Nature of Organizations

The term “organization” become prominent in management during the late 1920’s and early 1930’s. Some
theorists define it as a social group that is oriented toward a purpose. Several other theorists define an organization as
having well-coordinated processes and interacting with its environment. Putting these ideas together, an organization is
thus defined as a social group that has well-coordinated processes and activities for the purpose of achieving its objectives
and is connected to the environment where it exists.
Organization as a management function entails the structuring and grouping of jobs and ensuring that these are
performed by qualified and competent personnel. The organizing process brings together all the human, physical and
financial resources and integrates them with related jobs and position. This process also ensure that authority and
responsibility are well-defined and internally coordinated within the organization.
A manager performs the organizing function based on the following steps. First, essential activities are defined. Once this
is done related activities or task are grouped into department or units. After the jobs are grouped, the authority given to a
manager are classified and defined. This is called hierarchy. This clarifies the line authority of top-level, middle-level,
and low-level management and avoids confusion among employees as to who their immediate superiors are. Once
authority is defined, specific responsibilities are determined for manager. The illustration below summarizes the
organizing process.
Identification of Activities

Departmentalization

Definition of Authority

Integration of Authority and

Responsibility

Organizational Design and Structure

The overall design of organizational structure focuses on three aspects: works activities , reporting relationship,
and departmental grouping option. The organizational design identifies the essential task and operation of the company,
established effective works relationship and divides the company into departments that will contribute toward achieving
its goal and objective. The organizational structure is the framework that shows how each component of the company
relates to each other.

Configuration and Elements of Organizational Structure

An organizational structure can be configured or arrange into two ways – mechanistic structure and organic structure.
A mechanistic structure is a rigid and tightly controlled structure that resembles a bureaucracy. The flow of
communication and job responsibilities are carefully delineated and decision are mostly made from the top. Its advantage
is that maximizes efficiency while minimizing costs. However, mechanistic structure discourage individual initiative and
innovation because of its tight control.
An organization that employs an organic structure, meanwhile, is more flexible and highly adapted. The
organization is decentralized and less formal, and employees are given broader responsibilities based of the current needs
of the company. Employees are also empowered and given accountability for their action. An organic structure is
recommended if the organization has an unstable environment. A major advantage of this structure is that it result in
greater employee satisfaction because they are empowered and allowed to innovate.
Organizational structure also have six key elements that contribute to determining aspects of an organization such
as work relationship, hierarchy, and communication processes.
1. Work Specialization which refers to the way jobs are divided into steps or individual tasks. In an organization,
several individuals perform these task required to a complete a job.
2. Departmentalization which refer to the grouping of similar function jobs and task into a department.
Departmentalization may be functional, where personnel and task are related to a single company operation are
grouped together. Divisional departmentalization, grouped personnel and resources based on products, services,
processes, and geographic location or customer.
3. Chain of command which indicates communication and works responsibilities between employees and
managerial indicates who reports to whom. The chain of command is defined as three underlying principles.
Authority is the right inherent in a managerial position to give directional or tell people what to do and expect
them to undertake it. Responsibility is an obligation to perform duties assigned to an employee. Unity of
command require that an employee should report only to one superior.

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 4. Span of Control which refers to the number of employees a manager can effectively and efficiently manage.
Recent trends results in many business employing larger span of control to managers. One reason for this is that a
greater span increases flexibility and speed up decision making. Another is that employees are more empowered,
less supervised, and are given more opportunities to work independently. For this to be effective, workers must be
trained well.
5. Degree of Centralization which refers to the extent authority and decision-making is given to a small group of
people in the organization. Centralization occurs when major decision are made by the top management and the
decisions and actions of lower management and employees must have approval from the top. Decentralization
occurs when lower management is allowed to make important decisions. It is applicable to companies that are
widely dispersed in several areas, or with businesses that encounter uncertain business environments.
6. Formalization which is the process of standardizing jobs and establishing rules and guidelines that guide
employees. It helps in providing consistency in the procedures and job responsibilities of the employees. A
company with a high degree of formalization has clear job descriptions and policies that govern its activities and
employees behavior.

Simple Organizational Structure

A simple organizational structure is the most basic structure and is applicable to small businesses where majority
of the power and decision-making rests on the owner. This allows for quick decision-making and hands- on interaction
with the day-to-day activities of the firm. Businesses following this structure are easily maintained. Accountability is also
easily determined because the owner has the sole authority and responsibility in running business.

Functional Grouping
The functional grouping design organizes a company by grouping together similar functions into departments.
Tasks and operations are controlled through a Vertical Hierarchy, where employees follow a chain of command and top
managers delegate tasks to lower-level managers and employees. One of the strengths of this design is that it groups
employees who have similar skills under the same department of units. This enables the organization to easily fulfill
specific task to meet its functional goals. However, one weakness is that the organization cannot respond quickly to
environmental changes. The highly rigid and segregated structure of the organization can also level to poor coordination
among departments. Also, innovation is unlikely to develop because there is a narrower view of organizational goals.
The Function Organizational Structure
The function organizational structure emphasizes hierarchy and specialization among departments. A functional
structure enables a company to establish clear professional identities among its employees, since they are given positions
and ranks in line with their areas of expertise or specialization. Thus structure, however, may also bring about competition
among employees assigned to different departments. If each department, however, focuses only their specific department
and ignores the others, problems may arise.

Divisional Grouping
The design organizes a company into divisions that correspond to certain products or services. The division can
also be based on geography such as a regional branch or office. Each office division is autonomous and has its own
departments, resources, and units that oversee the regular operations of the company such as human resources,
accounting, information technology, and operations.
Division Organizational Structure
One of the advantages of a divisional structure is that it allows employees in each division to concentrate on their
own division’s performance. Employee supervision and issue handling are more specific because these are concentrated in
a particular division. However, this type of organizational structure leads to duplication of functions, expertise, and
resources and is more costly to maintain. There may be too much independence among divisions, thereby discouraging
camaraderie and synergy among employees

Multi-focused Grouping
This design combines both the functional and divisional structures in organizing a company. An example of
multi-focused grouping design is the matrix structures. This is used when both technical expertise and product
innovation are crucial in meeting organizational goals. Instead of establishing a hierarchy or division, relationships within
the company are arranged in a grid, where employees report to functional and product managers.
There are two types of matrix structures. The functional matrix organizes the company in a way that gives
functional managers primary authority. The product matrix, meanwhile, assigns greater authority to the product
managers.

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 Matrix Organizational Structure
The matrix organizational structure combines features of functional and divisional structure. The matrix structure
is often used in large companies and is set up as a grid where employees have dual reporting relationships. Additionally,
the flow of authority of the functional manager is vertical, while that of a project manager is horizontal. Projects within a
matrix structure are usually assigned specific time frames.
One of the advantage of the matrix structure of the matrix structure is that employees from different department
can be selected to work on a project. Meanwhile, the disadvantage of this structure is that there is conflict of interest
among project managers and functional managers in the allocation of resources.

Horizontal Grouping
Horizontal grouping eliminates the complexities of hierarchies and division. Instead it established a structure it
established a structure with little or no levels between employees, middle managers, and top management. Employees are
organize into general core processes or operational and all department in the company work together in all tasks. A
horizontal structure promotes flexibility and quick response to changes. It also directs the attention of all employees
towards the production and delivery of quality products and services to the customers. It gives a broader view of
organizational goals and promotes teamwork and collaboration. However, determining the core processes of the company
will make organization time-consumption. The design is also costly since it requires rigorous training of employees to
enable them to adapt to a horizontal structure. Implementing a horizontal design requires a lot of changes in the work
culture, job design, management philosophy, and information and rewards system of the company.
Team-based Organizational Structure
A team-based organizational structure is a horizontal design structure that organizes employees into teams whose
members perform varied functions. Employees work together in accomplishing various tasks, seeking solutions to
problems, and identifying and engaging in business opportunities. The allotted time for each task is maximized since the
hierarchy of management levels is removed, which simplifies the task of reporting to immediate superiors and top
management. Furthermore, productivity is increased since the entire group is working for a common goal, and the talents
and skills of each employee is maximized. However, one disadvantage is time management since coordinating the teams
requires constant communication and frequent meetings. Employees may also lack motivation since team performance is
valued rather than individual contributions.

Virtual Network Grouping

This is the latest approach to organizational design that takes advantage of the latest advances in information and
communication technology. The company is structured as a group of departments that are loosely connected through
electronic means. Technology is used in sharing information, completing tasks, and communicating. This design is
advantageous to small companies since it requires fewer investments, reduces administrative costs, and is flexible to
changing needs.
However, one of the disadvantages of this design is that managers do not have hands-on control over the separate
companies and their employees. It also requires a lot of time to build and cultivate relationships among workforce since
face-to-face communication is limited
Network Organizational Structure
A company using this structure hires only a few employees, which amounts to lesser costs for salaries and
benefits. A company enjoys more flexibility and can be more responsive to change since all the functions are outsourced.
However, the disadvantage is that independent firms may be hard to monitor. To do so, the company may have to spend
for expensive equipment to monitor these firms. There is no corporate culture and employee loyalty is questionable.

Organizational Theories
Bureaucracy – (Max Weber-1800) - Emphasizes a formal rigid structure and legitimate authority in organizations.
Relationships are strictly impersonal and free from personal interests. Laws and regulations are set for all employees to
follow, and a chain of command is established and strictly followed. Each role within the hierarchy is defined and
employees are organized to work together.

Scientific Management – Frederick Taylor became a controversial figure in the field of management when he introduced
his theory of scientific management. While he made improvements in industrial engineering, particularly with time and
motion studies, his emphasis on the most efficient means of performing tasks dehumanized factory workers. The
implementation of scientific management in the workplace left workers with little opportunity to excel or innovative from
a set workplace norm.

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System Theory – In 1950s, Karl Ludwig von Bertalanffy and Kenneth Boulding laid the foundation of the system theory.
The theory emphasizes that a system is a collection of parts that are coordinated in accomplishing a particular goal. A
company or business is considered an organized and complex whole. If a company operating a more complex system has
one part of its systems taken out, the company will be inevitably affected.

Contingency Theory – This theory recognizes that there is no single best way of managing an organization. Situational
differences are given consideration and different management principles are applied depending on the task, the size of the
firm, and the nature of its environment.

Delegation
Simple delegation refers to the allocation of tasks to employees. However, delegation of authority allows
subordinates to do tasks or responsibilities outside of their regular work, enabling them to exercise a certain level of
authority outside their regular work, enabling them to exercise a certain level of authority beyond their position.
Delegation enables managers to unload some of their tasks so other more important matter can be addressed.
Three elements of delegation:
1. Duty – Each employee in the organization is bound by the duties expressed in the functions and objectives of the
organization. For a manager to delegate properly, the duties should be expressed clearly in writing.
2. Authority – The manager’s authority over his subordinates should be clearly defined. Authority should emanate
from the official position of the manager and not from personal influence or other informal sources of power.
3. Obligation – Delegation is made easier when subordinates express willingness to fully accept their
responsibilities. Responsible subordinates know their obligations clearly and will exert efforts in accomplishing
their tasks.

Empowerment
Empowerment is the act of making employees accountable for their own actions. Empowerment requires that
managers trust their subordinates have the ability to enact decisions and perform the tasks assigned to them. The trust give
to employees empowers and motivates them in performing their duties. Empowerment is seen as getting the best out of
employees and utilizing their full potential for the organization.

Formal and Informal Organizations

Organizations are also defined by relationships among their members. Based on the nature and extent of
relationships, organizations can be classified as formal or informal.

Formal Organization
The structure of formal organization test on authority and responsibility. The levels of power of management and
the scope of responsibilities of subordinates are clearly indicated. The salaries and benefits that each employee receives
the identified based on their position in the organization. A formal organization is bound by rules and policies. It may not
easy to bring changes to the hierarchy in the organizational structure since it based on the vision, mission and goals of the
company.

Informal Organization
Informal organizations is defined by the personal relationships establish among employees. The interaction of
employees is based on friendship and camaraderie and since there is no formal or binding relationship among them,
relationship can be dissolve anytime. The organization is not bound by the authority and responsibility, thus there is no
pressure among the members to meet or follow any set of rules. Informal structures, however, are not conducive to
policies and may oppose relations and changes.