Session No :1

UNIT 3

Organizing
Organizing

Principles and Practices

of
 OBJECTIVE
OBJECTIVE OF
OF THE
THE UNIT
UNIT

• To know what is the important of the organizing

• To know how the organization structure is important
for the smooth running of the business
• To know which are the different types of
organization structure which will provide strong base
for smooth functioning of a business unit.

© Copyright McGraw-Hill. All rights reserved. 2–2 1

 DEFINATION
DEFINATION OF
OF ORGANISATION
ORGANISATION
• 1.Organization is the social units deliberately structured
for the purpose of attaining specific goals.-Amitai
Etizoni
• 2. Organization is the process of identifying and
grouping of the work to be performed, defining and
delegating responsibility and authority and establishing
relationships for the purpose of enabling people to
work more efficiently together in accomplishing the
objectives.-Allen

© Copyright McGraw-Hill. All rights reserved. 2–3 2

 Characteristics
Characteristics of
of organization
organization
• 1. A specific Objective

• A clear concept of major duties

• Classifications of activities into jobs

• Establishment of relationship between jobs

© Copyright McGraw-Hill. All rights reserved. 2–4 2

 PROCESS
PROCESS OF
OF ORGANISATION
ORGANISATION

Step-1- Considering the objectives-

Objectives determines the various activities. different
structure for different types of organizations.
Step-2.-Grouping of activities into
Departments-
Closely related and similar activities and departments
and sections.Ex.- Marketing dept,production dept .
Step-3-Deciding the key departments-
production dept,.marketing dept.fianance dept.
etc. are the key dept.
Source: Figure 2.1
© Copyright McGraw-Hill. All rights reserved. 2–5 3
 PROCESS
PROCESS OF
OF ORGANISATION
ORGANISATION

Step 4- Determining levels at which Various

Types of Decisions are to be Made. – Balance
of decentralization of authority and
responsibility.
Step 5- Determining the span of Management.-
Number of subordinates reporting to the superior.
Step 6- Setting up a Coordination Mechanism- It
enables the employee to keep sight of the organization
goals and reduce inefficiency and the conflicts. It
reduces the wastage of time.

© Copyright McGraw-Hill. All rights reserved. 2–6 4

 Principles
Principles of
of Organizing
Organizing

1. Objectives
2. Specialization
3. Span of Control
4. Exception
5. Scalars principles
6. Unity of command
7. Delegation
8. Responsibility
9. Authority
© Copyright McGraw-Hill. All rights reserved. 2–7 5
 Principles
Principles of
of Organizing
Organizing
10. Efficiency
11. Simplicity
12. Flexibility
13. Balance
14. Unity of Direction
15. Personal Ability
16. Acceptability

© Copyright McGraw-Hill. All rights reserved. 2–8 6

 Span
Span of
of management
management control
control
It indicated the number of subordinates who report
directly to a manager.

* Efficient utilization of manager

* Effective performance of subordinates

* Relationship between span of management and

organizational structure.
* Vertical and flat organization
© Copyright McGraw-Hill. All rights reserved. 2–9 6
 Factors
Factors affecting
affecting Span
Span of
of Management
Management

1. Ability of the Manager

2. Ability of the employee
3. Type of work
4. Well defined authority and responsibility
5. Geographic Location
6. Sophisticated information and control system
7. Level of Management
8. Economic considerations

*
© Copyright McGraw-Hill. All rights reserved. 2–10 6
 Departmentalization
Departmentalization

“The horizontal differentiation of the task or activities into

discrete segments is called departmentalization”

“ A Departmentalization is a process of dividing the

large monolithic functional organization into small and
flexible administrative units”

© Copyright McGraw-Hill. All rights reserved. 2–11 9

 Bases
Bases for
for departmentalization
departmentalization
• 1. On the basis of Functions- major functions
are grouped together and form a department.
• Ex.- production dept,mkting dept, finance dept.
• 2. On the basis of Products- suited for large
organization where no. of products are produced.
( Product based departments)
• Raw material, manufacturing technology, marketing is
different from other products
• Hindustan lever - detergents, toiletries, chemicals,
agro-based products
• J &J – products for children and surgical products
.
© Copyright McGraw-Hill. All rights reserved. 2–12
12
 Bases
Bases for
for departmentalization
departmentalization

On the basis of customers- on the basis of services.

Electronics firm- military, industrial and consumer
customers

Automobile servicing firm- cars, heavy vehicles and

motor bikes.

Educational institute- distance. Part time and regular

courses.

© Copyright McGraw-Hill. All rights reserved. 2–13

12
 Bases
Bases for
for departmentalization
departmentalization
On the basis of Region or Territory- When the
production and marketing units are located in the different
locations.
Ex- Govt.organisatoins like Railways
( Estern,Western,Norhen,Southern), food corporation of India.
5.On the basis of divisions- when the large companies
segments themselves on the basis of product, regions or
customer they called it as divisions.( independent profit
centers)
6.On the basis of Time- organizations are grouped on the
basis of performance.
Ex- If the business increases a shopkeeper may take more
shops.
© Copyright McGraw-Hill. All rights reserved. 2–14
13
 Bases
Bases for
for departmentalization
departmentalization

7. Onthe basis of Process.-

specially in the manufacturing units this base can be
used.

Ex.- Vegetable oil units- crushing,refining,and

finishing.
Cotton textile mill-
ginning,spinning,weaving,dying.

© Copyright McGraw-Hill. All rights reserved. 2–15 1

 ORGANISATION
ORGANISATION STRUCTURE
STRUCTURE
“ An organization structure is the structural framework for
carrying out the functions of planning, decision-making
control, communication , motivation”

1. Horizontal organization structure

2. Vertical organization structure

3. Organization chart-
“It is a snap shot of an organization at a particular point
which shows the flow of authority and responsibilities and
communication among various departments which are
located at different levels of hierarchy”
© Copyright McGraw-Hill. All rights reserved. 2–16 1
 ORGANISATION
ORGANISATION STRUCTURE
STRUCTURE

© Copyright McGraw-Hill. All rights reserved. 2–17 1

 committees
committees
“A committee is a group of people who have been formally
assigned some task or some problem for their decision
and or implementation.”

A. Advisory committee
committees are vested with staff authority
Advisory in nature
cannot enforce implementation
( work committees, finance committees, sales committees)
B Executive committees
vested with line authority
can enforce decisions
( board of directors )
© Copyright McGraw-Hill. All rights reserved. 2–18 1
 committees
committees
C. Standing Committees
form to deal with recurrent organizational problems
( loan approval committee, admission committee)
members are chosen because of their position

D. Ad-hoc-task forces
form for short duration
dissolved after task over
members are chosen due to their skill, ability

© Copyright McGraw-Hill. All rights reserved. 2–19 1

 team
team
“ A team is a small group of people with different background,
skills and knowledge, who are drawn from different
functional areas of the organization, to work together on a
specific task”

* one member is a team leader

* leadership for particular phase of time
* no hierarchical considerations in a working of team

© Copyright McGraw-Hill. All rights reserved. 2–20 1

 Types
Types of
of team
team
“

1. Project Team – cross functional teams work on project,

time period is limited.

2. Problem-solving team- to solve specific problems

3. Permanent work team- ( autonomous work team) self

contained work unit, freedom of working,

© Copyright McGraw-Hill. All rights reserved. 2–21 1

 Line
Line and
and staff
staff Authority
Authority

Three types of authority in most organization-

1. Line authority 2.staff authority 3 functional authority.
In line authority a superior exercise direct command over a
subordinate. It is a standard chain of command from top to bottom

2. Staff authority is only Advisory in nature.

Staff authority only suggest the ideas. No authority to
implement it.
Ex.- internal auditor, market researcher.
Functional Authority- the highest level of staff authority. He
can give direct orders to the people in other departments.

© Copyright McGraw-Hill. All rights reserved. 2–22 2

 Line
Line and
and staff
staff conflict
conflict
Line staff complains that-
1. Staff people encroach upon their authority.
2. Advice given by staff is mostly academic and
unhelpful
3. If unsuccessful blame line manager, if project is
successful staff claims the credit.
4. Staff officers tend to impose their superiority on line
managers
5. Staff persons are less objective they cares only to
their specialized area and cannot think organization
as a whole.
© Copyright McGraw-Hill. All rights reserved. 2–23 3
 Line
Line and
and staff
staff conflict
conflict

Staff departments complaints that-

1.Line people are stuck to old ideas. They refuse to
accept new concepts.
2. Line people do not trust to the staff people. they are
non-cooperative.
3.Staff not have authority to translate their advice into
action.
4.Line people receives more benefits and good
treatment than staff people.
5.Line people suffers from ego problem.

© Copyright McGraw-Hill. All rights reserved. 2–24 7

 Delegation
Delegation of
of Authority
Authority
•Limitations to the capacity of the manager
•Assign some work to the subordinates
•Also provide some authority
• “ if the manager requires his subordinate to perform the
work, he must entrust him with part of the rights and powers
which the otherwise would have to exercise himself to get that
work done”

•Authority remain with the manager even after delegating to

the subordinates
•The downward pushing of authority to make decisions is
known as delegation of authority.

© Copyright McGraw-Hill. All rights reserved. 2–25 7

 Advantages
Advantages of
of effective
effective delegation
delegation
•It relieves the manager of his heavy work load

•It leads to better decisions

•It speeds up decision-making

•It helps train subordinates and build morale

•It helps to create formal organization structure

•It creates healthy environment in organization..

© Copyright McGraw-Hill. All rights reserved. 2–26 7

 Barriers
Barriers to
to effective
effective delegation
delegation
•Fear of loss of power

•The “ I Can Do it Better Myself” Fallacy

•Lack of confidence in subordinates

•Fear of being exposed

•Difficulty in briefing

•Inability to establish and exercise proper control.

© Copyright McGraw-Hill. All rights reserved. 2–27 7

 Difference
Difference between
between authority
authority and
and Power
Power
.
• It is institutional right of • It is an ability of person
superior to command . to influence others act
• It changes as the person • It rests in the individual
changes in organization even his position change
• It can be delegated to • It cannot be delegated.
subordinate by superior Ability cannot handover
• It is well-defined, shown • It is undefined, location
in organizational chart. cannot from org.chart.
• It is what exist in eye of • It is what is exist in fact.
law.. They are the wire pullers
• Serves as a basis of • Serves as a basis of
formal organization. informational org.

© Copyright McGraw-Hill. All rights reserved. 2–28 7

 Decentralization
Decentralization
• The delegation of authority by an individual manager or
the organization is called Decentralization.
• In a centralized organization the decision making
process is in the hands of top management and in the
decentralization lower level persons can take
decisions.
• According to Henry Fayol, Everything that goes to
increase importance of subordinates role is
decentralization and everything that goes to reduce it is
centralization.
• In practical absolute centralization and
decentralization is not possible

© Copyright McGraw-Hill. All rights reserved. 2–29

8
 Difference
Difference between
between decentralization
decentralization and
and delegation
delegation of
of
authority
authority

• Delegation is a process, decentralization is the end

result.
• Delegation is individual, decentralization is throughout
organization
• In delegation manager is still responsible after
delegation, in decentralization superior is relieved from
his responsibility
• Delegation is imp and essential for management
process, decentralization is optional

© Copyright McGraw-Hill. All rights reserved. 2–30

8
 Advantages
Advantages of
of decentralization
decentralization
.
• 1 It reduces problems of communication and red-tape.
• 2.It speeds up decision making process.
• 3.Importance of human element.
• 4. It creates competitive climate in the organization.
• 5.It ensures development of employee.
• 6.It facilitates diversification of products, activities and
markets.

© Copyright McGraw-Hill. All rights reserved. 2–31

9
 Factors
Factors affecting
affecting Degree
Degree of
of decentralization
decentralization

• 1. Size of the organization

• Rupee volume of sales, number of plants, no. of employees
• 2. History and age of organization
• Family business
• Acquisitions and mergers
• 3. Philosophy of top Management
• Pride of manager of self decision-making
• Owner manager firm- centralization
• 4. Ability of Lower level manager

© Copyright McGraw-Hill. All rights reserved. 2–32

9
 Factors
Factors affecting
affecting Degree
Degree of
of decentralization
decentralization
5. Strategy and organization environment
• Strategies regarding market (uncertain), technological
environment( less dynamic), competition (more stable)
• 6. Nature of Management functions
• Purchasing, cost accounting, quality control, etc –decentralized
• Financial planning, resource allocation- centralized
• 7. Available Controls
• Availability of efficient control and coordination system
• 8 Costliness and Significance of Decisions
• Cost of decision decides degree of centralization

© Copyright McGraw-Hill. All rights reserved. 2–33

9
 Thank You

© Copyright McGraw-Hill. All rights reserved. 2–34