Principles of Management

(ME3104D)
Organizing
Organizing
• For an organizational role to exist and be meaningful to people, it
must incorporate (1) verifiable objectives, which are a major part of
planning; (2) a clear idea of the major duties or activities involved;
and (3) an understood area of discretion or authority so that the
person filling the role knows what he or she can do to accomplish
goals.
• In addition, to make a role work effectively, provision should be made
for supplying needed information and other tools necessary for
performance in that role.
Organizing
We can think of organizing as:
• The identification and classification of required activities
• The grouping of activities necessary for attaining objectives
• The assignment of each group to a manager with the authority
(delegation) necessary to supervise
• The provision for coordination horizontally (on the same or a similar
organizational level) and vertically (e.g., between corporate
headquarters, division, and department) in the organization structure
Organizing
• Organization: A formalized intentional structure of roles or positions.
• An organization structure should be designed to clarify who is to do what
tasks and who is responsible for what results in order to remove obstacles to
performance caused by confusion and uncertainty of assignment and to
furnish decision-making and communication networks reflecting and
supporting enterprise objectives.
• Formal organization: The intentional structure of roles in a formally
organized enterprise.
• A formal organization must be flexible. There should be room for discretion,
for beneficial utilization of creative talents, and for recognition of individual
likes and capacities in the most formal of organizations. Yet, individual effort
in a group situation must be channeled toward group and organizational
goals.
Organizing
• Informal organization: A network of interpersonal relationships that
arise when people associate with each other
• Relationships not appearing on an organization chart—might include the
machine shop group, people working in the same floor of a building, the
Friday evening bowling gang, and the morning coffee “regulars.”
• Organizational division: The Department - A distinct area, division, or
branch of an organization over which a manager has authority for the
performance of specified activities.
• A department, as the term is generally used, may be the production division,
the sales department, the West Coast branch, the market research section, or
the accounts receivable unit.
Organizing
• Formal and informal organization

Formal and informal organization

Organization levels and the span of
management
• Organizational 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.
• A wide span of management is associated with few organizational
levels; a narrow span, with many levels.
• The division of activities into departments and the creation of
multiple levels are not completely desirable in themselves.
Organization levels and the span of
management
Organization levels and the span of
management
Organization levels and the span of management
• Problems with organization levels:
• Levels are expensive and as they increase, more effort and money are devoted to
managing because of the additional managers, support staff, and for coordinating
departmental activities and the cost of facilities for the personnel.
• Tendency to regard organization and departmentation as ends in themselves and to
gauge the effectiveness of organization structures in terms of clarity and
completeness of departments and departmental levels.
• 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.
• Omissions and misinterpretations occur as information passes down the line.
• Numerous departments and levels complicate planning and control.
Factors Influencing Span of Management
▪ Principle of the span of management: 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.
▪ Managers normally have three kinds of interactions
1. Direct interaction with subordinates → one-to-one
2. Cross interaction among subordinates
3. Group interaction between groups of subordinates
▪ Number of possible interactions (𝐼) is given by the formula (Graicunas Theory)
2𝑛
𝐼=𝑛 + 𝑛 − 1 where 𝑛 is the number of subordinates
2
Other Factors Influencing Span of Management
▪ Nature of work,
▪ Knowledge, skills and ability (KSA) of the subordinates,
▪ Competence and qualification of the managers,
▪ Availability of a standard operating procedure,
▪ Geographical location of the job,
▪ Stability of the organisation,
▪ Training facilities,
▪ Management’s philosophy, and
▪ Managers’ attitude and preferences
Organization Structure: 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.
• Grouping activities and people into departments makes it possible to
expand organizations—at least in theory—to an indefinite degree.
• Departments, however, differ with respect to the basic patterns used
to group activities.
Organization Structure: Departmentation
• Departmentation by enterprise function:
• Grouping of activities according to the functions of an enterprise such as
production, sales, and financing.
• Functional departmentation is the most widely used 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
the basis not only of departmental organization, but also, most often, of
departmentation at the top level.
Organization Structure:
Departmentation
• Departmentation by
enterprise function:

A functional organization grouping (in a manufacturing company)

Organization Structure: Departmentation
• Departmentation by territory or geography:
• Grouping of activities by area or territory is common in enterprises operating
over wide geographic areas.
• Especially attractive to large-scale firms or other enterprises whose activities
are physically or geographically dispersed.
• A plant that is local in its activities may assign the personnel in its security
department on a territorial basis, placing two guards at each of the south and
west gates, for example.
• Business firms resort to this method when similar operations are undertaken
in different geographic areas, as in automobile assembling, chain retailing and
wholesaling, and oil refining.
• Territorial departmentation is most often used in sales and in production; it is
not used in finance, which is usually concentrated at the headquarters.
Organization Structure: Departmentation
• Departmentation by
territory or geography:

A territorial or geographic organization grouping (in a manufacturing company)

Organization Structure: Departmentation
• Departmentation by customer group:
• Grouping of activities that reflects a primary interest in customers.
• Customers are the key to the way activities are grouped when each customer
group is managed by one department head.
• The industrial sales department of a wholesaler that also sells to retailers is a
case in point.
• Business owners and managers frequently arrange activities on this basis to
cater to the requirements of clearly defined customer groups.
Organization Structure: Departmentation
• Departmentation by
customer group:

Customer departmentation (in a large bank)

Organization Structure: Departmentation
• Departmentation by product:
• Grouping of activities according to products or product lines, especially in
multiline, large enterprises.
• Companies adopting this form of departmentation were organized by
enterprise functions.
• With the growth of the firm, problems of size is encountered and
reorganization on the basis of product division became necessary.
• 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 given product or product line and to exact a
considerable degree of profit responsibility from each of these managers.
Organization Structure: Departmentation
• Departmentation by
product:

A product organization grouping (in a manufacturing company)

Organization Structure: Departmentation
• Matrix organization:
• The combining of functional and project or product patterns of
departmentation in the same organization structure.
• There are functional managers in charge of engineering functions and an
overlay of project managers responsible for the end product.
• While this form is common in engineering and in research and development,
it has also been widely used, although seldom drawn as a matrix, in product
marketing organization.
• This kind of organization occurs frequently in construction (e.g., building a
bridge), in aerospace (e.g., designing and launching a weather satellite), in
marketing (e.g., an advertising campaign for a major new product), in the
installation of an electronic data processing system, or in management
consulting firms where management experts work together on a project.
Organization Structure: Departmentation
• Matrix organization:

Matrix organization (in engineering)

Authority and Power
Power
▪ The ability to influence others
Authority
▪ The right in a position to exercise discretion in making decisions that affect
others
▪ Type of power, but in an organisational setting
Scalar principle in organization
▪ The clearer the line of authority from the ultimate management position in an
enterprise to every subordinate position, the clearer will be the responsibility for
decision-making and the more effective will be organizational communication.
Line/Staff Concepts and Functional Authority
Line Authority
▪ Superior exercises direct supervision over a subordinate – authority relationship in
direct line/steps
▪ Gives the superior a direct line of authority over the subordinate – exists in all orgs
Staff Relationship
▪ Advisory in nature
▪ Staff investigate, research, and advice line managers
Functional Authority
▪ The right to control specified processes, practices, policies, or other matters related to
activities of other persons/departments
Organisational Structures
1. Line organisational structure

2. Staff or functional authority organisational structure

3. Line and staff organisational structure

4. Divisional organisational structure

5. Project organisational structure

6. Matrix organisational structure

7. Hybrid organisational structure

Line Organisational Structure
▪ Has only direct, vertical relationships
between different levels
▪ Authority flows from top to bottom
▪ Supervisors have direct authority over
sub-ordinates
▪ Also called military or scalar
organisation
Line Organisational Structure
Advantages
▪ Simple and clear line of authority,
responsibility, & accountability
▪ Stable form of organisation
▪ Decision-making → quick, economical,
effective
▪ Small size of line organisations → closeness
between managers and employees
Disadvantages
▪ Ineffective as the firm grows in size
▪ Managers have to be experts in too many
fields
▪ Over-dependence on a few people → mis-
use of authority
▪ Rigidity of structure → lack of innovation
Staff or Functional Authority Organisational Structure

▪ Grouped based on skills

& knowledge
▪ Group → specialised
unit (department)
▪ Group employees –
report to group leader
▪ Group leaders – report
to top level
Staff or Functional Authority Organisational Structure
Advantages
▪ Specialised groups → greater efficiency,
productivity
▪ Managers with same skills as employees →
can teach employees
▪ Clarity in roles & responsibilities →
company knows which dept. to approach for
what problem
▪ Different standards in groups → reduced
costs of operation
Disadvantages
▪ Competition between departments
▪ Lack of co-ordination between departments
▪ Specialised departments → narrow scope of
skills & knowledge
▪ 1D and monotonous work
▪ Difficult to replace personnel
Line and Staff Organisational Structure

▪ Most large orgs

▪ Line → similar to line orgs., vertical
relationship
▪ Staff → experts assisting line
managers
Line and Staff Organisational Structure
Advantages Disadvantages
▪ Use of staff specialists → expertise, self- ▪ Conflict of authority between line and
sufficiency staff
▪ Greater focus on core responsibilities ▪ Coordination difficult between line and
staff
▪ Span of control of line managers can be
increased – relieved of many functions ▪ Costly to maintain specialists
due to staff’s support
Divisional Organisational Structure
▪ Departments based on function, product,
market, geography, etc., or a combination
▪ Divisional manager → greater
independence in decisions, objectives,
finances
▪ Decentralised authority
Divisional Organisational Structure
Advantages
▪ Product specialisation → focus on one or
a few products
▪ Flexibility and autonomy → faster &
effective decision-making
▪ Accountability of manager
▪ Local competitive edge → people
knowing their regions
Disadvantages
▪ Conflicts → allocation of funds by the top
level
▪ Office politics over strategic thinking in
terms of allocation of resources
▪ Possibility of duplication
▪ Divisions lead to compartmentalisation
→ incapabilities, narrow-mindedness
Project Organisational Structure
▪ Temporary org designed to achieve
specific objectives
▪ Can have specialists from different
functional areas
▪ Focus on completion of the project
▪ Once project is completed – team
members go back to their previous
positions, or to new assignment
Project Organisational Structure
Advantages
▪ Effective way of producing highly complex
product systems
▪ Best means of getting things done right
▪ Preferable for planning, implementing,
and control in a turbulent environment
▪ Diverse interests consolidated →
creativity developed
▪ Strong teamwork
Disadvantages
▪ Overlapping authority → conflicts
▪ Insecurity of employment as the project
ends
▪ Danger of over-specialisation
▪ Reduction in employee’s loyalty to parent
department
Matrix Organisational Structure
▪ Combination of different types of
organisational structures
▪ Resources & personnel shared across
teams and projects
▪ Dual chain of command → functional
manager and project manager
Matrix Organisational Structure
Advantages
▪ Decentralised decision-making
▪ Strong product/project coordination
▪ Inter-departmental communication
▪ Fast response to change
▪ Flexible use of resources
▪ Employees can learn new skills
Disadvantages
▪ High administration cost – multiple
managers
▪ Potential confusion over authority,
responsibility, & accountability
▪ High prospects of conflict
▪ Power struggle among managers
▪ Excessive focus on internal relations
Hybrid Organisational Structure
▪ Combination of multiple organisational
structures
▪ World Bank defines – “Org in which more
than one organisational design is used”
Hybrid Organisational Structure
Advantages
▪ Increased efficiency → optimum use of
resources
▪ Functional expertise and efficiency
▪ Adaptability and flexibility in divisions
Disadvantages
▪ Conflicts between corporate departments
and units
▪ Excessive administration overhead
▪ Slow response to exceptional situations
Informal Organisation
Principles of Organising
1. Principle of objective – All organisations and each part of the organisation should
be the expression of a purpose (explicit or implicit)
2. Principle of correspondence – Formal authority and responsibility must be co-
terminus and equal
3. Principle of responsibility – The responsible of higher authority for the acts of its
subordinates is absolute
4. Scalar principle – There must be a clear line of formal authority running from the
top to the bottom of every organisation
Principles of Organising
5. Principle of span of control – No supervisor can supervise directly the work of
more than five, or at the most six subordinates, whose work interlock
6. Principle of specialisation – The work of every person should be confined to the
performance of a single leading function
7. Principle of coordination – The final object of all organisations is smooth, effective
coordination
8. Principle of definition – Every position in every organisation must be clearly
described in writing
Responsibility
▪ Obligation/duty to complete the tasks assigned
▪ Employee’s obligation to accept manager’s delegated authority
▪ Subordinates must have just enough authority to meet responsibility
▪ Too much responsibility without authority → job stress, frustration, job
dissatisfaction
▪ Too much authority w/o responsibility → employee malpractice,
recklessness, abusiveness
Accountability
▪ Makes employees answerable for satisfactory completion of task
▪ A mechanism through which authority and responsibility are aligned
▪ Managers must ensure that each employee clearly knows what they are
accountable for
▪ Ensures employees constantly report and justify their actions
Delegation
Determining the need for
delegation
▪ Delegation occurs
when a manager
assigns specific
tasks to Follow-up through feedback Assigning tasks and duties
employees
▪ Involves formal
transfer of
authority and
responsibility
Creating responsibility and Transferring authority for
accountability task accomplishment
▪ Is a multi-step
process
Steps in delegation
Principles of Delegation
1. Principle of result expected
▪ Clearly define goals and results expected from subordinates while delegating
▪ Clarity in goals, targets, and standards of performance
2. Principle of parity of authority and responsibility
▪ Manager should balance between authority and responsibility
▪ Subordinate given responsibility → should also be given enough independence
and power
Principles of Delegation
3. Principle of absolute responsibility
▪ Authority can be delegated, but not responsibility
▪ Manager is answerable to superior → responsibility is fixed
▪ Manager is responsible for task completion
4. Principle of authority level
▪ Manager should exercise authority within jurisdiction/framework
▪ Should consult superiors before taking important decisions outside authority
Principles of Delegation
5. Principle of unity of command
▪ Subordinates must be commanded by only one superior
▪ Obtain tasks from one superior, answerable to them
Types of delegation
1. Administrative A few administrative functions delegated to subordinates
delegation

2. General delegation General managerial functions are delegated

3. Specific delegation Particular function/task delegated

Eg: Departmental managers given departmental duties

4. Formal delegation Part of organisational structure

Along with the task, authority is also given to a person

Eg: Production manager gets power to increase production

Types of delegation
5. Informal Arises not due to position, but due to circumstances
delegation

A person takes the task not assigned to them – but necessary to complete

6. Written Given in writing – letters, circulars etc.

delegation

7. Unwritten Given not in writing, but by conventions, customs, and usages

delegation

8. Downward Superior’s delegation of authority to subordinate

delegation

Common type of delegation

Types of delegation

9. Upward Subordinate assigns tasks to superiors

delegation

Uncommon

10. Geographic When enterprise is located at multiple locations

delegation

Authority to different subordinates located at different places

Personal attitudes toward delegation
• Receptiveness: willingness to give other people’s ideas a chance
• Willingness to let go: willing to release the right to make decisions to
subordinates
• Willingness to allow mistakes by subordinates
• Willingness to trust subordinates
• Willingness to establish and use broad controls
Challenges to Delegation
Attitude of the executive

• Lack of confidence in subordinates

• Fear of comparison

Attitude of the subordinate

• Refusal by the subordinates

• Difficulties to justify surplus time
Delegation vs Decentralisation
▪ Delegation → entrustment of duties and authority from one
individual to another
▪ Decentralisation → systematic delegation of authority in an org wide
setting
▪ Complete delegation to all the people with specific kind of authority
▪ Delegation is the process, decentralisation is the result
Delegation vs Decentralisation
Delegation Decentralisation
▪ From person to person ▪ A complete block
▪ Is a must in an organisational ▪ Is optional
structure
▪ Control lies in the decentralised unit
▪ Control lies at the top