Organizational Behavior

Organization Structure • Set of planned relationships between groups of related functions, physical factors and personnel. • Represents authority and responsibility relationships between various positions. • Pattern of communication and coordination.

Need & Importance • Facilitates Administration  Sound organization structure facilitates performance of various functions such as planning, staffing, directing & controlling by division of labour, delegation, authority & responsibility relationship

• Promotes growth & diversification  Sound organization structure designed on scientific principles help in keeping various activities under control & increase the capacity of the organization to grow & diversify.

• Optimum use of technological innovation  Sound organization structure facilitates introduction of change & is flexible to give adequate scope for the improvement in technology.

Need & Importance (contd.) • Coordination  Organization structure is an important means of bringing coordination among various departments.  Creates clear-cut relationship between the departments  Provides for the channels of communication for the coordination of activities of different departments.

• Optimum use of human resources  Sound organization structure ensures that every individual is placed on the job for which he is best suited. This helps in better use of individuals.

• Training & Development  An effective organization structure is an important device for training & developing the personnel. It prepares them to take more responsibilities whenever the need arises.

Need & Importance (contd.) • Stimulates creative thinking  An organization structure based on clear-cut demarcation of authority, discretionary freedom etc., will certainly create the spirit of constructive & creative thinking.  Gives an opportunity for the staff to display their hidden creative talents.

• Job Satisfaction  Organization structure is a source of satisfaction to people.  Organization structure provides each person a place of status which confers a certain standing among his fellows.  Most people spend large part of their time at work so they expect their jobs to provide a reasonable degree of job satisfaction.

Features • Simplicity  Various organizational relations should be kept minimum possible.  Every individual should be clear about to whom he has to consult in a particular matter.

• Flexibility  The structure is based on circumstances, which are dynamic.  The changes can be incorporated easily if the structure is flexible.

Features (contd.) • Clear Line of Authority  There should be clear lines of authority running from top to bottom or in horizontal directions.  One should be clear about what he is expected to achieve and what relationships should be maintained by him.  Failure results into frictions, politics and inefficiencies.

• Application of Ultimate Responsibility  A manager assigns some of the work to his subordinates, but he is responsible for the performance of total work.  Everybody carries dual responsibility.

Features (contd.) • Proper Delegation of Authority  It refers to authorisation of a manager to make certain decisions.  Absence causes delay in decision implementation, more pressure on managers & less motivation to subordinates.

• Minimum possible Managerial Levels  Greater number of managerial levels leads to longer line of communication in the chain of command.  Creates problems of delay, distortion & increasing cost.

Features (contd.) • Principles of Unity of Direction & Command  Every work having the same objective must be assigned to a single person.  One person should receive orders & instructions from one superior.

• Proper Emphasis on Staff  Line activities serves the organisation objective directly like production.  Staff activities help in carrying out the line activity like accounting, personnel.  Line functions should be separated from staff functions.

Features (contd.) • Provision for Top Management  There should be active participation of shareholders and board of directors in management process.  They both affect the organizational functioning.

Process • Identification of Activities

 Managers must identify the necessary activities  Deductive method of identifying activities is followed  Major activities are further classified into sub-activities.

• Grouping of Activities

 Similar activities are grouped into departments  The basis may be functions, regions, type of customer etc.

• Delegation of authority

 Authority & responsibility are correlated  Assignment of job to an individual creates responsibility, so he must have corresponding authority to discharge his obligations.

Contingent Factors • Environment  Organisation works within the framework of environment.  Different environmental factors affect the different types of organization differently.  Mechanic system is suitable for stable environment while organic system is suitable for dynamic environment.

• Strategy  Course of action through which organization relates itself with environment.  There is a close relationship between strategy & structure.

Contingent Factors (contd.) • Technology  Directly affects the task structure.  Three types of technology include unit, mass & process production.  With the increase in technological complexity, the number of personnel increases.  The span of management for managers increases as an organization moves from unit to mass production but it decreases when the organization moves from mass to process production.  With the increase in technological complexity, its clerical & administrative staff becomes larger.

Contingent Factors (contd.) • Size  Measured in terms of number of employees, scale of operation & amount of investment.  Positive correlation between these three.  Size of organization influences its coordination, direction, control and hence, organizational structure.  Size of organization affects the degree of formalization of various processes like communication, authority, decision making etc.

• People  Organisation structure is the result of conscious actions on the part of the people, engaged in the organization.  Combination of framers and participants.

Mechanism While designing an organizational structure, three issues should be taken care of; which are: What should be the different units, what components should join together & what should be kept apart, relationship & placement of different units. The different approaches for finding the answers are:

• Process approach  All necessary activities for achieving objectives are performed.  No unnecessary duplication of activities.  Activities are performed in a synchronized way.

Mechanism (contd.) • Result approach It involves the following steps:  Defining the business  Establishing the objectives  Determining the requirements for skills needed to meet them  Determining the degree of authority.

• Decision approach It involves certain questions and the answers of these becomes the basis of this approach. The questions include:  Decisions needed to obtain results  Nature of such decisions  Levels at which such decisions be made  Activities involved in or affected by such decisions

DEPARTMENTATION Departmentation is the process of dividing the work of organization into various units or departments. The terms used to denote the departments that result from departmentation vary a great deal.

FUNCTION TERRITORY

PRODUCT BASES OF DEPARTMENTATION

CUSTOMER

TIME

PROCESSES

ALPHANUMERICAL

CHOOSING A BASIS FOR DEPARTMENTATION Specialization Coordination Control Economy Recognition of local conditions Adequate attention Human consideration

DELEGATION OF AUTHORITY Delegation of authority is the process through which a manager gives authority to others to accomplish certain assignments. Principles of delegation: •Functional Definition: Clearly defined objective of a department or position specifies results which are expected, the activities which are to be performed, and its relationship with other positions. •Delegation of Results Expected: The authority is delegated to get certain results by performing particular activities. •Parity of Authority and Responsibility: Authority and responsibility of any manager should be co-equal. Authority gives a person right of taking and enforcing decision to accomplish assigned activities; responsibility places the obligation upon the person to perform these activities by using this authority. Authority without responsibility lacks an ordinate purpose, likewise, responsibility without authority to carry on assigned activities has a hollow ring. •Unity of Command: It suggests that a subordinate should be responsible to a single superior. The more completely a subordinate has the reporting relationship with a single superior, less is problem of conflict in instructions and greater is feeling of personal responsibility. •Absoluteness of Responsibility: No superior can avoid his responsibility merely by delegating his authority to subordinates.

EFFECTIVE DELEGATION Delegation is effective when adequate authority is delegated to subordinates and they make its proper use. Important measures which may be helpful in making delegation effective: •Authority and responsibility of a manager should be clearly defined. •A manager may fail to delegate because of feeling of insecurity in his job. This fear should be avoided. •A work climate, free from fear and frustration, should be established. Managers having delegated authority should be suitably awarded and supported by top management. •Authority delegation should be tied with intelligent planning. It should not be delegated before the goals are made clear. The art of goal setting aids authority delegation because it brings in close focus what authority will be required to achieve these goals.

EFFECTIVE DELEGATION (CONTD..) •Proper control techniques should be developed to ascertain that authority is used properly. This does not mean that control techniques interfere unnecessarily with day-to-day functioning of the delegants. •The delegants should be selected in the light of the job to be done. The nature of work and personality factors of delegants go a long way in determining the quality and quantity of the delegation. Problems of delegants should be carefully solved without encroaching upon their authority. •There should be free and open lines of communication. Delegators have absolute responsibility. They are interested to know how decisions are being taken, authority is being used, and problems are being tackled. This brings both superior and subordinates closer and they can solve many problems which come in the way of delegation.

CENTRALIZATION AND DECENTRALIZATION Centralization denotes concentration of authority and decentralization is dispersion of authority. These words are used in context of administrative processes, physical and geographical location, various functions being performed, or degree of delegation of authority. When centralization and decentralization are used in the context of degree of authority at various levels and associated management practices, they denote different degrees of delegation of authority. Centralization refers to the reservation of authority at top level of the organization and decentralization refers to systematic delegation of authority in the organization. However, there can neither be absolute centralization or decentralization. In between these two extreme points, there may be continuum of authority distribution.

FACTORS DETERMINING DECENTRALIZATION A basic factor that arises while designing the organizational structure is: How much to decentralize the authority? The temperament of individual managers affects the extent of authority delegation along with many other factors. Most are beyond control of mangers. Such factors are:

SIZE OF ORGANIZATION HISTORY OF ORGANIZATION

MANAGEMENT PHILOSOPHY

AVAILABILITY OF MANAGERS

PATTERN OF PLANNING

FACTORS DETERMINING DEGREE OF DECENTRALIZATION

CONTROL TECHNIQUES

RATE OF CHANGE OF ORGANIZATION

DECENTRALIZATION ACTIVITIES

ENVIRONMENTAL INFLUENCES

RATIONALE CENTRALIZATION Centralization is the systematic and consistent reservation of authority at central points within the organization. This results into a number of benefits in the organization. •Provides opportunity for personal leadership. •Facilitates integration of efforts. •Quick decisions possible, emergencies can be handled very easily. •Makes communication and control easier. •Helps in reducing wastage of efforts. •Uniformity in actions and thus coordination. Centralization is suitable for smaller organizations. When organizations increase in size and diversify, these benefits turn into limitations.

RATIONALE DECENTRALIZATION Decentralization has become the prevailing philosophy for organizing activities on the part of large organizations. Its benefits: •Reduces burden of top management. •Facilitates growth and diversification in organization. •Good philosophy to motivate managers. •Encourages development of managers. •Emphasis on horizontal growth of organization (reducing number of management levels). •Pinpoints more accurately on the results to be achieved. If the organization is growing rapidly and working in dynamic environment, decentralization is the best policy.

MAKING DECENTRALIZATION EFFECTIVE 1) CENTRALIZED TOP POLICY AND CONTROL 2)APPRECIATION OF CONCEPT OF DECENTRALIZATION 3)DEVELOPMENT OF MANAGERS 4)COMPETITION AMONG UNITS

Classification of Organisation Structure  Line Organisation Structure  Line and Staff Organisation Structure  Functional Organisation Structure  Divisional Organisation Structure  Project Organisation Structure  Matrix Organisation Structure  Free-form Organisation Structure

Line Organisation Structure An organisational structure in which authority moves down in a line from the chief executive; typically, there are no specialists or advisors, the chief executive having complete authority over decision making. Production Manager Foreman (Spinning)

Foreman (Weaving)

Foreman (Dying)

Foreman (Finishing)

Workers

Workers

Workers

Workers

Line Organisation Structure Merits  Simplicity  Discipline  Prompt Decision  Economical

Demerits  No specialist  No conceptual thinking  Autocratic approach  Lack of coordination

Line and Staff Organisation Structure An organisational structure is a structure in which both line structure and staff structure, with the latter providing specialized staff activities that support line activities. General Manager Financial Manager Finance Officer

Finance Officer

Production Manager Production Planning Manager

Plant Service Manager

Marketing Manager Advertising Manager

Marketing Research Analyst

Personnel Manager Personnel Officer

Line and Staff Organisation Structure Merits  Planned Specialization  Quality Decisions  Prospect of Personal Growth  Better Training

Demerits  Lack of well defined authority  Line and Staff Conflict

Line and Staff Conflict Viewpoint of Line Managers  Lack of Responsibility in staff  Staff encroach upon line authority  Staff dilute line authority  Staff is theoretical bias

Viewpoint of Staff Managers  Lack of proper use of staff in line managers  Line managers resists new ideas  Line managers don’t give proper authority

Conflict is a natural phenomenon and is not to be always viewed as a disease to be cured and a disorder to be curbed. To some extent it may even be necessary and desirable to keep the organization alert or induce it to be more innovative, to open up opportunities for learning and impart flexibility to organizational function.

Functional Organisation Structure In a functional structure, the division of labor in an organization is grouped by the main activities or functions that need to be performed within the organization—sales, marketing, human resources, and so on. Each functional group within the organization is vertically integrated from the bottom to the top of the organization.

Headquarters Plant 1

Production

Marketing

Finance

Plant 2

Human Resource

Production

Marketing

Finance

Human Resource

Functional Organisation Structure Merits  Greater Variety of Skills  Greater Efficiency  Greater Satisfaction of Job  No duplication of activities

Demerits  Lack of Unity  Slow decision making process  Lack of proper response  Line and Staff conflict

Divisional Organisation Structure Divisional structure is built around business units. Here, organisation structure is divided into several autonomous units. Each unit is self contained in that it has the resources to operate independently of other divisions.

Managing Director

Consumer Product Division

Electronics Division

Chemical Division

Manufacturin g

Purchasing

Manufacturin g

Purchasing

Manufacturin g

Purchasing

Marketing

Accounting

Marketing

Accounting

Marketing

Accounting

Divisional Organisation Structure Merits  Emphasis on end product  Performance measurement easy  High motivation  Size of organisation can be increased easily

Demerits  Costly  Lack of Satisfaction  Divisionalisation problem

Project Organisation Structure Project structure appears same like a divisional structure, except that in latter, various divisions are created on permanent basis while in former they are created only for the life time of the project

General Manager

Project A

Project B

Project C

R&D

Purchasing

R&D

Purchasing

R&D

Purchasing

Marketing

Accounting

Marketing

Accounting

Marketing

Accounting

Project Organisation Structure Merits  Single and Specific Goals  Unique and Unfamiliar to present organisation  High degree of interdependence between tasks

Demerits  Feeling of insecurity and uncertainty  Lack of clarity among members  Manager carry responsibility without authority

Matrix Organisation Structure A Matrix organizational structure combines the advantages of functional structure and product structure. In a matrix organisational structure, people have to report to two bosses, one being the head of the department in which they are working, and the other being the leader or coordinator of the project on which they are working.

Matrix Organisation Structure      

Merits Minimization of project costs, due to sharing of resources. Minimization of conflicts Balance between time, cost and performance Sharing of authority and responsibility Stress distribution between the team Information sharing

   

Demerits Not suitable for small organizations Complete responsibility of the Manager for success or failure The team leader gets all the credit Suitable only for project based organization.

Free-form Organisation Structure A Free-form organization is a rapidly changing, adaptive, temporary system organized around problems to be solved by groups of relative strangers with diverse professional skills. The duration of a team is non-existent i.e. the team can last for a month or a year. Roles performed in the teams are also interchangeable. A team can also be subdivided in sub-teams. This structure is suitable for those industries which have to work in highly dynamic environments. Such environments are characterized by high flexibility and ever-changing character.

Types of Free-form Organisation Structure 

Virtual Organisation

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Virtual Office

Virtual Organisation Virtual Organisation is a temporary network of independent companies linked by information technology to share skills, costs, and access to one another’s markets. It wont have a central office or organisational chart. It will have no hierarchy or no vertical integration. It is a temporary alliance between two or more organisations that band together to undertake a specified venture.

Virtual Organisation leads to: • • • • • •

Better technology Better opportunities Better excellence Reliability Redefine the boundaries of company Creating synergy (2+2 =5 effect) by temporary alliances

Virtual Office A virtual office is a combination of off-site live communication and address services that allow users to reduce traditional office costs while maintaining business professionalism. Employees interact with each other through various portable communication tools like e-mail, mobile phone, laptop and various audio video conferencing tools.

Virtual Office     

Merits Reducing facility cost Reduced equipment cost Emphasis on formal communication Reduced work stoppages Social interaction and Social contribution

Demerits  Lack of Belongingness  Psychological fear of Job Loss  Family Tensions