· web view2.organizing follows planning and both are intimately related. 3.organizing begins...

Chapter 7 Organizing 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 process3. List and discuss the five steps in the organizing process4. Describe and give an example of the four approaches to departmentalization5. Define authority, and explain how line, staff, and functional authority differ6. Explain the concept of power and its sources7. Discuss the following major organizing concepts and how they influence organizing

decisions:a. Unity of direction b. Chain of commandc. Line and staff departments d. Unity of commande. Delegationf. Responsibilityg. Accountability h. Span of controli. Centralization and decentralization

8. Explain the term “informal organization”9. Compare the informal organization to the formal organization

KEY TERMS

accountabilityauthoritycentralizationchain of commandcoercive powercohesioncustomer departmentalizationdecentralizationdelegationdepartmentalizationdivision of labordownsizingexpert powerformal organizationfunctional authorityfunctional definitionfunctional departmentalizationgeographical departmentalizationinformal organizationinteraction chart

legitimate powerline authorityline departmentsnormsorganization chartorganizingoutsourcingpowerproduct departmentalizationreferent powerresponsibilityreward powersanctionsspan of controlspecialization of laborstaff authoritystaff departmentsunity of commandunity of direction

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CHAPTER OUTLINE

I. INTRODUCTIONA. The Formal OrganizationB. Organizing Processes

II. RELATIONSHIP BETWEEN PLANNING AND ORGANIZINGIII. BENEFITS OF ORGANIZINGIV. FIVE–STEP ORGANIZING PROCESS

A. Reviewing Plans and GoalsB. Determining Work Activities

1. Specialization or Division of Labor2. Disadvantages of Work Specialization

V. Classifying and Grouping ActivitiesA. Assigning Work and Delegating AuthorityB. Designing a Hierarchy of Relationships

VI. MAJOR ORGANIZATIONAL CONCEPTSA. Authority

1. Nature, Sources, and Importance of Authority2. Types of Authority3. Line and Staff Departments

VII. UNITY OF COMMANDVIII. POWER

A. Legitimate or Position PowerB. Reward PowerC. Coercive PowerD. Referent PowerE. Expert Power

IX. DELEGATIONA. Importance of DelegationB. Fear of DelegationC. Delegation Process

X. SPAN OF CONTROLA. Wide and Narrow Spans of ControlB. Proper Span of Control

XI. CENTRALIZATION VERSUS DECENTRALIZATIONA. Why Decentralize?B. Guidelines of Judging DecentralizationC. Relationship of Centralization to Span of Control

XII. THE INFORMAL ORGANIZATIONA. Informal Organization Defined

XIII. INFORMAL AND FORMAL ORGANIZATIONS COMPAREDA. Emergence of the Informal OrganizationB. Structure of the Informal Organization

1. Leadership of the Group2. Nonleader Roles for Members3. Working with the Informal Organization

C. Impact of the Informal Organization1. Positive Impact2. Negative Impact


LECTURE OUTLINEThe 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.

I. INTRODUCTION (CHAPTER OUTLINE: SECTION I)

II. THE FORMAL ORGANIZATION

III. 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. Authority1. 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.

B. Informal and Formal Organizations Compared (CHAPTER OUTLINE: SECTION XIII)

1. In the informal organization, the emphasis is on people and their relationships, while the formal organization emphasizes official organizational positions on the organization chart in terms of both authority and responsibility.

2. The leverage in the informal organization is supplied by informal power. In the formal organization, the leverage is supplied by authority.a. Informal power is personal.b. Authority is organizational.c. Power is given by group members.d. Power does not follow the chain of command.e. Power is more unstable than authority.

3. Formal organizations may grow extremely large, but informal organizations tend to remain smaller in order to maintain the personal relationships.

C. Emergence of the Informal Organization

1. Management has created a structure, environment, rules, policies, procedures, chains of command, job descriptions, and prescriptions for behaviors.

2. The informal organization emerges because people do things differently than prescribed.a. Employees act differently than required.b. Employees interact with different people, or with different frequencies, than

their job requires.c. Employees may adopt a whole set of beliefs and attitudes that are different

than those the organization expects of them. d. The “bonding agent” of cohesiveness unites group members toward a


common purpose.e. Individuals, as well as groups, actively participate within the informal

organization.f. Management does not create the informal organization, it happens in spite

of management.3. Another set of information a manager needs, besides the structure of the leader-

member roles, is knowledge of the characteristics of the group. Two characteristics a manager needs to recognize are norms and cohesion.a. Norms are the standards of behavior that are accepted by all group

members.1. A norm serves as a guideline. It tells group members what they can or

cannot do under certain circumstances.2. Groups set their standards through consensus of ideas and activities or

through the influence of the group’s leader.3. Once these norms are established and agreed on by the group, they act

as an internal control device on members.4. There are two important facts about norms: (1) groups establish norms, not man-

agement and (2) if management finds the norms unacceptable, management and the “group” will be on opposite sides.a. Cohesion is measured by the degree to which members share the group’s

goals and cooperate with one another.1. Cohesiveness is an indication of how much control the group has over

its members: the more cohesive, the more control.2. Factors such as stable membership, open communication, small group

size, and physical isolation from other groups can lead to high cohesiveness.

3. Generally, the more cohesive the group, the greater its success in achieving goals and controlling its environment. Groups with low cohesiveness may not be a major influence in either the informal environment or the formal organization.

D. Structure of the Informal Organization

1. Leadership of the Groupa. In informal groups, leaders emerge and member roles evolve.

1. Just as in a formal organization, the informal group develops leader-follower relationships.

2. A person may be a leader in one group and a follower in another.3. Leaders of informal groups arise for various reasons: age, seniority,

charisma, work location, technical ability, or the opportunity to move around the work area freely.

4. There is a possibility that the group may have several leaders of varying importance who perform different functions. Usually one leader will exert more influence on the group than the others.

2. Nonleader Roles for Membersa. In addition to the leadership role in an informal group, there are other roles

for members.1. Normally in an informal group, there is an inner core or primary group; a


fringe group, which functions in and out of the group; and an out-status group, which, though identified with the group, does not participate.

2. There are two methods available to identify the existence of informal groups and their composition—a sociogram and an interaction chart. An interaction chart is a diagram that shows informal interactions.

3. How to work with an informal organization:a. Recognizing that informal groups exist is step one for a manager. b. Step two is to identify the roles members play within that group.c. Step three is having the intelligence to use the information to work

with the informal group.1. Don’t try to influence a group by appealing to fringe members.2. The leaders are at the core of decision making.

E. Impact of the Informal Organization

1. As a positive impact upon the formal organization, the informal organization:a. Makes the entire system effective.b. Provides support management.c. Stabilizes the environment.d. Enhances communication.e. Encourages better management.

2. The negative side of the informal organization may present:a. Pressure to conform.

b. Conflict.

c. Resistance to change.d. Rumor.e. Exposure of weak managers.

SUGGESTED RESPONSES TO REVIEW QUESTIONS

1. How do the functions of planning and organizing relate to each other (a) in the initial development of a company and (b) during the modifications of a company’s structure?

Organizing begins with and is governed by plans; plans state where the organization is going and how it will get there. An organization must be built to see to it that the plans are executed and that their goals are reached. The organization must be able to concentrate its resources in a unified way to translate plans from intentions to realities. When plans change the structure in turn should be modified, if necessary, to achieve the goals. Planning and organizing are continuously interrelated.

2. Identify and explain three important benefits of the organizing process.

Student answers will vary somewhat. The organizing process provides a clarified work environment, coordinated environment, and formal decision-making structure.

3. List the five steps in the organizing process. Draft a one-sentence description of each.Step 1: Review plans and goals. Plans dictate the purposes and activities that


organizations have or will not have. Student descriptions will vary significantly.

Step 2: Determine the work activities necessary to accomplish the objectives. In order to achieve the plans of the organization managers must identify the ongoing tasks or activities and the unique organizational needs.

Step 3: Classify and group activities. This step asks managers to perform three processes: (1) examine each activity to determine its general nature (production, marketing, finance, personnel), (2) group the activities into these related areas, and (3) establish the basic departmental design for the organization structure.

Step 4: Assign work and delegate authority. In this step, the previously identified activities must be assigned to individuals who are simultaneously given the appropriate authority to accomplish the task.

Step 5: Design a hierarchy of relationships. This step requires the determination of both vertical and horizontal operating relationships of the organization as a whole: 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; the horizontal structuring has two important effects: (1) it defines the working relationship between operating departments and (2) it makes the final decision on the span of control.

4. Identify the four popular approaches to departmentalizing. Specify which approach you would recommend for each of the following and defend your choices:

a. A retail hardware store

The proper choice would be a product line organization pattern. This would facilitate each group of products being uniquely identified and supported.

b. A company that manufactures and markets one product

The proper choice would be a functional organization structure. There is no need to specialize the structure as long as a single product is being developed and marketed.

c. A company with sales offices in forty states

The proper choice would be a geographic organization structure. This would allow the opportunity for sales to focus on the uniqueness of each geographic region. If the product being sold was life insurance this would be the only pattern used. If the company produced a tool, the pattern would probably be a combination of functional and geographic.

d. A retail department store

The proper choice would be an organization emphasizing either product line (shoes, pants) or customer (men’s, young teen, junior girls). This would focus the efforts of the organization on the distinct products or customers.


5. Identify and explain the three types of authority.

Line authority is direct supervisory authority. It flows downward in an organization from superior to subordinate. Staff authority is advisory in nature. It does not provide any basis for direct control over the subordinates or activities of other departments. Functional authority is authority delegated to an individual or department over specific activities undertaken by personnel in other departments.

6. What is power? What are its sources? How does it differ from authority?

Power is the ability to exert influences in the organization. Having power can increase the effectiveness of a manager by enabling the manager to influence people to what is wanted beyond the scope of formal authority.

The sources of power are legitimate or position power, coercive power, reward power, referent power, and expert power.

Having power can increase the effectiveness of a manager by enabling the manager to influence people to what is wanted beyond the scope of formal authority. Authority is positional—it will be there when the incumbent leaves. Power is personal—it exists because of the person.

7. Explain the importance to managers of each of these organizing concepts or principles:

a. Unity of direction

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 the task. It is important because one person is in control of the task and coordinates plans.

b. Chain of command

This describes the hierarchy of decision-making levels in the company. It is important because these levels are the vertical structure showing who is in charge of each task, each specialty area, and the organization as a whole.

c. Line and staff departments

A line department is a core work unit established to meet the major objectives of an organization and directly influence its success. Staff departments provide advice, service, guidance, and technical assistance. They do not have direct authority.

d. Unity of command

This principle states that each person in the organization should take orders from and report to only one person. It is important to a manager because if it is


followed, employees will know who to respond to and in turn where to report in the structure.

e. Delegation of authority

This is a concept describing the passing of formal authority to another person. Delegation is important to a manager because it provides a vehicle to develop subordinates and facilitate work being accomplished. The process of delegation should ensure that delegation produces a clear understanding on the part of the manager and of the subordinates.

f. Responsibility

The obligation to carry out assigned duties and to see that the tasks are accomplished is responsibility.

g. Accountability

Accountability is the need for someone to be held answerable for action or inaction of assigned responsibilities.

h. Span of control

This concept is concerned with the number of subordinates each manager has to direct. The exact number is determined by the interplay of four variables: (1) the complexity and variety of the subordinates’ work, (2) the ability and training of the subordinates themselves, (3) the ability of the managers, and (4) the company philosophy about centralization or decentralization of decision making. It is important to a manager to analyze the interplay of the four variables in determining the ultimate span of control and to modify it based on changes in these variables.

i. Centralization/decentralization

This refers to a philosophy of the organization and management that focuses on either the selective concentration (centralization) or the dispersal (decentralization) of authority within an organization structure. It is important to a manager because the philosophy of the organization will result in either the concentration of authority in the hands of one or a few, or the dispersion of authority down the organization structure into the hands of many.

8. What does the term informal organization mean? Of what does the informal organization consist?

The informal organization is a network of personal and social relationships that happen spontaneously among employees within the work environment.

9. How does the formal organization differ from the informal organization?

In the informal organization, the emphasis is on people and their relationships; in the


formal organization, the emphasis is on official organizational positions. The leverage, or clout, in the informal organization is informal power—it is attached to an individual. On the other hand, in the formal organization formal authority comes directly from the position. An individual retains formal authority only so long as he or she occupies the position. Informal power is personal; authority is organizational.


· web view2.organizing follows planning and both are intimately related. 3.organizing begins...

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