CHAPTER 4

ORGANIZING THE BUSINESS

ENTERPRISE

ASM401/Chapter 4
 ORGANIZATIONAL STRUCTURE
2

 Organizational Structure:
• Specification of the jobs to be done within an organization and
the ways in which they relate to one another.

 Most businesses prepare organizational charts to clarify

structure and to show employees where they fit into a firm’s
operations.

The solid line define the chain of command or reporting

relationships within the company.

ASM401/Chapter 4
 ORGANIZATIONAL STRUCTURE
Organization Charts
3

ASM401/Chapter 4
 ORGANIZATIONAL STRUCTURE
Chain of Command

ASM401/Chapter 4 4
 ORGANIZATIONAL STRUCTURE
Determinants of Organization
5

 Many elements work together to determine an

organisation’s structure. The main elements are
organization:
• Purpose
• Mission
• Strategy

 Size, technology and change in environment

circumstances also affect the structure of the organisation.
 Most of the organisations change their structure on an
almost continuing basis.

ASM401/Chapter 4
 BUILDING BLOCKS OF ORGANIZATIONAL
STRUCTURE
6

 The first step in developing the structure of any

business, large or small, involves two activities:

 Specialization: determining who will do what

 Departmentalization: determining how people

performing certain tasks can best be grouped
together.

ASM401/Chapter 4
 BUILDING BLOCKS OF ORG. STRUCTURE
Specialization
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 Specialization : determining who will do

what.
 Is the process of identifying the specific job that
need to be done & designation the people who
perform them leads to job specialization.
 In a sense all organisation have only one major
job such as selling finish product to consumer.
 In order to perform the overall job, management
actually break it down or specialise it into several
smaller job.

ASM401/Chapter 4
 BUILDING BLOCKS OF ORG. STRUCTURE
Specialization
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 Specialisation & Growth

• In very small organisation, the owner may
perform every job. As the firm grow, the
organisations need to specialise jobs so that
other can perform them.
 Advantages of Job Specialisation
• Can be learn more easy
• Can be perform more efficiently
• Easier to replace people who leave in
organization.

ASM401/Chapter 4
 BUILDING BLOCKS OF ORG. STRUCTURE
Departmentalization
9

 Departmentalization: Process of grouping jobs into logical

units.
• Its allow the firm to treat a department as a profit center.
• Managers do not departmentalized jobs randomly – they
group logically, according to some common purpose.
 Departmentalization may occur along:
• customer,
• product,
• process,
• geographic or
• functional lines (or any combination of these).

ASM401/Chapter 4
 BUILDING BLOCKS OF ORG. STRUCTURE
Departmentalization
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 Customer Departmentalization :
• Types of customer likely to buy a given product-each department
target a specific customer category. – make shopping easier by
identifiable store segment.
 Product Departmentalization:
• Departmentalization according to specific products being
created.
 Process Departmentalization:
• Departmentalization according to production processes used to
create a good or service.
 Geographic Departmentalization:
• Departmentalization according to area served by a business.
 Functional Departmentalization:
• Departmentalization according to groups’ functions or activities –
marketing, sales etc.
ASM401/Chapter 4
 DECISION MAKING HIERARCHY
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 The manager must explicitly define reporting

relationship among position so that everyone will
know who has responsible for various decisions and
operations.
 Process development of decision making hierarchy:
 Assigning tasks: determining who can make decision &
specifying how they should be made.
 Performing tasks: implementing decisions that have
been made.
 Distribution authority: determining whether the
organization is to be centralized or decentralized.

ASM401/Chapter 4
 DECISION MAKING HIERARCHY
Assigning Tasks
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 Responsibility & Authority

 Determining who can make decisions and
specifying how they should be made.
 In any company with more than one person,
individuals must work out agreements about
responsibilities & authorities.
 Responsibility is the duty to perform an assigned
task.
 Authority is the power to make the decision
necessary to complete the task.

ASM401/Chapter 4
 DECISION MAKING HIERARCHY
Performing Tasks
13

 Delegation & Accountability

 Implementing decision that have been made.
 Trouble occurs when appropriate levels of
responsibility and authority are not clear
delineated in the working relationship between
managers & subordinates.
 Delegations began when a manager assigns a
task to a subordinate.
 Accountability falls to the subordinate, who must
then complete the task.
 If tasks are effectively delegated and performed,
the organization will function smoothly.

ASM401/Chapter 4
 DECISION MAKING HIERARCHY
Performing Tasks
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 Fear of Delegating. Unfortunately, many managers

actually have trouble delegating tasks to others.

Reasons why some small-managers may have trouble

delegating effectively:
 The feeling that employees can never do anything as well
as the manager can.
 The fear that something will go wrong if someone else
takes over a job.
 The fear that a subordinate might “show the manager up” in
front of others by doing a superb job.
 The desire to keep as much control as possible over how
things are done.
 A simple lack of ability as to how to effectively delegate to
others.
ASM401/Chapter 4
 DECISION MAKING HIERARCHY
Performing Tasks
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The remedies in these instances are:

 All managers should recognize that they can’t do
everything themselves.
 If subordinates can’t do a job, they should be trained
so that they can assume more responsibility.
 Managers should actually recognize that if a
subordinate performs well, it also reflects favourably
on the manager
 A manager who simply doesn’t know how to
delegate might need specialized training in how to
divide up and assign tasks to others.

ASM401/Chapter 4
 DECISION MAKING HIERARCHY
Distributing Authority
16

 Centralization & Decentralization

 Determining whether the organization is to be centralized or
decentralized.
 Most business must also make decision about patterns of
authority throughout of the company. This pattern may be
largely centralised or decentralised.

 Centralised Organisation
 Most decision making authority is held by upper level
managers
 Upper level management must approve most of lower level
decision before they can be implemented.
 Centralised authority is also typical of small businesses.

ASM401/Chapter 4
 DECISION MAKING HIERARCHY
Distributing Authority
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 Decentralised Organisation
 Much decision making authority is delegated to
levels of management at various points below the
top.
 Purpose of decentralisation is to make company
more responsible to its environment by breaking it
into more manageable units.
 Reducing top-heavy bureaucracies is also a
common goals.

ASM401/Chapter 4
 Centralization vs Decentralization
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ASM401/Chapter 4
 DECISION MAKING HIERARCHY
Distributing Authority
19

 Tall and Flat Organizations

 Flat organization structure tend to have relatively fewer
layers of management. (Decentralization)
 Tall organizational structure require multiple layers of
management. (Centralization)
 Tall structures are prone to delays in information flow.
 Span of control is number of people supervised by one
manager.
 In flat organization, the manager’s span of control is wide.
 In tall organization, the manager’s span of control tends to be
narrower.

ASM401/Chapter 4
 FORMS OF AUTHORITY
1- Line Authority
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 Organization structure in which authority flows in a direct

chain of command from the top of the company to the
bottom.
 The authority that flows up and down the chain of
command.
 Most company rely heavily on line department.
 It is directly linked to the production and sales of a specific
product.

ASM401/Chapter 4
 FORM OF AUTHORITY
2 - Staff Authority
21

 Staff authority is authority based on expertise that usually

involves advising line managers.
 It is based on special expertise and usually involves
counselling and advising line manager.
 Staff member help line departments in making decisions but
do not have the authority to make final decisions.
 The separation between line authority & staff responsibility is
clear delineated.
 It may help to understand this separation by remembering
that whereas staff members generally provide services to
management, line managers are directly involved in providing
the firm product

ASM401/Chapter 4
 Line and Staff Organization
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ASM401/Chapter 4
 FORM OF AUTHORITY
3 - Committee & Team Authority
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 Committee and team authority - authority granted the

committees or work teams that play central roles in the
firm's daily operations
 A committee may consist of top manager for several major
area.
 Many firm are also using work teams where groups of
operating employees who empowered to plan & organise
their own work & to perform that work with a minimum of
supervision.

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 Committee and Team Authority
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 25

End of Topic 4

Thank you

ASM401/Chapter 4