What is organisational structure?

Organisational structure refers to the levels of management and division of responsibilities within a
business, which could be presented in an organisational chart.
For simpler businesses in which the owner employs only himself, there is no need for an organisational
structure. However, if the business expands and employs other people, an organisational structure is needed.
When employing people, everybody needs a job description. These are its main advantages:
People who apply can see what they are expected to do.
People who are already employed will know exactly what to do.
Here is an example of a Job Description taken from the book:

When there are more than one person in a small business and they all do different things, it means that they
are specialising in different jobs.

Delegation
Delegation refers to giving a subordinate the responsibility and authority to do a given task. However,
the final responsibility still lies with the person who delegated the job to the subordinate. Here are the
advantages of delegation for managers and employees, as well as why some managers choose not to delegate.
Pros for the manager:
By letting subordinate do smaller tasks, managers have more time to do more important tasks.
Managers are less likely to make mistakes if tasks are done by specialist employees.
Managers can measure the success of their task more easily.
Pros for the subordinates:
Work becomes more interesting and rewarding.
Employees feel important and trusted.
Helps train workers, giving them better career opportunities.
Why some managers don't want to delegate:
Managers are afraid that their employees will fail.
Managers want total control.
Managers are scared that the subordinate will do tasks better than them, making them feel
insecure.
Delegation must mean:
A reduction in direct control by managers or supervisors.
An increase in trust of workers by managers or supervisors.

Organisational charts
Eventually, when a business grows larger and employs many people, they will have to create an
organisational chart to work out a clear structure for their company. Here is another example of an
organisational chart from the book:

Here are the most important features of the chart:

It is a hierarchy. There are different levels in the business which has different degrees of
authority. People on the same level have the same degree of authority.
It is organised into departments, which has their own function.
It shows the chain of command, which is how power and authority is passed down from the top of
the hierarchy, and span of control, meaning how many subordinates one person controls, of the
business.
Advantages of an organisational chart:
The charts shows how everybody is linked together. Makes employees aware of the
communication channel that will be used for messages to reach them.
Employees can see their position and power, and who they take orders from.
It shows the relationship between departments.
Gives people a sense of belonging since they are always in one particular department.
Chain of command and span of control:

Here are two organisations, one having a long chain of command and the other a wide span of control.
Therefore, the longer the chain of command, the taller the business hierarchy and the narrower the span of
control. When it is short, the business will have a wider span of control.
In recent years, people have began to prefer to have their business have a wider span of control and shorter
chain of command. In some cases, whole levels of management were removed. This is called de-layering.
This is because short chains of commands have these advantages:
Communication is faster and more accurate. The message has to pass through less people.
Managers are closer to all employees so that they can understand the business better.
Spans of control will be wider, meaning that the manager would have to take care of more
subordinates, this makes:
o The manager delegate more, and we already know the advantages of delegation.
o Workers gain more job satisfaction and feel trusted because of delegation.
However, if the span of control is too wide, managers could lose control. If the subordinates are poorly
trained, many mistakes would be made.
Functional departments
Here is an example of an organisational chart from a larger business from the book:

Here are they key features of this graph:

The business is divided into functional departments. They use specialists for each job and this
creates more efficiency. However, workers are more loyal to their department than to the
organisation as a whole. Therefore, conflict can occur between different departments. Managers
working in these departments are called line managers, who have direct authority and the power to
put their decisions into effect over their department.
Not only are there departments, there are also other regional divisions that take care of outlets that
are situated in other countries. They use the local knowledge to their advantage.
There are some departments which do not have a distinctive function but still employs specialists
and report directly to the CEO/Board of Directors. These departments are the IT department,
and the Economic Forecasting department. Some say the HR department fits in this category.
These departments give specialist advice and support to the board of Directors and line
managers, and the managers of these departments are called staff managers. They are often very
highly qualified personnel who specialises in only their area.
Here are the pros and cons of employing staff managers:
Pros:

Staff managers help and provide advice for line managers on things such as computer systems.
Helps line managers concentrate on their main tasks.

There may be conflict between the two groups on important decisions and views.
Line employees may be confused and do not know who to take orders form, line or staff managers.

Cons:

Decentralisation
Decentralisation refers to a business delegating important decisions to lower divisions in the business.
In a centralised structure important decisions are taken at the centre, or higher levels of management.
Advantages of a decentralised structure:
Decisions are made by managers who are "closer to the action".
Managers feel more trusted and get more job satisfaction due to delegation.
Decisions can be made much more quickly.
The business can adapt to change much more quickly.
Decentralisation means that:
Less central control.
More delegation.
Decisions taken "lower down" in the organisation.
Authority given to departments/regions
Different forms of decentralisation:

Functional decentralisation: Specialist departments are given the authority to make decisions.
The most common of these are:
o Human Resources.
o Marketing.
o Finance.
o Production.
Federal decentralisation: Authority is divided between different product lines. e.g separate
truck/car/bus divisions.
Regional decentralisation: In multinationals, each base in each country has authority to make
its own decisions.
Decentralisation by project means: For a certain project, decision-making authority is given to
a team chosen from all functional departments.

Is complete decentralisation a good idea?

It is dangerous to let the lower-level management make all the decisions. Therefore, it is wise for the central
management to decide on major issues, long-term decisions, growth and business objectives. If
these issues are not centralised then there would be a lack of purpose or direction in the business.
Six Building Blocks (Organization Design)

1. Organization Design: The process of developing an organization structure is organizational design.

Job Design: Specification of task activities associated with a particular job.
Example: The job iam doing, what is my job description? Should I type, report, or email?
Job Specialization: Degree to which overall task of organization is broken down into smaller components.
Example: In one organization there are 2 departments:
Marketing (Customer relation and developing marketing strategy).
Accounting (Finance, audit and insurance)
Advantages: Job Specialization
Workers can become proficient at work
Transfer time between task decrease
Example: Because people are specialized they can complete 15 min work in 5 min
Specialized equipment can be developed.
Working and working one can become specialist in his or her own field.

Disadvantage:
Employee become bore and dissatisfied
Approaches to Job Design
There are Four job design approaches:
Job Simplification: one who has specialized and generalized knowledge about his or her field.
Example: a person alone could make 20 pens a day, while 10 who are specialized could make 48 a day.
Job Rotation: Movement of workers from one specialized job to another.
It has two benefits:
The work can learn something more work
People will be motivated
Job Enlargement: Increase the number of tasks performed by a worker
Example: we are increasing the scope of job.
Job Enrichment: upgrading the job task in order to increase significantly potential for growth, achievement,
responsibility Job Enlargement, is more jobs.
Job Enrichment, is better jobs.
2. Departmentalization:
The process of grouping jobs according to some logical arrangement.
Example: In one organization there are 3 departments with different jobs.
There are four patterns of departments:
Functional Departmentalization: Put positions into units based on expertise, skill, and similarity of work e.g.
marketing, accounting, Production and operation.
Product Departmentalization: Grouping of jobs according to the products offered by the organization.
Geographical Departmentalization: Grouping of jobs by defined locations.
Customer Departmentalization: Grouping of jobs that meet the unique needs of customers.
3. Establishing Reporting Relationships
Who reports to whom?
Example: Owner manager of small firm hire two new employees, one to handle marketing and one to handle production
will marketing manager report to production and production to marketing or will each directly report to the owner
manager?
Chain of command
The continuous line of authority that extends from upper organizational levels to the lowest levels and clarifies who
reports to whom.
Unity of Command
The management principle that no person should report to more than one boss.
Span of control
The number of subordinates reporting directly to a manager.
Refers to the number of workers a manager manages.
Wide spans: larger number of direct reports.
Narrow spans: fewer numbers of direct reports.

Span of Control (Management)The number of employees reporting to a manager.

Traditional view, seven subordinates or so per manager.
Many organizations today, 30 or more per manager.
Generally if supervisors must be closely involved with employees, span should be small.
4. Different between Line & Staff Position
A line position has authority and responsibility for achieving organizations major goal
Example: In grocery store line departments might be store operation, pharmacy, and food (directly related to major
goal).
Staff position include all those who provide specialized skills in support of line departments
Example: Staff position might be human resources and consumer affairs (Indirectly related to major goal).
Flat vs. Tall (Structure)
Tall structure has an overall narrow span of management and more levels in the hierarchy
Flat structure has a wide span, is horizontally dispersed, and has fewer hierarchical levels
Informal Organization
Formal authority is the power to take action, make decisions, and direct others.
Informal authority is the power a leader has over others by charisma or whatever.
5. Distributing Authority:
Manager can distribute his authority through:
Delegating
6. Coordinating Activities:
The process of linking the activities of various departments of organization.
Example: Customer Complaints will be fulfill through coordinating activities

The decision-making hierarchy

The decision-making hierarchy which defines responsibility, authority, delegation, and accountability plays a critical
role in organizational structure. In a centralized organization, senior management holds most authority and decisionmaking power; in a decentralized organization, lower levels of management also hold significant decision-making
authority. Span of control refers to the number of subordinates a manager supervises directly. The more people a
manager supervises, the wider the span of control.

Decision-making

Sample flowchart representing the decision process to add a new article to Wikipedia.
Decision-making can be regarded as the cognitive process resulting in the selection of a belief or a course of action
among several alternative possibilities. Every decision-making process produces a final choice that may or may not
prompt action. Decision-making is the study of identifying and choosing alternatives based on the values and

preferences of the decision maker. Decision-making is one of the central activities of management and is a huge part of
any process of implementation

Stages of group decision-making

According to B. Aubrey Fisher, there are four stages or phases that should be involved in all group decision-making:[21]

Orientation. Members meet for the first time and start to get to know each other.
Conflict. Once group members become familiar with each other, disputes, little fights and arguments occur.
Group members eventually work it out.
Emergence. The group begins to clear up vague opinions by talking about them.
Reinforcement. Members finally make a decision and provide justification for it.

It is said that critical norms in a group improves the quality of decisions, while the majority of opinions (called
consensus norms) do not. This is due to collaboration between one another, and when group members get used to, and
familiar with, each other, they will tend to argue and create more of a dispute to agree upon one decision. This does not
mean that all group members fully agree; they may not want argue further just to be liked by other group members or to
"fit in".[22]

Decision-making steps
Each step in the decision-making process may include social, cognitive and cultural obstacles to successfully
negotiating dilemmas. It has been suggested that becoming more aware of these obstacles allows one to better anticipate
and overcome them.[23] The Arkansas program presents eight stages of moral decision-making based on the work of
James Rest:
1. Establishing community: creating and nurturing the relationships, norms, and procedures that will influence how
problems are understood and communicated. This stage takes place prior to and during a moral dilemma.
2. Perception: recognizing that a problem exists.
3. Interpretation: identifying competing explanations for the problem, and evaluating the drivers behind those
interpretations.
4. Judgment: sifting through various possible actions or responses and determining which is more justifiable.
5. Motivation: examining the competing commitments which may distract from a more moral course of action and
then prioritizing and committing to moral values over other personal, institutional or social values.
6. Action: following through with action that supports the more justified decision. Integrity is supported by the
ability to overcome distractions and obstacles, developing implementing skills, and ego strength.
7. Reflection in action.
8. Reflection on action.
Other decision-making processes have also been proposed. One such process, proposed by Pam Brown of Singleton
Hospital in Swansea, Wales, breaks decision-making down into seven steps:[24]
1.
2.
3.
4.
5.
6.
7.

Outline your goal and outcome.

Gather data.
Develop alternatives (i.e., brainstorming)
List pros and cons of each alternative.
Make the decision.
Immediately take action to implement it.
Learn from and reflect on the decision.

Steps of Decision Making Process

Following are the important steps of the decision making process. Each step may be supported by different tools and
techniques.

Step 1: Identification of the purpose of the decision

In this step, the problem is thoroughly analysed. There are a couple of questions one should ask when it comes to
identifying the purpose of the decision.

What exactly is the problem?

Why the problem should be solved?

Who are the affected parties of the problem?

Does the problem have a deadline or a specific time-line?

Step 2: Information gathering

A problem of an organization will have many stakeholders. In addition, there can be dozens of factors involved and
affected by the problem.
In the process of solving the problem, you will have to gather as much as information related to the factors and
stakeholders involved in the problem. For the process of information gathering, tools such as 'Check Sheets' can be
effectively used.

Step 3: Principles for judging the alternatives

In this step, the baseline criteria for judging the alternatives should be set up. When it comes to defining the criteria,
organizational goals as well as the corporate culture should be taken into consideration.
As an example, profit is one of the main concerns in every decision making process. Companies usually do not make
decisions that reduce profits, unless it is an exceptional case. Likewise, baseline principles should be identified related
to the problem in hand.
Step 4: Brainstorm and analyse the different choices
For this step, brainstorming to list down all the ideas is the best option. Before the idea generation step, it is vital to
understand the causes of the problem and prioritization of causes.
For this, you can make use of Cause-and-Effect diagrams and Pareto Chart tool. Cause-and-Effect diagram helps you to
identify all possible causes of the problem and Pareto chart helps you to prioritize and identify the causes with highest
effect.
Then, you can move on generating all possible solutions (alternatives) for the problem in hand.
Step 5: Evaluation of alternatives
Use your judgement principles and decision-making criteria to evaluate each alternative. In this step, experience and
effectiveness of the judgement principles come into play. You need to compare each alternative for their positives and
negatives.
Step 6: Select the best alternative
Once you go through from Step 1 to Step 5, this step is easy. In addition, the selection of the best alternative is an
informed decision since you have already followed a methodology to derive and select the best alternative.
Step 7: Execute the decision
Convert your decision into a plan or a sequence of activities. Execute your plan by yourself or with the help of
subordinates.
Step 8: Evaluate the results
Evaluate the outcome of your decision. See whether there is anything you should learn and then correct in future
decision making. This is one of the best practices that will improve your decision-making skills.

SIX BLOCK OF ORGANIZATIONAL STRUCTURE

For managers organizing is deciding how best to group organizational elements for a variety of structural possibilities.
Organizational structure shows the corporate communication, the executive and managerial hierarchy, and creates a
plan for efficient growth for the future. Managers must understand the best combination for the organizations structure.
There are six basic building blocks that managers can use in constructing an organization which also known as elements
of organizing or organizational structure.
1. Designing jobs,
2. Departmentalization or Grouping Jobs,
3. Establishing reporting relationships between jobs,
4. Distributing authority among jobs,
5. Coordinating activities among jobs, and
6. Differentiating among positions.

Understanding the nature of these building blocks and the different ways in which they can be configured is most
important as they shape the structure and routine the organization is going to work. The logical starting point is the first
building blockdesigning jobs.

In this post we will know about the six element of organizing;

Designing Jobs
Job design is the first building block of organization Structure; it means-defining an individuals responsibilities in
work. Job design involves defining areas of decision-making responsibility, identifying goals and expectations, and
establishing appropriate indicators of success. There many tools available to a manager for designing jobs;
Job Specialization: Job specialization is the first and the most important tool of all. Job specialization is similar
to the concept of division of labor.
Job specialization means; breaking down the entire job or task into smaller parts and divide them accordingly.
Job characteristics model (JCM): Job characteristics model (JCM) is also and effective tool for designing job;
where job-design is conduct considering both the employees preference and required work system. The
approach suggests that job design should be done by considering five core dimensions; skill variety, task
identity, task significance, autonomy, and feedback.
Work Teams: Work teams are very useful for doing comprehensive and difficult jobs which require expertise
from various departments or faculty or the organization.
Job Rotation: As the name suggests; job rotation is systematically moving employees from one task to another.
However on practice; job rotation created more problems than solving them, like; employees satisfaction and
motivation diminishes. It is now used as a training system.
Job Enlargement: Job enlargement involves increase the total number of tasks workers assigned and performs.
It also gives employees motivation as it gives them bigger chance to participate in organizations operations. It
has some shortcomings too; more tasks mean more salary payments so more cost, overdoing it could lead to
employees dissatisfaction.
Job Enrichment: It is similar to job enlargement but a more comprehensive approach. Job enrichment includes
increasing the number of tasks and the portion of control over these tasks. Here managers have to give authority
along with the responsibility of the jobs.

Departmentalization or Grouping Jobs

Departmentalization is grouping of jobs according to some logical arrangement, the second building block of
organization structure. Departmentalization refers to the formal structure of the organization, composed of various
departments and managerial positions and their relationships to each other. As an organization grows, its departments
grow and more sub-units are created, which in turn add more levels of management. This often creates less flexibility,
adaptability, and units of action within the firm. Departmentalization is the efficient and effective grouping of jobs into
meaningful work units to co-ordinate numerous jobsall for the expeditious accomplishment of the organizations
objectives.
There are several bases for departmentalization. Common bases are;
1. Functional Departmentalization: Functional departmentalization groups together those jobs involving the
same or similar activities. Here; word function indicating organizational functions such as finance and

production, rather than the basic managerial functions, such as planning or controlling, manufacturing, finance,
and marketing departments, each an organizational function.
2. Product Departmentalization: Product departmentalization, involves grouping and arranging activities around
products or product groups. Departmentalization by product: This method places all the resources and authority
under one manager to get a product manufactured and marketed.
3. Customer Departmentalization: Customer departmentalization organizational form is used when great
emphasis is placed on effectively serving different customer types. For instance, full-time day students and parttime night students of graduate business programs in universities usually are different in demographic profile
and personal needs. Wholesale and retail publics are very different in many industries, as are government and
private sector customers. So; here the organization structures its activities to respond to and interact with
specific customer groups. Most banks are commonly designed to meet the needs of different kinds of customers;
business, consumer, mortgage, and agricultural loans.
4. Departmentalization by Process: Departmentalization by process is preferable when the machinery or
equipment used requires special skill for operating, or is of a large capacity which eliminates organizational
dividing, or has technical facilities which strongly suggest a concentrated location.
5. Departmentalization by Task Force: This arrangement involves assigning a team or task force to a definite
project or block of work, which extends from the beginning to the completion of a wanted and definite type and
quantity of work.
6. Location or Territory Departmentalization: Location departmentalization logically groups jobs on the basis
of defined geographic sites or areas. The defined sites or areas may range in size from a hemisphere to only a
few blocks of a large city.
7. Matrix Departmentalization: Matrix management or matrix departmentalization was introduced in the early
1960's in response to the growing complexity and size of technically oriented enterprises, which needed more
flexibility. Matrix departmentalization attempts to combine functional and task force (project)
departmentalization designs to improve the synchronization of multiple components for a single activity (i.e., a
moon launch), to improve economics of scale, and to better serve the customer and company.
These are the common bases of departmentalization.

Establishing Reporting Relationships between jobs

Establishment of reporting relationships among positions is the third basic element of organizing. Establishment of
reporting relationships indicates; clarifying the chain of command and the span of management. Chain of command
shows clear distinct line of author among the positions and span of management indicates the number of people who
report to a particular manager. Here; the organizations hierarchy, its positions and lines are defined.

Distributing Authority
Distributing Authority is another important building block in structuring organizations. Authority in organization is the
right in a position and, through it, the right of the person occupying the position to exercise discretion in making
decisions affecting others. Authority is power that has been legitimized by the organization. Here; the determination of
how authority is to be distributed among positions. Distributing authority in organization means; giving decision power
to employees. A warehouse-manager must have the authority to check quality of the material coming and stored, to
record the events in the storage, to check and report on the quantity of material and much more. But he cannot make
decision on deciding the selling price for them. Thats why proper distribution of authority throughout the organization
is required for the smooth sailing of the organization. Two specific issues that managers must address when distributing
authority they are; delegation and decentralization.

Coordinating Activities
Coordination is the essential for management and structuring organizations. Achievement of harmony of individual
effort towards the accomplishment of group goals is the purpose of coordination. Modern organizations depend upon
specialization of functions arid activities delegated to different individuals. If each individual is allowed to perform his
own function efficiently without taking note of the connected function performed by another individual, it will create
chaos in the organization. It is essential that there be complete coordination, so that unity of action on the part of all is
achieved. Also, conflict between the line executives and the staff poses the problem of coordination by the chief
executive. Hence, the chief executive has to coordinate not only functions and activities but also individuals performing
different functions.

Differentiating Between Positions

Differentiating between line and staff positions in the organization is the last building block of organization structure. A
line position is in the direct chain of command also responsible for the achievement of an organizations goal. On the
contrary; a staff position is there only to provide expertise advice, and support for line positions. However; in modern
organizations these differences are very less; in some cases the difference is eliminated.

FORMS OF ORGANIZATIONAL STRUCTURE

An organizations goals and the plan selected to reach these goals depends on its form of organizational structure.
BusinessDictionary.com defines organizational structure as the framework, typically hierarchical, within which an
organization arranges its lines of authority and communications, and allocates rights and duties. Whether an
organization is a small business or an international corporation, its form of organizational structure must match its needs
to achieve success.
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Simple Structure
Simple structure is the most commonly used structure in small businesses. This includes organizations with fewer than
100 employees. This structure places the majority of the power and decision-making with the business owner or
manager. The strengths of an organization using simple structure include quick decisions, owner awareness of the
organization's day-to-day operations and judgments made on what is best suited for organization. A big weakness of
simple structure is lost opportunities when the owner is not available to make decisions. This structure does not work
well for bigger organizations.

Functional Structure
Functional structure divides the workers into groups based on their job function, such as personnel, marketing,
production and finance. Groups might be based on product or service, by process or equipment or by types of
customers. These groups work together and exchange information. Strengths of a functional structure include specialists
prepared to make decisions within their groups and that the CEO can run the entire organization with no concern about
routine problems. Weaknesses include area managers often concentrating on local, as opposed to overall company
strategic, matters, and interdepartmental conflicts from lack of communication among groups.

Divisional Structure
Divisional structures are also referred to as multidivisional, M-form or geographic area structures. This organizational
structure splits into self-reliant units or divisions based on location. Each works separately from the main or parent
company. The strengths of divisional structure include allowing corporate officers to more precisely examine each
divisions performance and encouraging division managers with poor showings to work on methods to improve
performance. Weaknesses include divisions competing for company resources and lack of coordination between
divisions.

Matrix Structure
The matrix structure combines functional and divisional structures. This form brings numerous skilled workers from
various parts of the organization together as a team. They focus on a specific project that is to be completed within a set
time frame and often have more than one manager. This organizational structure form is often used in multinational
companies. Strengths an weaknesses of this structure are similar to those encountered with functional and divisional
structures.

INFORMAL ORGANIZATION
From Wikipedia, the free encyclopedia
The informal organization is the interlocking social structure that governs how people work together in practice. It is
the aggregate of, norms, personal and professional connections through which work gets done and relationships are
built among people who share a common organizational affiliation or cluster of affiliations. It consists of a dynamic set
of personal relationships, social networks, communities of common interest, and emotional sources of motivation. The
informal organization evolves, and the complex social dynamics of its members also.
Tended effectively, the informal organization complements the more explicit structures, plans, and processes of the
formal organization: it can accelerate and enhance responses to unanticipated events, foster innovation, enable people to
solve problems that require collaboration across boundaries, and create footpaths showing where the formal
organization may someday need to pave a way.

The informal organization and the formal organization

The nature of the informal organization becomes more distinct when its key characteristics are juxtaposed with those of
the formal organization.
Key characteristics of the informal organization:

evolving constantly
grass roots
dynamic and responsive
excellent at motivation
requires insider knowledge to be seen
treats people as individuals like
flat and fluid
cohered by trust and reciprocity
difficult to pin down
collective decision making
essential for situations that change quickly or are not yet fully understood

Key characteristics of the formal organization:

enduring, unless deliberately altered

top-down
missionary
static
excellent at alignment
plain to see
equates person with role
hierarchical
bound together by codified rules and order
easily understood and explained
critical for dealing with situations that are known and consistent
What is an organization chart? What purpose does it serve?
An organization chart represents the firms structure and shows where employees fit into the hierarchy.
Organization charts depict the extent of line and staff authority, departmentalization, and span of control at
various levels.

Explain the significance of size as it relates to the organizational structure. Describe the changes that are
likely to occur as an organization grows.
Larger firms develop more complex organizational structures. As a firms size increases, job specialization
becomes increasingly important, followed by departmentalization, and a more definitive decision-making
hierarchy.

What is the difference between responsibility and authority?

Responsibility is the duty to perform an assigned task; authority is the power to make the decisions necessary to
complete that task. Responsibility and authority should be closely linked for any given assignment.

Why do some managers have difficulties in delegating authority? Why does this problem tend to plague
smaller businesses?
Some of the reasons managers have difficulty delegating authority include: (a) fear that employees cant do
anything as well as they can; (b) fear that something will go wrong if someone else does it; (c) fear that that
employee will show up the manager; (d) too bogged down in day-to-day activities to delegate; (e) dont know
how to delegate; and (f) want to keep control. Delegating is especially difficult for small business owners
because they typically began by doing everything themselves and having complete control.

Why is a companys informal organization important?

The everyday social connections among employees can transcend formal job-related relationships, creating a
very powerful dynamic that can either support or disrupt a firms effectiveness.

Questions for Analysis

6 Draw up an organization chart for your college or university.
Charts will vary, but students should recognize and depict the mix of customer and functional structures.
7

Describe a hypothetical organizational structure for a small printing firm. Describe changes that might
be necessary as the business grows.
Answers will vary, but the firm will probably begin with a centralized structure in which the owner will either
perform or oversee every job. Various types of departmentalization will probably emerge as the firm grows and
it may become more decentralized as management delegates authority downward. With additional growth, the
firm may advance from a functional to a divisional or matrix organization.

Compare and contrast the matrix and divisional approaches to organizational structure. How would you
feel personally about working in a matrix organization in which you were assigned simultaneously to
multiple units or groups?
A divisional structure consists of corporate divisions that operate as relatively autonomous units under the larger
corporate umbrella. In a matrix structure, however, group members report to two or more managers, usually one
line and one staff manager. The matrix structure is often used to address specific issues on a project-by-project
basis. Answers to the second question will vary, but students should address the pros and cons of reporting to
more than one manager.

Application Exercises
9 Interview the manager of a local service business a fast food restaurant. What types of tasks does this
manager typically delegate? Is the appropriate authority also delegated in each case?
Answers will vary, but managers in fast food restaurants typically delegate tasks like cleaning, cooking, serving,
etc. Depending on the size of the business, ordering, scheduling, and payroll functions may be delegated as
well.
10 Using books, magazines, or personal interviews, identify a person who has succeeded as an intrapreneur.
In what ways did the structure of the intrapreneurs company help this individual succeed? In what ways
did the structure pose problems?
Students answers will vary, but they will probably find that intrapreneurs are most likely to succeed in flexible
environments with managers who are open to innovation and willing to reward creativity.

Answers to Exercising Your Ethics

1

What are the ethical issues in this situation?

The ethical issues revolve around the employees responsibility to the company. While he claims that he is not
using company resources directly, he is using an extra hour of company time. In addition, he is assuming no
conflict of interest, but without directly discussing the issue with his manager he cannot be sure.

What do you think most people would do in this situation?

Answers will vary.

What would you do in this situation?

Answers will vary.

Answers to Building Your Business Skills

1 With the average computer programmer earning nearly $75,000, and with all competitive firms paying
top dollar, why might organizational issues be critical in determining employee loyalty?
Dissatisfied employees can obtain other jobs easily, so firms will try to limit turnover by creating the most
possible satisfactory work environment.
2

If you were a programmer, what organizational factors would make a difference to you? Why?
Answers will vary, but possibilities include variety of job tasks, degree of decision-making authority,
international involvement, and job related benefits.

As the company founder, how willing would you be to make major organizational changes in light of the
shortage of qualified programmers?
Answers will vary, but students should demonstrate awareness that without making the changes needed to retain
qualified programmers, the business is unlikely to thrive long-term.

PSYCHOLOGICAL CONTRACT
From Wikipedia, the free encyclopedia
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A psychological contract, a concept developed in contemporary research by organizational scholar Denise Rousseau,[1]
represents the mutual beliefs, perceptions, and informal obligations between an employer and an employee. It sets the
dynamics for the relationship and defines the detailed practically of the work to be done. It is distinguishable from the
formal written contract of employment which, for the most part, only identifies mutual duties and responsibilities in a
generalized form.
Although Rousseau's 1989 article[1] as highlighted by Coyle-Shapiro "was very influential in guiding contemporary
research",[2] the concept of psychological contract was first introduced by Argyris (1960) - "Since the foremen realize
the employees in this system will tend to produce optimally under passive leadership, and since the employees agree, a
relationship may be hypothesized to evolve between the employees and the foremen which might be called the
"psychological work contract." The employee will maintain the high production, low grievances, etc., if the foremen
guarantee and respect the norms of the employee informal culture (i.e., let the employees alone, make certain they make
adequate wages, and have secure jobs)".[3]

The employment relationship develops

The reality of employment rights and duties emerges through the interpersonal relationships formed in the workplace.
How employers, supervisors and managers behave on a day-to-day basis is not determined by the legal contract.
Employees slowly negotiate what they must do to satisfy their side of the bargain, and what they can expect in return.

This negotiation is sometimes explicit, e.g. in appraisal or performance review sessions, but it more often takes the form
of behavioral action and reaction through which the parties explore and draw the boundaries of mutual expectation.
Hence, the psychological contract determines what the parties will, or will not do and how it will be done. When the
parties' expectations match each other, performance is likely to be good and satisfaction levels will be high. So long as
the values and loyalty persist, trust and commitment will be maintained. The map followed by the parties is the
development of an individualized career path that makes only reasonable demands on the employee, with adequate
support from managers and co-workers, for a level of remuneration that is demonstrably fair for a person of that age,
educational background, and experience. Motivation and commitment will be enhanced if transfers and promotions
follow the agreed path in a timely fashion.
If managed effectively, the relationship will foster mutual trust between the parties, matching the objectives and
commitments of the organization to those of their employees. But a negative psychological contract can result in
employees becoming disenchanted, demotivated and resentful of authoritarianism within the organization. This will
result in an increasingly inefficient workforce whose objectives no longer correspond to the organization they work for.
The main cause of disappointment tends to be that middle managers are protective of their status and security in the
eyes of their superiors, and this can introduce conflicts of interest when they are required to fulfill their obligations to
their subordinates.

JOB SATISFACTION & MORALE

Job satisfaction and morale are inextricably linked. The more satisfied you are in your professional capacity, the more
likely that your morale will be high and your productivity levels will be elevated. Consequently, if you are unhappy in
your role and are not performing up to your full ability, you are setting the stage for a bad work attitude and low morale.

Personal Satisfaction Levels

Job satisfaction means different things to different people. You might be satisfied if your job earns you a particular
amount of money, or if you are able to utilize your talents and perform a job doing something you enjoy. Even if you
don't particularly like all aspects of your job, if you feel you are recognized for your efforts and are making a viable
professional contribution, you can get satisfaction from it nevertheless.

Professional Satisfaction Levels

The recognition you receive for a job well done can impact your professional satisfaction levels and your morale.
Likewise, outside influences have the potential to impact your overall satisfaction in your job. For example, working
with colleagues you don't get along with, or being tasked with projects you are unfamiliar with or don't agree with, can
create dissatisfaction in an otherwise rewarding position. Working with difficult clients can also impact your job
satisfaction and morale, particularly if you are paired with a difficult customer over a significant period of time.

What Is the Hawthorne Effect?

Definition:
The Hawthorne effect (also referred to as the observer effect) refers to a phenomenon whereby individuals improve or
modify an aspect of their behavior in response to their awareness of being observed.[1][2] The original "Hawthorne
effect" study suggested that the novelty of being research subjects and the increased attention from such could lead to
temporary increases in workers' productivity.
The Hawthorne effect is a term referring to the tendency of some people to work harder and perform better when they
are participants in an experiment. Individuals may change their behavior due to the attention they are receiving from
researchers rather than because of any manipulation of independent variables.

The effect was first described in the 1950s by researcher Henry A. Landsberger during his analysis of experiments
conducted during the 1920s and 1930s at the Hawthorne works electric company. The electric company had
commissioned research to determine if there was a relationship between productivity and work environment.
The focus of the original studies was to determine if increasing or decreasing the amount of light workers received
would have an effect on worker productivity. Employee productivity seemed to increase due to the changes, but then
decreased at after the experiment was over. Researchers suggested that productivity increased due to attention from the
research team and not because of changes to the experimental variables. Lansdberger defined the Hawthorne effect as a
short-term improvement in performance caused by observing workers.
Later research into the Hawthorne effect has suggested that the original results may have been overstated. In 2009,
researchers at the University of Chicago reanalyzed the original data and found that other factors also played a role in
productivity and that the effect originally described was weak at best.
Observations:

"The original data have since been re-analysed, and it is not so clear whether the original results hold up.
Nevertheless, the concept has been established - the very fact that people are under study, observation or
investigation can have an effect on them and the results."
(Earl-Slater, 2002)
"One way to deal with the Hawthorne effect (and demand characteristics) is to observe the participants
unobtrusively. This can be done using the naturalistic observation technique. However, this is not always
possible for all behaviors. Another way to deal with the Hawthorne effect is to make the participants' responses
in a study anonymous (or confidential). This may eliminate some of the effects of this source bias."
(McBride, 2013)

MASLOWS HIERARCHY OF NEEDS THEORY

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Abraham Maslow is well renowned for proposing the Hierarchy of Needs Theory in 1943. This theory is a classical
depiction of human motivation. This theory is based on the assumption that there is a hierarchy of five needs within
each individual. The urgency of these needs varies. These five needs are as follows1. Physiological needs- These are the basic needs of air,
water, food, clothing and shelter. In other words,
physiological needs are the needs for basic amenities of
life.
2. Safety needs- Safety needs include physical,
environmental and emotional safety and protection. For
instance- Job security, financial security, protection
from animals, family security, health security, etc.
3. Social needs- Social needs include the need for love,
affection, care, belongingness, and friendship.
4. Esteem needs- Esteem needs are of two types: internal
esteem needs (self- respect, confidence, competence,
achievement and freedom) and external esteem needs
(recognition, power, status, attention and admiration).
5. Self-actualization need- This include the urge to
become what you are capable of becoming / what you
have the potential to become. It includes the need for

FIG
URE: Maslows Need Hierarchy Model

growth and self-contentment. It also includes desire for

gaining more knowledge, social- service, creativity and
being aesthetic. The self- actualization needs are never
fully satiable. As an individual grows psychologically,
opportunities keep cropping up to continue growing.
According to Maslow, individuals are motivated by unsatisfied
needs. As each of these needs is significantly satisfied, it drives
and forces the next need to emerge. Maslow grouped the five
needs into two categories - Higher-order needs and Lowerorder needs. The physiological and the safety needs
constituted the lower-order needs. These lower-order needs are
mainly satisfied externally. The social, esteem, and selfactualization needs constituted the higher-order needs. These
higher-order needs are generally satisfied internally, i.e., within
an individual. Thus, we can conclude that during boom period,
the employees lower-order needs are significantly met.
Implications of Maslows Hierarchy of Needs Theory for Managers
As far as the physiological needs are concerned, the managers should give employees appropriate salaries to
purchase the basic necessities of life. Breaks and eating opportunities should be given to employees.
As far as the safety needs are concerned, the managers should provide the employees job security, safe and
hygienic work environment, and retirement benefits so as to retain them.
As far as social needs are concerned, the management should encourage teamwork and organize social events.
As far as esteem needs are concerned, the managers can appreciate and reward employees on accomplishing and
exceeding their targets. The management can give the deserved employee higher job rank / position in the
organization.
As far as self-actualization needs are concerned, the managers can give the employees challenging jobs in which
the employees skills and competencies are fully utilized. Moreover, growth opportunities can be given to them so
that they can reach the peak.
The managers must identify the need level at which the employee is existing and then those needs can be utilized as
push for motivation.
Limitations of Maslows Theory

It is essential to note that not all employees are governed by sam

HERZBERGS TWO-FACTOR THEORY OF

MOTIVATION
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In 1959, Frederick Herzberg, a behavioural scientist proposed a two-factor theory or the motivator-hygiene theory.
According to Herzberg, there are some job factors that result in satisfaction while there are other job factors that prevent
dissatisfaction. According to Herzberg, the opposite of Satisfaction is No satisfaction and the opposite of
Dissatisfaction is No Dissatisfaction.

FIGURE: Herzbergs view of satisfaction and dissatisfaction

Herzberg classified these job factors into two categoriesa. Hygiene factors- Hygiene factors are those job factors which are essential for existence of motivation at
workplace. These do not lead to positive satisfaction for long-term. But if these factors are absent / if these
factors are non-existant at workplace, then they lead to dissatisfaction. In other words, hygiene factors are those
factors which when adequate/reasonable in a job, pacify the employees and do not make them dissatisfied.
These factors are extrinsic to work. Hygiene factors are also called as dissatisfiers or maintenance factors as
they are required to avoid dissatisfaction. These factors describe the job environment/scenario. The hygiene
factors symbolized the physiological needs which the individuals wanted and expected to be fulfilled. Hygiene
factors include:

Pay - The pay or salary structure should be appropriate

and reasonable. It must be equal and competitive to those in the
same industry in the same domain.

Company Policies and administrative policies - The

company policies should not be too rigid. They should be fair
and clear. It should include flexible working hours, dress code,
breaks, vacation, etc.

Fringe benefits - The employees should be offered health

care plans (mediclaim), benefits for the family members,
employee help programmes, etc.

Physical Working conditions - The working conditions

should be safe, clean and hygienic. The work equipments should
be updated and well-maintained.

Status - The employees status within the organization

should be familiar and retained.

Interpersonal relations - The relationship of the

employees with his peers, superiors and subordinates should be
appropriate and acceptable. There should be no conflict or
humiliation element present.

Job Security - The organization must provide job

security to the employees.
b. Motivational factors- According to Herzberg, the hygiene factors cannot be regarded as motivators. The
motivational factors yield positive satisfaction. These factors are inherent to work. These factors motivate the
employees for a superior performance. These factors are called satisfiers. These are factors involved in
performing the job. Employees find these factors intrinsically rewarding. The motivators symbolized the
psychological needs that were perceived as an additional benefit. Motivational factors include:
Recognition - The employees should be praised and recognized for their accomplishments by the
managers.
Sense of achievement - The employees must have a sense of achievement. This depends on the job.
There must be a fruit of some sort in the job.

Growth and promotional opportunities - There must be growth and advancement opportunities in an
organization to motivate the employees to perform well.
Responsibility - The employees must hold themselves responsible for the work. The managers should
give them ownership of the work. They should minimize control but retain accountability.
Meaningfulness of the work - The work itself should be meaningful, interesting and challenging for the
employee to perform and to get motivated.

THEORY X AND THEORY Y

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In 1960, Douglas McGregor formulated Theory X and Theory Y suggesting two aspects of human behaviour at work, or
in other words, two different views of individuals (employees): one of which is negative, called as Theory X and the
other is positive, so called as Theory Y. According to McGregor, the perception of managers on the nature of individuals
is based on various assumptions.
Assumptions of Theory X

An average employee intrinsically does not like work and tries to escape it whenever possible.
Since the employee does not want to work, he must be persuaded, compelled, or warned with punishment so as
to achieve organizational goals. A close supervision is required on part of managers. The managers adopt a more
dictatorial style.
Many employees rank job security on top, and they have little or no aspiration/ ambition.
Employees generally dislike responsibilities.
Employees resist change.
An average employee needs formal direction.

Assumptions of Theory Y

Employees can perceive their job as relaxing and normal. They exercise their physical and mental efforts in an
inherent manner in their jobs.
Employees may not require only threat, external control and coercion to work, but they can use self-direction
and self-control if they are dedicated and sincere to achieve the organizational objectives.
If the job is rewarding and satisfying, then it will result in employees loyalty and commitment to organization.
An average employee can learn to admit and recognize the responsibility. In fact, he can even learn to obtain
responsibility.
The employees have skills and capabilities. Their logical capabilities should be fully utilized. In other words, the
creativity, resourcefulness and innovative potentiality of the employees can be utilized to solve organizational
problems.

Thus, we can say that Theory X presents a pessimistic view of employees nature and behaviour at work, while Theory
Y presents an optimistic view of the employees nature and behaviour at work. If correlate it with Maslows theory, we
can say that Theory X is based on the assumption that the employees emphasize on the physiological needs and the
safety needs; while Theory X is based on the assumption that the social needs, esteem needs and the self-actualization
needs dominate the employees.
McGregor views Theory Y to be more valid and reasonable than Theory X. Thus, he encouraged cordial team relations,
responsible and stimulating jobs, and participation of all in decision-making process.
Implications of Theory X and Theory Y
Quite a few organizations use Theory X today. Theory X encourages use of tight control and supervision. It
implies that employees are reluctant to organizational changes. Thus, it does not encourage innovation.

Many organizations are using Theory Y techniques. Theory Y implies that the managers should create and
encourage a work environment which provides opportunities to employees to take initiative and self-direction.
Employees should be given opportunities to contribute to organizational well-being. Theory Y encourages
decentralization of authority, teamwork and participative decision making in an organization. Theory Y searches
and discovers the ways in which an employee can make significant contributions in an organization. It harmonizes
and matches employees needs and aspirations with organizational needs and aspirations.

MANAGEMENT BY OBJECTIVES
Management by objectives (MBO), also known as management by results (MBR), is a process of defining
objectives within an organization so that management and employees agree to the objectives and understand what they
need to do in the organization in order to achieve them. The term "management by objectives" was first popularized by
Peter Drucker in his 1954 book The Practice of Management.[1]
The essence of MBO is participative goal setting, choosing course of actions and decision making. An important part of
the MBO is the measurement and the comparison of the employees actual performance with the standards set. Ideally,
when employees themselves have been involved with the goal setting and choosing the course of action to be followed
by them, they are more likely to fulfill their responsibilities.
According to George S. Odiorne, the system of management by objectives can be described as a process whereby the
superior and subordinate jointly identify its common goals, define each individual's major areas of responsibility in
terms of the results expected of him, and use these measures as guides for operating the unit and assessing the
contribution of each of its members.[2]

Features and advantages

Behind the principle of MBO is for employees to have a clear understanding of the roles and responsibilities expected
of them. Then they can understand how their activities relate to the achievement of the organization's goal. Also places
importance on fulfilling the personal goals of each employee.
Some of the important features and advantages of MBO are:
1. Motivation Involving employees in the whole process of goal setting and increasing employee empowerment.
This increases employee job satisfaction and commitment.
2. Better communication and coordination Frequent reviews and interactions between superiors and subordinates
help to maintain harmonious relationships within the organization and also to solve problems.
3. Clarity of goals
4. Subordinates tend to have a higher commitment to objectives they set for themselves than those imposed on
them by another person.
5. Managers can ensure that objectives of the subordinates are linked to the organization's objectives.
6. Common goal for whole organization means it is a directive principle of management.

Domains and leveltivities

Some objectives are collective, for a whole department or the whole company, others can be individualized. Managers
must determine the mission and the strategic goals of the enterprise. The goals set by top-level managers are based on
an analysis of what can and should be accomplished by the organization within a specific period of time. The functions
of these managers can be centralized by appointing a project manager who can monitor and control activities of the
various departments. If this cannot be done or is not desirable, each managers contributions to the organizational goal
should be clearly spelled out.
Management by objectives (or MBO) is a personnel management technique where managers and employees work
together to set, record and monitor goals for a specific period of time. Organizational goals and planning flow top-down

through the organization and are translated into personal goals for organizational members. The technique was first
championed by management expert Peter Drucker and became commonly used in the 1960s.

Key Concepts
The core concept of MBO is planning, which means that an organization and its members are not merely reacting to
events and problems but are instead being proactive. MBO requires that employees set measurable personal goals based
upon the organizational goals. For example, a goal for a civil engineer may be to complete the infrastructure of a
housing division within the next twelve months. The personal goal aligns with the organizational goal of completing the
subdivision.
MBO is a supervised and managed activity so that all of the individual goals can be coordinated to work towards the
overall organizational goal. You can think of an individual, personal goal as one piece of a puzzle that must fit together
with all of the other pieces to form the complete puzzle: the organizational goal. Goals are set down in writing annually
and are continually monitored by managers to check progress. Rewards are based upon goal achievement.

Advantages
MBO has some distinct advantages. It provides a means to identify and plan for achievement of goals. If you don't
know what your goals are, you will not be able to achieve them. Planning permits proactive behavior and a disciplined
approach to goal achievement. It also allows you to prepare for contingencies and roadblocks that may hinder the plan.
Goals are measurable so that they can be assessed and adjusted easily. Organizations can also gain more efficiency, save
resources and increase organizational morale if goals are properly set, managed and achieved.

Disadvantages
MBO is not without disadvantages. Application of MBO does take some concerted effort. You cannot rely upon a
thoughtless, mechanical approach. You should note that some tasks are so simple that setting goals makes little sense
and becomes more of silly annual ritual. For example, if your job is snapping two pieces of a product together on an
assembly line, setting individual goals for your work borders on the absurd.
Rodney Brim, a CEO and critic of the MBO technique, has identified four other weaknesses. There is often a focus on
mere goal setting rather than developing a plan that can be implemented. The organization often fails to take into
account environmental factors that hinder goal achievement, such as lack of resources or management support.
Organizations may also fail to monitor for changes, which may require modification of goals or even make them
irrelevant. Finally, there is the issue of plain human neglect - failing to follow through on the goal.

Example
Let's say that you are a senior associate at a law firm who practices in the civil litigation practice department. Your
cases involve complex business litigation that usually take years to prepare before trial (and the inevitable appeals,
given the dollars at stake)