Mohd Sufian bin Abdul Karim

CEPB 323 Project Management & Construction

Lecture Notes

Organization & Organization Structure

1. Objectives After studying this topic, students are expected to understand and explain: The need for an organization to have an appropriate organization structure. The various organizational structures that can be adopted. 2. Organization An Organization An organization is a set of interdependent elements and parts that process inputs into outputs (refer to Figure 1). Business organizations have specific objectives, for example: Make profits for its owners. Provide customers with goods and services. Provide income for its employees. 3. Organization Structure An organization chart represents the organization structure of an organization. Examples of organization charts are shown in Figures 2 to 5. Organizations are structured based on two fundamental concepts: differentiation and integration. Differentiation Differentiation means that the organization is comprised of many different organizational units that work on different kinds of tasks, using different skills and work methods and procedures. Differentiation is created by job specialization and the division of labour: Specialization o A process in which different individuals in the organizational units perform specific tasks that has been subdivided from bigger into smaller tasks. Division of Labour o The assignment of different tasks to different individuals or groups of people in the organization. Integration Since all specialized and different tasks and parts in an organization cannot be performed completely independently, therefore there must be some kind of
14-Jul-10 Organization & Organization Structure Page 1 of 9

Mohd Sufian bin Abdul Karim

CEPB 323 Project Management & Construction

Lecture Notes

communication and cooperation among them. Integration is the degree to which differentiated units in an organization work together and coordinate their efforts. The need for integration would be greater for a more highly differentiated organization. 4. The Vertical Dimension of Organization Structure Authority It is the legitimate right to make decisions and to tell other people what to do. Authority resides in positions rather than in people. A person at a higher position has a relatively higher authority. Organizations have hierarchy levels (refer back to the organizational pyramid discussed earlier) that indicates the authority levels of personnel.

The board of directors Stockholders are the owners of corporations. Stockholders elect a board of directors to oversee the organization. Board of directors can be top executives from within the organization as well as people from outside the organization.

The Chief Executive Officer The Chief Executive Officer (CEO) occupies the top of the organizational pyramid and is personally accountable to the board of directors for the organizations performance. He has the authority officially vested in the board of directors & usually will also be the Chairman of the board of directors.

The top management team The top management team would usually comprise of the CEO, President, COO, Chief Financial Officer and other key executives in the organization.

Span of Control Span of control refers to the number of subordinates who report directly to an executive or supervisor. Narrow span of control builds a tall organization that has many reporting levels. Wide span of control builds a flat organization with fewer reporting levels. The optimal span of control would maximize effectiveness because: o It is narrow enough to allow managers to maintain good control over subordinates. o It is not too narrow such that it leads to over-control with an excessive number of managers overseeing a small number of subordinates. The decision on what is the optimal span of control would depends on the following factors:
14-Jul-10 Organization & Organization Structure Page 2 of 9

Mohd Sufian bin Abdul Karim

CEPB 323 Project Management & Construction

Lecture Notes

o The work is clearly defined and unambiguous? o Subordinates are highly trained and have access to information? o The manager is highly capable and supportive? o Jobs are similar and performance measures are comparable? o Subordinates prefer autonomy to close supervisory control? Delegation Delegation is the assignment of new or additional responsibilities to a subordinate at a lower level. Delegation is perhaps the most fundamental feature of management, because it entails getting work done through others. When delegating work, the following things must also be given to the subordinates: o Responsibility means that a person who is assigned a task that he or she is supposed to carry out must perform that task. o Authority means that the person has the power and the right to make decisions, give orders, draw upon resources, and do whatever else is necessary to satisfy the responsibility. o Accountability means that the subordinates manager has the right to expect the subordinate to perform the job, and the right to take corrective action in the event the subordinate fails to do so. Delegating work offers important advantages: o The manager would have more time for more important managerial functions and higher-level activities like planning, setting objectives and monitoring performance. o Subordinates get the opportunity to develop new skills and demonstrate their potential for additional and higher responsibilities. The steps in effective delegation: 1. Define the goal succinctly. 2. Select the person for the task. 3. Solicit the subordinates views about suggested approaches. 4. Give the subordinate the authority, time and resources to successfully perform the assignment. 5. Schedule checkpoints for reviewing progress. 6. Follow through by discussing progress at appropriate intervals. Centralized Organization vs Decentralized Organization A centralized organization is an organization in which high level executives make most decisions and pass them down to lower levels for implementation.

14-Jul-10

Organization & Organization Structure

Page 3 of 9

Mohd Sufian bin Abdul Karim

CEPB 323 Project Management & Construction

Lecture Notes

A decentralized organization is an organization in which lower level managers make important decisions and not wait for decisions from higher level managers. The advantage of decentralization is that the affected managers who have the most relevant information could deal directly with the problems and opportunities and can best foresee the consequences of decisions. 5. The Horizontal Dimension of Organization Structure Line departments These departments are units in the organization that deal directly with the organizations principal activities producing the primary goods and services. Examples: Design Department, Manufacturing Department, Distribution Department, etc. Staff departments These departments are units in the organization that support line departments. Examples: Accounting Department, Public Relation Department, Human Resource Department, etc. Departmentalization Departmentalization refers to the subdividing of an organization into smaller subunits. The three basic approaches to departmentalization: o Functional. o Divisional. o Matrix. 5.1 The Functional Organization

An example of a functional organization is shown in Figure 2. Functional organization has departmentalization around specialized activities, such as production, marketing, human resources, etc. Some of the potential advantages of functional organization: Employees have greater opportunity for specialized training and in-depth skill development. Technical specialists are relatively free from administrative work and can focus on their expertise.

The potential disadvantage of functional organization: Managers may not acquire knowledge of other areas of the business.

14-Jul-10

Organization & Organization Structure

Page 4 of 9

Mohd Sufian bin Abdul Karim

CEPB 323 Project Management & Construction

Lecture Notes

5.2 The Divisional Organization

Examples of a divisional organization are shown in Figures 3 and 4. Divisional organization has departmentalization that groups units around products, customers, or geographic regions.

Product Division

Refer to Figure 3. The potential advantages of product organization: Information needs are managed more easily because personnel work on one product and need not worry about other products. People have a full-time commitment to a particular product line. People receive broader training because they need a wide variety of skills to produce the particular products Task responsibilities are clear compared to functional organization.

The potential disadvantage of product organization: Duplication of activities across many products is expensive.

Customer and Geographical Division

Refer to Figure 4. The potential advantages of customer and geographical organization: Able to focus to customer needs and provide faster and better service.

The potential disadvantage of customer and geographical organization: Duplication of activities across many customer groups and geographic areas is expensive.

Table 1 lists some examples of how the same tasks would be organized differently under functional and product organizational structures.

5.3 The Matrix Organization

An example of a matrix organization is shown in Figure 5. A matrix organization is a hybrid of functional and divisional organization. It is composed of a dual reporting relationship in which some manager report to two superiors - a functional manager and a product / project manager. The matrix form violates the unity-of-command principle that may cause a lot of problems. Unity-of-command: A structure in which each worker reports to one superior who in turn reports to another superior.

14-Jul-10

Organization & Organization Structure

Page 5 of 9

Mohd Sufian bin Abdul Karim

CEPB 323 Project Management & Construction

Lecture Notes

Advantages of the matrix organization: Key resources are shared across several important programs or products at the same time that leads to efficient resource utilization. Higher management levels are not overloaded with operational decisions. Decision making is decentralized to a level where information is processed properly and relevant knowledge is applied. Dual career development is elaborated as more career options become available on both sides of the organization.

Disadvantages of the matrix organization: Confusion can arise because employees do not have a single superior to whom they feel they are responsible to. The design encourages managers who share subordinates to jockey for power.

Raw materials Human resources Energy Financial resources Information Equipment

Inputs

Organization Transformation Processes

Outputs

Goods & Services

Figure 1: A simplified perspective on an Organization

Figure 2: An example of a functional organization Source: Bateman, T.S. and Snell, S.A., Management. Building Competitive Advantage, McGraw-Hill, 3rd Edition, 1999.

14-Jul-10

Organization & Organization Structure

Page 6 of 9

Mohd Sufian bin Abdul Karim

CEPB 323 Project Management & Construction

Lecture Notes

Figure 3: An example of a divisional organization based on product Source: Bateman, T.S. and Snell, S.A., Management. Building Competitive Advantage, McGraw-Hill, 3rd Edition, 1999.

Figure 4: An example of a divisional organization based on geography Source: Bateman, T.S. and Snell, S.A., Management. Building Competitive Advantage, McGraw-Hill, 3rd Edition, 1999.

14-Jul-10

Organization & Organization Structure

Page 7 of 9

Mohd Sufian bin Abdul Karim

CEPB 323 Project Management & Construction

Lecture Notes

Table 1: Examples of how the same tasks would be organized differently under functional and product organizational structures Functional Organization A typist pool i.e. the services of a group of typist are shared by more than one executive. A central purchasing department that do all purchasing tasks for the organization. Individual and separate departments for marketing, production, design and engineering in the company. Lecturers in a university statistics department teach statistics for all relevant students in the university. Product Organization Each typist is assigned to one superior. Each product division has its own purchasing unit or department. Each product group has personnel and experts in marketing, design, production and engineering. Each relevant department has its own lecturers who teach statistics only to its own students.

Adapted from Bateman, T.S. and Snell, S.A., Management. Building Competitive Advantage, McGraw-Hill, 3rd Edition, 1999.

Figure 5: An example of a matrix organization Source: Bateman, T.S. and Snell, S.A., Management. Building Competitive Advantage, McGraw-Hill, 3rd Edition, 1999.

14-Jul-10

Organization & Organization Structure

Page 8 of 9

Mohd Sufian bin Abdul Karim

CEPB 323 Project Management & Construction

Lecture Notes

REFERENCES 1. Bateman, T.S. and Snell, S.A., Management. Building Competitive Advantage, McGraw-Hill, 3rd Edition, 1999. 2. Stoner, J.A.F., Freeman, R.E., Management, Prentice Hall, 5th Edition, 1992. 3. Holt, D.H., Management. Principles and Practices, Prentice Hall, 3rd Edition, 1993.

Latest update: 14th July, 2010.

14-Jul-10

Organization & Organization Structure

Page 9 of 9