AOM

Advance Organization &

Management

LESSON 3
Organizing Business Activities (Weeks 10 & 11)

Topics in the Lesson

I. Organizing as a Managerial Function
II. The Organizational Structure
III. Formal and Informal Organizations
IV. Basic Elements of Organizational Structure
V. Basic Organizational Design

Lesson’s Intended Learning Outcomes

At the end of the lesson, you will be able to:

1. define organizing as a management function;

2. list down the reasons for organizing;
3. identify the determinants of organizational structure;
4. differentiate formal from informal organization;
5. find out the elements of an organizational structure; and
6. discuss the basic organizational designs.

Let’s Get Started

I. Organizing as a Managerial Function

Let’s start this topic with you and your family. Who leads and what are the roles
and responsibilities of each member. Get a piece of paper and answer the following:
1. Who are the members of the family?
2. Who heads the family?
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3. Who’s in-charge of budgeting in the family?
4. Who initiates activities in the family like family outing?
5. Who says what is allowed and what is not allowed?
6. List down the roles/responsibilities of each member.
Done? Be ready to submit it then.

Organizing is another function of management. This comes after creating a plan.

This is so because, organizing facilitates the “how” on the implementation of a plan.
Definitions of organizing include:

“The process of defining and grouping the activities of the enterprise and
establishing the authority relationships among them.”

Theo Haimann

“Organizing is the process of identifying and grouping the work to be

performed, defining and delegating responsibility and authority and
establishing relationships for the purpose of enabling people to work
most effectively together in accomplishing objectives."

Louis Allen

Theo Haimann
““Organizing is a function by which the concern is able to define the role
positions, the jobs related and the co-ordination between authority and
responsibility."

Chester Barnard

Our textbook defined organizing as “a management function which relates to the

structuring of resources and activities to accomplish objectives in an efficient and
effective manner.” Thus, organizing helps management find ways to determine that
resources, either human or non-
human are utilized accordingly for the
achievement of organizational goals.
This is very important because the
organization is composed of people
who performs various activities.
image from Dreamstime.com
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Organizing makes it possible for firms to create a structure in order to identify the
various activities in the firm, grouping these activities, assigning authority, responsibility
and accountability. To formalize this process, a structure is designed.

II. Organizational Structure

“AN ORGANIZATIONAL STRUCTURE IS A SYSTEM THAT OUTLINES HOW CERTAIN ACTIVITIES

ARE DIRECTED IN ORDER TO ACHIEVE THE GOALS OF AN ORGANIZATION. THESE ACTIVITIES
CAN INCLUDE RULES, ROLES, AND RESPONSIBILITIES. THE ORGANIZATIONAL STRUCTURE
ALSO DETERMINES HOW INFORMATION FLOWS BETWEEN LEVELS WITHIN THE COMPANY.”

Investopedia

Determinants of Organizational Structure

Below are factors considered in deciding for an organizational design.
1. Strategy
2. Technology
3. Organizational size
4. Environment

Strategy –
A strategy is an action that managers take to attain one or more of the
organization’s goals. For instance, a strategy could be to see to it that the company lead
the market by being the first in offering innovated products. With this, should the
company make a very formal line of communication with its employees? Should it
bound itself to only what the top management has to say creating a new product or
service. If the communication line is very formal, it might create delay in the process of
producing something new. If they leave the decision of what to create to top
management only, then the ideas will only be limited with them. Therefore, structure
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should match the strategy. The lines of authority and channels of communication
between the manager and their respective units have to match the actions identified to
achieve the goals.

Technology –
Technologically-related operations, infrastructure and functions are taken into
consideration in order to make organizational structure viable. According to the article of
George N. Root III in smallbusiness.chron.com, The Reference for Business points out
that when computer networks became popular, it became easier for people to work as
groups. People did not need to be in the same room, or even the same building, to be
efficient. Technology can create positions within your company and it can eliminate
positions. When filing is done electronically, there is no longer a need for as many file
clerks as you once had but there is a need for a department of technicians to maintain
and grow the computer network. As technology continues to change the function of jobs
in the workplace, the landscape of organizational structure changes with it.

Organizational size-
A small business has a simple structure as compared to a large organization that
has a more complicated structure. A large organization has more activities and requires
more person involved in these activities, whereas, smaller organizations would have a
few. Most small organizations in fact would not have a formal organization and would
just rely to usual practice and common understanding or agreement with regards,
authority and responsibility. For instance, a two-person convenient store. A larger
organization requires a more formal structure because of the variety of work assignment
and delegation of authority.

Environment –
We have discussed the role of the environment of the organization and how they
impact the business. There are factors in the environment such as economic,
social‐cultural, legal‐political, technological, and natural environment conditions. The
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different factors are considered by the organization in determining what activities are
needed and how these are grouped as well as positions and roles.

III. Formal and Informal Organization

As mentioned earlier, an organization could have either a formal or informal

structure. Also an informal organization can form within formal organizations. What’s
their difference?
Formal organizations are more structured and rely on authority based upon
chains of command. Informal organizations do not require hierarchies of authority or
structured internal processes. They are not formed in order to reach specific goals like a
formal organization (Elkins, 2019).
FORMAL organization INFORMAL groups
is described through the following are could be created because of any of these

Needs Satisfaction
Collective Power
Organizational
Chart Group Goals
Proximity
Common Interest
Organizational chart reflects hierarchy of position Friendship
and lines of authority.

Organizational Manual provides

written descriptions of authority
relationships, details the functions
of major organizational units, and
describes job procedures.

Policy Manual describes

personnel activities and
company policies.
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Levels of Management and Supervision
Recall that in our topic on Managers, they hold positions in the three different
levels of management in the firm which also represents a three-tier hierarchy in the
organization.

Managerial hierarchy means dividing the authority and responsibility among the
various managerial positions. Although all managers perform the same functions of
planning, organizing, leading and controlling, there are hierarchies among them.
Emanagement.blogspots.com

The levels of hierarchy could be described as Tall or Flat.

The bigger the company, the taller is its structure. Tall structures have several
layers between the CEO and the frontline employees, while flat structures are wider and
do not have as many layers as tall structures (Talpová & Chaliamantas, 2016).
Government organizations have tall structure. Government offices spreads in the
different cities in the country, reports to regions and then the national office.
Multinational industries like Toyota Motors with manufacturing plants and sales offices
around the world also have tall structures. However, Nike, a world renowned brand,
follows a flat structure.
The following are the differences between organizations with flat and tall
structure.
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Tall Flat
Communication Slower and distorted Faster and less distorted
Decision making Slower and less accurate More quickly
Salaries More supervisors to pay Supervisors’ salaries eliminated
Manager’s expertise Specialization Generalization
Span of control Narrow Wide
(Refers to the number - supervisory load is less - managers will have little time for
of subordinates - more time to attend important subordinates
reporting to a single problems - managers will have little time to
supervisor) anticipate problems

IV. Basic Elements of Organizational Structure

An organizational structure is composed of the following elements:

1. Work Specialization - Work specialization, sometimes called a division of
labor, refers to the degree to which an organization divides individual tasks into
separate jobs. Specialization allows a manager to take complex tasks and break
them down into smaller more precise tasks that individual workers can complete.
Each employee is trained explicitly on how to best perform one small, specific
task. Over time, that employee becomes extremely proficient and effective at
performing that task. (Education Portal, 2013)

With Specialization
Without Specialization
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2. Departmentation - refers to the grouping of jobs based on criteria that managers
believe help in coordination and control of activities. It also means division of
work into smaller units and their re-grouping into bigger units (departments) on
the basis of similarity of features (Patel, 2013).
Our textbook offers the following advantages of departmentation:
a. Supervision is made easier
b. The sharing of resources, such as men, machines and materials results to
maximum use of such resources
c. Common measures of performance are established.
d. Communication is encouraged
The basis of grouping jobs could be any of the following

Function
-

Process Product
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Customer Location

Time Knowledge or Skills

3. Pattern of Authority –Refers to which members are allowed to make decisions

without getting the approval of another member. The general pattern of authority
throughout an organization determines the extent to which that organization is
centralized or decentralized. In a centralized patter, the decision making authority
is left with top management. Whereas, in decentralized structure the decision-
making authority is spread in the different managerial levels.

Centralized Authority
 clarity in decision-making
 streamlined implementation of policies and
initiatives
 control over the strategic direction of the
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Decentralized Authority
 Quick decision and response times.
 Better ability to expand company
 Skilled and/or specialized management
 Increased morale of employees

organization.  Link between compensation and

responsibility

 Better use of lower and middle management

 limited opportunities for employees to  Coordination problems
provide feedback and a higher risk of  Increased administrative costs due to

inflexibility. duplication of efforts

 Incongruity in operations
 Each department/division is often self-
centered

 Significant, if not almost total, reliance on

the divisional or department managers

4. Span of Control refers to the number of subordinates reporting to a single

supervisor. Span of control is also known as managerial ratio. This concept was
developed in 1922 by sir Ian Hamilton. All managers experience a decrease in
effectiveness as their span of control exceeds the optimal level.

5. Coordination of Activities - refers to the linking of activities in the organization that

serve to achieve a common goal or objective. This is an important element in the
structure of the organization because this leads to the harmony of the various
activities in the organization. Unity in actions help to organization to achieve
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timing in the activities of each department in order to achieve the goals of the
organization such as production capacity should match sales.

DISCUSSION QUESTIONS /ASSIGNMENT

1. Give one example of an organization who groups activities according to a)
function, b) product, c) process, d) customers, e) time, f) location, g)
knowledge

2. The Philippine government has a very tall structure. Discuss the pros and cons
of this in governance.

3. The informal channels of communication used by the informal organization are

often referred to as the “grapevine” or the “rumor mill”. How do you think
grapevine can help managers improve the performance of their company?

V. Basic Organizational Design

Having in mind the different elements of an organizational structure, let’s take a
look into the different organizational designs. Other reference would point out six or
more designs, but let us only focus on the basic designs – functional, divisional, hybrid
and matrix.
Functional Design -

Image from: Point Park University online

In this structure, teams in the organization are being formed according to their
common functions such as marketing, engineering, sales, etc. These groups form
departments that are controlled and coordinated by top level management.
The advantages of this design include:
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1. There is in depth knowledge and expertise of the functional skill thus the
resources are maximized. The manager who heads the functional department
can effectively control the department because there is ease in understanding
since people in the team have common expertise.
2. The structure promotes career development for those who would like to
develop expertise since they can be easily coach by experts of their team
thus can be visibly noted by the organization in looking for people to fill out
higher ranks.

Some weaknesses of this design include:

1. Limited capabilities of managers who might view only the organization in
terms of the goals of the department. Managers of the functional department
may also find it hard to occupy higher positions in the organization because
they might be seen to be experts only of their own functional group and not
for the entire organization.
2. Functional departments cannot respond immediately to organizational
concerns that affect the entire organization unless they have coordinated with
other departments. The departments would still be dependent on top
management decisions for their actions.
3. There is unclear performance responsibility because other departments only
serve as support to the other departments but are still important elements in
the organizational goal. For example, the Marketing Department is able to
record a large profit, but the HR and Production Department also shares with
the success of the Marketing group.
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Divisional Design –

Practical Management explains that in a divisional design, the teams are

organized in set of divisions, where each division corresponds to the end product or
services provided by the organization. This means that each division has its own set of
functional units (like research, manufacturing, marketing) and is completely self-
contained.
The strengths of this design include:
1. Clearer accountability in terms of profit and loss because the division is already
self-sufficient in terms of its activities.
2. Because accountability is clearer it would be easier for each group to coordinate
activities with other groups in the organization.
3. The division can respond more quickly to issues and easily address to required
changes in the environment since it is self-reliant.
4. Collaborations of employees in terms of their specialization is widened because
of the opportunities to learn new skill in their division.

However, the disadvantages include:

1. Inefficient use of resources since the resource you need for one product or
service is duplicated in another. Likewise, experts on one area which could have
been shared will not be allowed resulting to hiring of another person who would
perform the same functions but place in another division.
2. There is low in-depth training of personnel because management would feel that
their level of skills and expertise are only limited to their division.
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3. Employees of a particular division would feel as though they should be faithful to
their own division instead of looking at the entire organization’s purpose.
4. Each divisional manager is more concerned about his product and would feel like
an integration with other departments is not of his problem.

Hybrid Design –

The hybrid design is a combination of divisional units and functional departments

located at corporate headquarters.
Strengths of Hybrid Design are:
1. Simultaneous coordination
2. Integration of goals with objectives
3. Efficient and highly adaptable

The weaknesses of the design:

1. Slow response to exceptional situations
2. Conflict between headquarters and divisions
3. Administrative overhead
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Matrix design -

The matrix structure is a blend of the functional organizational structure and the
projectized organizational structure according to Pointpark University Online. Meaning,
this usually exist if a project is implemented in the organization. Notice in the diagram
that, employees may report to two or more supervisors. For example, under normal
functional circumstances, an engineer at a large engineering firm could work for his
departmental managers, but as a new project arise, that engineer could be assigned in
the project since his expertise is needed. For the duration of that project, the engineer
would report to that project manager who heads the project and at the same time to his
departmental manager for his other daily tasks.
The dual reporting on the part of the employee may result to confusion and is
time consuming. This may also result confusion to the employees in terms of his work
priorities. Thus, it’s very important for the employees to know their roles, responsibilities
and work priorities.
However, the structure can help employees share their knowledge across the
different functional divisions, allowing for better communication and understanding of
each function’s role. With this, employees can broaden their skills and knowledge,
leading to professional growth within the company.