CHAPTER:6

DECISION MAKING
Decision making is defined as selection of a course of action from among alternatives: it
is at the core of planning. A plan cannot be said to exist unless a decision-a commitment of
resources, direction, or reputation-has been made.

THE IMPORTANCE AND LIMITATIONS OF RATIONAL

DECISION MAKING

Decision might be thought of as

1. Premising
2. Identifying Alternatives
3. Evaluating Alternatives In Terms Of The Goal Sought
4. choosing an alternative, that is, making a decision

Rationality in Decision Making:

It is frequently said that effective decision making must be rational. But what is rationality?
When is a person thinking or deciding rationally?

People acting or deciding rationally are attempting to reach some goal that cannot be
attained without action. They must have a clear understanding of alternative courses by which a
goal can be reached under existing circumstances and limitations.

Limited or “Bounded” Rationality:

Limitations of information, time, and certainty limit rationality even though a manager tries
earnestly to be completely rational. Since managers cannot be completely rational in practice,
they sometimes allow their dislike of risk-the desire to “play it safe”-to interfere with their desire
to reach the best solution under the circumstances.

The Principle of the Limiting Factor:

Assuming that we know what our goals are and agree on clear planning premises, the first step of
decision making is to develop alternatives. There are almost always alternatives to any course of
action; indeed, of there seems to be only one way of doing a thing, that way is probably wrong.
If we can think of only one course of action, clearly we have not though hard enough.

The ability to develop alternatives is often as important as being able to select correctly from
among them. On the other hand, ingenuity, research, and common sense will often unearth so
many choices that all of them cannot be adequately evaluated. The manager needs help in this

38
situation, and this help as well as assistance in choosing the best alternative, is found in the
concept of the limiting or strategic factor.

A limiting factor is something that stands in the way of accomplishing a desired objective.

The principle of the limiting factor is as follows: by recognizing and overcoming those factors
that stand critically in the way of a goal, the best alternative course of action can be selected.

EVALUATIONS OF ALTERNATIVES
Once appropriate alternatives have been found, the next step in planning is to evaluate them and
select the one that will best contribute to the goal. This is the point of ultimate decision making,
although decisions must also be made in the other steps of planning-in selecting goals, in
choosing critical premises, and even in selecting alternatives.

Quantitative and Qualitative Factors:

In comparing alternative plans for achieving an objective, people are likely to think
exclusively of quantitative factors. These are factors that can be measured in numerical terms,
such as time or various fixed and operating costs. No one would question the importance of this
type of analysis, but the success of the venture would, be endangered if intangible, or qualitative,
factors were ignored. Qualitative, or intangible, factors are those that are difficulty to measure
numerically, such as the quality of labor relations, the risk of technological change, or the
international political climate.

Marginal Analysis:

Evaluating alternatives may involve utilizing the techniques of marginal analysis to compare
additional revenues arising from additional costs. Where the objective is to maximize profits,
this goal will be reached, as elementary economics teaches, when the additional revenues and
additional costs are equal. In other words, if the additional revenues of a larger quantity are
greater than its additional costs, more profits can be made by producing more. However, if the
additional revenues of the larger quantity
Are less than its additional costs, a larger profit can be made by producing less.

Marginal analysis can be used in comparing factors other than costs and revenues. For example,
to find the best output of a machine, inputs could be varied against outputs until the additional
input equals the additional output.

Cost effectiveness Analysis:

An improvement on, or variation of, traditional marginal analysis is cost effectiveness, or cost
benefit, analysis. Cost effectiveness analysis seeks the best ratio of benefits and costs; this
means, for example, finding the least costly way of reaching an objective or getting the greatest
value for given expenditures.

39
In its simplest terms, cost effectiveness analysis is a technique for choosing the best plan when
the objectives are less specific then sales, costs, or profits.

The major features of cost effectiveness analysis are that it focuses on the results of a program,
helps weigh the potential benefits of each alternative against its potential cost, and involves a
comparison of the alternatives in terms of the overall advantages.
1. Objectives are normally oriented to output or end result and are usually not precise.
2. Alternatives ordinarily represent total systems, programs, or strategies for meeting objectives.
3. The measures of effectiveness must be relevant to objectives and set in terms as precise as
possible, although some may not be subject to quantification.
4. Cost estimates may include nonmonetary as well as monetary costs.
5. Decision standards, while definite but not usually as specific as cost or profit may include
achieving a given objective at least cost, achieving it with resources available, or providing for a
trade-off of cost for effectiveness, particularly in the light of the claims of other programs.

SELECTING AN ALTERNATIVE: THREE APPROACHES

40
Experience

To some extent, experience is the best teacher. The very fact that managers have reached their
position appears to justify their past decisions. Moreover, the process of thinking problems
through, making decisions, and seeing programs succeed or fail does make for a degree of good
judgment (at times bordering on intuition). Many people, however, do not profit by their errors,
and there are managers who seem never to gain the seasoned judgment required by modern
enterprise.

Experimentation

An obvious way to decide among alternatives is to try one of them and see what happens.
Experimentation is often used in scientific inquiry. People often argue that it should be
employed more often in managing and that the only way a manager can make sure some plans
are right-especially in view of the intangible factors-is to try the various alternatives and see
which is best.

The experimental technique is likely to be the most expensive of all techniques, especially if a
program requires heavy expenditures in capital and personnel and if the firm cannot afford to
vigorously attempt several alternatives. Besides, after an experiment has been tried, there may
still be doubt about what it proved, since the future may not duplicate the present. This
technique, therefore, should be used only after considering other alternatives.

Research and Analysis

One of the most effective techniques of selecting from alternatives when major decisions are
involved is research and analysis. This approach means solving a problem by first
comprehending it. It thus involves a search for relationships among the more critical of the
variables, constraints, and premises that bear upon the goal sought. It is the pencil-and-paper
approach to decision making.

Solving a planning problem requires breaking it into its components parts and studying the
various quantitative and qualitative factors. Study and analysis are likely to be far cheaper than
experimentation. Hours of time and reams of paper used for analyses usually cost much less
than trying the various alternatives. In manufacturing airplanes, for example, if careful research
has not preceded the building and testing of the prototype airplane and its parts. The resulting
costs would be enormous.

PROGRAMMED AND NONPROGRAMMED DECISIONS

41
FIGURE:6-2

42
A programmed decision, as show in figure 6.2, is applied to structured or routine problems.
Lathe operators have specifications and rules that tell them whether the part they made is
acceptable, has to be discarded, or should be reworked.

Non-programmed decisions are used for unstructured, novel, and ill defined situations of a
nonrecurring nature. Examples are the introduction of the Macintosh computer by apple
computer, Inc.,

DECISION MAKING UNDER CERTAINTY, UNCERTAINTY,

AND RISK
In a situation involving certainty, people are reasonably sure above what will happen when they
make a decision. The information is available and is considered to be reliable, and the cause and
effect relationships are known.

In a situation of uncertainty, on the other hand, people have only a meager data base they do not
know whether or not the data are reliable, and they are very unsure about whether or not the
situation may change.

In a risk situation, factual information may exist, but it may be incomplete. To improve decision
making, one may estimate the objective probabilities of an outcome by using, for example,
mathematical models.

MODERN APPROACHES TO DECISION MAKING UNDER

UNCERTAINTY

Risk Analysis

All intelligent decision makers dealing with uncertainty like to know the size and nature of the
risk they are taking in choosing a course of action.

Decision Trees

Decision trees depict, in the form of a “tree,” the decision points, chance events, and
probabilities involved in various courses that might be undertaken. A common problem occurs
in business when a new product is introduced. Managers must decide whether to install
expensive permanent equipment to ensure production at the lowest possible cost or to undertake
cheaper, temporary tooling that will involve a higher manufacturing cost but lower capital
investments and will result in lower losses if the product does not sell as well as estimated. In its
simplest form, a tree showing the decisions a manager faces in this situation might be similar to
that in figure 6.3

43
 FIGURE:6-3
Preference Theory

Preference, or utility, theory is based on the notion that individual attitudes toward risk will vary:
some individuals are willing to take only smaller risks than those indicated by probabilities(“risk
averters”) and others are willing to take greater risks(“gamblers”). While referred to here as
“preference theory”, this technique is more classically called “utility theory.

44
Personal Risk or Preference Curves

While not much is known about personal attitudes toward risk, tow things are certain: Some
people are risk averters in some situations and gamblers in others, and some people have by
nature a high aversion to risk and others have a low one. Typical personal risk or preference
curves may be drawn as in figure 6.4 this graph shows both risk averter’s and gambler’s curves,
as well as what is referred to as a “personal” curve. The later, of course, implies that most of us
are gamblers when small stakes are involved but that we soon become risk averters when the
stakes rise.
EVALUATING THE IMPORTANCE OF A DECISION
Since managers not only must make correct decisions but also must make them as needed and as
economically as possible, and since they must do this often, guidelines to the relative importance
of decisions are useful. Decisions of lesser importance do not require thorough analysis and
research, and they may even be safely delegated without endangering an individual manager
basic responsibility. The importance of a decision also depends upon the extent of responsibility,

45
so what may be of practically no importance to a corporation president may be of great
importance to a section head.

OTHER FACTORS IN DECISION MAKING

There are other factors that influence decision making. They will be discussed in more detail in
later chapters.

Personal values and organization culture

The strategic planning model shown in the previous chapter indicated that an important variable
influencing the direction of the enterprise is personal values, primarily all organizational levels,
managers and nonmanagers alike. What is true for individuals is also pertinent to the
organization as a whole, thus, the pattern of behavior, shared beliefs, and values of members of
an organization do influence decision making.

Group decision making In modern organizations, decisions are often made by groups of
individuals, such as committees or teams.

Creativity and innovation effective decision making requires creativity and innovation

DECISION SUPPORT SYSTEMS

Decision support systems (DSSs) use computers to facilitate the decision making process of
semistructured tasks. These systems are designed not to replace managerial judgment but to
support it and to make the decision process more effective. Decision support systems also help
managers react quickly to changing needs. It is clear, them that the design of an effective system
requires a thorough knowledge of how managers make decisions.

COMPARISONS BETWEEN MIS AND DSS

MIS DSS
Focus on structured tasks and routine Focus on semistructured tasks, requiring
decision(e.g., use of procedures, use of managerial judgment
decision rules)

46
Emphasis on data storage Emphasis on data manipulation

Often only indirect access to data by Direct data access by managers

managers

Reliance on computer expert Reliance on managers own judgment

Access to data possibly requiring a wait Direct access to computer and data
for manager’s turn

MIS manager not completely Manager knowing decision

understanding the nature of the environment.
decision

Emphasis on efficiency Emphasis on effectiveness

_____________________________________________________________________

THE SYSTEMS APPROACH AND DECISION MAKING

47
THE SYSTEMS APPROACH AND DECISION MAKING

48
  Decisions cannot be made in a closed-system environment.
 Many elements of the environment of Planning lie outside the enterprise.
 In addition, every department or section of an enterprise is a subsystem of the entire
enterprise; managers of these organizational units must be responsive to the policies and
programs of other organizational units and of the total enterprise.
 Moreover, people within an enterprise are a part of the social system, and their thinking
and attitudes must be taken into account whenever a manager makes a decision.
 Even when managers construct a closed-system model, they do so simply to have a
workable program to solve. But in doing so, they make certain assumptions as to
environmental forces that heavily influence their decision, they enter inputs into their
calculations as they appear to be at any given time, and they change the construction of
their model when forces and developments beyond its boundaries so require.

CHAPTER: 7
49
THE NATURE AND PURPOSE OF ORGANIZING

For an organizational role to exist and be meaningful to people, it must incorporate

Verifiable objectives
A clear idea of the major duties or activities involved;
An understood area of discretion or authority

Organizing as,
The identification and classification of required activities
The grouping of activities necessary to attain objectives
The assignment of each grouping to a manager with the authority necessary to
supervise it.
The provision for co-ordination horizontally and vertically in the organization
structure.
An organization structure should be designed to clarify who is to do what tasks and
who is responsible for what results, to remove obstacles to performance caused by
confusion and uncertainty of assignment, and to furnish decision-making and
communications networks reflecting and supporting enterprise objectives

FORMAL AND INFORMAL ORGANISATION:

50
Formal organization:

It means the intentional structure of roles in a formally organized enterprise.

Describing an organization as “formal”, however, does not mean there is anything inherently
inflexible or unduly confining about it.

Informal Organization:

The functions of the executive, described informal organization as any joint personal
activity without conscious joint purpose, even though contributing to joint results.

ORGANIZATIONAL DIVISION: THE DEPARTMENT

Department designates a distinct area, division, or branch of an organization over
which a manager has authority for the performance of specified activities.

ORGANIZATIONAL LEVELS AND THE SPAN OF

MANAGEMENT:
Organization levels exist because there is a limit to the number of persons a manager
can supervise effectively; even though this limit varies depending on situations. The
relationships between the span of management and the organizational levels are shown. A wide
span of management is associated with few organizational levels; a narrow span, with many
levels.

Organization with Narrow Spans:

51
ADVANTAGES:
 Close supervision
 Close control
 Fast communication between
subordinates and superiors
Organization with Wide Spans:
ADVANTAGES:
 Superiors are forced to delegate
 Clear policies must be made
 Subordinates must be carefully
52
DISADVANTAGES
* Superiors tend to get too
involved in subordinates work
* Many levels of management
* High costs due to many levels
* Excessive distance between
lowest level and top level
DISADVANTAGES
* Tendency of overloaded
superiors to become decision
bottlenecks
 selected * Danger of superiors loss of
control
* Requires exceptional quality of
Managers

Problems with Organizational Levels:

In the first place, levels are expensive. As they increase more and more effort and money
are devoted to managing, because of the additional managers, the staffs to assist them,
and the necessity of coordinating departmental activities, plus the costs of facilities for
the personnel. Accountants refer to such costs as “overhead,” or “burden,” or “general
and administrative,” in contrast to so-called direct costs. Real production is accomplished
by factory, engineering, or sales employees who are, or could logically be accounted for
as, “direct labor.” Levels above the “firing line” are predominantly staffed with managers
whose cost it would be desirable to eliminate, if that were possible.
In the second place, departmental levels complicate communication. An enterprise with
many levels has greater difficulty communicating objectives, plans, and policies
downward through the organization structure than does a firm in which the top manager
communicates directly with employees.
Finally, numerous departments and levels complicate planning and control. A plan that
may be definite and complete at the top level loses coordination and clarity as it is
subdivided at lower levels.

Operational – Management Position: A Situational Approach:

Thus the principle of the span of management states that there is a limit to the number of
subordinates a manager can effectively supervise, but the exact number will depend on the
impact of underlying factors.

FACTORS DETERMINING AN EFFECTIVE SPAN:

 The number of subordinates a manager can effectively manage depends on the impact of
underlying factors.
Subordinate Training:
 The better the training of subordinates, the fewer the number of necessary superior-
subordinate relationships.
 Well-trained subordinates require not only less of their managers time but also less
contact with their managers.
Clarity of Delegation of Authority:
 Although training enables managers to reduce the frequency and extensiveness of time
consuming contacts, the principal cause of the heavy time burdens of superior-
subordinate relationships is to be found in poorly conceived and confused organization.
 The most serious symptom of poor organization affecting the span of Management is
inadequate or unclear authority of delegation
53
Clarity of Plans:
 Much of the character of a subordinate’s job is defined by the plans to be put into effect.
If these plans are well defined, if they are workable, if the authority to undertake them
has been delegated, and if the subordinate understands what is expected, little of
supervisor’s time will be required.

Use of Objective Standards:

 A manager must find out, either by personal observation or through use of objective
standards, whether subordinates are following plans.
 Obviously, good objective standards, revealing with ease any deviations from plans,
enable managers to avoid many time-consuming contacts and do direct attention to
exceptions at points critical to the successful execution of plans.

Rate of Change:
 The rate of change is an important determinant of the degree to which policies can be
formulated and the stability of policies are maintained.
 It explains the organizational structures of companies and also wide span and narrow
span of management.

Communication Techniques:
 The effectiveness with which communication techniques are used also influences the
span of Management.
 Objective standards of control are a kind of Communication device, but many other
techniques reduce the time spent with subordinates.
 An ability to communicate plans and instructions clearly and concisely also tends to
increase a manager’s span.
 A manager’s casual style may please subordinates, but when this easiness degenerates
into confusion and wasted time, it sharply reduces the effective span of Management and
often lowers morale as well.
Amount of Personal Contacts Needed:
 In many instances, face-to-face meetings are necessary. Many situations cannot be
completely handled with written reports, memorandums, policy statements, planning
documents, or other communications that do not involve personal contact.
Variation by Organizational Level:
 Several research projects have found that the size of the most effective span differs by
organizational level.
 The researchers developed and tested a model to take this variable into account and found
that the degree of specialization by individuals was the most important variable affecting
span.
Other Factors:
 Besides all the other factors, there are others that affect the span of Management.
 Simple tasks may allow for a wider span than tasks that are complex and include a great
variety of activities.
 There are still other factors that favor a wider span of Management, such as their
willingness to take reasonable risks.

54
The Need for Balance:
 Despite the desirability of a flat Organization structure, the span of Management is
limited by real and important restrictions.
 Managers may have more subordinates than they can manage effectively, even though
they delegate authority, carry on training, formulate plans and policies.

Narrow span (a great deal of time Wide span(very little time spent with spent
with subordinates) related to:- subordinates) related to:-

-Little or no training -Thorough subordinate training

-Inadequate or unclear authority -Clear delegation to undertake well

delegation defined tasks

-Unclear plans for nonrepetitive - Well-defined plans for repetitive

operations operations
-Nonverifiable objectives and standards -Verifiable objectives used as standards

-Fast changes in internal & external -Slow changes in internal & external
environmements environmements

-Use of poor or inappropriate communication - Use of appropriate techniques such

techniques, including vague instructions as proper org. structure written &
oral communication

-Ineffective interaction bet superior & - Effective interaction bet superior &
Subordinate subordinate

-Ineffective meetings - Effective meetings

-Greater no of specialists at lower & middle - No of specialists at upper level

Levels

-Incompetent & untrained manager - Competent & Trained manager

-Complex task - Simple task

-Subordinate’s unwillingness to assume - Subordinate’s willingness to assume

responsibility & reasonable risks responsibility & reasonable risks

-Immature subordinates - Mature subordinates

ORGANIZATIONAL ENVIRONMENT FOR

ENTREPRENEURING AND INTRAPRENEURING:

55
 Entrepreneurship is thought to apply to managing small businesses
An intrapreneur is a person who focuses on innovation and creativity and who transforms
a dream or an idea into a profitable venture by operating within the organizational
environment. In contrast, the entrepreneur is a person who does the same, but outside the
organizational setting.

THE STRUCTURE AND PROCESS OF ORGANIZING:

Looking at organizing as a process requires that several fundamentals be considered.

In the first place, the structure must reflect objectives and plans, because activities
derive from them.
In the second place, it must reflect the authority available to an enterprise’s
management. Authority in a given organization is a socially determined right to
exercise discretion; as such, it is subject to change.
In the third place, organization structure, like any plan, must reflect its environment.
Just as the premises of a plan may be economic, technological, political, social, or
ethical, so may be those of an organization structure.
In the fourth place, since the organization is staffed with people, the groupings of
activities and the authority relationships of an organization structure must take into
account people’s limitations and customs.

THE LOGIC OF ORGANIZING:

There is a fundamental logic to organizing, as shown. Although steps 1 and 2 are actually part of
planning, the organizing process consists of the following six steps,
Establishing enterprise objectives
Formulating supporting objectives, policies, and plans
Identifying and classifying the activities necessary to accomplish these
Grouping these activities in the light of the human and material resources available and
the best way, under the circumstances, of using them.
Delegating to the head of each group the authority necessary to perform the activities.
Tying the groups together horizontally and vertically, through authority relationships and
information flows.

56
CHAPTER:8
DEPARTMENTATION
BASIC DEPARTMENTATION

The limitation on the number of subordinates that can be directly managed would restrict the
size of enterprises if it were not for the device of departmentation

DEPARTMENTATION BY SIMPLE NUMBERS:

 It was once an important method in the organization of tribes, clans, and armies.

 The simple-numbers method of departmentizing is achieved by tolling off persons who

are to perform the same duties and putting them under the supervision of a manager.

 For one thing, technology has advanced, demanding more specialized and different skills.

57
  A second reason for the decline of departmentizing purely by number is that groups
composed of specialized personnel are frequently more efficient than those based merely
on numbers.

 A third and long-standing reason for the decline of departmentation by numbers is that it
is useful only at the lowest level of the organizational structure.

DEPARTMENTATION BY TIME:

One of the oldest forms of departmentation, generally used at lower levels of the
organization, is grouping activities on the basis of time. The use of shifts is common in many
enterprises where for economic, technological, or other reasons the normal workday will not
suffice.

Advantages:

 First, services can be rendered that go beyond the typical 8 hr day often extending to 24
hrs a day.

 Second, it is possible to use processes that cannot be interrupted, those that require a
continuing cycle.

 Third, expensive capital equipment can be used more than more than 8 hrs a day when
workers in several shifts use the same machines.

 Fourth, some people- students attending classes during the day, for instance- find it
convenient to work at night.

Disadvantages:

 First, supervision may be lacking during the night shift.

 Second, there is the fatigue factor; it is difficult for most people to switch, for instance,
from a day shift to a night shift and vice versa.

 Third, having several shifts may cause problems in coordination and communication.

 Fourth, the payment of overtime rates can increase the cost of the product or service.

Departmentation by Enterprise Function:

 The Functional departmentation embodies what an enterprise typically do.
 The basic enterprise functions are Production, Selling, and Financing.

58
 It has been logical to group these departments into such departments as engineering,
production, sales or marketing and finance.
 A manufacturing enterprise employs the terms “production”, “sales”, and “finance”.
 A wholesaler is concerned with such activities as “buying”, “selling” and “finance”.
 A reason for the variance of terms is that basic activities often differ in importance and also
other methods of departmentation have been deliberately selected.
 Functional departmentation is the most widely employed basis for organizing activities and
is present in almost every enterprise at some level in the organization structure.
 The Characteristics of the selling, production and finance functions of enterprises are so
widely recognized and thoroughly understood that they are not only basis of departmental
organization, but also most often of departmentation at the top level.
 The coordination of activities may be achieved through rules and procedures, various
aspects of planning, the organizational hierarchy, personal contacts and sometimes liaison
departments.

59
Departmentation by Territory or Geography:
 Departmentation based on territory is rather common in enterprises that operate over
wide geographic areas.
 It is important in this case that the activities in a given area or territory be grouped and
assigned to a manager.
 Territorial departmentation is especially attractive to large-scale firms or other
enterprises whose activities are physically or geographically dispersed.
 Many government agencies such as The Internal Revenue Service, The Federal Reserve
Board, The Federal Courts and others adopt this basis of Organization in their efforts to
provide services simultaneously across the nation.
 Territorial Departmentation is most often used in sales and in production.

60
61
Customer Departmentation:

62
  Grouping activities so that they reflect a primary interest in customers is common in a
variety of enterprises.
 Customers are the key to the way activities are grouped when each of the different
things an enterprise does for them is managed by one department head.
 Business owners and managers frequently arrange activities on this basis to cater to the
requirements of clearly defined customer groups.

Process Or Equipment Departmentation:

63
  Manufacturing firms often group activities around a process or a type of equipment. Such
a basis of departmentation can be found in paint or electroplating process grouping or in
the arrangement in one plant area of punch presses or automatic screw machines.
 In this kind of departmentation, people and materials are bought together in order to carry
out a particular operation.

Departmentation by Product:
 Grouping activities on the basis of products or product lines has been growing in
 importance in multiline, large-scale enterprises.
 It can be seen as an evolutionary enterprises.
 Typically, companies and other enterprises adopting this form of departmentation were
organized by enterprise function.
 This structure permits top management to delegate to a division executive extensive
authority over the manufacturing, sales, service, and engineering functions that relate
to a product or product line and to exact a considerable degree of profit responsibility
from each of these managers.

64
Matrix
 Another kind of departmentation is matrix or grid organization or project
or product management.
 The essence of Matrix Organization is the combination of Functional and
project or product patterns of departmentation in the same organization structure.
 In this structure there are functional managers in charge of engineering
functions and an overlay of project managers responsible for the end product.

65
  This kind of organization occurs frequently in construction, in aerospace,
in marketing, in the installation of an electronic data processing system, or in
management consulting firms in which professional experts work together on a project.

Guidelines for Making Matrix Management Effective:

1. Define the objectives of the project or task.
2. Clarify the roles, authority, and responsibilities of managers and team
members.
3. Ensure that influence is based on knowledge and information, rather
than on rank.
4. Balance the power of functional and project managers.
5. Select an experienced manager for the project who can provide
leadership.
6. Undertake organization and team development.
7. Install appropriate cost, time, and quality controls that report
deviations from standards in
a timely manner.

66
 8. Reward project managers and team members fairly.

Strategic Business Units (SBUs):

 Companies have been using an organizational device generally referred to as a Strategic
Business Unit (SBU).
 SBUs are distinct little businesses set up as units in a larger company to ensure that a
certain product or product line is promoted and handled as though it were an
independent business.
 To be called an SBU, generally a business unit must meet specific criteria. An SBU
must:
i. Have its own mission, distinct from the mission of other SBUs.
ii. Have definable groups of competitors.
iii. Prepare its own integrative plans, fairly distinct from those of other SBUs.
iv. Manage its resources in key areas.
v. Have a proper size-neither too large nor too small.

67
 For each SBU a manger is appointed with
responsibility for guiding and promoting the product from the research laboratory
through product engineering, market research, production, packaging, and marketing
and with bottom line responsibility for its profitability.
 The major benefit of utilizing an SBU
organization is to provide assurance that a product will not get “lost” among other
products in a large company.
 It is an organizational technique for preserving
the entrepreneurial attention and drive the characteristics of the small company.

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CHAPTER: 9

LINE/STAFF AUTHORITY AND DECENTRALIZATION

Without Authority- the power to exercise discretion in making decisions- properly placed
In managers, various dept cannot become smoothly working units harmonized for the
accomplishment of enterprise objectives.

AUTHORITY AND POWER

Power, a broader concept than authority, is the ability of individuals or groups to induce
or influence the beliefs or actions of other persons or groups. Authority in org is the right in a
position to exercise discretion in making decisions affecting others.
There are many different bases of power. Legitimate power arises from position and
derives from our cultural system of rights, obligations and duties.
Power may also come from the expertness of a person or a group. This is the power of
knowledge. Power may also exist as referent power i.e. influence which people or groups may
exercise because people believe in them or their ideas.
Reward power allows individuals to grant or withhold high grades.
Coercive power is the power to punish by say firing a subordinate etc.

LINE AND STAFF CONCEPTS

It is an area of mgt that causes more difficulties, more friction, and more loss of time and
effectiveness. It is important as an organizational way of life.
Line functions are those that have a direct impact on the accomplishment of the
objectives of the enterprise. Staff functions are those that help the line persons work most
effectively in accomplishing the objectives.

The nature of line and staff relations

A more logical and precise concept of line and staff is that they deal with relationships.
Line authority gives a superior a line of authority over a subordinate. According to the Scalar
principle.

The clearer the line of authority from the ultimate mgt in an enterprise to every subordinate
position , the clearer will be the responsibility for decision making and the more effective will
be org communication.

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Hence, line authority allows a superior to exercise direct control over the subordinate. The nature
of staff relationship is advisory. Here the function of people is to investigate, research and give
advice to line managers.

Line and staff relationships or departmentation?

Some managers regard line and staff as types of departments. Although a dept may stand
in a predominantly line or staff position with respect to other depts., it is still distinguished by
authority relationships.
In looking at an org structure as a whole, the general character of line and staff for the
total org emerges .Certain depts. May follow staff while others follow line.

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 FIGURE:9-1

FUNCTIONAL AUTHOURITY:

It is right which is delegated to an individual or a department to control specified

processes practices, policies or other matter relating to activities under taken by persons in other
departments. If principles of unity where followed without exception, authority over these
activities would excised only by their lying superiors in cases such as lake of special knowledge
etc. would not allowed managers to excised authority it delegated by a manger in a another
department.
Functional authority is not restricted to managers of a particular type of department, it
may be excised by line, staff departments head etc.

Delegation of Functional Authority:

It is a small slice of the authority of a line superior. A corporation president for example
has complete authority to manage a corporation. Here advises on personal, accounting etc have
no part of this line authority, their duty is to offer counsel but when the president delegates to
these advises the right to issue instructions directly to line organization that right is called
functional authority(9.2).

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 FIGURE:9-2
Restricting the Area of Functional Authority:

Functional authority should be carefully restricted. For eg, purchasing managers

functional authority is limited to setting the procedures for divisional purchasing.

BENEFITS OF STAFF:
Staff advice is more critical for business, government and other enterprises. Operating
managers are now faced with making decisions that require expert knowledge in economic
technical, political legal and other social areas. Another major advantages of staff is that these
specialists may be allowed the time to think, to gather data, and to analysis whereas the superiors
cannot do so. Staff analysis and advice are becoming an urgent necessity.
LIMITATIONS OF STAFF:

It leads to following problems.

1. Danger of Undermining Line Authority :- operating managers often view staff personal
with skepticism. Here authority of department managers is undermined yet proposals will
be accepted as they will recognize the high tide of staff specialists prestige. A
continuation of this situation might harm or even destroy operating departments.
2. Lack of staff responsibility :- Advisory departments only propose a plan; others must
make the decision to adopt the plan and put it into operation. This created an ideal
situation for shifting blame for mistakes.
3. Thinking in a Vacuum:-Staff people do not implement what they recommend , hence it is
possible that staff may think in a vacuum. It may result in friction, loss of morale etc.
4. Managerial Problems:-It is not easy for a department head to be responsible to two or
more people; at the worker level, it may be disastrous to attempt multiple responsibility.

DECENTRALIZATION OF AUTHORITY:

Dispersion for authority in the org:-

The Nature of Decentralization:

Org authority is conferred on people to use their judgment to make decisions and issue
instruction. Decentralization is the tendency to disperse decision-making authority in an
organized structure. There could be absolute centralization of authority in one person, but no
subordinate managers and hence no structured org. some decentralization though not absolute
exists in all orgs. Centralization and decentralization are tendencies (9.3).

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 FIGURE:9-3

Different kinds of Centralization

It has several meanings:

1. Centralization of performance – Pertains to geographic concentration.
2. Departmental Centralization- Concentration of specialized activities.
3. Centralization as an aspect of Management- Tendency to restrict delegation of decision
making.

DELEGATION OF AUTHORITY:

Delegation is necessary for an org to exists. No person in an org can do all the tasks
necessary for accomplishing a group purpose.

How authority is delegated:-

It is done when a superior gives a subordinate discretion to make decisions. Superiors can
not delegate authority they do not have.
Process of delegation involves:
1. Determining the results expected from a positions.
2. Assigning tasks to a position.
3. Delegating authority
4. Holding person in that position responsible for accomplishing tasks.

Splintered Authority:

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 It exists where a problem cannot solved or a decision made without pooling the
authority delegations of two or more managers. It cannot be wholly avoided in making decisions.
However, repeating decision on the matters indicate that authority delegation have not been
properly made and that some reorganization is required.

ART OF DELEGATION

Most failures in effectives delegation occur because of mangers are unable or unwilling
to apply them.

Personal Attitudes toward Delegation:

It is as follows:

1. Receptiveness- Attribute of managers while delegating authority is to give other people

idea a chance, helps others and complement them on their ingenuity.

2. Willingness to let go- A manager who will effectively delegating authority must be
willing to release the right to make decisions to subordinates.

3. Willingness to let others make mistakes- Continual checking by mangers to ensure no

mistakes are made will make to delegation impossible. Since every one makes mistakes a
subordinate must be allowed to make sum and their costs must be considered and
investments in personal development.

4. Willingness to trust subordinate- Superiors have to alternative to trusts their

subordinates for delegation implies a trustful attitudes between them.

5. Willingness to establish and use broad controls- Superior should not delegate authority
unless they find ways of getting feedback. Controls cannot be establish and exercised
unless goals policies etc are used as basics standard for judging activities of subordinate.

Guides for Overcoming Big Delegation:-

It is as follows:

1. Define assignments and delegates authority in the light of results expected.

2. Select the person in light of the job to be done.
3. Maintain open lines of communications ie they should be a free flow of information
between superior and subordinates.
4. Establish proper control.
5. Reward effective delegation and successful assumption of authority.

BALANCE:THE KEY TO DECENTRALIZATION:

TABLE 9.1 ADVANTAGES & LIMITATIONS OF DECENTRALIZATION

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 ADVANTAGES

1. Relieves top management of some burden of decision making & forces upper-level
managers to let go.
2. Encourages decision making & assumption of authority and responsibility
3. Gives manages more freedom & independence in decision making
4. Promotes establishment & use of broad controls which may increase motivation
5. Makes comparison of performance of different organizational units possible
6. Facilitates setting up of profit centers
7. Facilitates product diversification
8. Promotes development of general managers
9. Aids in adaptation to fast changing environment

DISADVANTAGES

1. Makes it more difficult to have a uniform policy

2. Increases complexity of coordination of decentralized organizational units
3. May result in loss of control by upper managers
4. May be limited by inadequate control techniques
5. Maybe constrained by inadequate planning and control systems
6. can be limited by the unavailability of qualified managers
7. Involves considerable expenses for training managers
8. Maybe limited by external forces
9. May not be favored by economies of scale of some operations

CHAPTER:10

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EFFECTIVE ORGANIZING AND ORGANIZATION CULTURE

Organizing involves developing an intentional structure of roles for effective performance.

Organizing requires a network of decision and communication centers for coordinating efforts
toward group and enterprise goals. To work, an organization structure must be understood, and
principles must be put into practice.

AVOIDING MISTAKES IN ORGANIZING BY PLANNING

PLANNING FOR THE IDEAL:

The search for an ideal organization to reflect enterprise goals under given
circumstances is the impetus to planning. The search entails charting the main lines of
organization, considering the organizational philosophy of the enterprise managers and sketching
out consequent authority relationships.
An organizer must always be careful not be blinded by popular notions in
organizing, because what may work in one company may not work in another.

MODIFICATION FOR THE HUMAN FACTOR:

If available personnel do not fit into the ideal structure and cannot or should not be
pushed aside, the only choice is to modify the structure to fit individual capabilities, attitudes or
limitations.
Thus, planning will reduce compromising the necessity for principle whenever
changes occur in personnel.

ADVANTAGES OF ORGANIZATIONAL PLANNING:

Planning the organization structure helps determine future personnel needs and
required training programs.
Organization planning can disclose weaknesses. Duplication of effort, unclear lines of
authority, overlong lines of communication, excessive red tape, and obsolete practices show up
best when desirable and actual organization structures are compared.

AVOIDING ORGANIZATIONAL INFLEXIBILITY

Many enterprises, especially those which have been in operation for many years,
become too rigid to meet the first test of effective organization structure: the ability to adapt to a
changing environment and meet new contingencies.

SIGNS OF INFLEXIBILITY:

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 An organization pattern that is no longer suited to the times, a district or regional
organization that could be either abolished or enlarged bcz of improved communications, or a
structure that is too highly centralized for a enlarged enterprise requiring decentralization.

AVOIDING INFLEXIBILITY THROUGH REORGANIZATION:

Although reorganization is intended to respond to changes in the enterprise environment,

there may be other compelling reasons for reorganization. Those related to the business
environment include changes in operations caused by acquisition or sale of major properties,
changes in product line.
Personality clashes between managers also may be solved by reorganization. Staff-line
conflicts may develop to such a extent that they can be resolved only by reorganization.

THE NEED FOR READJUSTMENT AND CHANGE:

In addition to pressing reasons for reorganization, there is a certain need for moderate and
continuing readjustment merely to keep the structure from becoming stagnant. “Empire building
“is not so attractive when all those involved know that their positions are subject to change.

MAKING STAFF WORK EFFECTIVE

The line staff problem is not only one of the most difficult that organizations face but also
the source of an extraordinarily large amount of inefficiency. Solving these problems requires
great managerial skill, careful attention to principles, and patient teaching of personnel.

UNDERSTANDING AUTHORITY RELATIONSHIP

Managers must understand the nature of authority relationships if they want to solve the
problems of line and staff. As long as managers regard line and staff as groups of people as
groupings of activities, confusion will result. Line and staff are authority relationships and many
jobs have elements of both.

MAKING LINE LISTEN TO STAFF

If staff counsel and advice are justifiable at all, it is bcz of the need for assistance
either from experts or from those freed from more pressing duties to give such assistance.
Line managers should realize that competent staff assistants offer suggestions to
aid and not to undermine or criticize.
Line managers should be encouraged or required to consult with staff.

KEEPING STAFF INFORMED

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 Common criticism of staff are that specialists operate in vacuum, fail to
appreciate the complexity of the line manager’s job, or overlook important facts in making
recommendations. Many criticism arise bcz staff assistants are not kept informed on matters
within their field. Even the best assistant cannot advise properly in such cases.

REQUIRING COMPLETED STAFF WORK

Many staff persons overlook the fact that in order to be most helpful, there
recommendations should be complete enough to make possible a simple positive or negative
answer by a line manager. Staff assistance should be problem solvers and not problem creators.

MAKING STAFF WORK AS A WAY OF ORGANIZATIONAL LIFE

Even under the best of circumstances, it is difficult to coordinate line and staff
authority, for people must be persuaded to co-operate. Staff persons must gain and hold the
confidence of their fellow workers. They must keep in close touch with operating departments,
know their managers and staffs, and understand their problems.

AVOID CONFLICT BY CLARIFICATION

A major reason for conflict in organizations is that people do not understand their
assignments and those of their coworkers.

ORGANIZATION CHARTS

Every organization structure, even a poor one, can be charted, for a chart merely
indicates how departments are tied together along the principal lines of authority. It is therefore
somewhat surprising to find top managers occasionally taking pride in the fact that they do not
have an organization chart or, if they do have one, feeling that the chart should be kept secret.

ADVANTAGES

Subordinate superior relationships exist not because of charting but, rather, because of
essential reporting relationships.
Since a chart map lines of decision making authority, sometimes merely charting on
organizations can show inconsistencies and complexities and lead to their correction. A chart
also reveals to managers and new personnel how they tie into the entire structure.

LIMITATIONS

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 In the first place a chart shows only formal authority relationships and omits the many
significant informal and informational relationships.

FIGURE:10-1

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TABLE 10.1 ILLUSTRATIONS OF ORGANIZATION CULTURE &
MANAGEMENT PRACTICE

Environment A Environment B

PLANNING

Goals are set in an autocratic manner. Goals are set with a great deal of
participation.
Decision making is centralized Decision making is
Decentralized.

ORGANIZING

Authority is centralized. Authority is decentralized.

Authority is narrowly defined Authority is widely defined

STAFFING

People selected on the basis of friendship People selected on basis of

performance.
Training is in a narrowly defined specialty Training is in many functional
areas

LEADING
Managers exercise directive leadership.
Communication flow is mainly top-down
They practice participative
leadership
It is top-down, bottom-up,
horizontal and diagonal

CONTROLLING
Superiors exercise strict control Individuals exercise great deal of
self -control
Focus is on financial criteria Focus is on multiple criteria

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