Organization Structure

Unit 3
Dr. Sucheta Agarwal
Features of good Organization structure

 Simplicity
 Flexibility
 Clear line of authority
 Minimum possible management levels
 Principles of unity of command and unity of direction
Figure Factors Affecting
Organizational Structure

7-7
7-8
7-9
7-10
Forms of Organization Structure

 Line Organization structures

 Line & Staff Organization structures
 Functional Organization structure
 Divisional Organization Structure
 Project Organization Structure
 Matrix Organization structure
 Team based Organization structure
 Committee
 Free form Organization structure
 Mechanistic and Organic structure
Line Organization structure

 Line organisation is the simplest and the oldest type of organisation. It is

also known as scalar organisation or military type of organisation. 
 An important characteristic of such type of organisation is superior-
subordinate relationship.
 The line of authority so established is referred as “line authority.”
 Under this type of organisation authority flows downwards, responsibility
moves upwards in a straight line. Scalar principle and unity of command
are strictly followed in line organisation.
Types of line organization:

 Line organisation is of two type’s viz. (a) Simple or Pure Line Organisation (b)
Departmental Line Organisation
 (a) Simple or Pure Line Organisation:
 In the ‘Pure Line organisation’ the activities (at any level of management) are
the same with each man performing the same type of work and the divisions
primarily exist for the purpose of control and direction. In practice, such
type of organisation rarely exists.
b) Departmental line organisation:
Line and Staff Organization structure

 The commanders in the field who are line officers are assisted by the staff
that helps them in formulating strategies and plans by supplying valuable
information.
 Similarly in organisation, line officers get the advice of the staff which is very
helpful in carrying on the task in an efficient manner.
 However, staff’s role is advisory in nature. Line officers are usually assisted
by staff officers in effectively solving various business problems.
 Merits and Demerits of Line and Staff structure

 Advantages of Line and Staff Organisation:

 1. Specialisation:
 2. Better decisions:
 3. Lesser Burden on line officers:
 4. Advancement of research:
 5. Training for line officer:
Disadvantages of Line and Staff Organisation:
 1. Conflict between line and staff authorities:
 2. Problems of line and staff authority:
 3. Lack of responsibility:
 4. The system is quite expensive:
 5. More reliance on staff:
Functional Organization structure

 F.W. Taylor, who is better known as the father of scientific management

developed the concept of ‘Functional Organisation’.
 As the very name suggests, functional organisation implies that the
organisation should be based on various functions.
 In functional organization all business activities of an enterprise are divided
into number of fractions and each function is entrusted to a specialist, each
specialist is known as functional specialist and authority delegated to him is
known as functional authority
 Advantages of functional organisation.
1. Specialisation:
2. Increased efficiency: 
3. Limited duties:
4. Scope for expansion:
5. Flexibility:
 Disadvantages of Functional Organization:
1. Conflict in authority:
2. Difficulty in pinpointing responsibility:
3. Expensive:
4. Discipline is slackened:
5. Lack of co-ordination:
For Line organization
 Line managers are generalists.
 The line of authority is vertical as it follows the principle of scalar chain
 There is strict discipline
 It is not based upon planned specialization
 There is unity of command
 It is suitable for small scale operations
 It is quite economical
For Line and staff organization
 There are experts known as staff to advise and assist the line officials
  Line authority and staff people with advisory authority
 3. Loose discipline
 It is based upon planned specialization
  Unity of command observed to a great extent
  Suitable for medium scale operations
 Little costlier
For Functional organization
  Functional managers are specialists in their respective areas
 The line of authority is functional or diagonal. The functional manager has authority over the functions wherever it is performed.
 Loose discipline
 Based on high degree of specialization
 Unity of command is not followed as each sub-ordinate gets instructions from his line boss and the functional bosses.
 It is suitable for large scale operations where expert knowledge in certain fields is a must
 Very costly
Divisional Organization structure
For example

 Electronics department of Samsung is completely responsible for its own

actions.
 The smartphones department is responsible for its own actions.
 Moreover, a firm’s city division might be completely independent of its other
city’s division.
 Each division would have its own advertising, sales, production, clerical,
accounting, and development staff.
 The divisional structure tends to ease the tasks of each level of management.
 It becomes easier for them to evaluate staff and divisional performances and
base their compensations on their success rate.
Basis of Divisionalization

 Product based structure

 Geographical based or territory based structure
 Customer based structure
 Strategic business units
Strategic business unit (SBU)
 In business, a strategic business unit (SBU) is a profit center which focuses
on product offering and market segment.
 SBUs typically have a discrete marketing plan, analysis of competition,
and marketing campaign, even though they may be part of a larger business
entity.
 An SBU may be a business unit within a larger corporation, or it may be a
business into itself or a branch.
 Corporations may be composed of multiple SBUs, each of which is responsible
for its own profitability. 
 General Electric is an example of a company with this sort of business
organization. 
 The best example of SBU are companies like Proctor and Gamble, LG etc.
These companies have different product categories under one roof.
Advantages of Divisional Structure
 Accountability
 Team working
 Organizational culture
 Responsiveness to external changes
 Leadership
Disadvantages of divisional structure
 Small organizations (not possible)
 Competition: healthy or not?
 Related products
 Lack of communication amongst divisions
 Conflict
Project Organization structure

 In a projectized environment, the entire company is organized by projects,

and the project manager is in control of the projects. Individuals or
employees are assigned to projects and report to a project manager. One’s
the project is over, they need to be assigned to another project. 

Types
1. Pure project structure
2. Matrix structure
 A Pure project is where a self-contained team works full time on the project.
Advantages

 The project manager has full authority over the project.

 Team members report to one boss.

 Lines of communication are shortened. Decisions are made quickly.

 Team pride, motivation, and commitment are high

Disadvantages

 Duplication of resources.

 Organizational goals and policies are ignored.

 Lack of new technology transfer due to weakened functional divisions

 Team members have no functional area home.

Free form organization

 Naturalistic and organic based

 Suitable for those industries which have to work in highly
dynamic organization

Types
 Boundaryless Organization
 Virtual Organization (Network organization)
 For example
Many customers help desks link customers
and consultants together via telephone or
the internet and problems may be solve
without ever bringing people together face
to face
 Mechanistic structures and Organic
structures
Mechanistic structures are mainly for companies that operate in a stable
environment, use a centralized approach of authority, and maintain strong loyalty
for management.
 Organizations that use a Mechanistic type of structure generally do not need to
change or adapt their structure.
 This is mainly due to lack of innovation, creativity, and quick decision analysis
not needed.
Organic structures are used in organizations facing unstable environments and must
possess the ability to change accordingly.
 They have the ability to process, analyze, and distribute information and
knowledge very quickly.
 This ensures that they stay competitive against other businesses. Businesses
using Organic structures need to communicate effectively and quickly by
spreading information.
Pearce and Robinson:
“Departmentalisation is the grouping
of jobs, processes and resources into
logical units to perform some
organisational task.”
Importance of Departmentation:

1. Organisation structure:
2. Flexibility
3. Specialisation:
4. Sharing of resources:
5. Co-ordination:
6. Efficiency:
Basis of Departmentation

1. Internal Operation (function, process, time, alphanumeric based)

2. External Operation (product based, territory based, customer based)
There are two broad forms of departmentation:
a. Functional departmentation, and 
b. Divisional departmentation (product based, process based, territory based,
customer based).
Departmentation by Functions:

 The enterprise may be divided into departments on the

basis of functions like production, purchasing, sales,
financing, personnel etc.
 This is the most popular basis of departmentation.
 If necessary, a major function (basic function) may be
divided into sub-functions (secondary function).
 For example, the activities in the production department
may be classified into quality control, processing of
materials, and repairs and maintenance.
Divisional departmentation
Departmentation by Products:
 In product departmentation, every major product is organised as a
separate department.
 Each department looks after the production, sales and financing of
one product.
 Product departmentation is useful when the expansion, diversifica­
tion, manufacturing and marketing characteristics of each product
are primarily significant.
Departmentation by Territory:

 Territorial or geographical departmentation is spe­cially useful to large-scale

enterprises whose activities are widely dispersed.
 Banks, insu­rance companies, transport companies, distribution agencies
etc. are some examples of such enterprises, where all the activities of a given
area of operations are grouped into zones, branches, divisions etc.
 Departmentation by Customers:
  In such method of departmentation, the activities are grouped according to the type of
customers.
 For example, a large cloth store may be divided into wholesale, retail, and export
divisions.
 This type of departmentation is useful for the enterprises which sell a product or service to
a number of clearly defined customer groups.
 For instance, a large readymade garment store may have a separate department each for
men, women, and children. 
Departmentation by Process or Equipment:

 In such type or departmentation the activities are grouped on the basis of

production processes involved or equipment used.
 This is generally used in manufacturing and distribution enterprises and at
lower levels of organi­sation.
 For example, a textile mill may be organised into ginning, spinning, weaving,
dyeing and finishing departments.
 Similarly, a printing press may have composing, proof reading, printing and
binding departments.
 Such departmentation may also be employed in enginee­ring and oil industries
Departmentation by Process or Equipment:
Factors to be Considered in Departmentation
(Choice of basis of departmenation

 Specialisation:
 Co-ordination:
  Control:
 Economy:
 Local Condition:
 Human Consideration:
Mixed Departmentation
Span of Management
The Span of Management has two implications:

 Influencesthe complexities of the individual

manager’s job
 Determine the shape or configuration of the
Organization
 “The most common and most serious
symptom of mal-organisation is
multiplication of the number of
management levels. A basic rule of
organisation is to build the least possible
number of management levels and forge
the shortest possible chains of command.”
— Peter F. Drucker
Factors Determining Span of Management

 The span of management can be determined on the basis of a number

of relationships that a manager can manage.
Graicunas Theory on Span of Management:
(Determination of span of management

 Classical writers: 3 to 8 subordinates

 A French management consultant, V.A. Graicunas, introduced a theory on span of
management which explains three kinds of relationships that a superior can have with
subordinates.
The kind of relationships and the formulae for arriving at the number of relationships is
as follows:
For example
 If organisations A and B, both have 256 workers and the span of control for
each managerial position is 2 for company A and 4 for company B, there will
be 9 levels in company A (requiring 128 supervisors at the lowest level, 64 at
the next higher level and so on) and 5 levels in company B. A narrow span of
control creates more levels in the organisational hierarchy than the wide span
of control.
 The levels in case of organisation B(5) where span of control is 4 appears
as follows:
Delegation of Authority

 According to Moore, “Delegation mean assigning of work

to others and giving them authority to do it”.
 To delegate means to grant or confer (deliberate)

 Authority means the power to take decisions.

Delegation of Authority

 The Delegation of Authority is an organizational process

wherein, the manager divides his work among the
subordinates and give them the responsibility to
accomplish the respective tasks.
 Along with the responsibility, he also shares the authority,
i.e. the power to take decisions with the subordinates,
such that responsibilities can be completed efficiently.
Features Of Delegation Of Authority

 No Delegation Of  Total Authority

 Delegation Of Only That Authority That A Manager Has
 Representation Of The Superior
 Delegation For Organizational Purpose
 Balance Of Authority And Responsibility
Elements of Delegation of Authority
 Thus, the process of
delegation of authority
begins with the duties
assigned to the
subordinates and ends
when the subordinate is
obliged to carry out the
operations as intended.
Principles of Delegation of Authority

 Principle of Functional Definition

 Principle of Result Expected
 Principle of Parity of Authority and Responsibility
 Principle of Unity of Command:
 The Scalar Principle
 Principle of communication
Importance of delegation of authority

 Effective management
 Employee development
 Motivation of employees
 Facilitation of growth
 Better coordination
 Difficulties and Problems in Delegation of Authority

(A) Reluctance on the Part of the Executives

 Superiority complex
 Maintenance of tight control
 Lack of confidence in the subordinates
  Lack of ability to direct
 Fear of exposure
(B) Reluctance on the Part of the Subordinates
 Dependence on the boss for decisions
 Fear of criticism
 Lack of information or resources
 Inadequacy of positive incentive
 Over-burdened
(C) Reluctance on the Part of the Organization
 Size of the organization
 Degree of centralisation or decentralisation
 Control techniques
 Management Philosophy
 Availability of Managers
Measures for effective delegation
 Delegation to be Complete and Clearly Understood
 Proper Selection and Training
 Motivation of Subordinates
 Establishment of Proper Control
 Making the potential delegator/subordinates feel secure
Authority

 Authority is the right to carry out the assigned tasks

(responsibilities).
 It is the power to issue directions, allocate resources,
make decisions, command people etc.
 Authority, is “the right in a position (and, through it, the
right of the person occupying the position) to exercise
discretion in making decisions affecting others.”- Koontz and
Weihrich
Features of Authority:

 It is the right of a person, given by his superior, to issue instructions to

subordinates.
 It regulates the behaviour of subordinates in the desired direction.
 It is the right of making decisions
 It is related to position that a person holds in the organisation.
 It is, thus, legitimate right of a person to give orders.
 It is exercised to achieve organisational objectives.
 6. Depending on the source from where authority originates, it may flow from
top to bottom or bottom to top.
Types of Authority:

There can be three types of authority:

 1. Line Authority,
 2. Staff Authority, and 
 3. Functional Authority.
Sources of Authority:

 Legal/Formal Authority
 Traditional Authority
 Acceptance Theory (Chester Bernard)
 Competence Theory
 Charismatic Authority
Limits of Authority
Responsibility

 Responsibility is nothing but the duty that comes along with the job. In other
words, it is the obligation of the person to complete the task given to
him/her.
 As per McFarland, responsibility means, “the duties and activities assigned to
a position or an executive”.
Characteristics
 Its importance lies in the creation of the obligation to perform the work.
 It arises from the superior-subordinate relationship.
 It is always in the form of a continuing obligation.
 The essence of responsibility is to be dutiful
 .

 Authority and responsibility are closely related and this principle

states that these two must go hand in hand. It means that proper
authority should be delegated to meet the responsibilities.

A match should be there between these two because of two

main reasons:--

ü Firstly, if a person is given some responsibility without

  

sufficient authority he can’t perform better, and also could not

accomplish the desired goal.

ü Secondly, if there is excess authority being delegated to an

  

individual without matching responsibility then the delegated

authority will be misused in one way or the other
Forms of Responsibility

 Responsibility can take two forms:

 1. Operating Responsibility, and 
 2. Ultimate Responsibility.(final obligation)

A manager (ultimate responsibility) gets the work done through his

employees (operating responsibility).
Accountability

 It is nothing but the liability created for the transfer of authority.

Accountability creates the obligation of the subordinate and makes
him answerable for the work done by him/her.
 Hence, it is the answerability for the performance of the assigned
duties. Once a person accepts authority, he deems to accept
Responsibility and Accountability at that time only.
 Definition of Accountability
 As per McFarland, “accountability is the obligation of an individual to
report formally to his superior about the work he has done to
discharge the responsibility.”