CHAPTER FOUR

THE ORGANIZING FUNCTION

Introduction
The second function of management is organizing. After a manager has a plan in place, s/he can
structure his/her teams and resources. Organizing, like planning, must be a process, carefully
worked out and applied. This process involves determine what work is needed, assigning those
tasks, and arrange them in a decision making framework (an organization structure). If this
process is not concluded well, the results may be confusion, frustration, loss of efficiency, and
limited effectiveness. In this chapter, organizational structures are examined in detail. Topics
include the differences between formal and informal organization, purpose of organizing, the
steps in organizing process, different approaches to organizing, and major organizing concepts.

Definition of Organizing
What to do and how to do have already been determined in the planning process. The result of a
good planning process is a detailed program of what actions are to be taken to accomplish
predetermined objectives, how long it will take, and where it will take place. The next task
becomes that of organizing. Organizing is the process of identifying and grouping tasks to be
performed, assigning responsibility and delegating authority and establishing relationships for
the purpose of enabling to work most effectively together in the accomplishment of objectives.
Organizing results in an organization structure that can be thought of as a framework that holds
the various functions together according to the pattern determined by management. An
organization structure is a tool of management to achieve plans.

Formal and informal organization

Formal organization is an organization that is deliberately and rationally designed and
approved by management through the organizing process in order to achieve the objectives of the
firm.
Informal organization refers to people in group associations, but these associations are not
specified in the structure of the formal organization. Informal organizations are natural groupings
of people in the work situation based on their behavioral patterns, interests, beliefs, objectives,
etc. The main point to be noted is that no conscious attempt is made to create informal
organizations. They appear in response to the social needs - the need of people to associate with
others.

Even though informal organization is not established officially it exists and it is there always in
the formal organization; it may affect the formal organization negatively or positively. Managers
should recognize that the informal organization exists in the formal organization; nothing can
destroy it. Therefore, they should try to use the informal organization for the benefit of the
formal organization. Informal organizations have the following characteristics:
 Group norms: these are unwritten laws that govern the behavior of members of the
informal organization.
 Group cohesiveness: by this we mean the members of an informal organization stick
together.
 Group leadership: the informal organization has a leader- the informal leader. This
person is the most active one from among the members.

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  Communication network: the informal organization has a communication network that is
called grapevine.

Importance of organizing
The organizing process is important as a way to help the organization attain its mission. In
addition it has the following importance.
A clarified work environment
Everyone understands what to do. The tasks and responsibilities of all individuals, departments
and major organization divisions are clear. The type and limits of authority are determined.
A coordinated environment
The interrelationships of the various work units will be developed, guidelines for interaction
among personnel will be defined, and the principle of unity of direction should be achieved.
These create a coordinate effort among parts of an organization and avoid the possible confusion
that hinders the organization performance.
A formal decision-making structure
Through the organization chart, the formal superior-subordinate relationships have been
developed. This allows the orderly relation through the hierarchy for decision making and
communications.

The organizing process

Organization is the process by which employees, facilities and tasks are related to each other,
with a view to achieve specific goals. The process of organizing, involves the following steps:
1. Consider plans and goals
Plans as a primary managerial function and goals as a target for an organization, any organizing
process should consider these before attempting to perform other steps. Plans dictate the purpose
and activities that organizations have or will have. Some purposes and some activities are likely
to remain fairly constant once a business is established. For example, the new business will
continue to seek a profit, and it will continue to employ people and other resources. But, in time
and with new plans, the ways in which basic activities are carried out will change. New
departments may be created; old ones may be given additional responsibilities; some cease to
exist. New relationships between groups of decision makers may come into being as well.
Organizing will create the new structure and the relationships and modify the existing ones.
2. Determine work activities
Although this task may seem overwhelming to some managers, it doesn’t need to be. Managers
simply list and analyze all the tasks that need to be accomplished in order to reach organizational
goals.
3. Classify and group activities
Once managers know what tasks must be done; they classify and group these activities in to
manageable work units- departments (through departmentalization). Departmentalization may be
functional, geographical, product, or customer.
4. Assign work and delegate authority
Managers assign the defined work activities to specific individuals. Also, they give each
individual the authority (right) to carry out the assigned tasks.

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5. Design a hierarchy of relationships
This last step requires managers to determine the vertical and horizontal operating relationships
of the organization as a whole. Vertical structuring results in a decision-making hierarchy.
Horizontal structuring defines working relationship between operating departments.

Departmentalization
Departmentalization (departmentation) is a method of subdividing work and workers into
separate organizational units that take responsibility for completing particular tasks.
Traditionally, organizational structures have been created by departmentalizing work according
to five methods: functional, geographic, customer, product, and matrix.
Functional
Probably the most commonly used approach. It groups under the major headings that nearly
every business has in common- production, marketing, finance, accounting, and personnel. These
are the functions of the business, and the entire organization would be divided in to these major
areas.
Advantages
 Avoid overlap in performing basic business activities
 Lines are clearly drawn between the functional areas
 Intradepartmental coordination is facilitated
Disadvantages
 Narrows the understanding of employees about the organization at large
 Creates communication barrier among people working in different departments
 Managers may be trained too narrowly in a single department
Geographic (territorial)
Geographic basis of departmentalization is used when a company has different branches that are
geographically dispersed. It is followed by delegation of sufficient authority to those units that
are established far from the head office.
Advantages
 Creates conducive environment to develop general managers
 Provides chance to local people employment opportunity
 Creates customer good will and awareness of local feeling desires
Disadvantages
 Costly to implement
 Duplication of efforts
Customer
This is grouping tasks based on types of customers served. For instance, a shoes producing
company may have departments’ like-kids, men shoes, and women shoes.
Advantages
 Customers interest and priority is respected
 Workers are identified with a particular group of customers that create team spirit
Disadvantages
 There is a problem of duplication of resource
 High competition among departments may deter the overall organization performance
Product
The establishment of an organization pattern based on product should be considered when
attention, energy, and efforts need to be focused on an organization’s particular product. This can

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be true if each product requires a unique strategy or production process or distribution system or
capital sources.

This approach to organizing allows a sales force to sell complementary products to a consistent
group of buyers or purchasing agents. Competition occurs within the organization between
product managers, sales managers, and others to outperform one another and to get a large share
of the organization’s assets and resources. If carried to its extreme, this competition can be
disadvantage. Moreover, the major disadvantage of is cost-through duplication of business
functions within each product line.
Matrix
A matrix organization pattern is a design blending the functional organization structure with a
project team structure. Application of this form are found in high-technology, project-based
industries such as the aero-space, government contracting, consulting, and research and
development businesses.
Advantages
 Resources are used more efficiently, because groups share machinery or equipment
 Motivated workers, because they see their visible results
 Horizontal coordination is strengthened
Disadvantages
 Possibilities of conflict are increased
 Lines of authority and responsibility may not be clear to individual employees
 Administrative costs are increased
All these organizational patterns have appropriate applications. The challenge to the organization
is to select the most suitable base to meet its objectives and to be responsive to the need to
change the structure when the objectives change.

Major Concepts of Organizing

Now that we have discussed the organizing process and potential organizational approaches, it is
necessary to examine some major organizational concepts and principles that managers work
with in developing a workable system. A working knowledge of work specialization, chain of
command, unity of command, authority, delegation, span of control and the centralization vs.
decentralization issue is essential to the ongoing process.
Work Specialization
Today we use the term work specialization, or division of labor to describe the degree to which
tasks in the organization are subdivided into separate jobs. The essence of work specialization is
that, rather than an entire job being done by one individual, it is broken down into a number of
steps: each step; being completed by a separate individual. In essence, individuals specialize in
doing part of an activity rather than the entire activity.
Chain of Command
The chain of command is an unbroken line of authority that extends from the top of the
organization to the lowest echelon and clarifies who reports to whom. People higher in the chain
of command have the right, if they so choose, to give commands, take action, and make
decisions concerning activities occurring anywhere below them in the chain.
Unity of command
This principle states that an employee should have one and only one supervisor to whom he or
she is directly responsible. No employee should report to two or more people. Otherwise, the

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employee may receive conflicting demands or priorities from several supervisors at once, placing
this employee in a no-win situation. Unity of command should be a guiding principle of any
organization in many attempts to develop operating relationships. Sometimes, however, because
of operating relationship developed through staff and line departments, it is possible that
organizational members will have more superiors in a given situation. To the maximum possible,
these situations should be minimized or at least clarified, for the sake of all affected.
Authority
All managers in an organization have authority. They have different degree of authority based on
the level of management they occupy in the organizational structure. Authority is a tool of
management. It can be described as the formal and legitimate right of a manager to make
decisions, issue orders, and allocate resources to achieve organizationally desired outcomes. A
manager’s authority is defined in his or her job description.

Even though a manger has formal or legitimate authority, it is wise to remember that the
willingness of employees to accept the legitimate authority is a key to effective management.
The acceptance theory of authority focuses on the employee as the key to the manager’s use of
authority.

Relationship between power and authority

Power is the ability to exert influence in the organization. Authority is positional i.e. it will be
there when the person leaves. Authority is part of power. Power is personal-it exists because of
the person. A person does not need to be a manager to have power, because managers can
acquire power form several different sources.
Sources of power
1. Coercive Power
The coercive power base is defined as being dependent on fear. One reacts to this power out of
fear of the negative results that might occur if one failed to comply. It rests on the application, or
the threat of application, of physical sanctions such as the infliction of pain, the generation of
frustration through restriction of movement, or the controlling by force of basic physiological or
safety needs.

Of all the bases of power available to man, the power to hurt others is possibly most often used,
most often condemned, and most difficult to control ... the state relies on its military and legal
resources to intimidate nations, or even its own citizens. Businesses rely upon the control of
economic resources. Schools and universities rely upon their rights to deny students formal
education, while the church threatens individuals with loss of grace.
2. Reward Power
The opposite of coercive power is reward power. People comply with the wishes or directives of
another because it produces positive benefits; therefore, one who can distribute rewards that
others view as valuable will have power over them. These rewards can be anything another
person values. In an organizational context, we think of money, favorable performance
appraisals, promotions, interesting work assignments, friendly colleagues, important information,
and preferred work shifts or sales territories.

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3. Legitimate Power
In formal groups and organizations, probably the most frequent access to one or more of the
power bases is one's structural position. This is called legitimate power. It represents the power a
person receives as a result of his or her position in the formal hierarchy of an organization.
4. Expert power
Expert power is influence wielded as a result of expertise, special skill, or knowledge. Expertise
has become one of the most powerful sources of influence as the world has become more
technologically oriented. As jobs become more specialized, we become increasingly dependent
on "experts" to achieve goals. So, while it is generally acknowledged that physicians have
expertise and hence expert power-most of us follow the advice our doctor gives us-you should
also recognize that computer specialists, tax accountants, solar engineers, industrial
psychologists, and other specialists are able to wield power as a result of their expertise.
5. Referent Power
Referent power develops out of admiration of another and a desire to be like that person. In a
sense, then, it is a lot like charisma. If you admire someone to the point of modeling your
behavior and attitudes after him or her, this person possesses referent power over you. Referent
power explains why celebrities are paid millions of dollars to promote products in businesses. In
organizations, if you are articulate, domineering, physically imposing, or charismatic, you hold
personal characteristics that may be used to get others to do what you want.

Types of authority
Line authority defines the relationship between superior and subordinate. It is a direct
supervisory relationship. Managers who supervise operating employees or other managers have
line authority. Line authority flows downward in an organization directly from superior to
subordinate.
Staff authority is advisory in nature. Managers whose role is to provide advice or technical
assistance are granted advisory authority. Advisory authority does not provide any basis for
direct control over the subordinates or activities of other departments with whom they consult.
(Within the staff manager’s own department, s/he exercises line authority over the department’s
subordinates.)
Functional authority is authority delegated to an individual or department over specific
activities undertaken by personnel in other departments. Staff departments may be given
functional authority to control their systems’ procedures in other departments. A common
specific example occurs in the personnel department, which must monitor and receive
compliance in orienting departments for recruitment, selection, and performance appraisal
systems.

Line and staff departments

Line departments, headed by a ‘line manager,’ are the departments established to meet the major
objectives of the organization. Departments normally designated as line departments include
production, marketing, and finance. In functioning with the employees and departments under
their control, line managers exercise line authority.

Staff departments provide assistance to the line departments and to each other. They can be
viewed as making money indirectly for the company-through advice, service, and assistance.

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The traditional staff departments include legal, personnel, computer services, and public
relations.

Delegation
Delegation is a concept describing the passing of formal authority to another person. Superiors
delegate, or pass authority down, to subordinates in order to facilitate work being accomplished.
Delegation may become necessary when managers are absent from their jobs or just may be the
philosophy of the manager in order to develop subordinates. Whatever the reason for delegation,
its application creates a sequence of events:
1. Assignment of tasks: Specific tasks or duties that are to be undertaken are identified by the
manager for assignment to the subordinate. The subordinate is then approached with the
assignment (tasks).
2. Delegation of authority: In order for the subordinate to complete the duties or tasks, the
authority necessary to do them should be delegated by the manager to the subordinate. A
guideline for authority is that it should be adequate to complete the task- no more and no less.
3. Acceptance of responsibility: Responsibility to carry out one’s assigned duties to the best of
one’s ability. The employee is the receiver of the assigned duties and the delegated authority;
these confer responsibility as well.
4. Creation of accountability: Accountability is having to answer to someone for your actions. It
means taking the consequences- either credit or blame. When the subordinate accepts the
assignment and the authority, he or she will be held accountable or answerable for actions taken.
A manager is accountable for the use of her or his authority and performance. The manager is
also accountable for the use of her authority and performance. The manager is also accountable
for performance and actions of subordinates.

This four-step process should ensure that the process of delegation produces clear understanding
on the part of the manager and of the subordinate. The manager should take the time to think
through what is being assigned and to confer the authority necessary to achieve results. The
subordinate, in accepting the assignment, becomes obligated (responsible) to perform, knowing
that he or she is accountable (answerable) for the results.
Span of control (Management)
The span of control or span of management is concerned with the number of subordinates each
manager should have to direct. There is no correct number for the span of control. It is
determined for each manager based on the interplay of the complexity and variety of the
subordinates’ work, the ability and training of the subordinates, the ability of the manager, and
the company philosophy for centralization or decentralization of decision-making.

As a general rule, the more complex a subordinate’s job, the fewer should be that manager’s
number of subordinates. Another predictable guide is that the more routine the subordinates
work, the greater the number of subordinates that can be effectively directed and controlled.
Because of these general rules, organizations always seem to have narrow spans at their tops and
wider spans at lower levels. The higher one goes in the organization’s hierarchy, the fewer will
be his or her subordinate i.e., the higher you go in an organization’s hierarchy, the more
subordinates a manager will have.

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Just how many subordinates should any one manager have? The answer to this question depends
on many factors and must be determined with a specific manager or job in mind. How much is
the organization asking this manager to control? How are the tasks to be divided? What are the
resources-people, money, and time-available? If a manager has too few people to supervise, her
or his subordinates might be either overworked or become frustrated and dissatisfied. The
qualifications of the managers and their subordinates must be considered when creating spans of
control. The more capable and experienced the subordinates, the more that can be widened with
the growth in experience and competence of personnel-thus the continuing need for training and
development. Another factor that can influence the span of control of a manager is the
company’s philosophy toward centralization or decentralization in decision making.

Centralization versus Decentralization

The terms centralization and decentralization refer to a philosophy of organization and
management that focuses on either the selective concentration (centralization) or the dispersal
(decentralization) of authority within an organization structure. The philosophy of management-
either to concentrate authority for decision making in the hands of one a few or to force it down
the organization structure into the hands of many.

Centralization or decentralization is a relative concept when applied to organizations. The top-

level management may decide to centralize all decision making: purchasing, staffing, operations.
Or it may decide to set limits on what can be purchased at each level by monetary amounts,
decentralize the hiring decisions to first-level management for clerical workers (retaining
authority for managerial decisions), and let operational decisions be made where appropriate.
There are guidelines to follow in determining the degree of decentralization.
 The greater the number of decisions made at the lower levels of management, the more
the company is decentralized.
 The more important the decisions made at lower levels, the greater the decentralization.
 The more flexible the interpretation of company policy at the lower levels, the greater the
degree of decentralization.
 The more widely dispersed the operations of the company geographically, the greater the
degree of decentralization.
 The less a subordinate has to refer to his or her manager prior to a decision, the greater
the decentralization.

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