Chapter 7Organizing Principles

LEARNING OBJECTIVES

After studying this chapter, you should be able to:

  1. Explain the relationship between planning and organizing
  2. Determine the importance of the organizing process
  3. List and discuss the five steps in the organizing process
  4. Describe and give an example of the four approaches to departmentalization
  5. Define authority, and explain how line, staff, and functional authority differ
  6. Explain the concept of power and its sources
  7. Discuss the following major organizing concepts and how they influence organizing decisions:
  8. Unity of direction
  9. Chain of command
  10. Line and staff departments
  11. Unity of command
  12. Delegation
  13. Responsibility
  14. Accountability
  15. Span of control
  16. Centralization and decentralization
  17. Explain the term “informal organization”
  18. Compare the informal organization to the formal organization

KEY TERMS

accountability
authority
centralization
chain of command
coercive power
cohesion
customer departmentalization
decentralization
delegation
departmentalization
division of labor
downsizing
expert power
formal organization
functional authority
functional definition
functional departmentalization
geographical departmentalization
informal organization
interaction chart / legitimate power
line authority
line departments
norms
organization chart
organizing
outsourcing
power
product departmentalization
referent power
responsibility
reward power
sanctions
span of control
specialization of labor
staff authority
staff departments
unity of command
unity of direction

CHAPTER OUTLINE

  1. INTRODUCTION
  2. The Formal Organization
  3. Organizing Processes
  4. RELATIONSHIP BETWEEN PLANNING AND ORGANIZING
  5. BENEFITS OF ORGANIZING
  6. FIVE–STEP ORGANIZING PROCESS
  7. Reviewing Plans and Goals
  8. Determining Work Activities
  9. Specialization or Division of Labor
  10. Disadvantages of Work Specialization
  11. Classifying and Grouping Activities
  12. Assigning Work and Delegating Authority
  13. Designing a Hierarchy of Relationships
  14. MAJOR ORGANIZATIONAL CONCEPTS
  15. Authority
  16. Nature, Sources, and Importance of Authority
  17. Types of Authority
  18. Line and Staff Departments
  19. UNITY OF COMMAND
  20. POWER
  21. Legitimate or Position Power
  22. Reward Power
  23. Coercive Power
  24. Referent Power
  25. Expert Power
  26. DELEGATION
  27. Importance of Delegation
  28. Fear of Delegation
  29. Delegation Process
  30. SPAN OF CONTROL
  31. Wide and Narrow Spans of Control
  32. Proper Span of Control
  33. CENTRALIZATION VERSUS DECENTRALIZATION
  34. Why Decentralize?
  35. Guidelines of Judging Decentralization
  36. Relationship of Centralization to Span of Control
  37. THE INFORMAL ORGANIZATION
  38. Informal Organization Defined
  39. INFORMAL AND FORMAL ORGANIZATIONS COMPARED
  40. Emergence of the Informal Organization
  41. Structure of the Informal Organization
  42. Leadership of the Group
  43. Nonleader Roles for Members
  44. Working with the Informal Organization
  45. Impact of the Informal Organization
  46. Positive Impact
  47. Negative Impact

LECTURE OUTLINE

The outline below (the lecture outline) is referenced to the above chapter outline and contains supplementary material to enhance your discussion of the chapter, but it is organized somewhat differently. As a result, you have a choice: by using what is in the outline below, (1) you may present the above chapter outline material in a different sequence, or (2) you may use the chapter outline references in the outline below to present the lecture outline material in the same sequence as the chapter outline.

  1. INTRODUCTION (CHAPTER OUTLINE: SECTION I)

II.THE FORMAL ORGANIZATION

  1. ORGANIZING PROCESS

A. Between Planning and Organizing

1.Plans govern all aspects of organizing.

2.Organizing follows planning and both are intimately related.

3.Organizing begins with and is governed by plans; plans state where the organization is going and how it will get there.

4.An organization must be built, or an existing one must be modified, to see to it that management’s goals are reached.

5.An organization structure is a tool of management to achieve plans.

6.As plans change, the organizational structure should be responsive.

7.A company that has taken the time, energy, and money to develop quality plans needs managers who understand the importance of organizing.

8.Organizing, like planning, must be a process, carefully worked out and
applied.

9.This process involves determining what work is needed, assigning those tasks, and arranging them in a decision-making framework (organizational structure).

10.If this process is not conducted well, the results may be confusion, frustration, loss of efficiency, and limited effectiveness.

B.Benefits of Organizing

1.The end result of the organizing process is an organization—a whole consisting of unified parts (a system) acting in harmony to execute tasks to achieve goals, both effectively and efficiently.

2.A properly implemented organizing process should result in a clarified work environment. Everyone should know what to do. The tasks and responsibilities of all individuals, departments, and major divisions should have been clarified. The type and limits of authority will have been determined.

3.There should be a coordinated environment. The interrelationships of the various work units will have been developed. The principle of unity of direction should be achieved: this principle calls for the establishment of one authority figure for each designated task of the organization. This person has the authority to coordinate all plans concerning that task.

4.A formal decision-making structure will be established. This chain of command allows the orderly progression up and down the hierarchy for decision making and decision-making communications.

IV.Five-Step Organizing Process (CHAPTER OUTLINE: SECTION IV)

Managers build an organization by using a five-step process:

A.Step 1: Review plans and objectives.

1.Plans dictate the purposes and activities that organizations have or will have.

2.Managers must examine plans initially and continue to do so as plans change and new goals are developed.

B.Step 2: Determine the work activities necessary to accomplish objectives.

1.Activities that are ongoing, routine tasks for running any business need to be identified.

2.Activities that are unique to a particular business need to be identified.

C. Step 3: Classify and group activities. This requires a manager to perform three processes:

1.Examine each activity identified to determine its general nature (marketing, production, etc.).

2.Group activities into these related areas.

3.Establish the basic department design for the organizational structure.

4.In practice, the first two processes occur simultaneously. Management normally groups activities that are similar in nature under the concept of division of labor— breaking down the work into its basic components and assigning them to individuals who will then be specialists and perform the jobs more efficiently and effectively.

5.As the tasks are classified and grouped into related work units (production, marketing, accounting, and personnel), the third process, departmentalization, is being finalized. A decision is being made on the basic organizational format or departmental structure for the company. Management will choose a structure for the company. Management will choose a departmental type from functional, geographic or territorial, customer, or product line. For further explanation see additional comments in, Classifying and Grouping Activities that follows.

D.Step 4: Assign work and delegate appropriate authority.

1.The work must be assigned to individuals who are simultaneously given the appropriate authority to accomplish the task.

2.The concept serving as the foundation for this step is the principle of functional definition; in establishing a department, the nature, purpose, tasks, and performance of the department must first be determined as a basis for authority. This means that the activities determine the type and quantity of authority necessary.

3.Authority does not come first; assignment of activities establishes the basis for authority. That is, authority follows assignment.

E.Step 5: Design a hierarchy of relationships.

1.This step requires the determination of both vertical and horizontal operating relationships of the organization as a whole.

2.The vertical structuring results in a decision-making hierarchy showing who is in charge of each task, each specialty area, and the organization as a whole. It creates a chain of command—hierarchy of decision-making levels—in the company.

3.The horizontal structure has two important effects: (1) it defines the work relationship between operating departments and (2) it makes the final decision on span of control—the number of subordinates under the direction of each manager.

4.The result of these steps is a complete organizational structure. This is shown by an organization chart—the visual representation of the way an entire organization and each of its parts fit together.

Classifying and Grouping Activities (CHAPTER OUTLINE: SECTION V)

There are four approaches (options) for designing an organization.

1.The functional approach is the most common. It groups activities under the major headings that nearly every business has in common: production, marketing, finance, and personnel. It is logical. Lines are clearly drawn between departments. But, difficulties can arise because personnel are separate from each other. Their understanding and concern for the specialty areas outside of their own is not easy to achieve. It can lead to communication difficulties and lack of cooperation between functional areas. Also, it does not develop generalists in the management area.

2.The geographic approach groups activities and responsibilities according to geography. Expanding companies often locate plants and sales units or repair facilities in various parts of the country because of favorable labor and materials costs, tax incentives, easy access to transportation, or the need to be located near customers to serve them quickly and efficiently.

a.Geographic patterns work best when different laws, currencies, languages, and traditions exist, and have a direct impact on the ways in which business activities must be conducted.

b.The geographic structure furnishes a training ground to develop general management abilities.

c.A limitation to consider is the cost of personnel and facilities. When a company makes the decision to expand geographically it automatically incurs cost through duplication of personnel positions and additional building sites.

3.The production line approach assembles the activities of creating, producing, and marketing each product into one department. This form should be considered if each product requires a unique marketing strategy, production process, distribution system, or capital resources. The major disadvantage is similar to the geographic structure—cost through duplication of business function within each product line.

4.The customer approach groups activities and resources in response to the needs of specific customer groups. If customers have a different set of demands, needs, and preferences, this approach would be appropriate.

a.If the decision is made to use this approach with only some of a firm’s customers, there will be difficulty in coordinating the customer-based departments with departments organized in other patterns.

b.Another possibility is overspecialization: the facilities and personnel may become so specialized to solve the needs of the customers that they cannot be used for any other purpose.

V.MAJOR ORGANIZATIONAL CONCEPTS (CHAPTER OUTLINE: SECTION VI)

A.Authority

1.Authority is a tool of management. It can be described as the right to commit resources (that is, to make decisions that commit an organization’s resources), or the legal (legitimate) right to give orders (to tell someone to do or not do something).

a.Authority is vested in a manager and is defined in the job description or job charter. Authority is with the position, not the person.

1.It is possible for two managers to occupy identical positions of formal authority, with the same degree of acceptance of this authority, and still not be identically effective. One manager may not possess the power to be as effective as the other.

2.There are three types of authority:

a.Line authority is direct supervisory authority from superior to subordinate. Most employees are “related” to line authority.

b.Staff authority is the authority to serve in an advisory capacity.

c.Functional authority is authority delegated to an individual or department over specific activities undertaken by personnel in other departments. It is used in temporary, unique situations.

3.Not to be confused with line and staff authority are line and staff departments.

a.Line departments, headed by a line manager, are the departments established to meet the major objectives of the organization (production, marketing, finance, etc.).

b.Staff departments provide assistance to the line departments and to each other. They can be viewed as making money indirectly for the company through advice, service, and assistance. The traditional staff departments include legal, personnel, computer services, public relations, maintenance, accounting, etc.

1.There is a possibility that line personnel will view staff members as pushy and undermining.

2.Staff members need to develop tact and foster credibility.

4.A concern for all managers in the application of both staff and functional authority is violation of the principle of unity of command: this principle means that each person in the organization should take orders and report to only one person.

a.Unity of command should be a guiding principle in any attempt to develop operating relationships.

b.In reality, because of operating relationships developed through staff departments, it is possible that organizational members will have more than one supervisor in given situations—or perceive that they do. These situations should be minimized, or at least clarified, for the sake of all affected.

B.Unity of Command (CHAPTER OUTLINE: SECTION VII)

1.Each and every employee should report to one and only one superior in an organization. Very few exceptions should be allowed.

2.Two or more bosses for one employee violates this principle.

3.Violations of this principle tend to be inadvertent.

4.Frustration, ineffectiveness, inefficiency, and duplication of effort are products of “dual” or “multiple” command.

C.Power (CHAPTER OUTLINE: SECTION VIII)

1.Power is the ability to exert influence in the organization. Authority is positional—it will be there when the incumbent leaves. Power is personal—it exists because of the person.

2.The sources of power include (1) legitimate or position power, (2) coercive power (punish), (3) reward power, (4) referent or charismatic power, and (5) expert power.

D.Delegation (CHAPTER OUTLINE: SECTION IX)

1.The downward transfer of formal authority is delegation.

2.Work is accomplished through delegation.

3.Fear of delegation inhibits success and timeliness of accomplishment.

4.Delegation is a concept describing the “passing” of formal authority to another person. When managers choose to delegate, a sequence of events is created. The process of delegation includes:

a.Assignment of tasks—specific tasks or duties that are to be undertaken are identified by the manager for assignment to the subordinate.

b.Delegation of authority—the authority necessary to complete the assigned tasks is delegated by the manager for assignment to the subordinate.

c.Acceptance of responsibility—responsibility is the obligation to carry out one’s assigned duties to the best of one’s ability. Responsibility is not delegated by a manager to an employee, but the employee becomes obligated when the assignment is accepted.

d.Creation of accountability—accountability is having to answer to someone for your actions. It means taking the credit or the blame. When the subordinate accepts the assignment and the authority, he or she will be held accountable or answerable for actions taken.

e.By delegating, managers parcel out decision-making authority and specific tasks to appropriate individuals. To be effective authority should be delegated to the level best suited to making the decisions.

E.Span of Control (CHAPTER OUTLINE: SECTION X)

1.Span of control refers to the number of subordinates each manager has to direct. There is no correct number of subordinates to be assigned at the top, middle, or bottom level of the organization.

2.The exact number is determined by:

a.The complexity and variety of the subordinates’ work.

b.The ability of the manager.

c.The ability and training of the subordinates themselves.

d.The supervisor’s willingness to delegate authority.

e.The company’s philosophy for centralization or decentralization of decision-making.

3.In short, a correct or proper size of span of control does not exist.

F.Centralization Versus Decentralization (CHAPTER OUTLINE: SECTION XI)

1.Centralization and decentralization refer to a philosophy of organization and management that focuses on either the selective concentration (centralization) or the dispersal (decentralization) of authority within an organizational structure.

2.Either the authority is concentrated in the hands of a few, or it is forced down the organization structure into the hands of many.

3.Centralization and decentralization are relative concepts when applied to organizations—it depends on top management’s philosophy.

4.The company’s philosophy of centralization or decentralization can influence the span of control of subordinate managers.

a.A philosophy of decentralized decision-making generally means that the span of control is wider for each manager. It results in fewer levels of management in the organization.

b.A philosophy of centralized decision making results in a narrower span of control and more levels of management.

5.For decades, organizational structures have had one thing in common: the hierarchical model with layer on layer of management with a narrow span of control.

a.Now companies are being driven to change their organizational philosophy and, as a result, their structure.

b.The organizing structure companies are moving to is characterized by a restructuring to reflect a philosophy of decentralization, a flatter structure with fewer levels of management and broader spans of control.

6.Major organizations are moving or planning to move toward a more decentralized philosophy of management.

a.Decision making that had been retained at the top of the structure will be moved down to successively lower levels of management.

b.By decentralizing, these companies are placing the decision-making where it needs to be—closer to the action, closer to the customer and marketplace, i.e., specifically where the decision impacts the most.

7.Implementing decentralization will be done in the majority of situations by cutting the layers of management between the CEO and first-line supervisors.

8.A part of the package accompanying decentralized decision making, and a flatter organization structure featuring fewer levels of management, is a broader span of control.

VI.INFORMAL ORGANIZATION (CHAPTER OUTLINE: SECTION XII)

A.Informal Organization Defined

  1. The informal organization is a network of personal and social relationships that arise spontaneously as people associate with one another in a work environment.

2.It is composed of all the informal groupings in the organization.

3. The informal organization should not be thought of as the domain of “workers” only. Managers form informal groups that cut across departmental lines. The informal network applies to all employees.