ORGANIZATION & PRINCIPLES

“It’s all about working

together”
Objectives:
At the end of this presentation ,the student should
be able to:
1. Discuss the definition of organization
2. Discuss and define the need for organizational
Structure
3. Discuss various types of organization structures
their advantages and disadvantages
Definition : Organization

 According to Keith Davis, "Organisation may be

defined as a group of individuals, large of small,
that is cooperating under the direction of executive
leadership in accomplishment of certain common
object.“

 According to Chester I. Barnard, "Organisation is a

system of co-operative activities of two or more
persons."
Perspectives of Organization

 Organization as a
Process
 Organization as a
Framework of
Relationships
 Organization as
group of persons
 Organization as a
system
IMPORTANCE OF ORGANIZATIONAL
STRUCTURE

 It enables members to know what their responsibilities

 It frees the manager and the individual workers to
concentrate on their respective roles and
responsibilities
 It coordinates all organization activities so there is
minimal duplication of effort or conflict.
 Avoids overlapping of function because it pinpoints
responsibilities.
 Shows to whom and for whom they are responsible
ORGANIZATION STRUCTURES

 Structure
 system of tasks, reporting relationships, and communication that links
people and positions within an organization.
 Organization Charts
 describe the formal structure, how an organization should ideally work.
The Organization Chart

The chart is an illustration in box

and-lines informing about the
formal lines of authority and the
division of labor.
The Vertical Hierarchy of
Authority: A glance up and a
glance down shows the chain of
command
The Horizontal
Specialization: A glance to
the left and right on the line of
an organization chart shows the
different jobs or work
specialization

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Key elements in org.structure

 Work specialization: To what degree are tasks subdivided into

separate jobs?
 Departmentalization: On what basis will jobs be grouped together?
By product, customer, By territory…
 Chain of command: To whom individuals and groups report?
 Span of control: How many individuals can a manager direct?
Important factors: Required Contact. Degree of Specialization.
Ability to Communicate…
 Centralization and decentralization: Where does decision-making
authority lie? Centralized Authority: important decisions are made
by higher-level managers. Decentralized Authority: important
decisions are made by middle-level and supervisory-level managers
 Formalization: To what degree will there be rules to direct
employees and managers. Refers to the extent to which
expectations regarding the means and ends of work are specified
and written

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Key elements in Organizational
Structure
 Line function
 Staff functions
 Authority: in context of a business organization authority
can be defined as the power and right of the person to use
and allocate the resources efficiently, to take decisions and
to give orders so as to achieve the organizational objectives
 Responsibility: obligation to act
 Delegation: assignment of any responsibility or authority to
another person (normally from a manager to a subordinate )
to carry out specific activities
 Accountability : accept responsibility for tasks
Types of Organizational Structures

1. Simple Structure
2. Functional Structure
3. Divisional Organization Structure
4. Matrix Organization Struct
5. Virtual Organization

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Simple Structure

A structure characterized by a low degree

of specialization, wide spans of control,
authority centralized in a single person,
and little formalization

E X H I B I T 15-4
Copyright © 2012 Dorling Kindersley 15-12
(India) Pvt. Ltd
Functional Structure

Functional Structure
An organizational form in which the major
functions of the firm, such as production,
marketing, R&D, and accounting, are
grouped internally.

10-13
Functional Structure

 A functional structure is a design that groups

people on the basis of their common skills,
expertise, or resources they use
 Functional structure is the bedrock of horizontal
differentiation
 An organization groups tasks into functions to
increase the effectiveness with which it achieves
its goals
 Organizations develop not only more functions but
also more specialization within functions

14
Fig: Functional Structure

15
Functional Structure

Structure for
President
a business

Vice
Vice Vice Vice
President,
President, President, President,
Human
Marketing Finance Production
Resources

Chief
Structure for Administrator
a hospital

Chief of Director of Director of Director of

Medical Administrative Outpatient Nutrition &
Services Services Services Food Services
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Functional Structure

10-17
Functional structure

Advantages Disadvantages
 Enhanced coordination  Could be differences in
and control values and orientations
 Centralized Decision  May lead to short term
making thinking
 Enhanced  Difficult to set uniform
organizational level performance standards
perspective
 Efficient use of
manpower
Moving to a
Divisional Structure
 Organizations most commonly adopt the
divisional structure to solve control
problems that arise with too many
products, regions, or customers
 The type of divisional structure depends
on the problem to be solved
 Divisional structure creates smaller, more
manageable subunits and takes the form
Product structure
Geographic structure
Customer structure
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Product Structure

 Product structure: a divisional structure

in which products (goods or services)
are grouped into separate divisions
according to their similarities or
differences
 Organizations need to decide how to
coordinate its product activities with
support functions

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 Product Divisional Structure

OBM Company

Small Large Building Lawn and

Commercial Automotive
Household Household Materials and Garden
Appliances Products
Appliances Appliances Products Products
Divisional Structure :Geographic
Structure
 When the control problems that
companies experience are a function of
geography, a geographic divisional
structure is appropriate
 Allows the organization to adjust its
structure to align its core competences
with the needs of customers in different
geographic regions
 Allows some functions to be centralized
and others decentralized

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Figure: Geographic Structure

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Divisional Structure :Customer

 A market structure aligns functional

skills and activities with the needs of
different customer groups
 Each customer group has a different
marketing focus, and the job of each
group is to develop products to suit the
needs of its specific customers
 Each customer group makes use of
centralized support function

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 Divisional Structure
Product Divisional President
Structure

Motion Magazine & Internet

Music
Pictures & TV Book Products
Division
Division Division Division

Customer Divisional President

Structure

Consumer Mortgage Business Agriculture

Loans Loans Loans Loans

Geographic Divisional President

Structure

Western Northern Southern Eastern

Region Region Region 25 Region
ORGANIZATION STRUCTURES

Divisional Structures
 Hybrid Structures

Product
Divisional
President
Structure

President President President President

Cadillac Buick Pontiac Chevrolet

Vice-
Vice- Vice- Vice- Functional
President,
President, President, President, divisional
Human
Production Marketing Finance structure
Resources

Manager Manager Manager Manager Geographical

Region I Region II Region III Region IV divisional structure

A Hypothetical example of what GM might use

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Matrix Structure
 Matrix structure: an organizational design
that groups people and resources in two
ways simultaneously, by function and
product
 A matrix is a rectangular grid that shows a
vertical flow of functional responsibility
and a horizontal flow of product
responsibility
 The members of the team report to two
superiors: the product team manager and
the functional manager
 The team is the building block and
principal coordination and integration
mechanism
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 Matrix Structure President
Functional
Structure
Project
structure
Vice Vice Vice Vice
President, President, President, President.
Engineering Finance Production Marketing
Project
Manager,
Taurus

Project
Manager,
Mustang
Subordinate
Project reports to
Manager, both Vice
Explorer President of
marketing &
Project
Manager, to project
Expedition
Manager for
Mustang
Example of Ford Motor Company 29
ORGANIZATION STRUCTURES

Matrix Structures

Potential Advantages of Matrix Structures

 Performance accountability rests with program, product, or project managers.
 Teams enable better communication and cooperation across functions.
 Teams make more decisions and solve more problems at their levels.
 Top managers spend more time on strategic issues.
 A cross-functional team brings together members from different functional
departments.
Matrix Organizations

Advantages Disadvantages
 Decentralized decision  High administration
making costs
 Strong product  Potential confusion
coordination over authority and
 Fast response to responsibility
change  High prospects of
 Flexible use of conflict
resources'  Excessive focus on
internal relations
 Virtual Organizations

Virtual organization – a collection of

geographically distributed,
functionally and/or culturally diverse
aggregations of individuals that is
linked by electronic forms of
communication

Assembled and disassembled

according to needs
Virtual Organizations:
Design Implications

Contractual relationships
Constant change and reconfiguration
No rigid boundaries
Flexible
Little or personal and social contact
Virtual Organizations:
Design Implications

Contractual relationships
Constant change and reconfiguration
No rigid boundaries
Flexible
Little or personal and social contact
Virtual Organizations:
Consequences

Increase in overall communication and

messages
Relationships are tenuous
Caution needed in managing feedback,
discussion, performance review, and reward
systems
Organizational Structure and Employee
Behavior
 Impossible to generalize due to individual differences in the
employees
 Research findings
 Work specialization contributes to higher employee
productivity, but it reduces job satisfaction
 The benefits of specialization have decreased rapidly as
employees seek more intrinsically rewarding jobs
 The effect of span of control on employee performance is
contingent upon individual differences and abilities, task
structures, and other organizational factors
 Participative decision making in decentralized organizations is
positively related to job satisfaction
 People seek and stay at organizations that match their needs.

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Future

People to have less defined jobs they

will move laterally from project to
project
Organizations to be network of teams
or completely flat and leaderless
organizations
“Amoeba like” groups of teams to
adapt to business needs(Deloitte
survey 2016)
OST Report

 History of the Organization

 Profile of Product/Service
 Mission objectives and strategies of the
organization
 Detailed study of the organization structure
 Advantages and disadvantages of the structure
 Modifications recommended to the structure on the basis of
the views of the managers and other employees in the
organization
Contd…

 Functions of the various departments

 HR departments: man power planning, career
planning, promotions HRD measures, performance
appraisal
 Finance : method of accounting , financial highlights
for the past three years
 All other departments
 SWOT analysis highlighting the success factors
 Future plans for the growth of the organization
 Major learnings
Handout

 Definition, Meaning and Characteristics of organization

 Steps in the Process of Organization
 Division of work
 Grouping of job and Departmentation
 Assigning duties
 Granting responsibilities
 Delegation of authority
 Effective communication
 Coordination of activities for common purposes
 Structure of the organization
 Types of organization structures and their advantages and
disadvantages