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THE INSTITUTE OF FINANCE

MANAGEMENT

MSD 06202: FUNDAMENTALS OF MANAGEMENT

Lecture 5
The Organizing Function

By
Mr. Lema, F
Office No: 608- Block A
Mobile: 0783-229535
Email: [email protected]

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Topic Coverage
 Scope of organizing
 Organizing
◦ Purpose of Organizing
◦ Steps in organizing process
 Organizational Structure
◦ An overview of concepts connected to
organizational structure
 Importance of organizing
 Revision Questions
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Scope of Organization
 Organization is a group of people working together in
some concerted or coordinated efforts to attain
objectives
The term 'Organization' is used in Management in two
different ways as a structure and as a process.
 Organization as a structure refers to the
network of relationships among jobs and positions in
an enterprise. It is a structural framework/ skeleton
within which the efforts of different people are
coordinated and related to each other.
 Organization as a process refers to one of the
important function of management which involves
determining, arranging, grouping and assigning the
activities to be performed for the attainments of
organizational objectives.

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Meaning of Organizing
 Organizing is the process of the process of defining and
grouping activities of the enterprise and establishing the
authority relationship among them.
OR
 This process involves determining what work is needed
to accomplish the goal, assigning those tasks to
individuals, and arranging those individuals in a decision-
making framework (organizational structure)
 THUS
◦ Organizing, like planning, must be a carefully worked out and
applied process.
◦ The end result of the organizing process is an organization -
a whole consisting of unified parts acting in harmony to
execute tasks to achieve goals, both effectively and efficiently

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The purpose of organizing

 Organizing function saves the following purpose
in an organization;-
 Divides works to be done into specific jobs and
departments
 Assigns tasks and responsibilities associated with
individual jobs
 Coordinate diverse organizational tasks
 Cluster (grouping) jobs into units
 Establish relationship among individuals, groups
and departments
 Establishes formal line authority
 Allocate and deploy organizational resources

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Steps in organizing process

1. Review plans and objectives.
◦ Managers must examine plans initially and continue to do so as
plans change and new goals are developed.
2. Determine the work activities necessary to accomplish
objectives.
◦ The activities necessary to accomplish objectives are to be
determined. Managers simply list and analyze all the tasks that
need to be accomplished in order to reach organizational goals.
3. Classify and group the necessary work activities into
manageable units.
◦ Closely related and similar activities are grouped together to
form departments, divisions and or sections.
◦ A manager can group activities based on four models of
departmentalization: functional, geographical, product, and
customer.

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Steps cont.....
4. Assign activities and delegate authority.
◦ Managers assign the defined work activities to
specific individuals based on experience
knowledge and ability to carry out the activity
effectively. Also, they give each individual the
authority (right) to carry out the assigned tasks.
5. Design a hierarchy of relationships.
◦ A manager should determine the vertical
(decision-making) and horizontal (coordinating)
relationships of the organization as a whole so
that people knows their boundaries and
positions.

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An overview of concepts connected

to organizational structure
 Organization Structure
 Organization charts
 Formal and informal organization
 Departmentalization
 Span of control
 Authority and power in organizations
 Line authority Vs Staff authority
 Delegation of authority
 Centralization and decentralization

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A: Organization Structure
 Organizational structure refers to
hierarchical arrangement of lines of
authority, communication, rights and
duties of an organization.
 Or is the description of the roles, power
and responsibility are assigned, controlled,
and coordinated, and how information
flows between the different levels of
management

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Types of Organization structure

 There are TWO major types;- centralized
and decentralised structure
 In a centralized structure, the Top managers
has most of the power of making decision in
an organization, and has a tight control over
department and divisions.
 In a decentralized structure, the decision
making power is distributed to other levels
and the departments and divisions may have
different degree of independence

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Determinants of organizational
structure
 An internal structure of an organization
will depends on;-
 The organizational objectives/ goals
 The organizational strategy,
 Size,
 People,
 environment and
 Technology.

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B: Organization charts
 Refers to the visual representation of how a firm
intends to distribute authority, responsibility and
information flow within its formal organization
structure.
OR
 Refers to a diagram that shows the structure of an
organization and the relationships and relative ranks
of its parts and positions or jobs
 It usually shows different organization
functions/departments (such as accounting, finance,
HR, marketing, production, R&D, etc.) and their
subdivisions as boxes linked with lines along which
decision making power travels downwards and
answerability travels upwards

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C: Formal and informal organization

 Formal Organization is formed when;-
◦ Two or more persons come together,
◦ These people have a common objective or goal, AND
◦ They are willing to work together to achieve this similar objective.
 In addition,
◦ Formal Organisation has its own rules and regulation – these rules must
be followed by the members (employees and managers).
◦ A formal organisation has a system of co-ordination.
◦ It also has a system of authority (a clear superior-subordinate
relationship)
 Again, in a formal organisation,
◦ The objectives are specific and well-defined
◦ All the members are given specific duties and responsibilities

 Examples of formal organisation are:- a company, a school, a college,

a bank, etc.

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On the other hand - An Informal Organisation

 It exists within the formal organisation.
 An informal organisation is a network of personal and social
relationships. People working in a formal organisation meet and
interact regularly. They work, travel, and eat together; therefore,
they become good friends and companions.
 There are many groups of friends in a formal organisation.
These groups are called informal organisation.

 An informal organisation;-
◦ Does not have its own rules and regulation,
◦ It has no system of co-ordination and no authority.
◦ It doesn't have any superior-subordinate relationship or any specific and
well-defined objectives.
◦ Here in informal organisation, communication is done through the
grapevine

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D: Departmentalisation
 Is the concept of work specialization – dividing work
activities into separate job tasks so that individuals specialize
in doing part of the an activity hence increase work output.
 A department is division, branch or some other organization
unit over which a manager has authority for performance of
a task;
THUS
 Departmentalisation is the process of dividing work
(grouping activities) of the organization into departments or
other manageable units.
OR
 Departmentalisation is the process of grouping tasks into
jobs, then combining jobs into effective work group and then
combining work groups into identifiable segments or
departments

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E: Span of control
 Span of control sometimes called span of management
◦ It refers to the number of workers who report to one manager.
 There should be a limit of subordinates that a manager can
supervise (the span should be wide or narrow), due to
◦ limited time,
◦ capacity and
◦ attention available to a manager.
 A wide span of management exists when a manager has a
large number of subordinates. Generally, the span of control
may be wide when
◦ The manager and the subordinates are very competent.
◦ The organization has a well-established set of standard operating
procedures.
◦ Few new problems are anticipated.

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Span of mgt … cont…

 A narrow span of management exists when the
manager has only a few subordinates. The span should
be narrow when
 Workers are located far from one another physically.
 The manager has a lot of work to do in addition to
supervising workers.
 A great deal of interaction is required between
supervisor and workers.
 New problems arise frequently.

 NB: The span of management may change from one

department to another within the same organization.

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F: Authority and power in

organizations
 Authority is the formal and legitimate right of a manager to
make decisions, issue orders, and allocate resources to
achieve organizationally desired outcomes.
 A manager's authority is defined in his or her job description
and or position held in an organization.
 Organizational authority has three important underlying
principles:
◦ Authority is based on the organizational position, and anyone in
the same position has the same authority.
◦ Authority is accepted by subordinates. Subordinates comply
because they believe that managers have a legitimate right to
issue orders.
◦ Authority flows down the vertical hierarchy. Positions at the top
of the hierarchy are vested with more formal authority than are
positions at the bottom.

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Authority and Power in Organizations

Authority is the formal and legitimate right of a manager to
make decisions, issue orders, and allocate resources to achieve
organizationally desired outcomes..
Organizational authority has three important underlying principles:
i. Authority is based on the organizational position, and anyone
in the same position has the same authority.
ii. Authority is accepted by subordinates. Subordinates comply
because they believe that managers have a legitimate right to
issue orders.
iii. Authority flows down the vertical hierarchy. Positions at the
top of the hierarchy are vested with more formal authority
than are positions at the bottom.

 Power refers to the ability or capacity to influence the

behaviour or attitude of other individuals.

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DEFERENCE BETWEEN AUTHORITY

AND POWER
Authority is;- Power is;-
Formal right to command Personal ability/capacity to
command
Resides in the position held by Resides in the person who exercise
person it

Positional and institutional Personal through personal qualities

Always flows downward - can Flows in all direction - cannot be

be delegated delegated
Visible from organizational Not visible
chart
Broad concept - can achieve result
Narrow term - on source when authority fails
(originate from position a Originate from technical
person holds in an organization) competences, seniority, expertise,
dominating personality

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G: Line authority Vs Staff authority

 Recall Line and staff organization, to make the
deference of line and staff departments, the authority
are to be defined.
 Line authority
◦ Is an authority which follows the chain of command
established by the forma hierarchy
◦ Is that which entitles a manager to direct the work of an
employee.
◦ It is the employer – employee relationship the extend
vertically from the top most executive to the lowest
subordinate throughout the entire organisational structure
as per chain of command
◦ A clear line authority being implemented in an enterprise,
facilitated clear responsibility for decision making and
effective communication

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Staff authority
 In other words is called “Functional authority”
 Refers to position with same authority level that has been created
to support, assist, advice and some time reduce some of
information burden to those holding the line authority.
 Is an authority delegated to an individual or a department to
control specified process or matter related directly to their
respective functions
 Staff members in each department facilitate vertical coordination
by making their considerable expertise (advice) available where
needed, rather than following a strict chain of command
 It resulted as organizations gets large and more complex, thus line
managers find that they do not have the time, expertise or
resources to get their job done effectively.
 NB:
◦ Functional authority is not limited to any particular department or
manager, it may be exercised by line, service or staff head
◦ Line officers are the executives, and the staff officers are their advisers

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I: Delegation of authority
 Delegation is the downward transfer of authority from a
manager to a subordinate.
 A concept related to authority is delegation.
 Most organizations today encourage managers to delegate
authority in order to provide maximum flexibility in meeting
customer needs.
 In addition, delegation leads to empowerment, in that people
have the freedom to contribute ideas and do their jobs in the
best possible ways.

 NB: The ability to delegate is crucial to managerial success.

 Managers need to take the following steps if they want to

successfully delegate responsibilities to their teams.

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Stages for effective delegation

 Decide tasks to be delegated/ assigned and
determination of the results expected from each
- manager need to define the result expected
from his subordinates for achievements of
organizational goals.
 Decide the specific person to handle each task
and specifically assign tasks to individual team
members - The manager needs to make sure that
employees know that they are ultimately
responsible for carrying out specific assignments.
 Delegate the authority - Give team members the
correct amount of authority to accomplish
assignment, an employee is assigned authority
appropriate with the tasks given.
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Delegation Steps Cont….

 Create an obligation (Responsibility) -Make
sure that team members accept
responsibility - Responsibility is the flip side
of the authority coin. Responsibility is the
duty to perform the task or activity an
employee has been assigned..
 Create an accountability - Team members
need to know that they are accountable for
their projects. Accountability means
answering for one's actions and accepting
the consequences.
 Control the delegation
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H: Centralization and decentralization

 A centralized organization systematically works to
concentrate authority at the upper levels.
 In a decentralized organization, management
consciously attempts to spread authority to the
lower organization levels.
◦ The general pattern of authority throughout an
organization determines the extent to which that
organization is centralized or decentralized.
 NB: In principle, neither philosophy is right or wrong.
◦ What works for one organization may or may not work
for another.
◦ Every organization must assess its own situation and then
choose the level of centralization or decentralization that
works best.

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Centralization and decentralization …cont..

A variety of factors can influence the extent to which a firm is
centralized or decentralized. The following is a list of possible
determinants:
 The external environment in which the firm operates.The more
complex and unpredictable this environment, the more likely it is
that top management will let low-level managers make important
decisions.
 The nature of the decision itself.The riskier or the more important
the decision, the greater the tendency to centralize decision
making.
 The abilities of lower level managers. If these managers do not have
strong decision-making skills, top managers will be reluctant to
decentralize.
 The organization's tradition of management.An organization that
has traditionally practiced centralization or decentralization is likely
to maintain that posture in the future.

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Revision Questions
 What do you understand by the term organizing?
 Briefly explain the steps necessary in organizing activities of
the organization
 Why is it important for managers to organize activities?
 Explain the meaning of organizational structure.
 What are the basic principles for a good organizational
structure?
 Differentiate centralization from decentralization as used in
an organization
 What are necessary steps that enable managers to effectively
delegate authority to lower level?
 Briefly explain the concept of Authority and Power in any
organization.
 What does it mean by the term 'span of management'?
 Differentiate formal and informal organization

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Thank You
for
Listening

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