Management I

Week 11
Chapter 10: Organizing

1. What is organizing as a management function?

2. What are the major types of organization structures?
3. What are the new developments in organization structures?
4. What organizing trends are changing in workplace?

Organizing as a Traditional Organization Directions in Organization Organizing Trends and

Management Function Structures Structures Practices
- What is organization - Functional structures - Team structures - Chain of command
structure? - Divisional structures - Network structures - Unity of command
- Formal structures - Matrix structures - Boundaryless - Span of control
- Informal structures organizations - Delegation and empowerment
- Decentralization
- Use of staff

Organizing arranges people and resources to work toward a goal. It involves both creating a division of
labor for tasks to be performed and then coordinating results to achieve a common purpose.

Organizing viewed in relationship with the other management functions:

Organizing –
to create structures
 Divide up the work
 Arrange resources
 Coordinate activities
Planning – Controlling –
to set the direction to ensure results
Leading –
to inspire effort

While organizing resources, keep in mind the significance of labor or capital intensive production…

Organization structure is a system of tasks, reporting relationships, and communication linkages.

Organization chart is a diagram that shows reporting relationships and the formal arrangement of work
positions within an organization. A typical organization chart identifies various positions and job titles as
well the lines of authority and communication between them.
Formal structure is the official structure of the organization.
Reading an organization chart, you can learn the basics of an organization’s formal structure, including:
 Division of work: Positions and titles show work responsibilities.
 Supervisory relationships: Lines show who reports to whom.
 Communication channels: Lines show formal communication flows.
 Major subunits: Positions reporting to a common manager are shown.
 Levels of management: Vertical layers of management are shown.

Informal structure is the set of unofficial relationships among an organization’s members. They may have
a positive influence to get the job done, but sometimes it may have a negative effect as well (rumors,
inaccurate information, breed resistance to change, even diverting efforts from important objectives. In
addition, “outsiders” may feel unsatisfied being not included into an informal structure).

A traditional principle of organizing is that performance improves when people are allowed to specialize
and become expert in specific jobs or tasks.

Departmentalization is the process of grouping together people and jobs into work units. Decisions about
departmentalization have traditionally resulted in three major types of organizational structures – the
functional, divisional, and matrix structures.

A functional structure groups together people with similar skills who perform similar tasks.

Functional structures in a business, branch bank, and community hospital:

President
Business Firm Vice President Vice President Vice President
Vice President Finance Human Resources
Marketing Production

Branch Manager
Branch Bank
Manager Manager Manager
Manager Investments Trusts
Loans Operations

Administrator
Community
Hospital Director Director Director
Director Nursing Clinics Patient Service
Medical Staff

The functional chimneys problem is a lack of communication and coordination across functions.

Paul Shatalin Page 2 of 6, Ch. 10

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Advantages of functional structures:
 Economies of scale with efficient use of resources.
 Task assignments consistent with expertise and training.
 High-quality technical problem solving.
 In-depth training and skill development within functions.
 Clear career paths within functions.

A divisional structure groups together people working on the same product, in the same area, with similar
customers, or on the same processes.

Advantages of divisional structures:

 More flexibility in responding to environmental changes.
 Improved coordination across functional departments.
 Clear points of responsibility for product or service delivery.
 Expertise focused on specific customers, products, and regions.
 Greater ease in changing size by adding or deleting divisions.

Divisional structures based on product, geography, customer, and process:

Type Focus Example

Product structures Good or service General Manager

group together people and produced
jobs working on a single
product or service. Grocery products Drugs and toiletries

Geographical structures President

group together people and Location of activity
jobs performed in the same
location. Asian division European division

Customer structures Customer or client Agency Administrator

group together people and serviced
jobs that serve the same
customers or clients. Problem youth Senior citizens

Process structures Activities part of same Catalog Sales Manager

group jobs and activities process
that are part of the same
process. Product purchasing Other fulfillments

Potential disadvantages include: reduction of economies of scale, can create rivalries as divisions compete
for resources and top management attention, etc.

Paul Shatalin Page 3 of 6, Ch. 10

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A matrix structure combines functional and divisional approaches to emphasize project or program teams.
In effect it is an attempt to gain the advantages and minimize the disadvantages of both types. This is
accomplished in the matrix by using permanent cross-functional teams to support specific products,
projects, or programs.
Workers in matrix structure belong to at least two formal groups at the same time and report to two bosses
– one within the function and the other within the team.

Matrix structure in a small multi-project business firm:

General
Manager

Manager of Manufacturing Engineering Sales

Products Manager Manager Manager

Project A
Manager

Project B
Manager

Project C
Manager

Advantages of matrix structures:

 Better cooperation across functions.
 Improved decision making as problem solving takes place at the team level, where the best
information is available.
 Increased flexibility in adding, removing, and / or changing operations to meet changing demands.
 Better customer service, since there is always a program, product, or project manager informed
and available to answer questions.
 Better performance accountability through the program, product, or project managers.
 Improved strategic management, since top managers are freed from unnecessary problem solving
to focus time on strategic issues.

Potential disadvantages include: two bosses may struggle with each other; the two-boss system may be
confusing to the team-members, adding team-leaders may increase costs.

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Paul Shatalin Page 4 of 6, Ch. 10
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Guidelines for mobilizing horizontal structures:
 Focus the organization around processes, not functions.
 Put people in charge of core processes.
 Decrease hierarchy and increase the use of teams.
 Empower people to make decisions critical to performance.
 Utilize information technology.
 Emphasize multi-skilling and multiple competencies.
 Teach people how to work in partnership with others.
 Build a culture of openness, collaboration, and performance commitment.

A team structure uses permanent and temporary cross-functional teams to improve lateral relations.

A cross-functional team brings together members from different functional departments.

Project teams are convened for a particular task or project and disband once it is completed.

A network structure uses IT to link with networks of outside suppliers and service contractors.

Outsourcing is when a business function is contracted to an outside supplier.

Avoid in outsourcing:
1. Outsourcing activities that are part of the core.
2. Outsourcing to untrustworthy vendors.
3. Not having good contracts with the vendors.
4. Overlooking impact on existing employees.
5. Not maintaining oversight; losing control to vendors.
6. Overlooking hidden costs of managing contracts.
7. Failing to anticipate need to change vendors, cease outsourcing.

A boundaryless organization eliminates internal boundaries among subsystems and external boundaries
with the external environment.

A virtual organization uses IT and Internet to engage a shifting network of strategic alliances.

The upside-down pyramid puts customers at the top, served by workers whose managers support them.

The chain of command links all persons with successively higher levels of authority.

Span of control is the number of subordinates directly reporting to a manager.

Important rules for effective delegation:

 Carefully choose the person to whom you delegate.

Paul Shatalin Page 5 of 6, Ch. 10

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  Define responsibility; make the assignment clear.
 Agree on performance timetable.
 Give authority; allow the other person to act independently.
 Show trust in the other person.
 Provide performance support.
 Give performance feedback.
 Recognize and reinforce progress.
 Help when things go wrong.
 Don’t forget your accountability for performance results.

Paul Shatalin Page 6 of 6, Ch. 10

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