Unit 3

Organizing
Pearce and Robinson
Process of defining the essential relationships among people, tasks and activities
in such a way that all the organisation’s resources are integrated and coordinated
to accomplish its objectives efficiently and effectively.

Henry Foyal
To organize a business means to provide it everything useful to its functioning:
raw materials, tools, capital & personnel.

Haney
Organisation is harmonious adjustment of the specialized parts for the
accomplishment of common purpose .
Organizing : Once the plans are formulated, the next step is to organize
the men and material in order to accomplish those plans.

Organizing is a process through which the firm establishes its structure

and determines the authority, responsibility and accountability of each
member in relation to the job.

Thus, organizing involves-

• Giving each member a specific tasks .
• Establishing departments and divisions.
• Delegating authority to the members.
• Establishing channels of authority and communication.
• Creating a system to coordinate the works of the members
 Process of organisation

Establishing
Identification of Departmental Assignment of reporting
activities isation Duties relationship
1.Identification of Activities:
The first step involves identifying and dividing the work into manageable
activities so that the duplication of efforts can be avoided • For example,
preparation of accounts, making sales, record keeping, quality control,
inventory control, etc. All these activities have to be grouped and classified
into units.

2. Departmentalisation :
The activities which are similar in nature are grouped into
departments. The process is called departmentalisation .
Departments can be created on the basis of products, functions and territory.
This brings specialization in operations.
3.Assignment of Duties:
Once the departments are created, each department is placed under the
charge of an individual, called departmental head. Then, each job is
allocated to an individual, according to his knowledge and skill. The
work must be assigned to those who best fit to perform well.

4.Establishing Reporting Relationships:

Each individual should know who he has to take order from and to whom
he is accountable. Clear relationships helps to create a hierarchal steps
and helps in coordination among departments.
Importance of Organizing
(i)Facilitates Administration .
(ii) Growth and Diversification.
(iii) Creates Synergies.
(iv) Establishes Accountability.
(v) Optimum Use of Technology.
(vi) Facilitates Communication .
vii) Improves Inter-personal Relationships.
(viii) Facilitates Creativity, teamwork & Co-ordination.
ix) Increase output .
Organizational structure
Organizational structure is the backbone of all the operating
procedures and workflows at any company. It determines the
place and the role of each employee in the business, and is key
to organizational development.
A clear structure allows every team member to be involved.
When employees know what they’re responsible for and who
they report to – which isn’t the case in many fast-growing
companies – they’re more likely to take ownership of their
work.
To build an org structure, you need to consider your business
size, life cycle, goals, and positioning.
There are two broad categories of organisation, which are:
1. Formal Organisation
2. Informal Organisation

Formal Organisation: Formal organisation is that type of organisation

structure where the authority and responsibility are clearly defined. The
organisation structure has a defined delegation of authority and roles
and responsibilities for the members.
The formal organisation has predefined policies, rules, schedules,
procedures and programs. The decision making activity in a formal
organisation is mostly based on predefined policies.
Formal organisation structure is created by the management with the
objective of attaining the organisational goals.
 1. Line Organisation
2. Line and Staff
Organisation
3. Functional Organisation
4. Project Organisation
5. Matrix Organisation
Line Organisation: Line organisation is the simplest organisation
structure. It is also known as Scalar or military or departmental type
of organisation.

In this type of organisational structure, the authority is well defined

and it flows vertically from the top to the hierarchy level to the
managerial level and subordinates at the bottom and continues
further to the workers till the end.

There is a clear division of accountability, authority and

responsibility in the line organisation structure.

Line and Staff Organisation: Line and staff organisation is an

improved version of the line organisation. In line and staff
organisation, the functional specialists are added in line. The staff is
for assisting the line members in achieving the target effectively.
Staff officers are functional experts. They provide advice to the line
authorities in the performance of duties. They render advisory service to
the departmental heads.

It is practiced at same level or one department is instructing the other

department.

It can be an instruction but can not be order so the person taking the
command, instruction need not necessarily follow orders.

Staff authority have advisory roles.

Primary is company vision and secondary is support and indirect

contribution to line function.
Functional Organisation: Functional organisation structure
is the type of organisation where the task of managing and
directing the employees is arranged as per the function they
specialise. In a functional organisation, there are three types
of members, line members, staff members and functional
members.

It implements a top-down (centralized) decision-making

process where department managers report to upper
management. Ideally, leaders of different teams
communicate regularly and coordinate their strategies while
lower-level employees have little idea of the processes taking
place outside their department.
Project Organisation: A project organisation is a temporary form of organisation structure
that is formed to manage projects for a specific period of time. This form of organisation has
specialists from different departments who are brought together for developing a new product.

Having multiple supervisors allows for company-wide interaction and faster project delivery. For
instance, when answering to functional managers and project managers, employees have a
chance to collect experience outside their team. While functional managers can help to solve
job-specific issues, project managers can bring in knowledge or talents from other departments.
Matrix Organisation: Matrix organisation is the latest form
of organisation that is a combination of functional and project
organisation. In such organisations there are two lines of
authority, the functional part of the organisation and project
management part of the organisation and they have vertical
and horizontal flow of authority, respectively.
Matrix charts often interconnect employees and teams with
more than one manager, such as a software developer who is
working on two projects—one with their regular team manager,
and another with a separate product manager. In this scenario,
the matrix chart would connect the software developer to each
manager they are working with, with vertical lines.
Informal Organisation: Informal
organisations are those types of
organisations which do not have a defined
hierarchy of authority and responsibility. In
such organisations, the relationship
between employees is formed based on
common interests, preferences and
prejudices.
 Organizational Chart
An organizational chart is a diagram that visually conveys a company's internal structure
by detailing the roles, responsibilities, and relationships between individuals within an
entity.

Most org charts are structured by using the "hierarchical" model, which shows
management or other high-ranking officials on top, and lower-level employees beneath
them.

Organizational charts graphically display an employee's hierarchical status relative to other

individuals within the company. For example, an assistant director will invariably fall
directly below a director on the chart, indicating that the former reports to the latter.
Organizational charts use simple symbols such as lines, squares, and circles to connect
different job titles that relate to each other.
 Types of Organization chart
Hierarchical or Traditional Organizational Chart: This is the classic and widely
used type of org chart. It represents the organization’s vertical hierarchy, showcasing
positions of authority at the top and lower-level positions below..

Matrix Organizational Chart: The matrix structure combines functional departments

and project teams. It displays both vertical reporting lines within departments and
horizontal reporting lines across projects, reflecting dual reporting relationships.

Flat Organizational Chart: Flat organizations have a decentralized approach with

fewer hierarchical levels. This chart type promotes collaboration, open
communication, and a more agile decision-making process.
Divisional Organizational Chart: Organizations with multiple divisions or
business units often utilize this chart. Each division is presented as a
separate entity with its hierarchical structure, allowing for focused
management within each division while maintaining overall coordination.

Team-based Organizational Chart: This chart highlights the importance

of cross-functional teams or self-managed teams. It illustrates the
collaboration and interdependencies among teams from different
departments or functional areas.

Virtual Organizational Chart: With the increasing prevalence of remote

work and virtual teams, virtual org charts have gained relevance. These
charts represent the structure and connections of geographically dispersed or
remote team members, enabling effective collaboration despite physical
distances.
 Departmentalization
Departmentalization is an organizational structure that separates people
into groups, or departments, based on a particular set of criteria. These
departments have their own leadership and work together to complete
tasks. With large or complicated projects, multiple departments may
work together.

Departmentalization, also referred to as departmentation, is the process

of grouping teams or activities into departments or functions with specific
objectives, goals, and outcomes to be achieved. It is a way of dividing an
organization into separate parts (departments), each with its functions
and responsibilities but all geared towards achieving the organization’s
overall goals.
Coordination among these employees is important, as is the ability to
hold employees accountable for their actions.
Objectives of Departmentalization-

•To specialize activities.

•To simplify the process and operations of
the organization
•To maintain control
The four types/methods of departmentalization, each of
which offers a unique perspective of service, are:

Functional departmentalization: grouped by

organizational role, such as accounting, sales, marketing,
and production.

Product departmentalization: grouped by product line

or product type.

Geographical departmentalization: grouped by

location, often based on cultural, social, and political
standards.

Customer or market departmentalization: grouped by

Departmentalization by Function: When the creation of department
is on the basis of specified functions, such as production, marketing,
purchase, finance etc. In this method, all the activities related to a
function or which are of similar nature are combined in a single unit, to
give proper directions to the entire group in one go.
Departmentalization by Product: When the activities related to product development and
delivery are combined into a particular division, it is called as product departmentalization. It is
appropriate for large-scale multi-product enterprises.
Departmentalization by Customer: The grouping of the
organization according to the different classes of customer
or clients. It focuses on special customer needs.
Departmentalization by Territory: When the
division is based on the geographical area, it is
called as territorial departmentalization. This is
suitable for the organizations, that have widespread
operations at different locations.

Territorial departmentalization is especially popular

for sales where division appears feasible according
to some geographic market segregation.
 Span of Management
Span of control, also called span of management, refers to the number of
subordinates who can be managed efficiently by a superior. Simply, the manager
having the group of subordinates who report him directly is called as the span of
management.

Depending on the number of employees that can be supervised or controlled by

managers, there can be two kinds of structures in the organization.

There is a wide and a narrow span of management. With the wider span, there will
be less hierarchical levels, and thus, the organizational structure would be flatter.
Whereas, with the narrow span, the hierarchical levels increases, hence the
organizational structure would be tall.
All the subordinates cannot be
managed by one superior. There has
to be a limit on the number of
subordinates who can be effectively
managed by one superior.

Tall structures:
In this structure, a manager can
supervise less number of
subordinates. He can, therefore,
exercise tight control over their
activities. This creates large number
of levels in the organisation. This is
also known as narrow span of
control.
Under a narrow span of control, managers have fewer
subordinates to supervise. This is common in tall structure
companies involving more levels or layers.
For example, a company has three levels of authority:
directors, division heads, and managers. The division head
oversees three managers. Meanwhile, the manager is
responsible for two subordinates.

LEVEL OF AUTHORITY IS MORE IN NUMBER

Flat Structures: These structures have a wide span of control.
When superior supervises a larger number of subordinates, flat structure
is created with lesser number of hierarchical levels.
For example, a company may have two levels of authority,
namely only the director and the manager as division
head. The manager supervises 6 employees. Each
employee will be responsible and report to the manager,
who in turn will report to the director.
LEVEL OF AUTHORITY IS LESS IN NUMBER
Organizational design
Organizational design principles create a systematic approach to
help a company establish the structures and regulations that guide
it toward reaching its goals. Creating an organizational structure
typically focuses on improving a company's technical and human
aspects.

Organizational design refers to the process of structuring an

organization to achieve its goals effectively and efficiently. It
involves defining the organization's structure, roles, responsibilities,
processes, and systems to ensure that all elements work together to
support the organization's mission and objectives.
Key components of organizational design include:

Structure: This involves defining how the organization is divided into

departments, teams, or units, and how these components interact with
each other. Common structural forms include hierarchical, matrix, flat, or
network structures.
Structure: the hierarchy design of the business.

Strategy
The organizational strategy is the most important starting point for
organizational structure and design.
Strategy: why the business exists and its competitive advantage.
Organizational design is the process of structuring a
company’s staff, hierarchy, and reporting relationships in a
way that effectively supports its goals. It involves defining
roles, responsibilities, and communication lines to foster
efficiency and productivity while aligning with the
company’s mission, vision, and strategic business
priorities.

Organization design is a procedure to mold how your

organization functions, aiming to advance strategies and
achieve objectives. This concept encompasses arranging
frameworks and processes and facilitating individuals in
embracing novel work approaches.
Strategy: why the business exists and its competitive
advantage
Structure: the hierarchy design of the business
Systems: the process for rewarding employees,
submitting departmental reports, or allocating
resources
Processes: the technologies and methods employees
use to do their jobs
People: the type of talent the company can hire
within its departments to meet various goals
Culture: the styles for collaboration, communication,
or management
Systems: the process for rewarding employees, submitting
departmental reports, or allocating resources
Systems and Technology: Selecting and implementing
appropriate systems and technology can enhance
organizational efficiency and effectiveness. This includes
software, communication tools, and other technologies that
support the organization's operations.

Processes: the technologies and methods employees use

to do their jobs.
Processes and Workflows: Designing efficient and
effective processes ensures that tasks and activities are
carried out in a systematic and streamlined manner. This
may involve analyzing and optimizing existing processes or
creating new ones.
Culture: Organizational design also encompasses the
cultural aspects of the workplace. This includes the values,
norms, and behaviors that shape the organization's identity
and influence how employees interact and work together.
Culture: the styles for collaboration, communication, or
management

Environment
The environment also impacts organizational structure and
design. The industry, raw materials, (labor) market,
(international) governmental, and sociocultural influences all
shape the required design to different degrees.
 Decentralized Organizational Structure

Decentralization offers an organizational structure where the

decision making delegates to the middle or lower subordinates
from the top management.

By doing so, the lowest authority levels can make decisions

without the need to worry about top authority levels or a
centralized authority.
It brings relative autonomy to the whole system where there is
no need to revert back and forth for decision making.
The key idea behind a decentralized approach is giving authority
and responsibility to those who know best — since they’re closer
to stakeholders and have relevant information available to them.

A decentralized organizational structure is one in which senior

management has shifted the authority for some types of decision
making to lower levels in the organization.

It refers to a specific form of organizational structure where the

top management delegates decision-making responsibilities and daily
operations to middle and lower subordinates. The top management
can thus concentrate on taking major decisions with greater time
abundance.
Advantages of the Decentralized Organization Structure

The key focus of this structure is pushing decision-making down in the

organization, which has the following advantages:

•Decisions. Local employees have the best knowledge base from which
to make decisions, so this should improve tactical-level decisions
throughout the company. It also removes many small decisions from
senior management, which therefore has more time to develop strategic
direction.

•Speed. Since there are fewer layers of bureaucracy in a decentralized

structure, the company is able to make decisions more quickly, which is
useful in a highly competitive environment.
•Turnover. Employees who are given more authority tend to
stay with a company longer, so employee turnover declines.

•Training. Giving some authority to local managers is an

excellent way to observe their decision-making ability, which
can be used to determine advancement to higher positions.
Disadvantages of the Decentralized Organization Structure
•Local viewpoint. A local manager makes decisions based on his local
viewpoint of the company's operations. This may not lead to decisions
favorable to the company as a whole. For example, a local manager might
pour more funds into a struggling store, whereas a senior manager might
elect to cut losses and shutter the store.

•Procedural differences. There tend to be a large number of small procedural

differences between areas of authority, since each local manager alters
systems to fit his or her own needs. This can cause control problems.

•Silos. It requires a great deal of effort by senior management to encourage

information sharing outside of the local level.
 Centralized organizational structure
A centralized organizational structure relies heavily on top-down decision-making. One
person or an executive team is responsible for approving all relevant decisions, which
they communicate through various levels of management.

The less senior managers complete directives and relay their employees' concerns to
their supervisors.Centralized management is most effective in companies that prioritize
their manufacturing strategies and strive to reduce their operating costs.

Two features of a centralized organization are -

1. Clearly defined roles, responsibilities, and reporting structure
2. Following rules, regulations, and procedures as laid down by higher levels of
management
In centralized organizations, leaders should be directive, authoritative, supportive, and
communicative.

This is the opposite of decentralized businesses. In decentralized organizations, leaders

should be participative and democratic. They must also be strategic and visionary—
delegate authority and responsibility to managers and employees.
 Advantages of Centralization

• A Clear chain of command

• Vision with focus
• Costs reduced
• Rapid implementation of the decisions
• Quality of work is improved
 Disadvantages of centralization

•Leadership of the bureaucratic type

•Remote control
•Delays in work
•Loyalty of employees is lacking
 Delegation of Authority

The delegation of authority refers to the division of labor

and decision-making responsibility to an individual that
reports to a leader or manager.

A manager alone cannot perform all the tasks assigned to

him. In order to meet the targets, the manager should
delegate authority. Delegation of Authority means division
of authority and powers downwards to the subordinate.
When the responsibility and authority is shared with others it is
called delegation. ● Delegation refers to the downward transfer of
authority from a superior to a subordinate to enable subordinates to
perform their responsibilities effectively.

● Delegation of authority is a must because:

(i) It enables the efficient functioning of an organisation.

(ii) It enables managers to use their time on high priority activities.

(iii) It allows managers to extend their area of operation.

 Elements of Delegation
1. Responsibility – It is the obligation of a subordinate to perform the assigned duty efficiently. ●
The process of delegation begins when manager passes on some of his responsibilities to his
subordinates which means responsibility can be delegated. ● It arises from a superior-subordinate
relationship. ● It flows upwards i.e., a subordinate will always be responsible to his superior.

2. Authority – Authority means power to take decisions. ● To carry on the responsibilities, every
employee need to have some authority. ● Authority flows downward from superior to subordinate.
● Authority originates by virtue of a position. It is highest at the top management and reduces as
it flows down. ● Authority is restricted by rules and regulations of the organisation. ● Authority
must be equal to responsibility i.e., Authority = Responsibility.

. 3. Accountability – It is the answerability for the outcome of the assigned task. ● The
accountability arises once the authority is delegated and responsibility is accepted. ●
Accountability flows upwards. A subordinate is accountable to the senior for satisfactory
performance of work. ● A subordinate is expected to provide regular feedback on work done and
explain consequences of any errors or omissions in actions.
Authority - Authority can be defined as the power and right of a person to use
and allocate the resources efficiently, to take decisions and to give orders so as to
achieve the organizational objectives.

Authority must be well- defined. All people who have the authority should know
what is the scope of their authority is and they shouldn’t misutilize it.

Authority is the right to give commands, orders and get the things done. The top
level management has greatest authority.

Authority always flows from top to bottom. It explains how a superior gets work
done from his subordinate by clearly explaining what is expected of him .
Responsibility - is the duty of the person to complete the task
assigned to him. A person who is given the responsibility
should ensure that he accomplishes the tasks assigned to him.

Responsibility without adequate authority leads to discontent

and dissatisfaction among the person. Responsibility flows
from bottom to top. The middle level and lower level
management holds more responsibility.
Accountability - means giving explanations for any
variance in the actual performance from the expectations
set. Accountability can not be delegated.

Accountability, means being answerable for the end

result. Accountability can’t be escaped. It arises from
responsibility.

The top level management is most accountable. Being

accountable means being innovative as the person will
think beyond his scope of job.
Informal and Formal Organization
The organizational structure of your business refers to the way
management levels are established, and the way decisions are made
and implemented to achieve your desired goals.
Formal Organizational Structure
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.

Formal organizations are more structured and rely on authority based upon chains of
command.

In a formal organizational structure, the management and divisions within a company

are typically written and explained so all employees understand how things work.
This documentation may take the form of an organizational chart that visually depicts
how each level of management works to prevent misunderstandings.
Informal Organizational Structure
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 an informal organizational structure, your business doesn’t operate under the

guidelines of a written document that spells out the rules, regulations and chain-of-
command. Under this structure, your business operates by a system developed by
your employees who have proven effective. This structure relies on relationships
forged between staff members, cooperation between teams and communication that
focuses on achieving shared goals.