Business Organization- Reviewer 6.

Functions of Business Organization –

1. Business - An organization or business entity

1. Specialization and division of work
engaged in commercial, industrial, or
2. Efficient use of resources
professional activities.
3. Better communication
An organization comprising people who strive 4. Flexibility
together to achieve common objectives and 5. Better administration
goals. 6. Increase productivity and job
satisfaction
7. Common goals& objectives
2. Business Organization - An entity or business 8. Better working relations
which performs commercial activities for 9. Well-defined authority-responsibility
earning the profit that provides goods & relationships
services to customers as per their needs with a 10. Continuity
well-defined structure.
7. Classification of business activities –

3. Objectives – • industry
• commerce
• Helps to achieve organizational goal • business and trade
• Optimum use of resources
• perform managerial function 8. Fundamental Operating Activities
• Facilitates growth and diversification
• Humane treatment of employees • sales
• maintenance and customer service
4. Nature and Scope of Business – • administration
• processing and manufacturing • marketing
industries • Finance
• the network of ancillary services • Accounting
• distribution • Production
• banking • Human Resources
• insurance
• transport 9. Operating activities resulting in revenue
• etc. generation –

5. Characteristics of Business Organization – • Cash receipts from sales

• Sales of shares
• Buying and Selling • Income earned from investment
• Continuous process • Settlements of lawsuits and insurance
• Profit Motive claims
• Risk and Uncertainties • Accounts receivables collection
• Creative and Dynamic • Supplier refunds
• Customer satisfaction
• Social Activity
10. Operating activities resulting in cash 7. What are your financing needs?
outflows – 8. How much liability exposure are you
willing to accept?
• Employee payments
• Supplier payments
• Tax payments 14. Origin of Business Organization –
• Refunds to customers
• Settlements of fines and lawsuits • Industrial revolution—manual labor
• Interest to creditors replaced by machine
• Equipment purchases • Adam Smith 1723-90—division of labor
• Interest payment on loans and in production
dividends • Charles Babbage 1791-1871- division of
labor, applied methods of science and
11. Revenue-Generating Activities – mathematics
• providing services • Frederick Taylor 1856-1915—principle
• selling products. of scientific management

12. Types or Forms of Business – ORGANIZATIONAL STRUCTURE

• sole proprietorship
• partnership 15. What is Organizational Structure?
• corporation
It is how job are formally divided,
13. Factors to Consider – grouped, and coordinated.
• OBJECTIVE 1. Identify the questions to
ask in choosing the appropriate form of Key Elements:
ownership for a business. • Work specialization
• Departmentalization
• Some of the questions that you’d • Chain of command
probably ask yourself in choosing the • Span of control
appropriate legal form for your business • Centralization and
include the following: decentralization
• Formalization
1. What are you willing to do to set up
and operate your business?
2. How much control do you want?
3. Do you want to share profits with
others?
4. Do you want to avoid special taxes on
your business?
5. Do you have all the skills needed to
run the business?
6. Should it be possible for the business
to continue without you?
KEY WORDS
16. Line Authority –
The authority exerted by a
personnel manager by directing the
activities of the people in his or her
own department and in service
areas (like the plant cafeteria).
17. implied authority –
The authority exerted by a
personnel manager by virtue of
others’ knowledge that he or she
has access to top management (in
areas like testing and affirmative
action).
18. functional control –
The authority exerted by an HR
manager as coordinator of
personnel activities.
19. employee advocacy –
HR must take responsibility for
clearly defining how management
should be treating employees,
make sure employees have the
mechanisms required to contest
unfair practices, and represent the
interests of employees within the
framework of its primary obligation
to senior management.
20. Chain of Command –
The unbroken line of authority that
extends from the top of the
organization to the lowest echelon
and clarifies who reports to whom
21. Authority –
The rights inherent in a managerial
position to give orders and to
expect the orders to be obeyed.
22. Unity of Command –
A subordinate should have only one
superior to whom he or she is
directly responsible.
23. Centralization –
The degree to which decision
making is concentrated at a single
point in the organization.
24. Decentralization –
The degree to which decision
making is spread throughout the
organization.
25. Formalization –
The degree to which jobs within the
organization are standardized.
26. Work Specialization –
The degree to which tasks in the
organization are subdivided into
separate jobs.
27. Division of Labor:
• Makes efficient use of
employee skills
• Increases employee skills
through repetition
 • Less between-job 31. Span of Control –
downtime increases
• Number of people directly reporting to
productivity
the next level
• Specialized training is more
• Assumes coordination through direct
efficient
supervision
• Allows use of specialized
• Wider span of control possible when
equipment
a. used with other coordination
methods
b. subordinates’ tasks are similar
28. Departmentalization –
c. tasks are routine
The basis by which jobs are
grouped together. • Flatter structures require wider span (if
same number of people in the firm)

Grouping Activities By:

32. Mechanistic vs. Organic Organizations
• Function
• Product The Mechanistic Emphasizes
• Geography Model importance of
• Process achieving high levels
• Customer of production and
efficiency through:

-Extensive use of
29. LINE vs. STAFF AUTHORITY rules and procedures
AUTHORITY The right of the manager to -Centralized
direct other’s work, and give authority
orders and expect orders to -High specialized of
be obeyed. labor
LINE MANAGER A manager who is The Organic Model Emphasizes
authorized to direct the importance of
work of subordinates and achieving high levels
responsible for of production and
accomplishing the efficiency through:
organization’s goals.
STAFF MANAGER A manager who assists and -Limited use of rules
advises line managers. HR and procedures
managers are generally staff -Decentralized
managers. authority
-Relatively low
degrees of
30. The CHAIN OF COMMAND specialization

See the pic (second ppt, page 11)

33. Structure: -CEO is responsible for strategy & coordination
of functions
A. Matching Strategy and Structure

1. Simple Structure
E. Multi-Divisional Structure (M-Form)
2. Functional Structure
- functions are replicated in each division as
3. Multidivisional Structure (M-form)
appropriate
4. Matrix Structure
- this structure makes sense when the firm is
involved in more than one business or has
grown large enough to justify geographic
B. Simple Structure divisions
A structure characterized by a low degree of - CEO has strategic responsibility with the help
departmentalization, wide spans of control, of vice presidents, etc. – information is filtered
authority centralized in a single person, and through layers
little formalization
- CEO balances coordination & competition
among divisions
C. Owner/ Manager

- Owner/Manager makes all major decisions F. Matrix Structure

directly and monitors all activities
A structure that created dual lines of authority
- Difficult to maintain this structure as the firm and combines functional and product
grows in size and complexity departmentalization

D. Functional Structure Key Elements:

- divides management responsibilities by + Gains the advantages of functional and
function product departmentalization while avoiding
• Marketing their weaknesses.
• Finance + Facilitates coordination of complex and
• Accounting interdependent activities
• Procurement
• Production -Breaks down of unity-of-command concept
• R&D
• HR
• Logistics G. Project-based matrix structure –
• Etc.
Employees are temporarily assigned to a
-CEO is the only executive with enterprise-wide specific project team and have a permanent
perspective functional unit.
34. Types of Organizational Structure Concepts:

Advantage: Provides maximum flexibility while

concentrating on what the organization does
1. New Design Options
best.
A. Team Structure
Disadvantage: Reduced control over key parts
B. Virtual Organization of the business.

C. Boundaryless Organization
(see the graph in ppt, page 27)

A. Team Structure

The use of teams as the central device to C. Boundaryless Organization –

coordinate work activities.
An organization that seeks to eliminate the
chain of command, have limitless spans of
control, and replace departments with
Characteristics: empowered teams.
• Breaks down departmental barriers.
• Decentralizes decision making to the
team level T-form Concepts:
• Requires employees to be generalists as
Eliminate vertical (hierarchical) and horizontal
well as specialists.
(departmental) internal boundaries
• Creates a ‘flexible bureaucracy’
Breakdown external barriers to customers and
suppliers.
Features of team-based structures:

• Self-directed work teams

• Teams organized around work
processes
• Very flat span of control
• Very little formalization
• Usually found within defictionalized
structure

B. Virtual Organization

A small, core organization that outsources its

major business functions

Highly centralized with little or no

departmentalization.
Scientific Management 3. Principle of One Boss

35. Frederic Taylor: Father of scientific A sub-ordinate should receive orders and be
management accountable to one and only one boss at a time.

one boss, In other words, a sub-ordinate should

not receive instructions from more than one
36. Definition:
person because -
Systematic analysis and breakdown of work
-  It undermines authority
into the smallest mechanical components and
- Weakens discipline
rearranging them into the most efficient
- Divides loyalty
combination.
- Creates confusion
- Delays and chaos
- Escaping responsibilities
37. Steps:
-  Duplication of work
Job analysis—selection—training—rewards. - Overlapping of efforts

38. Henri Fayols 14 Principles of Management

1. Division of Labor

Henri Fayol has stressed on the specialization of

jobs.

Subdivision of work makes it simpler and results

in efficiency.

It also helps the individual in acquiring speed,

accuracy in his performance.

Specialization leads to efficiency & economy in

spheres of business.

2. Party of Authority & Responsibility

Authority & responsibility are co-existing.

If authority is given to a person, he should also

be made responsible.

Authority without responsibility leads to

irresponsible behavior whereas responsibility
without authority makes the person ineffective.