Organizational Management

Basic Definition of Organization Basic Definition Basically, an organization is a group of people intentionally organized to accomplish an overall, common goal or set of goals. Business organizations can range in size from two people to tens of thousands. There are several important aspects to consider about the goal of the business organization. These features are explicit (deliberate and recognized) or implicit (operating unrecognized, "behind the scenes"). Ideally, these features are carefully considered and established, usually during the strategic planning process. (Later, we'll consider dimensions and concepts that are common to organizations.) Vision M embers of the organization often have some image in their minds about how the organization should be working, how it should appear when things are going well. Mission An organization operates according to an overall purpose, or mission. Values All organizations operate according to overall values, or priorities in the nature of how they carry out their activities. These values are the personality, or culture, of the organization. Strategic Goals Organizations members often work to achieve several overall accomplishments, or goals, as they work toward their mission. Strategies Organizations usually follow several overall general approaches to reach their goals. Systems and Processes that (Hopefully) Are Aligned With Achieving the Goals Organizations have major subsystems, such as departments, programs, divisions, teams, eta. Each of these subsystems has a way of doing things to, along with other subsystems, achieve the overall goals of the organization. Often, these systems and processes are define by plans, policies and procedures. How you interpret each of the above major parts of an organization depends very much on your values and your nature. People can view organizations as machines, organisms, families, groups, eta. (We'll consider more about these metaphors later on in this topic in the library.)

Organizations

as

Systems

(of

Systems

of

Systems)

Organization as a System It helps to think of organizations are systems. Simply put, a system is an organized collection of parts that are highly integrated in order to accomplish an overall goal. The system has various inputs which are processed to produce certain outputs, that together, accomplish the overall goal desired by the organization. There is ongoing feedback among these various parts to ensure they remain aligned to accomplish the overall goal of the organization. There are several classes of systems, ranging from very simple frameworks all the way to social systems, which are the most complex. Organizations are, of course, social systems. Systems have inputs, processes, outputs and outcomes. To explain, inputs to the system include resources such as raw materials, money, technologies and people. These inputs go through a process where they're aligned, moved along and carefully coordinated, ultimately to achieve the goals set for the system. Outputs are tangible results produced by processes in the system, such as products or services for consumers. Another kind of result is outcomes, or benefits for consumers, e.g., jobs for workers, enhanced quality of life for customers, etc. Systems can be the entire organization, or its departments, groups, processes, etc. Feedback comes from, e.g., employees who carry out processes in the organization, customers/clients using the products and services, eta. Feedback also comes from the larger environment of the organization, e.g., influences from government, society, economics, and technologies. Each organization has numerous subsystems, as well. Each subsystem has its own boundaries of sorts, and includes various inputs, processes, outputs and outcomes geared to accomplish an overall goal for the subsystem. Common examples of subsystems are departments, programs, projects, teams, processes to produce products or services, eta. Organizations are made up of people -- who are also systems of systems of systems -- and on it goes. Subsystems are organized in an hierarchy needed to accomplish the overall goal of the overall system. The organizational system is defined by, e.g., its legal documents (articles of incorporation, by laws, roles of officers, eta.), mission, goals and strategies, policies and procedures, operating manuals, eta. The organization is depicted by its organizational charts, job descriptions, marketing materials, eta. The organizational system is also maintained or controlled by policies and procedures, budgets, information management systems, quality management systems, performance review systems, eta. Standard Planning Process is Similar to Working Backwards Through the System Remember how systems have input, processes, outputs and outcomes? One of the common ways that people manage systems is to work backwards from what they want the system to produce. This process is essentially the same as the overall, standard, basic planning process. This process typically includes:

a) Establishing overall goals (it's best if goals are defined in measurable terms, so they usually are in terms of outputs) (the overall impacts of goals are outcomes, a term increasingly used in nonprofits) b) Associating smaller goals or objectives (or outputs?) along the way to each goal c) Designing strategies/methods (or processes) to meet the goals and objectives d) Identifying what resources (or inputs) are needed, including who will implement the methods and by when.

Methods to the Madness: Systems Theory and Chaos Theory (Optional Reading) NOTE: A person need not understand systems or chaos theory to start and run an organization. A basic understanding, though, sure helps when dealing with the many kinds of typical issues that face members of organizations. Information at the following link is geared to give the reader a taste of what systems theory is about, and then refer the reader to more information if they are interested.

Basic Dimensions in Organizations Structural dimensions: Centralization -the extent to which functions are dispersed in the organization, either in terms of integration with other functions or geographically Formalization - regarding the extent of policies and procedures in the organization Hierarchy - regarding the extent and configuration of levels in the structure Routinization - regarding the extent that organizational processes are standardized Specialization - regarding the extent to which activities are refined Training - regrading the extent of activities to equip organization members with knowledge and skills to carry out their roles

Contextual Dimensions: Culture - the values and beliefs shared by all (note that culture is often discerned by examining norms or observable behaviors in the workplace) Environment - the nature of external influences and activities in the political, technical, social and economic arenas

Goals - unique overall priorities and desired end-states of the organization Size - number of people and resources and their span in the organization Technology - the often unique activities needed to reach organizational goals, including nature of activities, specialization, type of equipment/facilities needed, etc.

Basic Overview of Organizational Life Cycles Organizations go through different life-cycles just like people do. For example, people go through infancy, child-hood and early-teenage phases that are characterized by lots of rapid growth. People in these phases often do whatever it takes just to stay alive, for example, eating, seeking shelter and sleeping. Often, these people tend to make impulsive, highly reactive decisions based on whatever is going on around them at the moment. Start-up organizations are like this, too. Often, founders of the organization or program and its various members have to do whatever is necessary just to stay in business. Leaders make highly reactive, seat-of-the-pants decisions. They fear taking the time to slow down and do planning. In our comparison of organizations and programs to people, we note that, as people continue to mature, they begin to understand more about the world and themselves. Over time, they develop a certain kind of wisdom that sees them through many of the challenges in life and work. They learn to plan and to use a certain amount of discipline to carry through on those plans. They learn to manage themselves. To survive well into the future, organizations and programs must be able to do this, as well. Experienced leaders have learned to recognize the particular life cycle that an organization or program is going through. These leaders understand the types of problems faced by the organization or program during the life cycle. That understanding gives them a sense of perspective and helps them to decide how to respond to decisions and problems in the workplace.

Organizational Life Cycles and Corresponding Typical Features Organizations, as with most systems, go through life-cycles. Features of new organizations are usually markedly different from older (usually more larger) organizations. The following very useful table was summarized Richard L. Daft's work and book, Organizational Theory and Design (West Publishing, St. Paul, M innesota, 1992), which, in turn, based information from Robert E. Quinn and Kim Cameron's Organizational Life Cycles and Some Shifting Criteria of Effectiveness, M anagement Science, 29, (1983), pp. 31-51.

Size Bureaucratic Division labor

Birth Youth Midlife small medium large nonbureaucratic prebureaucratic bureaucratic of overlapping tasks

some departments

many departments

Maturity very large very bureaucratic extensive, with small jobs and many descriptions

leaders two top-management department heavy heads policy and procedures extensive Formalization no written rules few rules manuals Centralization one-person rule

two rule

increasing secretary, no increasing Administrative professional large-- multiple professional clerical and intensity and staff departments staff maintenance support control crude budget systems -in extensive and Internal planning, nonexistent place; budget, systems information financial, and performance, system personnel added reports, etc.. Lateral teams, frequent at lower some use of top leaders tasks forces levels to break none integrators and only for down task forces coordination bureaucracy

Use functional structures when the organization is small, geographically centralized, and provides few goods and services. When the organization experiences bottlenecks in decision making and difficulties in coordination, it has outgrown its functional structure. Use a divisional structure when the organization is relatively large, geographically dispersed, and/or produces wide range of goods/services. Use lateral relations to offset coordination problems in functional and divisional structures. When the organization needs constant coordination of its functional activities, then lateral relations do not provide sufficient integration. Consider the matrix structure. To adopt the matrix structure effectively, the organization should modify many traditional management practices.

Key Concepts in Design of Organization Span of control - the range of employees who to report to a managerial position Authority - the formally-granted influence of a position to make decisions, pursue goals and get resources to pursue the goals; authority in a managerial role may exist only to the extent that subordinates agree to grant this authority or follow the orders from that position Responsibility - the duty to carry out an assignment or conduct a certain activity Delegation - process of assigning a task to a subordinate along with the commensurate responsibility and authority to carry out the task Chain of command - the lines of authority in an organization, who reports to whom Accountability - responsibility for the outcome of the process Line authority - the type of authority where managers have formal authority over their subordinates' activities (the subordinates are depicted under the manager on a solid line in the organization chart); departments directly involved in producing services or products are sometimes called line departments Staff departments - the type of authority where managers influence line managers through staff's specialized advice; departments that support or advise line departments are called staff departments and include, e.g., human resources, legal, finance, etc.

Introduction The organization's structure, or design, is the overall arrangement of the organization's various roles, processes and their relationships in the organization. The design of an organization is a means to accomplishing the organization's overall goal -- the structure is not an end in itself. In systems theory terms, the design ensures that the appropriate inputs go through the necessary processes to produce the required outputs to produce the intended outcomes.

Broad Overview of Primary Legal Forms of For-Profit Business Organizations For-profit businesses are usually of three legal forms, including unincorporated, corporations and limited liability companies. (There are other forms of businesses, too, for example, nonprofit, franchises, government-owned corporations, cooperatives, etc.) These forms are explained below. (M ore information is available in the topic Enterprise Law.)

A corporation is a privately owned corporation or a publicly held corporation, depending on whether the corporation is owned privately or by the public at large. Business people should seek the counsel of a lawyer when determining what legal form of business they should choose. 1. Unincorporated (sole proprietorships or partnerships) M ost small for-profit businesses are unincorporated. As an unincorporated organization, you can be a sole proprietor or in a partnership. A sole proprietorship is owned by one person or a marriage. Business activity is viewed by the IRS as your personal activity, for example, business income and taxes are viewed as your personal income and taxes. The sole proprietor is personally liable for the business. A partnership can be a general partnership or a limited partnership. A general partnership is viewed by the IRS essentially as two or more sole proprietors equally responsible for the business. The terms of sole proprietorship apply fully to each partner. In limited partnership includes one or more general partners and one or more limited partners. Limited partners are liable for activities of the business to the extent of their investment. 2. Corporations (C Corporations and S Corporations) A corporation is formed as its own legal entity, apart from the individuals who own and/or formed the organization. (The corporation can be either for-profit or nonprofit. M ore on nonprofits later on below.). The principals of a for-profit business decide to incorporate mostly to shield them for personal liability for activities of the business and/or to sell stock in the business. A corporate Boards of Directors oversees policy and strategy for corporations, whether for-profit or nonprofit. Principals and board members of for-profit corporations typically have little or no liability for operations of the corporation, unless the owners or board members broke federal and/or state laws in running the corporation. Theoretically the for-profit and nonproft corporation exists forever, past the death of its owners. For-profit corporations can be a C Corporation or Subchapter S Corporation. 3. Limited Liability Companies (LLC) The LLC is a relatively new form that combines the advantages of a corporation (minimum personal liability, selling stock, etc.) with those of a partnership (sharing management decisions, profit, etc). The LLC is an increasingly popular form of organization.

Broad Overview of Primary Legal Form of Non-Profit Business Organizations As noted above, for-profit businesses are usually of three legal forms, including unincorporated, corporations and limited liability companies. There are other forms of businesses, too, for example, nonprofit, franchises, government-owned corporations, cooperatives, etc. The following link provides more information about nonprofits, including their many legal forms.

What is a Nonprofit?

Traditional

Structures

of

Business

Organizations

(Numerous driving forces are causing dramatic changes in how organizations design themselves to conduct business effectively. These new designs are used organization wide or for various teams in the organization. The new designs are self-organizing, selfdirecting or self-managing in nature. M ore modern designs will be discussed later, back in Basic Overview of Organizations. The following three structures are quite traditional. ) Note that a business can be any of the above legal forms and in any of the following structures. Functional Structure M ost business organizations start out with a functional structure, or a small variation of this structure. This is the basic "building block" for other structures. In this structure, there is a central office which oversees various departments or major functions, e.g., human resources, finances, sales, marketing, engineering, etc. Think of a picture that has a box at the top labeled "Central Office". Think of a row of boxes underneath the top box. Each box is labeled, e.g., sales, engineering, human resources, etc. Connect the boxes with lines coming down from the top box to each of the boxes below. Divisional Structure In this structure, there is a centralized corporate office and under it, are various divisions each of which is dedicated to producing and / or selling a certain type of business or product, e.g., product 1, product 2, etc.. Each division that is dedicated to a certain business or product is, in turn, is organized as its own functional structure. So, for example, the division dedicated to making product 1 has its own sales department, human resources, etc. Basically, the divisional structure is a bunch of functional structures each of which reports to one central office.

Matrix Structure Think of the functional structure. Imagine if you took someone from each of the major functions in the functional structure (the boxes along the bottom of the organization chart), e.g., people from sales, engineering, etc., and organized them into a separate group intended to produce and sell one certain kind of product or service. M embers of this group stay together until that product is produced or they continue to sell and service it. This overall structure (made up of a functional structure that also has groups assigned to products) is a matrix structure. This structure is useful because it focuses highly skilled people from across the organization to work on a complex product or service. It can be difficult, though, because each person essentially reports to two supervisors: the supervisor of the functional area (e.g., engineering) and the product manager, as well.

Typical Structure of a Small, For-Profit Business Organization NOTE: At the time of this writing, I am not aware of any studies that report the specifications and primary designs of small, for-profit businesses. Thus, the following information is anecdotal. NOTE: The following description is not meant to imply that all new, small for-profit organizations should follow this typical structure. It seems that the typical, small for-profit business is a form of functional structure. An entrepreneur forms a sole proprietorship, or two or more entreprenueurs form a partnership. Employees are hired to do whatever tasks, jobs and roles are needed to help the business to survive. Over time, certain activities become ongoing and in support of other activities in the business. These ongoing, support activities become a "central office", of sorts. Eventually, each employee becomes responsible for the same set of tasks, or job. At this point, the business is a form of functional structure, with a central office overseeing various major functions. Note that the organization can, at any time, use more modern designs even within the same overall organizational design. For example, a self-managed team might be formed in a functional structure to research new ideas for products and services.

Typical Structure of a Small, Incorporated Nonprofit Business Organization NOTE: Although this section is labeled "Nonprofit", a small, incorporated for-profit business might be structured similar to that described below. However, rather than having programs, the for-profit business typically would have products or services. NOTE: The following description is not meant to imply that all new, incorporated, small for-profit organizations should follow this typical structure. Also note that, as specified

above, not all nonprofits are incorporated, that is, have a board of directors. The following description is of the typical small, incorporated nonprofit organization. To understand the structure of a typical, small, incorporated nonprofit business organization, think of a picture with a box at the top of the page. The box is labeled "Board of Directors". Directly under this box is a single box labeled "Executive Director (or Chief Executive Office, or President, etc.)". Under this box is a row of boxes, each of which is labeled "Program 1", "Program 2", etc. Draw a line down from the "Board of Directors" box to the "Executive Director" box to show that the "Executive Director" reports to the "Board of Directors". Draw lines down from the "Executive Director" box to each of the programs to show that the "Executive Director" is responsible for overseeing the program. As with for-profit organizations, nonprofits can, at any time, use more modern designs even within the same overall organizational design. For example, a self-managed team might be formed in a functional structure to research new ideas for services to the community.

What is Culture? Basically, organizational culture is the personality of the organization. Culture is comprised of the assumptions, values, norms and tangible signs (artifacts) of organization members and their behaviors. M embers of an organization soon come to sense the particular culture of an organization. Culture is one of those terms that's difficult to express distinctly, but everyone knows it when they sense it. For example, the culture of a large, for-profit corporation is quite different than that of a hospital which is quite different that that of a university. You can tell the culture of an organization by looking at the arrangement of furniture, what they brag about, what members wear, etc. -- similar to what you can use to get a feeling about someone's personality. Corporate culture can be looked at as a system. Inputs include feedback from, e.g., society, professions, laws, stories, heroes, values on competition or service, etc. The process is based on our assumptions, values and norms, e.g., our values on money, time, facilities, space and people. Outputs or effects of our culture are, e.g., organizational behaviors, technologies, strategies, image, products, services, appearance, etc. The concept of culture is particularly important when attempting to manage organizationwide change. Practitioners are coming to realize that, despite the best-laid plans, organizational change must include not only changing structures and processes, but also changing the corporate culture as well. There's been a great deal of literature generated over the past decade about the concept of organizational culture -- particularly in regard to learning how to change organizational culture. Organizational change efforts are rumored to fail the vast majority of the time. Usually, this failure is credited to lack of understanding about the strong role of culture and the role it plays in organizations. That's one of the reasons that many strategic

planners now place as much emphasis on identifying strategic values as they do mission and vision.

Some Types of Culture There are different types of culture just like there are different types of personality. Researcher Jeffrey Sonnenfeld identified the following four types of cultures. Academy Culture Employees are highly skilled and tend to stay in the organization, while working their way up the ranks. The organization provides a stable environment in which employees can development and exercise their skills. Examples are universities, hospitals, large corporations, etc. Baseball Team Culture Employees are "free agents" who have highly prized skills. They are in high demand and can rather easily get jobs elsewhere. This type of culture exists in fast-paced, high-risk organizations, such as investment banking, advertising, etc. Club Culture The most important requirement for employees in this culture is to fit into the group. Usually employees start at the bottom and stay with the organization. The organization promotes from within and highly values seniority. Examples are the military, some law firms, etc. Fortress Culture Employees don't know if they'll be laid off or not. These organizations often undergo massive reorganization. There are many opportunities for those with timely, specialized skills. Examples are savings and loans, large car companies, etc.

Functional Organizations Reduces

duplication

Encourages

of

activities

technical

Creates

expertise

narrow

perspectives

Difficult to coordinate

Divisional Organizations Improves Fixes

decision

accountability

Increases Hard Loses

for

coordination

to

allocate some

making performance of

functions

corporate

staff

support

economies

of

scale

Fosters rivalry among divisions

Matrix Structures Reinforces

&

Facilitates Balances

broadens efficient

conflicting

use

objectives

Increases Increases

confusion

technical

of

of

resources

the

organization

power &

stress

for

excellence

conflicts 2-boss

employees

Impedes decision making

Lateral Relations Dotted-line Liaison Temporary Permanent Integrating managers

task

supervision roles forces teams

Division of Labour Departmentalization S pecialization

Unity of Command Line

of

command

One superior

Authority and Responsibility Line Authority and power

and

staff

authority

Spans of Control Levels Centralization and decentralization

of

control

Contingency Factors En vironment and technology Knowledge technology: task variability & problem analyzability

What is Organization Design? A process for improving the probability that an organization will be successful.

M ore specifically, Organization Design is a formal, guided process for integrating the people, information and technology of an organization. It is used to match the form of the organization as closely as possible to the purpose(s) the organization seeks to achieve. Through the design process, organizations act to improve the probability that the collective efforts of members will be successful. Typically, design is approached as an internal change under the guidance of an external facilitator. M anagers and members work together to define the needs of the organization then create systems to meet those needs most effectively. The facilitator assures that a systematic process is followed and encourages creative thinking.

Hierarchical Systems Western organizations have been heavily influenced by the command and control structure of ancient military organizations, and by the turn of the century introduction of Scientific M anagement. M ost organizations today are designed as a bureaucracy in which authority and responsibility are arranged in a hierarchy. Within the hierarchy rules, policies, and procedures are uniformly and impersonally applied to exert control over member behaviors. Activity is organized within sub-units (bureaus, or departments) in which people perform specialized functions such as manufacturing, sales, or accounting. People who perform similar tasks are clustered together. The same basic organizational form is assumed to be appropriate for any organization, be it a government, school, business, church, or fraternity. It is familiar, predictable, and rational. It is what comes immediately to mind when we discover that ...we really have to get organized! As familiar and rational as the functional hierarchy may be, there are distinct disadvantages to blindly applying the same form of organization to all purposeful groups. To understand the problem, begin by observing that different groups wish to achieve different outcomes. Second, observe that different groups have different members, and that each group possesses a different culture. These differences in desired outcomes, and in people, should alert us to the danger of assuming there is any single best way of organizing. To be complete, however, also observe that different groups will likely choose different methods through which they will achieve their purpose. Service groups will choose different methods than manufacturing groups, and both will choose different

methods than groups whose purpose is primarily social. One structure cannot possibly fit all.

Organizing on Purpose The purpose for which a group exists should be the foundation for everything its members do — including the choice of an appropriate way to organize. The idea is to create a way of organizing that best suits the purpose to be accomplished, regardless of the way in which other, dissimilar groups are organized. Only when there are close similarities in desired outcomes, culture, and methods should the basic form of one organization be applied to another. And even then, only with careful fine tuning. The danger is that the patterns of activity that help one group to be successful may be dysfunctional for another group, and actually inhibit group effectiveness. To optimize effectiveness, the form of organization must be matched to the purpose it seeks to achieve.

The Design Process Organization design begins with the creation of a strategy — a set of decision guidelines by which members will choose appropriate actions. The strategy is derived from clear, concise statements of purpose, and vision, and from the organization’s basic philosophy. Strategy unifies the intent of the organization and focuses members toward actions designed to accomplish desired outcomes. The strategy encourages actions that support the purpose and discourages those that do not. Creating a strategy is planning, not organizing. To organize we must connect people with each other in meaningful and purposeful ways. Further, we must connect people with the information and technology necessary for them to be successful. Organization structure defines the formal relationships among people and specifies both their roles and their responsibilities. Administrative systems govern the organization through guidelines, procedures and policies. Information and technology define the process(es) through which members achieve outcomes. Each element must support each of the others and together they must support the organization’s purpose.

Exercising Choice Organizations are an invention of man. They are contrived social systems through which groups seek to exert influence or achieve a stated purpose. People choose to organize when they recognize that by acting alone they are limited in their ability to achieve. We sense that by acting in concert we may overcome our individual limitations. When we organize we seek to direct, or pattern, the activities of a group of people toward a common outcome. How this pattern is designed and implemented greatly influences effectiveness. Patterns of activity that are complementary and interdependent are more likely to result in the achievement of intended outcomes. In contrast, activity patterns that

are unrelated and independent are more likely to produce unpredictable, and often unintended results. The process of organization design matches people, information, and technology to the purpose, vision, and strategy of the organization. Structure is designed to enhance communication and information flow among people. Systems are designed to encourage individual responsibility and decision making. Technology is used to enhance human capabilities to accomplish meaningful work. The end product is an integrated system of people and resources, tailored to the specific direction of the organization.