Chapter 4.

Organizing
NATURE OF ORGANIZATIONS

Definition of organizations

An organization is a collection of people working together in a coordinated and structured

fashion to achieve one or more goals.

Organizations role in society

Organizations exist to allow accomplishment of work that could not be achieved

by people alone.

As long as the goals of an organization are appropriate, society will allow them to
exist and they can contribute to society.

Organizations and People

Organizations are strongly influenced by the people that form part of them.

Organizations can take in part the personality of the people within them and the
attitudes, perceptions and behaviors affect how an organization will operate.

Organizations Require Management

Organizations use management to accomplish the work that is required to

achieve the goals.

The nature of the ORGANISATIONAL environment

The environment faced by an organization can be categorized by:

o The external environment is everything outside an organization that might affect

it.
o The internal environment consists of conditions and forces within the
organization.

The external environment

The general environment is the nonspecific dimensions and forces in its

surroundings that might affect its activities.
 The task environment consists of specific organizations or groups that are likely
to influence an organization.

The general environment

The general environment consists of:

o The economic dimension inflation, interest rates, unemployment,

and demand.
o The technological dimension refers to the methods available for
converting resources into products or services.
o The sociocultural dimension, customs, mores, values, and
demographic characteristics of the society in which the
organization functions. The political-legal dimension refers to
government regulation of business and the relationship between
business and government.
o The international dimension refers to the extent to which an
organization is involved in or affected by business in other
countries.

The task environment

The task environment consists of the following actors;

o Competitors are other organizations that compete for resources.

o Customers are whoever pays money to acquire an organization's
product or service.
o Suppliers are organizations that provide resources for other
organizations.
o Regulators are units in the task environment that have the
potential to control, regulate, or influence an organization's
policies and practices.
 Regulatory agencies are created by the
government to protect the public from
certain business practices or to protect
organizations from one another. Examples
include the Environmental Protection
Agency and the Department of
Occupational Safety, Health and Welfare.
 Interest groups are groups organized by
their members to attempt to influence
organizations. Examples include the RAC,
o Labor includes all workers who provide the service or produce the
products. Labor is especially a concern when it is unionized.
 o Owners are individuals, groups, or organizations who have a
major stake in the organization.
o Strategic allies are two or more companies that work together in
joint ventures.

The internal environment

Board of directors

A board of directors is only required of organizations that are incorporated;

however, many other firms have them. The board of directors is elected by the
stockholders and is charged with overseeing the general management of the
firm to ensure that it is being run in a way that best serves the stockholders'
interests.

Employees

When the organization's employees hold the same values and goals as its
management, everyone wins. However, when managers and employees work
toward different goals everyone suffers. The composition of the organization's
employees is changing, and managers must learn how to deal effectively with
these changes.

Culture

The culture of an organization is the set of values that helps its members

understand what the organization stands for, how it does things, and what it
considers important.

A strong organizational culture can shape the firm's overall effectiveness and
long-term success and help employees to be more productive.

Culture develops and blossoms over a long period of time. It often starts with the
organization's founder, however, corporate success and shared experiences also
shape culture.

In order to manage corporate culture, managers must first understand the

current culture. If the culture is one that is in the best interest of the firm,
managers can reward behavior that is consistent with the existing culture in
order to enforce it.

If the culture needs to be changed, managers must know what it is they want the
culture to be and then bring in outside people, adopt slogans, or tell stories
 among other things that will help to change the culture into the type
management wants.

The nature Of management

Management is a set of activities (including planning and decision making, organizing, leading,
and controlling) directed at an organization's resources (human, financial, physical, and
information) with the aim of achieving organizational goals in an efficient and effective manner.

Efficient means using resources wisely and without unnecessary waste.

Effective means doing the right things successfully.

A manager is someone whose primary responsibility is to carry out the management process. In
particular. a manager is someone who plans and makes decisions, organizes, leads, and controls
human, financial, physical, and information resources.

This process is illustrated on the following figure

The management process

Planning and decision making: determining courses of action

Planning means setting an organization's goals and deciding how best to achieve

them.
 Decision making, a part of the planning process, involves selecting a course of
action from a set of alternatives.

Organizing: Coordinating activities and resources

Organizing is grouping activities and resources in a logical fashion.

Leading: Managing people

Leading is the set of processes used to get people to work together to advance
the interests of the organization.

Controlling: Monitoring and evaluating activities

Controlling is monitoring the progress of the organization as it works toward its

goals to ensure that it is effectively and efficiently achieving these goals.

Kinds of managers

Differentiation by levels of management

Top managers (CEO, VP) control the organization by

o setting its goals,

o overall strategy,
o operating policies.

. These managers make important decisions about which activities the

organization should be involved in, such as acquisitions, research and
development, and expanding capacity.

Middle managers (plant manager, operations manager) are the largest group of

managers in most companies. They primarily take the goals and strategies
designed by top managers and put them into effect.

First-line managers (foreman, supervisor) supervise and coordinate the activities

of operating employees. The majority of their work is direct supervision of the
work of their subordinates.

Differentiation by areas of management

Marketing managers help to find ways to get consumers and clients to buy the
organization's products and services.
 Financial managers deal with accounting, cash management, and investment
functions.

Operations managers are concerned with creating and managing the systems
that create an organization's products and services. IE's are often in these
positions. They achieve their goals through production control, inventory
control, quality control, and plant site selection and layout.

Human resource managers are responsible for hiring and developing employees.

Administrative managers are generalists who have some basic familiarity with all
functional areas of management rather than specialized training in any one area.

Other kinds of managers have specialized management position.

Critical roles and skills

Managerial roles

Interpersonal roles

A figurehead attends activities to represent the organization.

A leader encourages employees to improve productivity and

shows them how to do it.

A liaison coordinates the activities of two or more people, groups

of people, or organizations.

Informational roles

A monitor actively seeks information that may be of value to the

organization.

A disseminator transmits information to others in the

organization.

A spokesperson transmits information about the organization to

people outside the organization.

Decisional roles

An entrepreneur develops new ideas and initiates changes in the

organization.
 A disturbance handler handles problems that arise such as strikes,
copyright infringements, and energy shortages.

A resource allocator determines who should receive the available

resources and who should have access to the manager's time.

A negotiator represents the organization in a negotiation setting

such as collective bargaining for a union contract or developing an
agreement with a consultant.

Managerial skills

Technical skills are the skills necessary to accomplish or understand tasks

relevant to the organization.

Interpersonal skills are the ability to communicate with, understand, and

motivate individuals and groups.

Conceptual skills are the ability to think in abstract terms and the mental
capacity to understand the "big picture" or the overall workings of the
organization and its environment.

Diagnostic and analytic skills are the ability to recognize the symptoms of a

problem and then determine an action plan to fix it.

The skills required by mangers varies with their position in the organization

The nature of managerial work

 Managerial work is fast paced, uncertain, and filled with interruptions and
fragmented activities. The tasks performed by a manager every day are varied
and intense. However, managers who are able to make good decisions in a short
amount of time find a great deal of satisfaction in their jobs.

Managers are largely pragmatic, they use what ever works.

The scope of management

Management in profit-seeking organizations

Large businesses e.g. Microsoft, Wells Fargo, United Airlines.

Small and start-up businesses must run as efficiently as large businesses (if not
more efficiently) because they have less of a margin for error. Some small
businesses grow into large businesses over time.

Management in not-for-profit organizations

Government organizations are supported by tax dollars

Educational organizations need to be run efficiently because the funds they are

supported by, tax dollars

Some Healthcare Organizations

7 types of organizational structures (+ org charts for implementation)

Types of organizational structures

1. Hierarchical org structure

2. Functional org structure

3. Horizontal or flat org structure

4. Divisional org structures (market-based, product-based, geographic)

5. Matrix org structure

6. Team-based org structure

 7. Network org structure

At some point, you have likely seen an organizational chart for your company. And we can
probably guess what it looked like.
The typical org chart looks like a pyramid, your C-level executives at the top with lines
stretching down to middle management and finally staff-level employees.

But not every company functions best with a hierarchical organizational structure. Many types
of organizational charts exist because many types of organizational structures exist.

Let’s go through the seven common types of org structures and reasons why you might
consider each of them.

1. Hierarchical org structure

Hierarchical Org Chart Example

The pyramid-shaped organizational chart we referred to earlier is known as a hierarchical org
chart. It’s the most common type of organizational structure––the chain of command goes from
the top (e.g., the CEO or manager) down (e.g., entry-level and low-level employees) and each
employee has a supervisor.

Pros

 Better defines levels of authority and responsibility

 Shows who each person reports to or who to talk to about specific projects
 Motivates employees with clear career paths and chances for promotion
 Gives each employee a specialty
 Creates camaraderie between employees within the same department

Cons

 Can slow down innovation or important changes due to increased bureaucracy

 Can cause employees to act in interest of the department instead of the company as a
whole
 Can make lower-level employees feel like they have less ownership and can’t express
their ideas for the company

2. Functional org structure

Functional Org Chart Example

Similar to a hierarchical organizational structure, a functional org structure starts with positions
with the highest levels of responsibility at the top and goes down from there. Primarily, though,
employees are organized according to their specific skills and their corresponding function in
the company. Each separate department is managed independently.

Pros

 Allows employees to focus on their role

 Encourages specialization
 Help teams and departments feel self-determined
 Is easily scalable in any sized company

Cons

 Can create silos within an organization

 Hampers interdepartmental communication
  Obscures processes and strategies for different markets or products in a company

3. Horizontal or flat org structure

Horizontal or Flat Org Chart Example (Click on image to modify online)

A horizontal or flat organizational structure fits companies with few levels between upper
management and staff-level employees. Many start-up businesses use a horizontal org
structure before they grow large enough to build out different departments, but some
organizations maintain this structure since it encourages less supervision and more involvement
from all employees.

Pros

 Gives employees more responsibility

 Fosters more open communication
 Improves coordination and speed of implementing new ideas
Cons

 Can create confusion since employees do not have a clear supervisor to report to
 Can produce employees with more generalized skills and knowledge
 Can be difficult to maintain once the company grows beyond start-up status

4. Divisional org structure

In divisional organizational structures, a company’s divisions have control over their own
resources, essentially operating like their own company within the larger organization. Each
division can have its own marketing team, sales team, IT team, etc. This structure works well for
large companies as it empowers the various divisions to make decisions without everyone
having to report to just a few executives.

Depending on your organization’s focus, there’s a few variations to consider.

Market-based divisional org structure

Divisions are separated by market, industry, or customer type. A large consumer goods
company, like Target or Walmart, might separate its durable goods (clothing, electronics,
furniture, etc.) from its food or logistics divisions.
 Market-Based Divisional Org Chart Example (Click on image to modify online)

Product-based divisional org structure

Divisions are separated by product line. For example, a tech company might have a division
dedicated to its cloud offerings, while the rest of the divisions focus on the different software
offerings––e.g., Adobe and its creative suite of Illustrator, Photoshop, InDesign, etc.

Product-Based Divisional Org Chart Example (Click on image to modify online)

Geographic divisional org structure

Divisions are separated by region, territories, or districts, offering more effective localization
and logistics. Companies might establish satellite offices across the country country or the globe
in order to stay close to their customers.

Geographical Divisional Org

Chart Example (Click on image to modify online)

Pros

 Helps large companies stay flexible

 Allows for a quicker response to industry changes or customer needs
  Promotes independence, autonomy, and a customized approach

Cons

 Can easily lead to duplicate resources

 Can mean muddled or insufficient communication between the headquarters and its
divisions
 Can result in a company competing with itself

5. Matrix org structure

Matrix Org Chart Example (Click on image to modify online)

A matrix organizational chart looks like a grid, and it shows cross-functional teams that form for
special projects. For example, an engineer may regularly belong to the engineering department
(led by an engineering director) but work on a temporary project (led by a project manager).
The matrix org chart accounts for both of these roles and reporting relationships.
Pros

 Allows supervisors to easily choose individuals by the needs of a project

 Gives a more dynamic view of the organization
 Encourages employees to use their skills in various capacities aside from their original
roles

Cons

 Presents a conflict between department managers and project managers

 Can change more frequently than other organizational chart types

6. Team-based org structure

It’ll come as no surprise that a team-based organizational structure groups employees

according to (what else?) teams––think scrum teams or tiger teams. A team organizational
structure is meant to disrupt the traditional hierarchy, focusing more on problem solving,
cooperation, and giving employees more control.

Pros

 Increases productivity, performance, and transparency by breaking down silos

 Promotes a growth mindset
 Changes the traditional career models by getting people to move laterally
 Values experience rather than seniority
 Requires minimal management
 Fits well with agile companies with scrum or tiger teams

Cons
  Goes against many companies’ natural inclination of a purely hierarchical structure
 Might make promotional paths less clear for employees

7. Network org structure

 These days, few businesses have all their services under one roof, and juggling the multitudes
of vendors, subcontractors, freelancers, offsite locations, and satellite offices can get confusing.
A network organizational structure makes sense of the spread of resources. It can also describe
an internal structure that focuses more on open communication and relationships rather than
hierarchy.

Pros

 Visualizes the complex web of onsite and offsite relationships in companies

 Allows companies to be more flexible and agile
 Give more power to all employees to collaborate, take initiative, and make decisions
 Helps employees and stakeholders understand workflows and processes

Cons

 Can quickly become overly complex when dealing with lots of offsite processes
 Can make it more difficult for employees to know who has final say

Consider the needs of your organization, including the company culture that you want to
develop, and choose one of these organizational structures.

Organizational Theory
Definition: The Organizational Theory refers to the set of interrelated concepts, definitions that
explain the behavior of individuals or groups or subgroups, who interacts with each other to
perform the activities intended towards the accomplishment of a common goal.

In other words, the organizational theory studies the effect of social relationships between the
individuals within the organization along with their actions on the organization as a whole. Also,
it studies the effects of internal and external business environment such as political, legal,
cultural, etc. on the organization.

The term organization refers to the group of individuals who come together to perform a set of
tasks with the intent to accomplish the common objectives. The organization is based on the
concept of synergy, which means, a group can do more work than an individual working alone.

Thus, in order to study the relationships between the individuals working together and their
overall effect on the performance of the organization is well explained through the
organizational theories. Some important organizational theories are:

1. Classical Theory
2. Scientific Management Theory
3. Administrative Theory
4. Bureaucratic Theory
5. Neo-Classical Theory
6. Modern Theory

An organizational structure plays a vital role in the success of any enterprise. Thus, the
organizational theories help in identifying the suitable structure for an organization, efficient
enough to deal with the specific problems.

What is Delegation?

You must have an idea by now, that delegation somewhat relates to transfer of authority. Indeed,
delegation is the downward transfer of authority from a superior to a subordinate. This is
important because the superior cannot look after all the processes. Also, this helps him manage his
work, as it is impractical for a specific superior to handle the volume of work all by himself.

The delegation of authority allows for concentration of time on more important activities in an

organisation. Further, it provides a sense of responsibility, a chance to grow and exercise initiatives
to whom the authority is delegated.

One important point to remember is that transfer of authority from a superior to a subordinates
does not mean a transfer of accountability. Interestingly, the accountability for the tasks still
resides with the superiors. Effectively, delegation involves the distribution of authority for less
important jobs to subordinates accompanied by no transfer of accountability.

Difference Between Formal and Informal Organization

An organization is a collection of people who work together to attain specified objectives. There
are two types of organization structure, that can be formal organization and informal
organization. An organisation is said to be formal organisation when the two or more than two
persons come together to accomplish a common objective, and they follow a formal
relationship, rules, and policies are established for compliance, and there exists a system of
authority.

On the other end, there is an informal organisation which is formed under the formal
organisation as a system of social relationship, which comes into existence when people in an
organisation, meet, interact and associate with each other. In this article excerpt, we are going
to discuss the major differences between formal and informal organisation.

Content: Formal Organization Vs Informal Organization

1. Comparison Chart
 2. Definition
3. Key Differences
4. Conclusion
5. Comparison Chart

BASIS FOR
FORMAL ORGANIZATION INFORMAL ORGANIZATION
COMPARISON

Meaning An organization type in which the An organization formed within the

job of each member is clearly formal organization as a network of
defined, whose authority, interpersonal relationship, when
responsibility and accountability people interact with each other, is
are fixed is formal organization. known as informal communication.

Creation Deliberately by top management. Spontaneously by members.

Purpose To fulfill, the ultimate objective of To satisfy their social and

the organization. psychological needs.

Nature Stable, it continues for a long time. Not stable

Communication Official communication Grapevine

Control Rules and Regulations Norms, values and beliefs

mechanism

Focus on Work performance Interpersonal relationship

Authority Members are bound by All members are equal.

hierarchical structure.

Size Large Small

Definition of Formal Organization

By the term formal organisation, we mean a structure that comes into existence when two or
more people come together for a common purpose, and there is a legal & formal relationship
between them. The formation of such an organisation is deliberate by the top level
management. The organisation has its own set of rules, regulations, and policies expressed in
writing.

The basic objective of the establishment of an organisation is the attainment of the

organisation’s goal. For this purpose, work is assigned, and authorities are delegated to each
member and the concept of division of labour and specialisation of workers are applied and so
the work is assigned on the basis of their capabilities. The job of each is fixed, and roles,
responsibilities, authority and accountability associated with the job is clearly defined.

In addition to this, there exists a hierarchical structure, which determines a logical authority
relationship and follows a chain of command. The communication between two members is
only through planned channels.

Types of formal organization structure

 Line Organization
 Line and Staff Organization
 Functional Organization
 Project Management Organization
 Matrix Organization

Definition of Informal Organization

An informal organisation is formed within the formal organisation; that is a system of

interpersonal relationships between individuals working in an enterprise, that forms as a result
of people meet, interact and associate with one another. The organisation is created by the
members spontaneously, i.e. created out of socio-psychological needs and urge of people to
talk. The organisation is featured by mutual aid, cooperation, and companionship among
members.

In an informal organisation, there are no defined channels of communication, and so members

can interact with other members freely. They work together in their individual capacities and
not professional.

Key Differences Between Formal and Informal Organization

The difference between formal and informal organisation can be drawn clearly on the following
grounds:

1. Formal Organization is an organisation in which job of each member is clearly defined,

whose authority, responsibility and accountability are fixed. Informal Organization is
 formed within the formal organisation as a network of interpersonal relationship when
people interact with each other.
2. Formal organisation is created deliberately by top management. Conversely, informal
organisation is formed spontaneously by members.
3. Formal organisation is aimed at fulfilling organisation’s objectives. As opposed to an
informal organisation is created to satisfy their social and psychological needs.
4. Formal organisation is permanent in nature; it continues for a long time. On the other
hand, informal organisation is temporary in nature.
5. The formal organisation follows official communication, i.e. the channels of
communication are pre-defined. Unlike informal organisation, the communication flows
in any direction.
6. In the formal organisation, the rules and regulations are supposed to be followed by
every member. In contrast to informal communication, there are norms, values, and
beliefs, that work as a control mechanism.
7. In the formal organisation, the focus is on the performance of work while in the case of
an informal organisation, interpersonal communication is given more emphasis.
8. The size of a formal organisation keeps on increasing, whereas the size of the informal
organisation is small.
9. In a formal organisation, all the members are bound by the hierarchical structure, but all
the members of an informal organisation are equal.

Conclusion

An informal organisation is just opposite of a formal organisation. The principal difference

between these two is that all the members of a formal organisation follow a chain of command,
which is not in the case of an informal organisation. Moreover, there exists a superior-
subordinate relationship (status relationship) in the former, whereas such relationship is absent
in the latter because all the members are equal (role relationship).

Activity 4.1

1. Design your own organizational chart each of the seven (7) types of organization
based on the given examples.