Management-1-Module-123

Management-I
Module 1- Introduction to management and
Organization

What is Management ?
Management is the process of designing and maintaining
an environment in which individuals, working together in
groups, efficiently accomplish selected aims.

It is coordination and oversight of the work activities of
others so that their activities are completed efficiently and
effectively

Effectiveness
Doing the right thing or completing activities so that
organizational goals are attained or objectives are achieved.
Efficiency
Doing things right or getting the most output from the least
amount of inputs (time, money, etc.)

Definitions Of Management

Production-or Efficiency oriented
Decision Oriented
People oriented
Function oriented

Production-or Efficiency oriented Definition

“Management is the art of knowing what you want to do then
seeing that it is done in the best and cheapest way”
- According to Taylor

-Emphasis on Efforts and Results

• Decision Oriented Definition

“Management is simply the process of decision making and
control over the action of human being for the expressed
purpose of attaining pre-determined goals”
-According to Stanley Vance
-Indicate manager’s activity

• People oriented Definition

“Management is the art of getting things done through and
with people in formally organized groups.”
-According to Koontz

-Emphasis on relation with internal people

Function oriented Definition

“Management is a process involving planning, organizing,
staffing, directing and controlling human efforts to achieve
stated objective in an organization”

Characteristics of Management
1. Management is intangible.
2. Management is goal-oriented.
3. Management is universal.
4. Management is a social process.
5. Management is a group activity.
6. Management is a system of authority.
7. Management is dynamic.
8. Management is a science as well as an
art.
9. Management is multidisciplinary.

Importance of Management
1. Optimum use of resources.
2. Effective leadership and motivation.
3. Establishes sound industrial relations.
4. Achievement of goals.
5. Improves productivity.
6. Improves profitability.
7. Increases efficiency.
8. Enhances effectiveness.

Management as a Science
• Management is a science because it has
all the characteristics of a science,
namely:
1. Systematized body of knowledge.
2. Management is a social science.
3. Management is an inexact science.
4. Manager vs. Scientist. (A scientist can
afford to wait until all the information is
available but a manager cannot.)
5. Scientific management.

Management as an art
• Management is a art as it involves the use
of knowhow and skills like any other art
such as music, painting, etc.
• Management is an art because it requires:
1. Use of knowledge.
2. Creative art. (It combines human and
non-human resources in a useful way so
as to achieve results.)
3. Personalized.
4. Constant practice.

Management as a Profession
• Over the last few decades, factors such as
growing size of business
units, competition, separation of
ownership from management have led to
an increased demand for professionally
qualified managers.
• The tasks of management have become
quite specialized.
• Management is an emerging profession as
it also carries the essential features of a
profession as under:

Management V/s Administration

• There could be three different approaches
inferred regarding management and
Administration

– Administration is above management
– Administration is a part of Management
– Management and administration are same

Difference between administration
and management
No Basis of Difference Administration Management

1 Level in Organization Top Level Middle –Lower
Level
2 Major Focus Policy formulation Policy execution for
& objective objective
determination achievement
3 Scope of Function Broad and Narrow and
conceptual operation
4 Factor affecting Decisions External Internal
5 Employer-Employee relation Entrepreneur and Employees
owner
6 Qualities Required Administrative Technical

Who are Managers?
A Manager is someone who coordinates and oversee the
work of other people so that organizational goals can be
accomplished.

A manger’s job is nit about personal achievement, It’s about
helping others do their work.

Levels of Management:

Top
Managers

Middle Managers

First Line Managers

Non managerial Employees

Non managerial employees
are ground level worker, laborer who are supposed to
perform actual physical activity in the organization.

First Line managers
 The lowest level of management who manage the work of no
managerial employees.
 Typically are directly or indirectly involve with producing the
organization's products or servicing the organization's
customer
 The time horizon at this level is short, with the emphasis on
accomplishing day to day goals
supervisors, shift managers, district managers, department
managers office mangers

• Functions of First line manager :
 Plan day to day operations.
 Assigns job to workers.
 Provides supervision and control over work.
 Arranges materials, tools and equipments.
 Maintains discipline.
 Maintains close contact with employees involved in
operations.

Middle Level Managers
 Managers between the lowest level and top levels of the
organization who manage the work of first-line managers

 Middle management is a link between top management and
the first level management

 Middle managers generally are concerned with the near
future rather than with long-range planning.

e.g. regional managers, project leader, store managers,
division manager, manager of quality control

Functions at middle level management are:
 Interprets and explains the policies framed by the
top management.
 Makes plans of intermediate range and prepares
long-range plans for review by top management.
 Establishes departmental policies.
 Issues detailed instructions.
 Reviews daily and weekly reports on production or
sales. Counsels subordinates on production.
 Trains other managers.

Top Level Managers
 Managers at or near the upper levels of the
organization structure who are responsible for
making organisationwide decisions and establishing
the goals and plans that affect the entire
organization
 Top level management is usually appointed,
elected or designated by the organization's governing
body
e.g. Executive vice president, president, managing
director, chief operation officer, chief executive officer

• Functions at the top level of management are:
 Develops and reviews long-range plans and strategies.
 Evaluates overall performance of various departments and
ensures cooperation.
 Involved in selection of key personnel.
 Consults subordinate managers on subjects or problems of
general scope.
 Lays down standards of performance.
 Maintains good public relations.
 Provides guidance and directions.

The Functions of
Management
• The five managerial functions around which
managerial knowledge are organized:
• Planning
• Organizing
• Staffing
• Leading
• Controlling

Definition of Planning

Selecting missions
and objectives and
the actions to
achieve them, which
requires decision
making.

• Planning is deciding in advance what to do,
how to do it, when to do it and who is to do it.
• It a management function that involves
defining goals, establishing strategies for
achieving those goals, and developing plans to
integrate and coordinate activities.
• A plan is a forecast for accomplishment.
• It is a predetermined course of action.
• It is to produce a scheme for future action, to
bring about specified results at s specified cost,
in a specified period of time.

Definition of Organizing
• Organizing involves establishing an intentional
structure of roles for people to fill in an
organization.
• In Organizing, Managers determine what
activities are necessary to achieve the
objectives and how these activities should be
divided among the departments and
employees.

© 2008 Weihrich and Cannice Chapter 1. Management: Science, Theory, and Practice 27

Definition of Staffing
• Staffing involves filling, and keeping filled, the
positions in the organization structure.


Definition of Leading
• Leading is influencing people so that they will
contribute to organization and group goals.


Definition of Controlling
• Controlling is measuring and correcting
individual and organizational performance to
ensure that events conform to plans


Fig. 1-1 Time Spent in Carrying Out
Managerial Functions

How the Manager’s Job is Changing?
• In India, in many companies even in the government,
there has been a move to link pay to performance.

• Tanishq , ABB India Ltd, BPL Ltd have implemented
schemes for pay to be linked to performance at all
levels of the organization.

• In today’s world, managers are dealing with changing
workplace, security threats, ethical issues, global
economic and political uncertainties and
technological advancements.
• Because of the need for surviving in competition,
how the managers manage is changing.

Exhibit 1–8
Changes Impacting
the Manager’s Job

Manager’s Challenges in Turbulent times
• In today’s turbulent world, managing in times of crisis and confusion is
becoming a critical skill for managers in all kinds of organizations.

• Moreover, the frequency and intensity of crises have increased over the
past couple of decades.

• Managers in all organizations deal with uncertainty and unexpected
events, whether it is something as small as the loss of a key employee or
something as large and dramatic as a plant explosion.

• Challenges of being a manager
- Being a manager is more of smart work than hard work
- Must deal with a variety of personalities
- Must motivate workers in the face of uncertainty

• Solid management skills and actions are the key to helping any
organization to overcome a crisis and remain healthy, inspired and
productive.

Management Skills
• A manager’s job is complex and multidimensional and requires a
range of skills.

• The necessary skills for managing a department or an organization can
be summarized in three categories:

1. Conceptual Skills.
2. Human Skills.

3. Technical Skills.

Conceptual Skills
• Conceptual skill is the ability to see the "big picture," to
recognize significant elements in a situation, and to
understand the relationships among the elements.

• It involves the manager’s thinking, information processing and
planning abilities.

• It involves knowing where one’s department fits into the total
organization and how the organization fits into the industry, the
community and the broader business.

• Conceptual skills are needed by all managers but are
especially important for managers at the top.

• It means the ability to think strategically to take the broad,
long-term view and social environment.

Human Skills
• Human skill is the ability to work with people.
• It is cooperative effort.

• It is teamwork.

• It is the creation of an environment in which people feel
secure and free to express their opinions.

• It is the manager’s ability to work with and through other
people and to work effectively as a group member.

• It includes the ability to motivate, facilitate, coordinate, lead,
communicate and resolve conflicts.

• A manager with human skills encourages the participation of
the subordinates.

• He likes other people and is liked by them.

Technical Skills
• Technical skill is the understanding of and proficiency in the performance
of specific tasks.

• It includes mastery of the methods, techniques and equipment involved in
specific functions such as engineering, manufacturing or finance.

• It also includes specialized knowledge, analytical ability and the
competent use of tools and techniques to solve problems in that specific
discipline.

• It is important at lower level management.

Skills Needed at Different
Management Levels

Entrepreneurship

Entrepreneurship is a creative process that
is centered in the notion of identifying
market opportunities and unmet needs. It
is building solutions that meet these needs
and bring value to customers

Theory
“Theory is the coherent group of assumption put
forth to explain the relationship between two or more
observable facts and to provide , a sound basis for
predicting, future events”

Why study management theory?
- Theories provide a stable focus for understanding
what we experience.
- Theories enable us to communicate efficiently and
thus move into more and more complex relationship
with other people.
- Theories help us to keep learning about our world.

EVOLUTION OF MANAGEMENT
THOUGHT
• Factors causes Severe Competition
– Technological innovations and their
dissemination (Spread) in business
– Increase in capital investment
– Freedom at national and international
market
– Increasing buyer’s control in market

Increase in complexity in
management
• Increase in size of business organisation
• High degree of level of division on labor and
specialization
• Increase in government regulation and control
to make business more socially-oriented
• Organization union activities to pressures on
management
• Pressure of various conflicting interest groups
to meet their demands from the organization

MGT/M2/SS

EVOLUTION OF MANAGEMENT THOUGHT
Approaches - Classical - Neo Classical - Modern
Management Thought Period
Early contribution Up to 19th century
Scientific management 1900-1930
Administrative/Operational 1916-1940
Human Relation Management 1930-1950
Social system approach 1940-1950
Decision theory Approach 1945-1965
Management Science Approach 1950-1960
Human Behavior Approach 1950-1970
System Approach 1960s onwards
Contingency approach MGT/M2/SS 1970s onwards

INTRODUCTION
 The Industrial Revolution, which began in
Europe in the mid-1700s, was the starting
point for the development of management
concepts and theories.
 The rapid growth in the number of factories
during this period and the need to
coordinate the efforts of large number of
people in the production process
necessitated the development of
management theories and principles.
 This evolved the Schools of Management

Schools of Management Thoughts
 There are various Management Schools:
1. Classical School
2. Behavioral School
3. Quantitative School
4. Systems School
5. Contingency School
6. Quality School

Time Line of Management Thought

53

Classical Management Theory

A theory that focused on finding
Classical the “one best way” to perform
Management and manage tasks
Theory

54

 Originated during England’s Industrial
Revolution
 Manufacturers began mass-producing goods
in factories
 Textile industry was among the first
 Allowed production of standardized goods
 Depended on a constant flow of labor and
materials
 Owners needed to plan, organize, lead, control
 Focused on finding the “one best way”
55


Classical Focused on the manufacturing
Scientific environment
School

Classical Emphasized the flow of
information and how
Administrative
organizations should operate
School

56

Scientific Management
 Fredrick Winslow Taylor –
Industrial Engineers.
 Acknowledged as the father of
scientific management.

 Working at Midvale Steel
Company. Taylor witnessed many
inefficiencies. He sought to create
a mental revolution among both
workers and managers by
defining clear guidelines for

 His primary concern was to increase productivity
through greater efficiency in production and increased
pay for workers

 Scientific selection of workers and cooperation of
labors and management

 A clear division of tasks and responsibilities between
management and workers.

 Use of scientific methods to determine the best way
of doing a job.

Elements and tools of scientific management

• Separation of planning and doing (supervisor and
workers)
• Functional foremanship
• Job analysis
• Standardization
• Scientific selection and training of workers
• Financial incentives
• Economy
• Mental Revolution

• Separation of planning and doing (supervisor
and workers)
• Functional foremanship
– Planning Incharge
1. Route clerk
2. Instruction card clerk
3. Time and cost clerk
4. Discipline clerk
– Production Incharge
1. Speed boss
2. Inspector
3. Maintenance foreman
4. Gang boss

• Job Analysis
– Time- Consumption in particular movement
– Motion - way of performing activities
– Fatigue- Amt of Rest required during job

• Standardization
– Instruments, tools, period of work, amount
of work, working condition, cost of
production

• Scientific selection and training of
workers
– Work, Experience, Aptitude, Physical
Strength
• Financial Incentives
– Differential piece rate
• Economy
– Optimum utilization of resources
• Mental revolution
– Co-operation between management and
workers

Principles of scientific Management

 Replacing rule of thumb (mere bases of
estimates) with Science
 Harmony in group action
 Cooperate with workers to ensure that
scientifically developed methods are
being followed.
 Maximum output
 Development of workers
 Managers analyze and plan work; workers
actually perform the tasks.

Consequences of Taylor’s
Experiment
• Management not interested, WHY?
• labour is cheap
• profits are good
• more responsibility for management
• Workers are interested because
• more security
• training
• higher wages

CRITICAL ANALYSIS OF SCIENTIFIC MANAGEMENT
• Managers often implemented only the increased output
side of Taylor’s plan.
– They did not allow workers to share in increased
output.
– Specialized jobs became very boring, dull.
– Workers ended up distrusting Scientific
Management.
• Workers could purposely “under-perform”
• Management responded with increased use of
machines.
• Aggressive attitude towards workers
• Close strict supervision
• Unions opposed differential piece rate

Henry Fayol’s Administrative Theory
“An approach to management that
focuses on describing what managers
do and what constitutes good
management practice”

 Activities of an industrial organization
◦ Technical (relating to Production)
◦ Commercial (buying, selling and exchange)
◦ Financial (search of capital & Optimum use)
◦ Security (Protection of Property and person)
◦ Accounting (including Statistic)
◦ Managerial

There are three approach of studying
Management theory by Fayol

• Managerial Qualities and Training
• General Principles of Management
• Elements of Management

Managerial Qualities and Training
• Physical (Health , Vigor)
• Mental (ability to understand, judgment,)
• Moral (energy, firmness, initiative, loyalty,
tact, & dignity)
• Educational (Knowledge of the activities)
• Technical (Skill to perform effectively)
• Experience (arising from the work)

Fayol’s Principles
• Henri Fayol, developed a set of 14 principles:

1. Division of Labor: allows for job specialization.
Fayol noted firms can have too much
specialization leading to poor quality and
worker involvement.
2. Authority and Responsibility: Fayol included
both formal and informal authority resulting
from special expertise.
3. Unity of Command: Employees should have
only one boss.
4. Line of Authority: a clear chain from top to
bottom of the firm.

Centralization: the degree to which authority
5.
rests at the very top.
6. Unity of Direction: One plan of action to
guide the organization.
7. Equity: Treat all employees fairly in justice
and respect.
8. Order: Each employee is put where they
have the most value.
9. Initiative: Encourage innovation.
10. Discipline: obedient, applied, respectful
employees needed.
11. Remuneration of Personnel: The payment
system contributes to success.

12. Stability of Tenure: Long-term employment
is important.
13. General interest over individual interest:
The organization takes precedence over the
individual.
14. Esprit de corps: “union is strength” Share
enthusiasm or devotion to the organization

Elements of Management

• Planning

• Organization

• Commanding

• Coordination

• Controlling

Difference between Scientific and
Administrative Management
Basis of Taylor Fayol
Difference
Perspective Shop Floor Level Higher Mgt level

Focus Efficiency through work By observing
simplification & certain principles
standardization
Orientation Production and Managerial
engineering function
Results Scientific observation & Personnel
Measurement Experience
translated into
universal truth
Overall Basis for accomplishment Systematic theory
Contribution onn production line of Management

Bureaucracy
Authority is the power to hold people accountable for their
actions.
Positions in the firm should be held based on performance not
social contacts.
Position duties are clearly identified. People should know
what is expected of them.
Lines of authority should be clearly identified. Workers know
who reports to who.
Rules, Standard Operating Procedures (SOPs), & Norms
used to determine how the firm operates.
• Sometimes, these lead to “red-tape” and other
problems

Max Weber
• Max Weber was a German
sociologist who developed the
bureaucratic model.
• His rational bureaucracy states
that employees performing a large
variety of tasks in any organisation
must follow established rules and
regulations in order to ensure
uniformity and rationality of
output.

.
• He therefore identified the characteristics of
an ideal bureaucracy to show how
organizations should be run.
• According to Weber,

• “a bureaucracy is a highly
structured, formalized and Impersonal
organization”.

Max Weber’s Ideal Bureaucracy

Bureaucratic Principles
Written rules

System of task A Bureaucracy Hierarchy of
relationships should have authority

Fair evaluation
and reward

BEHAVIORAL APPROACH
• The behavioral school of management
emphasized what the classical theorists
ignored – the human element.
• The behavioral approach to management
emphasized individual attitudes and
behaviors and group processes, and
recognized the significance of behavioral
processes in the work-place.
• The behavioral management theory is also
called the human relations theory as it
addresses the human dimension of work.

• A theory of motivation based upon a
consideration of human needs had three
assumptions:
– Human needs are never completely satisfied.
– Human behavior is purposeful and is motivated by the need
for satisfaction.
– Needs can be classified according to a hierarchical structure
of importance from the lowest to highest.

• Several individuals and experiments
contributed to this theory.
– Elton Mayo
– Abraham Maslow

The Hawthorne Studies
 The researchers and scholars associated with the
Hawthorne experiments were Elton Mayo, Fritz
Roethlisberger, T. N. Whitehead and William
Dickson.
 Study of worker efficiency at the Hawthorne
Works of the General Electric Co. during 1924-
1932.
◦ Worker productivity was measured at various
levels of light illumination.
◦ Researchers found that regardless of whether the
light levels were raised or lowered, productivity
rose.
 Actually, it appears that the workers enjoyed the
attention they received as part of the study and
were more productive.

• Illumination Experiment
• Really assembly test room experiments
– Incentives, rest period, changing working
hours
• Mass interviewing Programm
– Do you like your supervisor
• Bank wiring Observation Room Experiments
– Fear of unemployment
– Fear of raising the standards
– Protection of slower workers
– Satisfaction on the part of management

Relay Assembly Test Experiments 1927-1929

 Group of 6 Women – (5) Assemblers and (1)
Layout Operator
 One Observer – Explained every
incremental change and recorded results
 Manipulated factors of production to
measure effect on output:
–Pay Incentives
–Length of Work Day & Work Week
–Use of Rest Periods

Mass Interview Program at plant – 1925-1932

1925-1927 – Objective Questions
◦ Work Conditions
◦ Work Relationships
◦ Yes/No Answers
1928-1932 – Conversational / Non-directive
◦ Attentive Sympathetic Listening
◦ Concern for personal needs
◦ Increased in time from 30-90 minutes

Bank Wiring Observation Group – 1931-
1932
• They studied a group of 14 Male Workers
who were wiring and soldering bank
terminals.
• Few Special Conditions
– Segregated work area
– No Management Visits
– Supervision would remain the same
– Observer would record data only – no
interaction with workers

MASLOW’S HIERARCHY
OF NEEDS PYRAMID

Physiological Needs.
 These include the most basic needs that
are vital to survival such as the need for
water, air, food and sleep.

 These are the most basic and instinctive
needs in the hierarchy because all needs
become secondary until these physiological
needs are met.

Security Needs
• Once physiological needs are met, one’s
attention turns to the safety and security
in order to be free from threat of physical
and emotional harm.

• Such needs might be fulfilled by:
– Living in a safe area
– Medical insurance
– Job security
– Financial reserves

Social Needs
• These include needs for belonging, love
and affection.

• Relationships such as friendships,
romantic, attachments and families help
fulfill this need for companionship and
acceptance, as does involvement in social,
community or religion groups.

Esteem Needs
• Once a person feels a sense of belonging, the
need to feel important arises.
• Esteem needs may be classified as internal or
external.
• Some esteem needs are:
– Self-respect
– Achievement
– Attention
– Recognition
– Reputation

Self-actualizing Needs
• This is the highest level of Maslow’s
hierarchy of needs.
• Self-actualizing people are self-aware,
concerned with personal growth, less
concerned with the opinions of others and
interested fulfilling their potential.
• Self-actualized people tend to have needs
such as:
– Truth
– Justice
– wisdom

QUANTITATIVE APPROACH
• The quantitative management prespective
emerged during World War II.
 This approach focuses on achieving
organizational effectiveness through the
application of mathematical and statistical
concepts.
 The three main branches of the quantitative
approach are:
1. Management Science
2. Operations Management

Management Science
 Action can be expressed in terms of
mathematical symbols, relationships and
measurement data
 Another name commonly used is Operations
Research.
 Management science techniques are widely used
in the following areas:
◦ Capital Budgeting and cash flow management.
◦ Production scheduling.
◦ Development of product strategies.
◦ Planning for human resource development programs.
◦ Maintenance of optimal inventory levels
 This approach has been criticized for its

Operations Management
 It deals with the effective management of
the production process and the timely
delivery of an organization's products and
services.
 It is concerned with:
1) Inventory management
2) Work scheduling
3) Production planning
4) Facilities location and design
5) Quality assurance.

Management Information Systems
• MIS focuses on designing and
implementing computer based
information systems for business
organizations.
• It converts raw data into information and
provides the needed information to each
manager at the right time, in the needed
form.
• Charles Babbage was one of the earliest
contributor to information system.

SYSTEMS APPROACH
• A system is a set of interdependent parts
which together form a unitary whole.

• The organization is a sub-system composed
of four interdependent parts – task,
structure, people and technology.

• This means is that as managers coordinate
work activities in the various parts of the
organization,

System Theory
Open and closed system
• Closed System are not influenced by and not interact with
their environment.
• Open System are influenced by and do interact with their
environment.

Transformation
INPUTS Process OUTPUTS
Raw Material •Employees work •Products and
Human Resources Activities Services
Capital •Management •Financial Results
Technology Activities •Information
Information •Technology and •Human Results
Operation Methods

FEEDBACK

CONTINGENCY OR SITUATIONAL
APPROACH
“A management approach which says that
organization are different , faces different
situation (contingencies), and require
different ways of managing.”

• Assumes there is no one best way to
manage.

 Popular Contingency variable
◦ Organisation Size
As size increases, so do the problem
of coordination. For instance, the type of
organization structure appropriate for an
organization of 50000 employee is likely to be
inefficient for an organization of 50
employee.
◦ Routineness of task technology
To achieve its purpose, an organization uses
technology. Routine technologies require
organizational structure, leadership
style, And control system that differ from
those required by customized or no routine
technologies.

– Environmental Uncertainty
The degree of uncertainty caused by
environmental changes influence the
management process. What works best in a
stable and predictable environment may be
totally inappropriate in a rapidly changing and
unpredictable environment.
– Individual differences
Individual differ in terms of their desire
for growth, autonomy, tolerance of ambiguity,
and expectation. These and other individual
difference are particularly important when
managers select motivation techniques,
leadership style, and job designs.

IMPORTANT TERMS
• Organizing:- Arranging and structuring work
to accomplish organizational goals.
• Organization:- An organization is a formal
group of people with one or more shared
goals.
• Organizational Structure:- It is a formal
arrangement of the job within an
organization.
• Organizational chart: The organization
structure which can be shown visually.

Organization Structure
• Organization structure is the pattern of jobs
and groups of jobs in an organization.
• It can be defined as the arrangement and
interrelationship of the component parts
and positions of a company.
• An organization's structure specifies its
division of work activities and shows how
different functions or activities are linked.
• To some extent it also shoes the level of
specialization of work activities.

• It indicates the organization’s hierarchy
and authority structure and shows its
reporting relationships.
• It provides the stability and continuity
that allow the organization to survive the
comings and goings of individuals and to
coordinate its dealings with its
environment.

Definition of Organization Structure
• Organizational Structure according to
George and Jones, “ is the formal system of
task and reporting relationships that
controls, coordinates, and motivates
employees so that they cooperate and
work together to achieve an organization’s
goals”

Organizing involves:
1.The identification and classification of
required activities.
2.The grouping of activities necessary to
attain objectives.
3.The assignment of each grouping to a
manager with the authority (delegation)
necessary to supervise it.
4.The provision for coordination horizontally
(on the same or a similar organizational
level) and vertically (for example, corporate
headquarters, division, and department) in
the organization structure.

Purpose of organization
• Divides work to be done into specific jobs
and departments.
• Assign tasks and responsibility associated
with individual jobs.
• Coordinated diverse organizational tasks.
• Clusters job into units.
• Establishes formal lines of authority.
• Allocates and deploy organizational
resources

Elements of organization structure
1. Specialization of activities.
2. Standardization of activities.
3. Coordination of activities.
4. Centralization and decentralization of
decision making.
5. Size of the work unit.

Determinants of Organizational
Structure
• Strategy
• Technology
• People
• Organization Size

MGT/M3/SS

Types of Organization Structure
• The first task in designing an organization
structure is to identify all the activities of
the organization and group them properly.
• This process of grouping the activities is
commonly known as departmentation.
• The departmentation divides a large and
complex organization into smaller and more
flexible administrative units.
• It is the process of grouping activities and
delegating authority to managers.

• There are various types of organization
structures:
1. Line structure
2. Line and staff structure
3. Functional structure
4. Divisional structure
5. Hybrid structure
6. Matrix structure

Line Structure
• Line Structure is the simplest form of
organization and is most common among
small companies.
• The authority is embedded in the
hierarchical structure and it flows in a
direct line from the top of the managerial
hierarchy down to different levels of
managers and subordinates and further
down to the operative level of workers.
• It clearly identifies authority, responsibility
and accountability at each level.

• These relationship in the hierarchy
connect the position and tasks at each
level with those above and below it.
• There is clear unity of command so that
the person at each level is reasonably
independent of any other person at the
same level and is responsible only to the
person above him.

Line Structure
PRESIDENT

PLANT MANAGER

FOREMAN FOREMAN
FOREMAN
B C
A

WORKERS WORKERS WORKERS

Advantages of Line Structure
• Because of the small size of the company
the line structure is simple and the
authority are clear-cut, easily assignable
and traceable.
• Communication is fast and easy.
• Feedback from the employees can be acted
upon faster.
• Effective Control and Discipline can be
easily exercised.

Disadvantages of Line Structure
• In a rigid form of organization, there is a
tendency for the line authority to become
dictatorial, it may be resented by the
employees
• Also, there is no provision for specialists
and specialization which is essential for the
growth and optimization and hence for
growing companies, pure line type of
structure becomes ineffective

Line and Staff Structure
• In this type of organization, the functional
specialists are added to the line, thus giving
the line advantages of specialists.
• This type of Organizational Structure is
most common among large enterprises.
• Staff is basically advisory in nature and
usually does not possess and command
authority over line managers.

Types of Staff
Two Types:
General Staff
Special Staff

General Staff:
 This group has general background which is
usually similar to the background of executives
and serves as assistant to top management in
one capacity or another
For Example:
Special assistants, assistant managers, or in a
college setting as deputy chairpersons

Special Staff:
• Unlike the general staff who generally
assists only one line executive, the
specialized staff provides expert advice
and service to all on a company wide basis
• This group has a specialized background in
some functional area and it could serve in
any of the following capacities:
1. Advisory Capacity
2. Service Capacity
3. Control Capacity

Advisory Capacity:
The primary purpose of this group is to render
specialized advice and assistance to management
when needed. Some typical areas covered by
advisory staff are legal, public relations and
economic development.

Service Capacity:
This groups provide a service which is useful to the
organization as a whole and not to any particular
division or function.

Example:
Personnel Department serving the organization by
procuring the needed personnel for all
departments. Other example is Research and
Development, Purchasing and so on

• Control Capacity: This group includes quality
control staff who may have the authority to
control the quality and enforce standards.

Line and Staff Structure
president

Public relations
Legal council
advisor
staff
staff Vice president
line

engineering personnel
staff staff
Plant manager
line

Supervisor Supervisor
line line
Machine shop assembly

workers workers

Advantages of Line and Staff
• The specialized advice improves the quality
of the decisions resulting in operational
economies
• Staff specialists are conceptually oriented
towards looking ahead and have the time
and training to assist in strategic planning
and analyze the possible effects of expected
future events
• Line Managers are generally occupied with
their day –to –day current operation, they
do not have the time or background for
future planning and policy formulation

Disadvantages of Line and Staff
• Confusion and Conflict arise between line and
staff.

• High Cost due to the confusion and conflict.

• Tendency of staff personnel to build their own
image and worth.

• Building Staff Self Image, at the cost of
undermining the authority and responsibility
of line executives.

Functional Structure
• This groups positions into departments
according to their main functional areas

• Some of the main functions of most
organizations are those of production,
marketing, finance, human resources, legal,
research and development and so on

• The chain of command in each function
leads to a functional head who in turns
reports to the top manager

CEO

VP Marketing VP Finance VP Operations VP R&D VP Legal issues

Product 1 Product 2 Product 3

Country A Country B

Advantages Disadvantages
• Clarity about career • Boredom and
path Monotony
• Economies of Scale • Poor Decision Making
wothin function • Sub-unit conflict
• Specialisation • Managerial Vaccume
• Co-ordination
• In depth skill
development
• Power & Prestige

Divisional Structure
• Alternative to function structure is the
divisional structure which allows an
organization to coordinate intergroup
relationships more effectively.
• It involves grouping of people or activities
with similar characteristics into a single
department or unit.
• Also known as “self-contained structures”,
organizations operates as if they were small
organizations under a large organizational
umbrella.

• The decision are generally decentralized so
that the departments guide their own
activities

• This facilitates communications, coordination,
and control, thus contributing to the
organizational success

• Also, because the units are independent and
semi-autonomous , it provides satisfaction to
the managers and this in turn improves
efficiency and effectiveness

Forms of Divisional Structures
Basically three major forms of divisional
structures that companies can choose from:

1. Product Structure

2. Customer Structure

3. Geography Structure

Product Structure
• In this type of structure, the units are formed
according to the type of product.
• More useful in multi-line corporations, where
product expansion and diversification and
manufacturing and marketing characteristics of
the production are of primary concern.
• While the general policies are decided upon by
the top management within the philosophical
guidelines of the organization, each division is
autonomous and strive to improve and expand
its own product line.
• Each Divisional General Manager is responsible
for its costs, profits, failures and successes.

Product Structure
• Clear focus on market • Duplication of
segment helps meet functions (e.g. different
customers’ needs sales force for each
• Positive competition division)
between divisions
• Negative effects of
• Better control as each competition
division can act as
separate profit centre • Lack of central control
over each separate
division

Customer Structure
• Customer divisions are divisions set up to
service particular types of clients or
customers.
• These divisions cater to different needs of
various segments of customers.
• The importance of customer satisfaction has
stimulated firms to search for creative ways to
serve people better
• Organizations with customer-based
departments are better able to satisfy
customer-identified needs than organizations
that base departments on non-customer
factors

Geographic Division
• These are divisions designed to serve
different geographic areas.
• Under this method, territory or location is
taken as the basis for organizing.
• This is common in organizations that
operate over wide geographic areas such as
banking, insurance and transportation firms.
• This type of organization structure is often
adopted when it is important to provide
products and services that are customized
to the needs of different regions.

• Generally business firms resort to this
structural form when similar operations
are undertaken in different geographic
areas as in chain retailing, wholesaling,
automobile-assembling, etc.

Geographic Division

• Serve local needs better • Conflict between local and
central management
• Positive competition
• Duplication of resources
• More effective and functions
communication
between firm and local
customers

Hybrid Structure
• Hybrid organizational structures combine
two or more traditional organizational
design formats based on strategy and
business needs.
• Hybrid structure is a form of
departmentalization that adopts both
functional and divisional structures at the
same level of management.
• Many large organizations adopt this
structure so as to incorporate the
advantages of both functional and
divisional structures.

• The functional structure is adopted to
derive the benefits of economies of scale,
greater competence of managers and
efficiency in resource utilization.
• While the divisional structures is created to
focus on products, services or markets.

Advantages of Hybrid Structure
• The organization can achieve a specific
competency and economies of scale in
prime functional areas along with focus on
products, services and markets.
• It also facilitates adaptability and flexibility
in handling diverse product or service lines,
territories or differing needs of customers,
through a partially divisional structure.
• It helps to strike balance between divisional
and corporate goals.

Matrix Structure
• The combining of functional and project
or product patterns of departmentation in
the same organization structure.
• Attempts to maximize the strengths and
minimize the weaknesses of both the
functional and product bases.
• Superimpose a horizontal structure of
authority, influence, and communication
on the vertical structure.
• Facilitates the utilization of highly
specialized staff and equipment.

Example of the Matrix Organization Model

Functions

Projects, products Manufacturing Marketing Engineering Finance

Project or product A

Project or product B

Project or product C

Project or product D

Project or product E

Matrix Organization (in engineering)

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• In figure marketing, HR, R&D, Finance, Production
represent the functional department that
comprise the horizontal hierarchy; the mangers of
Product/Project A B & C represent divisional units
operates vertically.
• Here, employee has to report to two matrix
bosses. So it violates the rule of Unity of
Command
• A matrix structure is often seen in construction
(building bridge, dam), aerospace(designing or
launching satellite), a consultancy firm where
professional experts work together on a project.

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Matrix Structure

Note the duplication of core functional skills across each
product line.

•Matrix organizations provide clear
accountability within a specific business
function and allow more efficient allocation
of specialized skills across the entire
business.

Matrix Stages
• Stage 1
– Is a traditional structure, generally a functional one. This
structure follows the unity-of-command principle.
• Stage 2
– Here, Managerial integrator positions are established . These
are developed so that individuals can take responsibility for
particular projects (ex. project managers), overseas product
launches (ex product manager) where coordination across
functional departments is necessary.
• Stage 3
– Here, the managerial integrators operate on a permanent basis
(ex . Brand managers takes care of issues pertinent to a brand
regularly)
• Stage 4
– Is a mature matrix. Matrix Bosses have equal power.
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Evolutionary Steps to the Matrix Model

Task Force (1)

Teams (2)

Product (3)
Managers

Product (4)
Management Depts.

Guidelines for Making Matrix Management
Effective
1. Define the objectives of the project or task.
2. Clarify the roles, authority, and responsibilities of managers
and team members.
3. Ensure that influence is based on knowledge and
information, rather than on rank.
4. Balance the power of functional and project managers.
5. Select an experienced manager for the project who can
provide leadership.
6. Undertake organization and team development.
7. Install appropriate cost, time, and quality controls that
report deviations from standards in a timely manner.
8. Reward project managers and team members fairly.

When to consider a matrix structure?
• If an organization product portfolio is very
wide, it may adopt product division but rapid
developments in engineering & technology may
necessitate it to adopt functional structure.
• When the external environment of org is
changing and uncertain, and they have to process
large amounts of information and coordinate
activities to develop newer and better products.
• When org need to be flexible in using the
functional resources across various products or
projects. MGT/M3/SS

Advantages of Matrix Organization
• Efficient use of resources
• Flexibility in conditions of change and
uncertainty
• Technical excellence
• Freeing top management for long-range
planning
• Improving motivation and commitment
• Providing opportunities for personal
development

Disadvantages of Matrix
Organization
• Administration costs are higher because of
the additional hierarchy of project
managers and their immediate support
staff.
• As the individuals working within the
matrix structure report to two bosses,
unity of command may not be there.
• Due to the dual authority system and the
need for greater communication, the
possibility of conflicts is greater between
functional managers and project managers.

• Individuals are too engrossed with
maintaining good relations with their peers
and tend to neglect the project goals and
clients.
• Though it is adaptable to change, it is
sometimes extremely slow in responding
to changes.

ORGANIZATIONAL DESIGN
• It is defined ass the process of developing
the organizational structure.
• It plays a key role in determining an
appropriate organizational structure
• The importance of designing a structure is
that is design an organization structure
that is appropriate to the
people, technology and tasks of the
organization.
• Managers take into consideration a
number of factor when designing
organization structure.

Organizational Design
• It is a process that involve decisions about
six key elements:
1. Work specialization
2. Departmentalization
3. Chain of command
4. Span of control
5. Centralization and Decentralization
6. Formalization

Work specialization
• Work specialization is dividing work activities
into separate job tasks. Individual employees
specialize in doing part of an activity rather
than the entire activity in order to increase
work output.
• It helps employee be more efficient.
• However when it’s carried to extreme , work
specialization can lead to problem including
boredom, fatigue, stress, poor quality, increase
absenteeism, reduced performance, and
increased turnover.
• Ex; Cairn , TATA steel, American Express, use
minimal work specialization and instead give
employee a broad range of tasks to do.

Departmentalization
• Departmentalization is a process in which an
organization is structurally divided by
combining jobs in departments according to
some shared characteristic or basis.

Departmentalization Basis

Functional Geographic

Product Customer

Chain of command
 The continuous line of authority that extends
from upper levels of an organization to the
lowest levels of the organization and clarifies
who reports to who.
• To understand the chain of command, you
have to understand three other concepts:
Authority
Responsibility
Unity of command

• Authority:- refers to the rights inherent in a
managerial position to tell people what to do
and to expect them to do it.
• Responsibility :- Responsibility is one’s
obligation or expectation to perform the
function assigned to the best of one’s ability
in accordance with directions received.
• Unity of command:- the management
principle that each person should report to
only one manager.

Span of Management/Control
• According to Kathryn M. Bartol and David
C. Martin, “ the span of management or
span of control is the number of
subordinates who report directly to a
specific manager.”
 The number of employees who can be
effectively and efficiently supervised by a
manager.
• Narrow Span
• Wide Span

• Wide span of control means one manager
supervises many members
• Narrow span of control means one manager
supervises a small number of members

Factors affecting Span of control
 Skills and abilities of the manager
 Employee characteristics
 Characteristics of the work being done
 Similarity of tasks
 Complexity of tasks
 Standardization of tasks

Tall Versus Flat Structure
• Tall Structure
– A tall structure comprises many hierarchical levels
with narrow spans of control.
– As the no of level increase , the effort and
expenditure involved in managing them also
increases so it is an expensive affair
– Communication gets unduly complicated.
– Numerous departments and level make the
planning and controlling tasks complicated.

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• Flat Structure
– It has a wide span of cont and fewer hierarchical
levels.
– Here tasks are highly inter-related, as a
result, control and coordination are negatively
affected.

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Problems of Poor Span
• Over-supervision
• Delay in decision
• Problem in Communication
• Decreased level of initiative an morale
• Less opportunity for responsibility and
development
• Higher Cost

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Centralization and Decentralization
• Koontz and O’Donnell state, ‘the problem
of centralization of authority is
consequently a basic phase of the principle
of delegation. To the extent the authority is
not passed on, it is centralized.’
• Thus decentralization takes place when
authority is delegated.
• According to Henri Fayol, “ Everything that
goes to increase the importance of the
subordinates’ role is
decentralization, everything which goes to
reduce it is centralization”

Centralization
• Centralization is the systematic and consistent
reservation of authority at the central point
within the organization.
• According to Henri Fayol, “ Everything that
goes to increase the importance of the
subordinates’ role is
decentralization, everything which goes to
reduce it is centralization”
• Every manager should reserve certain amount
of authority for those decision which are of
strategic nature and which can not be taken by
the managers at the lowest level objectively
and prospectively.

Factors affecting Centralization
• Leadership
• Integration requirement
• Uniform action
• Emergency
• Insufficiency of managerial manpower
• Monetary and vital decisions

Advantages of Centralization
• Fast decisions
• Successful control
• Safeguarding secrets
• Stability of policy
• Appraisal of departmental activity
• Personal leadership
• Market gain
• Promotes Integration and coordination
• To handle Emergent situation

Disadvantages of Centralization
• Lack of specialization
• Load on the top executive
• Inappropriate and undeveloped decisions
• Volatility when top executive is not available.
• Ignorance of human factor
• Misuse of power by top executive
• Non-compliance
• Dishonesty and partiality
• Undesirable effect of motivation due the
dictatorial and repressive attitude of top
executive.

Decentralization
• Decentralization refers to the systematic
effort to delegate to the lowest level all
authority except that which can only be
exercised at central points.
• It generally spreads level by level from the
top to the bottom.
• According to Keith Davis, ‘Dispersal of the
authority and duties to the lowest unit in
the organization so far as it is feasible is
called decentralization.’

Factors affecting Decentralization
• Load of top executives
• Requirement for diversification
• Hold on the market
• Growth of Managers
• Motivational development
• Size of the organization
• No of Levels in the org structure
• Availability of manager with skill,
knowledge and ability

Advantages of Decentralization
• Reduces load on top executives
• Increased motivation
• Enhance morale
• Simplifies division of work
• Leadership growth
• Efficient control and supervision
• Stability and continuity
• Flexibility
• Develops harmony

Disadvantages of Decentralization
• Difficulties of co-ordination
• Waste of staff
• Damaging in emergency
• Problems of control
• Increased administrative costs
• Internal constraints

Formalization
 It is the degree to which jobs within the
organization are standardized and the
extent to which employee behavior is
guided by rules and procedures.
• It is the extent to which expectations
regarding the means and ends of work are
specified, written, and enforced.
• Highly formalized jobs offer little discretion
over what is to be done.
• Low formalization means fewer constraints
on how employees do their work.

• High formalization: Formal rules and
procedures used to standardize operations
– Usually associated with centralized
authority
• Low formalization: Coordination by mutual
adjustment rather than formal rules &
procedures
– Usually associated with decentralized
authority

Organization Design Models
The Mechanistic Model The Organic Model
• Emphasizes importance of • Emphasizes importance of
achieving high levels of achieving high levels of
production and efficiency production and efficiency
through: through:
– Extensive use of rules and – Limited use of rules and
procedures procedures
– Centralized authority – Decentralized authority
– High specialization of labor – Relatively low degrees of
specialization

Comparison of Mechanistic and Organic
Structures
Process Mechanistic Structure Organic Structure

1. Leadership Includes no perceived Includes perceived
confidence and trust confidence and trust
between superiors and between superiors and
subordinates. subordinates.
2. Motivation Taps only physical, Taps a full range of motives
security, and economic through participatory
motives, through use of methods.
fear and sanctions.

3. Communication Information flows Information flows freely:
downward and tends to be upward, downward, and
distorted, inaccurate, and laterally. The information is
viewed with suspicion by accurate and undistorted.
subordinates.

Structures

4. Interaction Closed and restricted. Open and extensive. Both
Subordinates have little superiors and subordinates
effect on departmental are able to affect
goals, methods, and departmental goals,
activities. methods, and activities.

5. Decision Relatively centralized. Relatively decentralized.
Occurs only at the top of Occurs at all levels through
the organization. group processes.

6. Goal setting Located at the top of the Encourages group
organization, discouraging participation in setting
group participation. high, realistic objectives.

Structures

7. Control Centralized. Emphasizes Dispersed throughout the
fixing blame for mistakes. organization. Emphasizes
self-control and problem
solving.

8. Performance Low and passively sought High and actively sought by
goals by managers, who make superiors, who recognize
no commitment to the need for full
developing the commitment to
organization’s human developing, through
resources. training, the organization’s
human resources.

Contemporary Organizational Designs
Team Structure
• What it is: A structure in which the entire organization is made up of work
groups or teams.

• Advantages: Employees are more involved and empowered. Reduced
barriers among functional areas.

• Disadvantages: No clear chain of command. Pressure on teams to perform.

Boundaryless Structure

What it is: A structure that is not defined by or limited to artificial
horizontal, vertical, or external boundaries; includes virtual and
network types of organizations.

• Advantages: Highly flexible and responsive. Draws on talent wherever it’s
found..
• Disadvantages: Lack of control. Communication difficulties..

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