Organizing: Types of Organizations and Centralization-Decentralization

1. Chapter 3 ORGANIZING By :Nasser A. Kadasah

2. Chapter 3 will cover: 3.1 Organization Theory 3.3 Types of Organizations 3.5 Centralization & Decentralization 3.6 Authority and Responsibility

3. Organizing • Definition: The formal grouping of people and activities. • To: facilitate achievement of the firm’s objectives.

4. 7. Individual Objectives: • Performance • Personal development objectives Relationship of Objectives and Organizational Levels 1.Socio- Economic Purpose Organization Hierarchy Board of directors 2. Mission Top-level Managers 3. Overall Objectives of the Organization (long range strategic) Middle Managers Lower-Level Managers 4. More specific Overall Objectives (e.g. In key result area ) some 5. Division Objectives some 6. Department and Unit Objectives Hierarchy of Objectives

5. 3.1 Organization Theory • Study of • structure. • Functioning. • Performance • organization • & • behavior of groups and individuals. • of the

6. 3.3 Types of Organizations 3.3.1 Military or Line System 3.3.2 Functional System 3.3.3 Line and Staff System 3.3.4 Matrix System 3.3.5 Hybrid design

7. 3.3.1 Military or Line System…(1) • Authority flows from the person at the top to the lowest person, VERTICALLY. • The General Manager may be put in charge of the whole organization. • Business unit is divided into departments headed by Department Head . • Department Head receives orders from the General Manager.

8. Military or Line System…(2) • The employees at the same line do not receive orders from each other. • The workers do not have the authority to approach higher officers except through their immediate poss.

9. 3.3.1.1 Merits • Simplicity: Simple to establish & simple to explain to employees. • Unified control: Unity of Control. • Strong discipline: Because of unified control. • Fixed responsibility: Everyone knows whom he is responsible. • Prompt decision: Because of unification of authority and responsibility  ensures quick & prompt decisions. • Flexibility: Since executive has the full authority  he can change.

10. 3.3.1.2 Demerits • Overloading: Too much is expected from the person in authority. • Lack of specialization: Foreman cannot give guidance in all matters below him. • Inadequacy of communication: No communications from the lower ranks. • Scope for favoritism: May judge people according to his notion. • Suitability: Restricted suitability. • Good only for: • Small Units • Routine works.

11. 3.3.2 Functional Organization • Entire work is divided into various departments. • No duplication. • The work allotted to one department consists of interrelated jobs. • Similar work in one department

12. 3.3.2.1 Merits • Ensure greater division of labour get advantage of specialization. • High efficiency Because : • Workers do limited. • Number of operations. • Ensure the separation of mental and manual functions. • Facilitates mass production through: • Specialization. • Standardization.

13. 3.3.2.2 Demerits • Unstable: weakens disciplinary controls because of making workers work under several bosses. • Too complicated: Divided functions to more & more sub functions. • Difficult: For managers for fix responsibility for unsatisfactory results. • Conflict:Among foreman & equal ranks.

14. 3.3.3 Line & Staff Organization • Staff specialists advice: Line managers in performing their duties. • Purely Advisory. • Have right to recommend BUT no authority to enforce their preferences.

15. 3.3.3.1 Merits • Specialization: Experts to provide advice. • Quality Decisions: Good decisions due to careful study and thought. • Prospect for personal growth: Opportunity for concentrating in a particular area  thereby increasing personal efficiency. • Training ground for personnel: • Training needs can be easily identified. • Staff provides knowledge & expertise to line managers.

16. 3.3.3.2 Demerits • Lack of well-defined authority. • Line & staff conflicts. • Suitability: Generally good in large organization where specialization of activities is required.

17. 3.3.4 Matrix Organization • Imposing a set of project structure on top of a functional structure. • Members of project team are selected from the functional department.

18. 3.3.4.1 Merits • Challenge for team members. • Enlarges tasks for people. • Develops employees skills. • Encourages people to identify with end products.

19. 3.3.4.2 Demerits • Require high level of interpersonal skills. • Negative morale when there is pressure. • Leads to power struggles between functional & project manager. • Costly to implement and maintain.

20. 3.5 Centralization & Decentralization 3.5.1 Advantages of Centralization 3.5.2 Advantages of Decentralization

21. 3.5 Centralization & Decentralization • Centralization: Much of decision-making authority is retained at the top management. • Decentralization: Much of decision-making authority is pushed downward lower management.

22. 3.5.1 Advantages of Centralization • Broad overview of business is easier to achieve. • Strategic direction setting is easier. • Gives absolute and clear control. • Makes administration easier. • Common standards can be fixed. • Provides certain expert functions cost effectively. • Conflicting decisions are easier to avoid. • Economies of scale can be achieved.

23. 3.5.2 Advantages of Decentralization • Local management can react to changing local conditions so that business can act quickly. • Decision-making is quicker, clearer and based on more precise understanding of local conditions. • Greater likelihood of innovation and creativity will make for a healthier business. • Local responsibility and authority result in effective development of managerial skills. • Burden of administration and paper work are reduced. • Functional department will be leaner and easier to control.

24. 3.6 Authority & Responsibility 3.6.1 Source of Authority 3.6.3 Responsibility & Delegation 3.6.4 Principle of Delegation

25. 3.6 Authority and Responsibility • Authority: Legal or power that gives a right to command. • Responsibility: The obligation of a subordinate to whom a duty has been assigned to perform the duty.

26. 3.6.1 Source of Authority • The Formal Authority Theory: • Power is given or pass because of position. • The Acceptance Authority Theory: • Subordinates acceptance of power.

27. 3.6.3 Responsibility & Delegation • Responsibility cannot be delegated. • Accountability: indicates liability for the proper discharge of duties by subordinates.

28. 3.6.4 Principles of Delegation • Principle of functional definition: • Needs: patience, intelligence and clarity of objectives & plans. • Scalar principle: • The chain of direct authority relationships from superior to subordinates. • Authority level principle: • Decision to be taken based on authority. • Principle of unity of command: • Each subordinates should report to only one superior.