Organizing as a

Management Function

Upali G Rajapaksha

Roadmap

Organizing and organizations

Structure of organizations
Matrix organizations
Networked organizations
Learning organizations
Challenges in organizations

What Is Organizing?
Organizing

Arranging the
activities of the
enterprise in
such a way that
they
systematically
contribute to the
enterprises
goals.
3

Depicting the
Organization

Organization

Chart

A chart that shows the

structure of the
organization including
the title of each
managers position
and, by means of
connecting lines, who
is accountable to
whom and who has
authority for each
area.
4

Designing Organizational
Structure
Organizational

design

The process by which managers

create a specific type of
organizational structure and culture
so that a company can operate in
the most efficient and effective way

105

Factors Affecting Organizational

Structure

106

Factors Affecting
Organizational Structure
The Organizational Environment
The quicker the environment changes,
the more problems face managers.
Structure must be more flexible (i.e.,
decentralized authority) when
environmental change is rapid.

107

Factors Affecting
Organizational Structure
Strategy
Different strategies require the use of
different structures.
A differentiation strategy needs a flexible
structure, low cost may need a more formal
structure.
Increased vertical integration or
diversification also requires a more flexible
structure.

108

Factors Affecting
Organizational Structure
Technology
The combination of skills, knowledge,
tools, equipment, computers and
machines used in the organization.
More complex technology makes it
harder for managers to regulate the
organization.

109

The Organizational
Environment
Human Resources
Highly skilled workers whose jobs
require working in teams usually need
a more flexible structure.
Higher skilled workers (e.g., CPAs and
doctors) often have internalized
professional norms and values.

1010

Factors Affecting
Organizational Structure
Human

Resources

Managers must take into account all

four factors (environment, strategy,
technology
and human resources) when
designing the
structure of the organization.

1011

Stages of Organizational
Development
Simple

structure

An organization that is low in

specialization and formalization but
high in centralization
Functional

structure

An organization in which similar and

related occupational specialties are
grouped together
Divisional

structure

An organization made up of selfcontained units

12

Stages of Organizational
Development (contd)
Matrix

structure

An organization in which specialists from

functional departments are assigned to work
on one or more projects led by a project
manager
Team-based

structure

An organization that consists entirely of work

groups or teams
Boundaryless

organization

An organization that is not defined or limited

by boundaries or categories imposed by
traditional structures
13

Mechanistic and Organic

Organizations
Mechanistic

organization

The bureaucracy; a structure that is

high in specialization, formalization,
and centralization
Organic

organization

An adhocracy; a structure that is low

in specialization, formalization, and
centralization
Structure

follows strategy
14

Burns and Stalker

15

Structure Variables
Principles

Chain of
command
Span of control
Authority
Power
Responsibility

Departmentalizat

ion
Functional
Divisional

Product
Customer
Geographic
Process

16

Organizational Structure:
Control
Chain

of command

The management principle that no person should

report to more than one boss
Span

of control

The number of subordinates a manager can direct

efficiently and effectively
Authority

The rights inherent in a managerial position to give

orders and expect them to be obeyed
Responsibility

An obligation to perform assigned activities

Power

An individuals capacity to influence decisions

17

Chain of Command

18

Span

of Control

The number of subordinates reporting

directly to a supervisor.
Wide spans: larger number of direct reports.
Narrow spans: fewer number of direct reports.

Tall

vs. Flat Organizations

Tall organizations: more management layers

and more hierarchical controls.
Flat organizations: fewer management layer
and decision making closer to the customer.
19

Types of Organizational
Authority
Line

authority

The position authority (given and

defined by the organization) that
entitles a manager to direct the work
of operative employees
Staff

authority

Positions that have some authority

(e.g., organization policy enforcement)
but that are created to support, assist,
and advise the holders of line authority
20

Managing Organizational
Conflict
LineStaff

Conflict

Disagreements between a line

manager and the staff manager who
is giving him or her advice.
How

to Organize to Reduce
Interunit Conflict
Appeal to power and
the chain of command
Reduce interdependence
Exchange personnel
21

Types of Interdependence

22

Power

Power:the ability of a person or a group to influence the beliefs and actions of

other people. It is the ability to influence events. Power can be personal power.
A person gets his personal power from his personality or from his expert
knowledge. Doctors, Lawyers, Engineers, Programmers, etc. get their power
from their expertise and professional knowledge. Power can also be legitimate
or official power. This power comes from a higher authority.

Authority:the right given to a manager to achieve the objectives of the

organisation. It is a right to get the things done through others. It is a right to
take decisions. It is a right to give orders to the subordinates and to get
obedience from them. A manager cannot do his work without authority.

Authority cannot be bought or sold, given or taken away. Authority is about

who you are as a person, your character, and the influence you've built with
people. Power erodes relationships. You can get a few seasons out of power,
even accomplish some things, but over time power can be very damaging to
relationships. ... there are times when we must exercise power ... in firing a bad
employee [for example - but] we had to resort to powerbecauseour authority
had broken down

Needless to say, goodLeadershipleads by authority and not by power.

23

Types of Power
Legitimate

Power based on ones position in

the formal hierarchy

Coercive

Power based on fear

Reward

Power based on the ability to

distribute something that others
value

Expert

Power based on ones expertise,

special skill, or knowledge

Referent

Power based on identification

with a person who has resources
or traits
24

Principles of Delegation

The manager can delegate authority but

cannot delegate responsibility.

Clarify the assignment.

Delegate, dont abdicate.

Know what to delegate.

Specify the subordinates range of

discretion.

Authority should equal responsibility.

Make the person accountable for results.

Beware of backward delegation.

25

Departmentalization:
Creating Departments
Departmentalization

The process through which an

organizations activities are grouped
together and assigned to managers;
the organizationwide division of work.

26

Departmentalization
Functional

The grouping of activities by functions

performed
Product

The grouping of activities by product produced

Customer

The grouping of activities by common customers

Geographic

The grouping of activities by territory

Process

The grouping of activities by work or customer

flow

27

Organizing Departments by
Function
Functional

Departmentalization

A form of organization that groups a

companys activities around
essential functions such as
manufacturing,
sales, or finance.

28

Functional
Departmentalization

FIGURE 61
29

Organizing Departments by SelfContained Divisions/Purposes

Product

Departmentalization

Grouping departments around a firms

products or services, or each family of
products or services; also referred to
as a divisional organization.
Customer

Departmentalization

Self-contained departments are

organized to serve the needs of
specific groups of customers.
30

Product,
Market, and
Geographic
Structures

1031

Divisional Organization
for a Pharmaceuticals Company

FIGURE 62
32

Customer Departmentalization,

FIGURE 63
33

Functional vs. Divisional

Organizations

Functional Organization Advantages

1. It is simple, obvious, and logical.

2. It fosters efficiency.
3. It can simplify executive hiring and
training.
4. It can facilitate the top managers control.

Functional Organization Disadvantages

1. It increases the workload on the
executive to whom the functional
department heads report.
2. It may reduce the firms sensitivity to and
service to the customer.
3. It produces fewer general managers.

34

Functional vs. Divisional

Organizations

Divisional Organization
Advantages
1. The product or service gets the
single-minded attention of its own
general manager and unit, and its
customers may get better, more
responsive service.
2. Its easier to judge performance.
3. It develops general managers.
4. It reduces the burden for the
companys CEO.
35

Functional vs. Divisional Organizations

Divisional Organization
Disadvantages
1. It creates duplication of effort.
2. It may diminish top
managements control.
3. It requires more managers with
general management abilities.
4. It can breed
compartmentalization.
36

Creating Matrix
Organizations
Matrix

Organization

An organization structure in which

employees are permanently
attached to one department but also
simultaneously have ongoing
assignments in which they report to
project, customer, product, or
geographic unit heads.

37

Matrix Structure

Figure 10.6

1038

Matrix Organization
Departmentalization

FIGURE 66
39

Matrix Organizations
Advantages
Access to
expertise.
Stability of
permanent
department
assignments for
employees.
Allows for focus on
specific projects,
products, or
customers.

Disadvantages
Confusion of
command.
Power struggles
and conflicts.
Lost time in
coordinating.
Excess overhead
for managing
matrix functions.
40

Network-based
Organizations

Organizational Network
A system of interconnected or
cooperating individuals.

Informal

Networks

Communication pathways and

relationships between individuals in an
organization that do not necessarily
conform to the formal chain of
command and communication
networks of an organization.
41

Network-based Organizations
(contd)
Formal

Organizational Network

A recognized group of managers or

other employees assembled by the CEO
and the other senior executive team,
drawn from across the companys
functions, business units, geography,
and levels.
Electronic

Organizational Networks

Networking through technologysupported devices such as e-mail,

video-conferencing, and collaborative
computing software FB.
42

Formal vs. Social Structure

Rarely do the
communication
patterns match the
formal structure

43

Network-based Organizations
(contd)
Team-Based

Organizations

Team
A group of people committed to a common
purpose, set of performance goals, and approach
for which they hold themselves mutually
accountable.

Horizontal

Corporations

A structure that is organized around

customer-oriented processes performed by
multidisciplinary cross-functional teams
rather than by formal functional
departments.
44

Product Team Structure

Figure 10.6

1045

The Horizontal Corporation

Source: John A.
Byrne, The Horizontal
Corporation, Business
Week, 20 December
1993, p. 80.

FIGURE 611

46

Building Horizontal

Make responsibilities overlap. Design

Organizations

individual jobs as broadly as possible, and

keep the number of job titles to a
minimum.
Base rewards on unit performance to
emphasize the importance of working
together.
Change the physical layout to promote
collective responsibility. Let people see
each others work.
Redesign work procedures, provide
computer terminals, use the e-mail
network, and make sure managers are
available.
47

Boundaryless

Organization

An organization in which
management strips away the walls
which typically separate
organizational functions and
hierarchical levels, through
the widespread use of
teams, networks, and
similar structural
mechanisms.
48

Challenges in
Organization

Merging separate organizations with

different structures
Changing an existing organization to
meet external or internal changes in
conditions
Conflicts between departments or
groups
Interdependence between
organizational units
Centralization vs. decentralization
49

Methods for Achieving

Coordination
Mutual

Adjustment

Achieving coordination
through face-to-face
interpersonal
interaction.
Use

Rules and
Procedures
Standardize
Exercise Direct
Supervision: Use the
Chain of Command
Divisionalize

Appoint

Staff
Assistants
Appoint Liaisons
Appoint Committees
Organize
Independent
Integrators
An individual or a
group that coordinates
the activities of
several
interdependent
departments, but is
independent of them.
50

Centralization and
Decentralization
Centralization

A function of how much decisionmaking authority is pushed down to

lower levels in an organization; the
more centralized an organization,
the higher the level at which
decisions are made
Decentralization

The pushing down of decisionmaking authority to the lowest levels

of an organization
51

Decentralize?
Decentralized

Organization

Organizational authority for most departmental

decisions is delegated to the department heads.
Control for major companywide decisions is
maintained at the headquarters office.
Decentralization

Rules:

Decentralize decisions that affect only one

division or area and that would take a long time
for upper management to make.
Centralize decisions that could adversely affect
the entire firm and that upper management can
fairly quickly and easily.

52

Chapter 3. Controlling as a
Management Function

Upali G Rajapaksha

What is Control?
The

process of monitoring activities

to ensure that they are being
accomplished as planned and of
correcting any significant
deviations
An effective control system ensures
that activities are completed in
ways that lead to the attainment of
the organizations goals
54

The Fundamentals Of An
Effective Control System
Control

The task of ensuring that planned

activities are getting the desired results.
All control systems try to influence
behavior.
Controlling involves setting a target
(planning), measuring performance
(evaluation), and taking corrective action.
Control also applies to monitoring every
tasklarge and smallthat is delegated.
55

Relationship between Controlling and the Other

Management Functions

56

Management and the Control

Process

FIGURE 141

57

Types of Control

59

Types of Controls
Feedforward (Preliminary) Controls
ensure that
objectives are clear
proper directions are established
right resources are available

focus on conditions before a

work activity begins (Process
engineering) Many in quality
management believe employees
rarely do a poor job if you have
engineered the job correctly
60

Types of Controls
Concurrent (Steering) Controls
monitor ongoing operations to make
sure they are being done according
to plan
focus on quality of task activities
during work process
In Six Sigma quality control, we want
to monitor what is going on so well
that a few times in a million a
product/service is not correctly
accomplished.
61

Types of Controls
Feedback (Post action) Controls
take place after work is completed
focus on quality of end results
recently we also focus on speed
Quick Response is a strategy for
some companies.

62

Types of Controls
Internal Versus External Control
Internal
allows motivated individuals to exercise selfdiscipline in fulfilling job expectations. You get
the feedback before management has to correct
your work. Most people rather control
themselves and are not called out by
management

External
personal supervision
formal administrative systems (HRM discipline)
progressively sanctions increase

63

Approaches To Maintaining
Control
The

Traditional Control Process

Step 1:
Set a standard, target, or goal.
Step 2:
Measure actual performance
against
standards (observation and
timing).
Step 3: Take corrective action.
The

Commitment-Based Control
Process
Encouraging all employees to exercise
ethical self-control (as they initiate process
improvements and new ways of
responding to customers needs.
64

Two Basic Categories of Control

Systems

FIGURE 144

65

Steps in the Traditional

Control Process
Measuring

actual performance

Personal observation, statistical reports, oral

reports, and written reports
Management by walking around (MBWA)
A phrase used to describe when a manager is
out in the work area interacting with
employees
Comparing

standard

actual performance against a

Comparison to objective measures: budgets,

standards, goals
Range of variation
66

Defining an Acceptable Range of

Variation

67

Taking Managerial Action

Courses

of Action

Doing nothing
Only if deviation is judged to be insignificant.

Correcting actual (current) performance

Immediate corrective action to correct the
problem at once.
Basic corrective action to locate and to correct
the source of the deviation.

Corrective Actions
Change strategy, structure, compensation
scheme, or training programs; redesign jobs;
or fire employees
68

Taking Managerial Action

(contd)
Courses

of Action (contd)

Revising the standard

Examining the standard to ascertain
whether or not the standard is realistic,
fair, and achievable.
Upholding the validity of the standard
Resetting goals that were initially set too low or
too high.

69

The Control Process

70

Tools for Controlling

Organizational Performance:
Financial Controls
Traditional Controls
Other Measures
Ratio analysis
Liquidity
Leverage
Activity

Economic Value
Added (EVA)
Market Value Added
(MVA)

Profitability
Budget Analysis
Quantitative
standards
Deviations
72

Types of Traditional Control

Systems
Diagnostic

controls

A control method, such as a budget, that

ensures that standards are being met and
that variances are diagnosed and explained.

Boundary

Controls

Policies, such as codes of conduct, that

establish rules and identify the actions and
pitfalls that employees must avoid.

Personal/Interactive

Controls

Control methods that involve direct, face-toface interaction with employees so as to

monitor rapidly changing information and
respond proactively to changing conditions.

73

The Basic Management Control

System
Budget

Formal financial expression of a

managers plans.
Capital

Budget

Shows the expenses for equipment

with a life longer than one year.
Operating

Budget

Shows the expected sales and/or

expenses for each of the companys
departments for the planning period
in question.
74

Performance Reporting
Variances

Differences between budgeted and actual

amounts.
Audit

A systematic process of objectively obtaining

and evaluating evidence of the firms
performance, judging the accuracy and
validity of the data, and communicating the
results to interested users.
Financial

Ratio

An arithmetic comparison of one financial

measure to another, generally used to
monitor and control financial performance.
75

Exercises Ratio and

Variance

76

Tools for Controlling

Organizational Performance:
Financial Controls (contd)

Other

Measures

Economic Value Added (EVA)

How much value is created by what a
company does with its assets, less any
capital investments in those assets: the rate
of return earned over and above the cost of
capital.
The choice is to use less capital or invest in highreturn projects.

77

Tools for Controlling

Organizational Performance:
Financial Controls (contd)

Other

Measures (contd)

Market Value Added (MVA)

The value that the stock market places on a
firms past and expected capital investment
projects
If the firms market value (its stock and debt)
exceeds the value of its invest capital (its
equity and retained earnings), then
managers have created wealth.

78

Exercises

79

Controlling Organizational
Performance
Balanced

Scorecard

A measurement tool that uses goals

set by managers in four areas to
measure a companys performance:
Financial, customer, internal processes,
and people/innovation/growth assets

80

Balanced Scorecard

81

Benchmarking of Best
Practices
Benchmarking

The search for the best practices

among competitors or
noncompetitors that lead to their
superior performance.
Benchmark: the standard of excellence
against which to measure and compare.

A control tool for identifying and

measuring specific performance
gaps and areas for improvement.
82

Management by Objectives
(MBO)
MBO

structured process of regular

communication
supervisor and worker jointly set
performance objectives
jointly review results

83

Management by Objectives
(MBO)

Formal agreement
workers performance objectives for
a specific time period
plans through which they will be
accomplished
standards for measuring results
procedures for reviewing results

84

Management by Objectives
(MBO)
Advantages

clearly focuses employee work

efforts
clearly focuses managers work
efforts on areas of support
relationship building between
manager and employee
employee participates in decisions
that affect work
85

Management by Objectives
(MBO)
Performance objectives
improvement
personal development
maintenance

86

Management by Objectives
(MBO)
Performance objective criteria
specific
time defined
challenging
measurable

87

Management by Objectives
(MBO)
How to make MBO work
hire best people
work with them to set challenging
performance objectives
give best possible support
hold employee accountable

88

Implementing Commitmentbased Control Systems

Motivation
Motivation
Techniques
Techniques

Belief
Belief
Systems
Systems

CommitmentCommitmentBased
BasedControl
Control
System
System
CommitmentCommitmentBuilding
BuildingSystems
Systems
90

The Dysfunctional Side of

Control
Unfocused

controls

Failure to achieve desired or intended results

occur when control measures lack specificity
Incomplete

control measures

Individuals or organizational units attempt to

look good exclusively on control measures
Inflexible

or unreasonable control
standards
Controls and organizational goals will be
ignored or manipulated

91

Behavioral Consequences of
Controls
Controls
Controls

Behavioral
Behavioral
Displacement
Displacement

GamesGamesmanship
manship

Operating
Operating
Delays
Delays

Negative
Negative
Attitudes
Attitudes

92

Contemporary Issues In
Control
The

right to personal privacy in the

workplace versus:
Employers monitoring of employee
activities in the workplace
Employers liability for employees creating
a hostile environment
Employers need to protect intellectual
property

The computer on the desk typically

belongs to the organization
93