together which facilitates specialization
✓ It makes supervision easier, since each manager is an expert in only a narrow range of
skills
✓ Tight control of all functional units is assured, because the top managers are responsible for
the end results
✓ It simplifies training
Disadvantage
✓ People in a functional department may lose sight of the overall operations of the business
✓ Workers may develop highly specialized skills, but not general managerial abilities.
✓ Sometimes conflict develops among departments over resources
✓ The geographic area served; or the type of product or product line produced may require a
different type of departmentalization
B) Product departmentalization
It is the grouping of activities on the basis of product or product line. It is adopted by
(commonly used by) manufacturers who produce and sell a number of product lines made up
of several different items; such as drug, food, clothing, machines, automobiles etc.
Example: Product Depart mentation of an automobile management enterprise

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 Advantage
❖ It enables the enterprise to focus attention effort on product lines.
❖ It improves co-ordination between functions relating to a particular product.
❖ Furnishes measurable training ground for general managers.
❖ Facilitates use of specialized capital, facilities, skills and knowledge.
Disadvantages
 Requires more persons with general manager abilities.

 There is an ever-present danger of duplication of activities.

 It presents increased problem of top management control.

C) Departmentalization by Geographical Area/Territory/
It is often referred to as area or territorial departmentalization, and it groups business
activities on the basis of geographic region or territory, enabling a firm to adapt to local
customs and laws and to survey customer more quickly. It is especially attractive to large-
scale firms or other enterprises whose activities are physically or geographically dispersed.

Advantages
 Results in great saving in time and money. The enterprise can benefit from lower
freight, lower rents and lower labor costs. Thus, it takes advantages of economics of
local operations (places emphasis on local markets and operations)
 Places responsibility at lower level (There will be quick decision.)
 Places measurable training ground for general managers.
 Better face to face communication with local interests.

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 Disadvantages
 Requires more persons with general manager abilities /it is costly to implement.
 Duplication of effort
 Increase problem of top management control
D) Process or Equipment Departmentalization
It is the grouping of enterprise activities according to the products' manufacturing process.
This method of departmentalization is logical and used when the machines or equipment used
require special skill for operating and are of large capacity which eliminate organizational
diving or have technical facilities which strongly suggest a concentrated location. For
instance, a textile factory maybe classified in to spinning, walling, processing, etc.
Economic and Technological considerations are the foremost reasons for adopting process
departmentalization. It is mostly found in production departments.

Advantage
 Achieves economic advantage
 Uses specialized knowledge
 Simplifies training
 Sues specialized technology
Disadvantage
 Coordination of departments is difficult
 Responsibility for profit is at the top
 It is unsuitable for developing general managers
4.6. Span of management (span of control)
It refers to the number of subordinates that a single manager can directly, immediately and
effectively supervise. It is related to the levels. We can have wide span, which is associated
with few organizational levels; and a narrow span which results in many levels.

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  Organizations with wide span
Advantage
 Supervisors are forced to delegate
 Clear policies must be made
 Subordinates must be carefully selected
Disadvantage
 Tendency of overloaded superiors to become decision bottlenecks.
 Dangers of superior's loses of control
 Requires exceptional quality of managers.
 Organizations with narrow span
Advantages
✓ Close supervision
✓ Close control
✓ Fast communication between subordinates and superiors
Disadvantage
 Superiors tend to get too much involved in subordinate's work
 Many levels of management
 High costs due to many levels
4.7. Power and Authority
Authority: - is the formal and legitimate right of a manger to make decisions, give orders,
and allocate resources, is the right to command. The organizational structure provides the
framework for the formal distribution of authority. Source of authority-comes with the
territory, “making that authority is legal right of manager because of the position he or she
occupies in the organization. Thus authority is defined in each mangers job charter. The
person who occupies a position has his/her formal authority as long as he or she remains in
that position. As the job changes in scope and complexity, the amount and kind of formal
authority possessed should be changed.
Types of authority
In an orgaization three different types of authorities are created by the relationships between
individuals and departments.
i. Line authority – defines the relationship between superior and subordinates. Any
manager who supervises operating employees or other manger has line authority. It allows
mangers to give direct orders, evaluate the actions, reward and punish employees. It is
responsible to make decisions and issue orders down the chain of command.
ii. Staff authority- is the authority to serve in an advisory capacity: - managers who

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 provide advice or technical assistance are granted advisory authority.
This staff or advisory authority provides no basis for direct control over the subordinates or
activities of other departments; however, with in the staff managers own department, he or
she can exercise line authority. Staff authority in the form of advice/assistance flows upward
to the decision maker.
Staff authority is more limited authority to advice. It is authority that is based on expertise
and which usually involves advising line managers. Staff members are advisers and
counselors who aid line departments in making decisions but do not have the authority to
make final decisions. Staff supervisors help line departments decide what to do and how to do
it. They coordinate and provide technical assistance or advice to all advisors, such as
accounting, human resources, information technology, research, advertising, public relations,
and legal services. Staff authorities are responsible to advise and assist other personnel.
iii. Functional authority; is an authority which permits staff mangers make decision on
specific activities performed by employees with in other departments. Staff departments
often use functional authority to control their procedures in other departments. Functional
authority is the right of staff personnel to issue orders to line personnel in established areas
of responsibility.

Power and Its Sources

Power is ability to exert influence in the organization. Organizational Power is the ability to
exert influence in the organization beyond authority, which is derived from position and
personal trait. In addition to authority; supervisors have more personal sources of power to
draw upon for getting things done.

Everyone has power in one form or another and it is by exercising this power that
organizations get things accomplished. Supervisors who are capable of achieving their
objectives independently of others are said to possess strength. When these "strong"
supervisors involve and incorporate others into their plans and activities they are making
use of power, and in fact increasing the total amount of power available to incorporate into
a particular situation or problem. Involving employees in setting objectives and making
decisions as it relates to their jobs empowers everyone, and results in greater job
satisfaction and commitment, as well as increased productivity. Empowering employees
provides them with greater autonomy

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- It is ability to influence others’ behavior.

Power can be positional and personal.

➢ Position power is derived from top management and is delegated down the chain of
command.
➢ Personal power is derived from the follower based on the individual behavior.

Manager can a acquire power from several different sources, based on these sources power
can be:-

(i) Legitimate or position power – The power possessed by manger and derived from
the positions they occupy in the formal organization. This position power is broader
than the ability to reward and punish, as members need to accept the authority of the
position
(ii) Reward power- The power that comes from the ability to promise or grant rewards.
Mangers have the ability to decide on raises, promotion favorable performance
appraisals, and preferred work shifts. Reward power results in people doing what
is asked because they desire positive benefits or rewards. Rewards can be anything a
person values (praise, raises, and promotions)

(iii)Coercive power – is a power which enables mangers to force individuals to attain

their work assignments or to punish those workers who failed to attain their job
assignments. Coercive power is the threat of sanctions. It is dependent on fear and
includes, but is not limited to the ability to dismiss, assign undesirable work, or
restriction of movement. The punishment may include; demotion, terminating
employment etc

(iv) Referent (charismatic) power – is the power that is based on the kind of
personality or charisma an individuals has and how others perceive it.

Referent power refers to a person who has desirable resources or personal traits. It
results in admiration and the desire to emulate. It is the power obtained from the
attitude of people toward someone or from idea that one has on himself.

(v) Expert Power- is power derived from an individual’s knowledge and expertise.
Others listen to and follow the person with expert power because she/he is regarded
as capable and knows how to do things right. Employees with expert power are often

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 promoted to management.

4.8. Delegation, Centralization and Decentralization

Delegation
It is the act of assigning formal authority and responsibility for completion of specific
activities to a subordinate. Because of human limitation, a single person can't do all tasks
necessary for accomplishing a group purpose. By the same taken, as enterprises grow, it is
difficult for one person to exercise all the authority for making decisions. To solve these
problems managers share their authority and responsibility to their subordinates which is
delegation.

Managers get things done through other people. Since top managers cannot personally
oversee all the activities of an organization, they delegate authority to their subordinate
managers. It is this delegation of authority that gives subordinate managers the means with
which to act.

 Delegation is the assignment to another person of authority and responsibility to

carry out specific activities.

 Delegation is the process of allocating tasks to subordinates giving them adequate

authority to carry out those assignments and making obligated to complete the tasks
satisfactorily.

 To delegate means to entrust authority to a deputy so as to enable him to

accomplish the

tasks assigned to him.

The Importance of Delegation
 It 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.
 Decisions made by lower level managers are more timely than those that go through
scalar layers of management.
 Subordinate managers can reach their full potential of and only if they are
given the chance to make decisions and to assume responsibility for them.
4.9. Centralization and Decentralization
Centralization is the degree to which decision making is concentrated at a single point in the
organization.

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 Decentralization is the tendency to disperse decision-making authority in an organized
structure. It is a fundamental aspect of delegation, i.e., to the extent authority is not delegated,
it is centralized. In a centralized set up, decision making authority is concentrated in a few
hands at the top. Contrary to this, is a decentralized organization, there is dispersal of
decision making authority.
Reasons for Decentralizing
• One major reason for decentralizing is to tap the knowledge and expertise of managers; it
provides the basis for greater innovation. It does so because it allows for the utilization of
specialized knowledge.
• It provides greater flexibility for the organization to respond to new ideas.
• To enable the organization to respond to a social environment faster.
• To enable non-managerial employees to participate in decision making process.
Advantages
✓ Relives top management of some burden of decision making.
✓ Encourages decision making and assumption of authority and responsibility.
✓ Gives managers more freedom and independence in decision making.
✓ Makes comparison of performance of different organizational units possible.
✓ Promotes development of general managers.
✓ Aids in adaptation to fast changing environment.
Limitations of Decentralization
❖ It increases the chances that a lower-level manager will take undesirable action.
❖ It decreases control and monitoring of subordinates' activities and
also may hinder co- ordination between diverse units.
❖ Makes it more difficult to have a uniform policy.
❖ Can be limited by the availability of qualified managers.
❖ Involves considerable expenses for training managers.

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