2 Organizational Structure

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ORGANIZATIONALSTRUCTURE

Peter Druckers key areas of anorganization

Key Areas Description

Marketing standing Enterprise implies its standing and influence in themarket place (against its rivals) & its profitability &


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continuity (going concern).

Innovation Enterprise needs to be prompt at converting newideas into producing and pushing out improved,better or new products to ensure its leading

position, profitability and continuity.

Productivity Enterprise needs to ensure sufficient amount of quality and quantity of the output.

Physical and financialresources

Sufficiency & appropriateness of fixed assets andfunding allow the attainment of visions, missions,goals of the enterprise.

Profitability To keep shareholders, investors and employeeshappy and confident, the enterprise must attainthe expected level of profits / returns.

Managersperformance and

development

Managers current and potential performance hasgreat impact on what level of performance anenterprise can attain in the market place where itis currently operating

Workers performanceand attitude

Workers with positive attitude and behaviorcoupled with encouraging level of professionalproductivity will enable the enterprise to reach itsexpected targets, revenues, profits and etc more

readily.Public responsibility All commercial and profit orientated enterprises

are expected to share some of its wealth with thepublic, community and etc the enterprise operatesit.

Business function

Business function Description

Production or directservice provision

The process of conversion is also a process of value creation.


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Marketing and sales Marketing :- to identify the target marketing- to understand precisely what are their needs- make sure that this was fedback intodesigning of

the product

Sales functions cover retail operations andactivities of sale.

Marketing customers orientated

Sales product orientated

Accounting andfinance

Sales and purchases raise transactions andfunds.

Accounting is to safeguard the assets tocomply with statutory requirements.

Finance function focuses on sources of fundsand funding.

Human ResourceManagement (HRM)

HRM is to ensure the enterprise has the rightperson doing the right job.

Recruitment, selection, induction, training,

development, retention.

Organization structure

Organization structure concern the way in which the tasks

of the organization are divided and coordinated as well aspattern of authority, communication and workflow .


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1. The presence of organization structure also helps to define:i. Tasksii. Responsibilitiesiii. Work rolesiv. Work relationshipv. Line of authority

2. Henry Mintzberg says all types of organization / business operationcan be analyzed from 5 different component parts.

Componentsparts

Description

Operating core Directly involved in securing inputs, processing andproducing outputs.

Directly contributing to revenue generation.

Eg: lecturers in college, machine operators in afactory.

Strategic apex Exists to serve the owner (e.g.: shareholders)

Main concern lead the organization and survival Eg: BOD, CEOs

Middle line Linkage between operating core & strategic apex

Eg: managers


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Technostructure To standardize work

Highly important when business starts to grow

Eg: managers, head of departments

Support staff Provide ancillary services (e.g.: PR, cafeteria )

Independent of the operating core

Significance and influence is on the increase

Organization chart1. Organization structure can be presented in organization chart.

2. Simplified and standardized way of showing:i. the unitsii. Formal communication & reporting channelsiii. Structure of authority, responsibility and delegation

3. Most common chart vertical organization chart, illustrates the flowof authority downwards, the pyramid shape of many organizations.

4. Organization chart is a visual aid of an organization structure.

X Ltd.(BOD)

CEO

General Manager


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Marketing& Sales HR Acc& Finance Admin Production

Purchasing

Organization hierarchy1. Either tall or flat

2. Within the organization, hierarchy refers to:i. Authority the right to do something.ii. Responsibility the formal obligation to do something.iii. Accountability the duty to report to superior how theemployee or the subordinate has gone aboutgetting his/her job done.

Specialization / division of labour1. It occurs when organization/ individual workers concentrate on a

limited type of activity. This builds a greater level of skill&knowledge, thus more efficient.

2. Division of labour is the specialization of labour developed as

industrialization is advanced.

Span of control/ management1. Span of control = number of employees under a superior at one

time.

2. Determining factors of span of control:

Determining factors Description

Ability of the superior If the superior/manager is:

An effective planner

An effective leader

An effective communicator

Skilled at problem-solving


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Ability of subordinates If subordinates are

Qualified

Experienced

Adequately trained

Mature

Availability of time If the superior can always make time for hissubordinates

Nature of tasks If the nature of the assignment is:

Routine/repetitive

Simple

Easy

Easily guided by procedure

The geographical spread The closer the physical proximity between superiorand subordinates, the broader the span of control.

Effectiveness of

coordination,communication andcontrol system

If the highlighted system is up to date,

sophisticated, effective, efficient etc, it willencourage superior to adopt broader span of control.

Tall and flat organization1. Span of control has implication on the shape of an organization.

2. Tall organizational structure = narrow span of control = manyhierarchies

3. Flat organizational structure = broad span of control = fewhierarchies

4. Organizations are encouraged to achieve a flatter structure due toweaknesses in tall structure.

Centralization VS Decentralization1. Level at which decision are made that in centralization and

decentralization refers to the degree to which authority is

delegated.


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2. Centralized structure, authority resides at the top.

3. Decentralized structure, authority is devolving to the lower levels inthe hierarchy.

Advantages of centralization Disadvantages of decentralization

Decisions are made at one point

Relatively easier to plan

Overburdened senior management able to reducestress and workload by delegation to thesubordinates

Senior management often able to take awider view of problems andconsequences

Able to derive at more feasiblesolution

Motivation of the branch managers may improveas greater responsibility and challenges areadded to their workload.

Seniors have greater access toconfidential information coupled withtheir experience and expertise.

Enhance quality of decision making

Branch managers are aware of local needs.

Better position to make realistic decision

Cheaper as there is no need to employthat many middle managers.

Reduce overhead / operating cost

IT and telecommunications have improved wheresenior management are more keen and confidentto delegate.

Due to decision are made at one point, it

become a standardized company.

Improve consistency & effectiveness

Due to the size under the authority of branch

manager, greater speed of decision making andresponse is achieved.

Increase effectivenessEnhance competitiveness

Senior management is in better control of operational and strategic aspects of thebusiness.

Provides opportunity for senior management toidentify branch/local managers loyalty,contribution and ability.

4. Determining factors of centralization or decentralization:

Determiningfactors

Description

Degree of uniformity If uniformity or consistency is a highly importantdecision

Centralization

Economic size As the business or operation increase,

Decentralization


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Cost Monetary : decentralization is financially morecostly as more middle managers are needed

Non monetary: decentralization , seniormanagement must tolerate to any error ormistakes of local/branch managers. The costincludes negative impact on the image.

Availability / suitabilityof subordinates

Branch managers are matured & experienced

Decentralization

Philosophy of management

If senior management favours tight control

Centralization

Nature of the task If the task, taken charge by branch manager,routine task and highly guided by policies &procedures

Decentralization

Sophistication of thecontrol techniques

If mentioned techniques or mechanism are reliable

Decentralization

Environmentalinfluence

Business environment is stable, enterprise is

successful, senior management more motivated totake risk to

Decentralization

Departmentation

Departmentation is concerns with the grouping of activities .

1. Many methods / bases of grouping:

Method Description

By number Based on quantity


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Commonly adopted by non-profit orientatedcorporation

Eg: armed force, police force, cadets

By function

Grouping activities divided into specialist areas. Allows further specialization > sub-departmentation

is made possible.

Only means of departmentation is stand-alone.

Commonly seen in commercially (profit) orientatedenterprises.

By geography Emphasizes on territorial coverage.

Due to size of the business, social responsibility

Eg: telecoms, water supply, postal service

By product/ services Emphasizes on range of product

Eg: universities, hotel (the number of services to beoffered depends on the organizations resources andskills.)

By customer Emphasizes on customers / buyers needs

Eg: hospital, banks (demand / needs of customers)

By time Emphasizes on the hour / schedule of work / shifts

Eg: service sector, manufacturing sector

Bureaucracy: Max Weber

A bureaucracy is a continuous organization of officialfunctions bound of rules.

Advantages

Suitable for routine work.

Highly efficient because the best methods is written in procedures.

It promotes fairness and adherence to laws.

Some individual prefer a predictable and structured environment.

Disadvantages


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Slow decision making

Individual creativity and initiative may be suppressed

Slow to change and not adaptable

Communication is restricted to formal channels only

Characteristics

Hierarchy

Each lower office is under the control and supervision of ahigher one.

Ensure order and control.

Hierarchy is the natural order of things.

Specialisation

Employment is based on ability, adequate training andgrooming.

Individuals are expected to specialise.

Impersonal nature

Employees serve the rules but not the people.

Emphasis is on fairness.

Rationality

Jurisdictional areas of organisation, its operation anddepartments are determined rationally and logically.

Emphasising the need for order, control and fairness.

Professional nature of employment

Employment ability

Workforce full time

Pay prescribed position

Promotion seniority & academic achievement


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Technical competence

Officers are fully qualified.

Their level of expertise need not to be questioned.

Stability

Regular pay, job security and pension.

These are outcome of the business operation being wellorganised and structured.

Uniformity

Direct outcome of concentration of authority at the top thatbrought about synchronization of policies, procedures andrules.

Criticisms

Business increase excessive rules, procedures, increasescomplication and complexity

Formality and rigidity increase, making organisation structuretroublesome and unfriendly.

Completion of a transaction is lengthened that it will takelonger time to complete the intended transaction.

Common feature delay

Senior chooses one way communication which is verticaldownward orientated and discouraged feedback.


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Costly to maintain

Higher positions abusing their authorities.

Employees POV, specialisation leads to repetition and

boredom. Presence of poor motivators especially the pay and

promotion policies.

Customers POV, bureaucracy is not customers orientated

Solutions

Excessive rules and procedures could be simplified.

Addition of new rules, gain opinions and ideas from affectedparties.

Tall structure should be de-layered.

De-layered organisation structure will instantly reduce redtape.

Flatter structures improve communication and distantworking relationship between superior and subordinates.

De-layered organisation structure, cost reduced / saved. Employers have to create opportunities for employee and

creativity work force.

Offer lucrative rewards and benefits to compensate boredom.

More criteria are taken into consideration to enhance bothremuneration and promotion.

No individuals should be allowed in a position too long

(authorities) Needs to be more customer orientated and customer

friendly.

Bureaucracy: Alvin GouldnerDefer from Max Webers understanding of the importance of rules.

Mock bureaucracy


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Rules with enforcement are of no effect.

Thus rules are likely to be ignored.

Representative bureaucracy

Rules are formulated with the participation of workers and areconsidered reasonable.

Rules may be detailed and complex.

Too much enforcement breeds contempt (angry) amongst people.

Punishment centred bureaucracy

Rules are formulated by one party.

Not accepted as legitimate by other parties.

Higher positions abuse authorities.

Matrix structure

Matrix structure is a combination of job based groupwhich project based structure.


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Why

Advanced technologies possess great degree of challenges & risks.

Presences of tough competition threaten survival.

Demanding clients as there are plenty of choices.

Presence of volatile, unpredictable, etc in the environment wherethe business operates.

All these reasons brought about the need for a more flexibleorganisation structure.

Advantages Teams of people with the right skills can be brought together

quickly.

It continues functional economies and product co-ordination.

Flexibility in the resource utilisation, especially manpower.

It encourages the people to have wider ideas as a team.

It improves motivation as people are in teams.

Project manager take charge of a project will become the focalpoint for all the matter. This eases the planning and manning.

Disadvantages

The cost of administration is higher.

May slow down decision making as there are two bosses toreport to.

An individual may be stressed, as he/she has to report to twobosses.

Greater need for interpersonal skills.

If people failed to be brief clearly, conflict will be affectingteamwork.

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