MODULE I- ORGANISATION DESIGN

1. Understanding Organisations:

Human beings cannot live in isolation. They are unable to fulfil their needs and desires alone,
because any one individual lack the strength, ability, time and potential. He has to get the
cooperation of other persons in achieving his goals. In simple words, organisation is viewed as a
group of persons formed to seek certain goals. Organisation is not a new and modern invention or
phenomenon.
Ever since the dawn of civilization, people have always formed organisations to combine their
efforts for the accomplishments of their common goals. For example, the Emperors of China used
organisations a thousand years ago to construct great irrigation systems. The first Pope created a
universal church to serve a world religion. The greatest example is the construction of great
pyramids by the early Egyptians.
An organisation is a social unit of people that is structured and managed to meet a need or to
pursue collective goals. All organizations have a management structure that determines
relationships between the different activities and the members, and subdivides and assigns roles,
responsibilities, and authority to carry out different tasks. Organizations are open systems--they
affect and are affected by their environment.

2. Basics of an Organizational Design:

Key Concepts in Understanding Basics of an Organization Design:

1. Span of control- the range of employees who report to a managerial position.
2. 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.
3. Responsibility- the duty to carry out an assignment or conduct a certain activity.
4. Delegation- process of assigning a task to a subordinate along with the commensurate
responsibility and authority to carry out the task.
5. Chain of command- the lines of authority in an organization, who reports to whom.
6. Accountability- responsibility for the outcome of the process.
7. 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.
8. 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.

3. Organization and Stakeholder:

Meaning of Stakeholders:
A stakeholder is any individual or organisation that is affected by the activities of a business. They
may have a direct or indirect interest in the business, and may be in contact with the business on a
daily basis, or may just occasionally.
The main stakeholders are:
1. Shareholders (not for a sole trader or partnership though) – they will be interested in their
dividends and capital growth of their shares.
2. Management and employees – they may also be shareholders – they will be interested in their
job security, prospects and pay.
3. Customers and suppliers.
4. Banks and other financial organisations lending money to the business.
5. Government – especially the Inland Revenue and the Customs and Excise who will be
collecting tax from them.
6. Trade Unions – who will represent the interests of the workers.

Stakeholders vs. Shareholders:

It is important to distinguish between a STAKEHOLDER and a SHAREHOLDER. They sound
the same – but the difference is crucial!
Shareholders hold shares in the company – that is they own part of it.
Stakeholders have an interest in the company but do not own it (unless they are shareholders).
Internal stakeholders are entities within a business (e.g., employees, managers, the board of
directors, investors). Employees want to earn money and stay employed. Owners are interested in
maximizing the profit the business makes. Investors are concerned about earning income from
their investment.
External stakeholders are entities not within a business itself but who care about or are affected
by its performance (e.g., consumers, regulators, investors, suppliers). The government wants the
business to pay taxes, employ more people, follow laws, and truthfully report its financial
conditions. Customers want the business to provide high-quality goods or services at low cost.
Suppliers want the business to continue to purchase from them. Creditors want to be repaid on
time and in full. The community wants the business to contribute positively to its local
environment and population.

Role of Stakeholders in an Organisation:

1. Internal Stakeholder’s Roles:
Internal stakeholders usually have a financial interest in the organization. These include
shareholders, the board of directors and investors. These stakeholders are said to have a vested
interest in the success of the company because of their financial investment. As such, they usually
have more influence than external stakeholders.
One of the main roles internal stakeholders have is voting rights based on the number of shares
owned or the percentage of the company owned. The board of directors usually votes for things
like new acquisitions, liquidations, key position hiring, and oversight and budget items including
distributed profits. Those with larger stakes in the company might meet with leaders, brainstorm
development or marketing ideas, and identify new areas for market penetration.

2. External Stakeholder’s Roles:

External stakeholders generally don't have "skin in the game," meaning they haven't invested any
personal or organizational funds to the company. These stakeholders don't vote on company
decisions. However, the external stakeholder is concerned with decisions a company makes and
may meet with leadership or present information to the board of directors to review ideas,
community concerns and other issues.
The roles of external stakeholders often reflect the community, government or environmental
concerns. For example, an automotive manufacturer seeking to build a new plant might need to
meet with the city council and the environmental protection agency representatives to review
potential benefits and disadvantages to the community and environment. Ignoring external
stakeholders could lead to stalling or blocking of projects. It is best to allow external stakeholders
a voice in the process and brainstorm with them regarding solutions that work for the company
and the community alike.

4. Organizations and Environmental Influences:

Organisational Environment:
The organizational environment is the set of forces surrounding an organization that have the
potential to affect the way it operates and its access to scarce resources. The organization needs to
properly understand the environment for effective management.
Organizational environments are composed of forces or institutions surrounding an organization
that affect performance, operations, and resources. It includes all of the elements that exist outside
of the organization's boundaries and have the potential to affect a portion or all of the
organization.

Internal
Environmental
Factors

External
Environmental
Factors

Internal Environmental Factors:

1. Suppliers:
They supply inputs (money, raw material, fuel, power and other factors of production) and help in
smooth conduct of the business. Firms should remain aware of the policies of suppliers as increase
in prices of inputs will affect their sales and profits. Shortage of supplies also affects the
production schedules. Firms should have more than one supplier so that change in policies of one
supplier does not affect their production schedules.
2. Market Intermediaries:
They are the links that help to promote, sell and distribute the products to final consumers. They
are the physical distribution firms (transport firm), service agencies (media firms), financial
intermediaries (banks, insurance companies) etc. that help in producing, marketing and insuring
the goods against loss of theft, fire etc. Firms maintain good relations with them to carry their
activities smoothly. All these factors are largely controllable by the firms but they operate in the
larger macro environment beyond their control.

3. Customers:
Customers constitute important segment of the micro environment. Business exists to serve its
customers. Unless there are customers, business has no meaning. A company can have different
types of customers like, households, producers, retailers, Government and foreign buyers.

4. Competitors:
Competitors form important part of the micro environment. Firms compete to capture big share of
the market. They constantly watch competitors’ policies and adjust their policies to gain customer
confidence.

5. Public:
“A public is any group that has an actual or potential interest in or impact on an organisation’s
ability to achieve its interest”. Public can promote or demote company’s efforts to serve the
market. The term ‘public’ consists of financial public (banks, financial institutions etc.), media
public (newspapers, radio, television etc.), Government public, customer organisations, internal
public (workers and managers), local public (neighbourhood or community residents) and general
public (buyers at large). Companies observe the behaviour of these groups to make functional
policies.

External Environmental Factors:

1. Economic Environment:
The economic environment consists of economic forces that affect business activities. Industrial
production, agriculture, infrastructure, national income, per capita income, money supply, price
level, monetary and fiscal policies, population, business cycles, economic policies, infrastructural
facilities, financial facilities etc. constitute the economic environment.
The economic environment influences the activities of business enterprises. In the capitalist
economies, firms have the freedom to choose the occupation. The economic decisions to invest,
produce and sell are guided by profit motives. The factors of production are privately owned and
production activities are initiated by the private entrepreneurs.

2. Demographic Environment:
It consists of population in its varied forms, such as gender, age, income, growth rate, language,
religion, etc. Increasing population increases the demand for business products and also provides
labour at low rate. A largely populated country can adopt labour-intensive technology to keep the
labour force employed.
The age composition helps to produce goods to meet the needs of that group. Production is also
affected by gender composition. More females will promote the enterprises to produce goods used
by females. Labour mobility (from rural to urban areas and vice versa), their educational level,
nationality, religion, etc. also affect policies of the organisations.
The demographic environment helps in answering questions like:
(a) What is the gender and age composition of the market?
(b) What is the income and education level of the consumers?
(c) How strongly do consumers believe in brand loyalty?
(d) How can the firm create patronage? etc.

3. Political-legal Environment:
It is the legislative, executive and judicial environment of the country that shapes and controls
business activities. The legislature describes the laws and courses of action to be followed by
firms, the executive implements the decisions taken by the legislature (Parliament) and the
judiciary ensures that legislature and executive function in the interest of the society. A stable
political environment is conducive to business growth.
A business operates in the environment of Government regulations. Various laws are made to
regulate the functions of business enterprises. They relate to standards of product, packaging of
products, protection of environmental and ecological balance, ban on advertisement of certain
products (liquor), advertisement of certain products with statutory warning (cigarette) etc.

4. Technical Environment:
Technology refers to application of scientific and organised knowledge to organisational tasks. It
includes inventions and innovations regarding techniques of production. Technology is changing
at a fast pace and technical environment is dramatically affecting the business environment either
because of easy import policies or because of technology upgradation as a result of research and
development within the country.
The technical environment helps in answering questions like:
a) What type of technology is available in the environment and what type of technology is needed
by the firm?
b) If the technology available is not suitable for the firm’s operations, does it need to import the
technology or upgrade the indigenous technology?
c) At what rate are changes taking place in technology and how fast are they likely to result in
technological obsolescence?

5. Socio-cultural Environment:
It represents the values, culture, beliefs, norms and ethics of the society in which business
enterprises operate. People are important to organisations both as human resource and customers.
Their buying habits, buying capacities, tastes, preferences and education affect business
enterprises.
Firms change their production and marketing plans according to consumer demand. The social
environment consists of the social values; concern for social problems like protection of
environment against pollution, providing employment opportunities, health care for the aged and
old etc.; consumerism, that is, indulging in fair trade practices to satisfy human wants.
The cultural environment represents values and beliefs of the society. These beliefs mould the
attitudes of people and help business enterprises determine their need perception. The socio-
cultural environment helps firms support the social and cultural values of society by encouraging
fine arts projects, sports, communication media, donations to educational, religious and charitable
institutions, counselling centres, vocational and technical training centres etc.

5. Organisational Strategy:

Organisational Strategy- Meaning:

An organizational strategy is the sum of the actions a company intends to take to achieve long-
term goals. Together, these actions make up a company’s strategic plan. Strategic plans take at
least a year to complete, requiring involvement from all company levels. Top management creates
the larger organizational strategy, while middle and lower management adopt goals and plans to
fulfil the overall strategy step by step.

Elements of Organisational Strategy:

1. Mission and Vision
Organizational strategy must arise from a company's mission, which explains why a company is in
business. Every activity in the company should seek to fill this purpose, the mission thus guiding
all strategic decisions. A company's vision describes what the company will have achieved in
fulfilling its mission. From the vision follows the long-term goals of an organizational strategy.

2. Business and Functional Objectives

For a strategy to work, it must be converted into smaller, shorter-term goals and plans. Middle
management adopts goals and creates plans to compete in the marketplace. These tactical
objectives take less than a year to complete, becoming the building blocks of a successful
organizational strategy. At the lower levels of an organization, functional managers concern
themselves with the day-to-day operations of the company, their objectives and plans taking days,
weeks or months to complete.

3. Organizational Strategy Elements

Elements important to organizational strategy include resources, scope and the company’s core
competency. Because resources are finite, allocating them – people, facilities, equipment and so
on – often means diverting them from somewhere else in the organization. Quantifying a
strategy’s scope – for instance, becoming No. 1 in North American sales – makes for more
focused plans. Finally, competitive advantage refers to what a business is best at – its core
competency – along with the sum of what it knows through experience, talent and research.

4. The Grand Strategies

Organizational strategy falls into categories referred to as grand strategies. Grand strategies
include growth, diversification, and integration, retrenching and stabilizing. A growth grand
strategy refers to high levels of growth achieved, for instance, by adding new locations.
Diversification means expanding into new markets or adding dissimilar product lines.
Controlling supply or distribution channels instead of relying on outside companies is vertical
integration. Companies achieve horizontal integration by adding similar products and services to
their line-up, making them more competitive. Retrenching prunes a company back to its core
competency. Companies staying the course adopt a stability strategy.

6. Organisational Design:

Organisational Design-Meaning:
Organizational design is the process of creating the hierarchy within a company. Organizational
Design is the process of designing, defining or adapting the organizational structure. It usually tries to
answer:
 Who is responsible for each activity
 Who has the authority
 What are the limits of this authority
 Who reports to whom (if you still believe that)
 Who has control which resources
 How information flows in the organization
Organization design involves the creation of roles, processes and structures to ensure that the
organization’s goals can be realized. Organizational design is a step-by-step methodology which
identifies dysfunctional aspects of work flow, procedures, structures and systems, realigns them to
fit current business realities/goals.
The six elements of organizational design help business leaders establish the company
departments, chain of command and overall structure. The aspects of organizational structure
most notably reviewed are the organizational chart. Consider these six key aspects when creating
the design elements of an organization.

Six Elements of Organizational Design:

1. Work Specialization
Work specialization is the first of the elements of organization structure. Business leaders must
consider the job tasks and specific duties associated with given positions. Dividing work tasks
among different jobs and assigning them to definite levels, is the role of work specialization
elements. An example would be giving the first person in the assembly line the job of putting the
first three components together. The second person in the assembly line might then put the decals
on the product, and the third would put the item in the box.
Leaders should be careful to not overly specialize in any one job because this can lead to boredom
and fatigue. This results in slower work and even errors. Managers may have jobs assigned and
adjust the roles depending on how specialized the job in one area is.

2. Departmentalization and Compartments

Departmentalization and compartments are two other components of organizational design.
Departments are often a group of workers with the same overall functions. They are often broken
down by broad categories such as functional, product, geographical, process and customer.
Common departments include accounting, manufacturing, customer service and sales.
Compartments might have teams with different department members that are put together for
efficiency. For example, a company delivering IT services to other businesses might have teams
assigned to each company. Each team might have a project manager, a graphic designer, a coding
specialist, a security specialist, a client rep and service provider.

3. Chain of Command
The chain of command is what the organizational chart typically illustrates. It shows who reports
to whom in the company's human resources structure. Some companies have a more traditional
hierarchy with very clear department leaders and executives in charge. Other companies use a
more fluid chain of command and structure where more people are considered part of the same
level of command on a cross-functional team.
There are pros and cons to any model. What is important is that employees know what is expected
of them and how they get information to flow to the proper channels. If an employee isn't sure
who his direct supervisor is due to an unclear chain of command, he might not properly relay the
right information to the right party.

4. Span of Control
The span of control is the organizational design element that considers the capacity of any
manager. There are limits to the number of people one person can oversee and supervise. The
span of control addresses this design element. If a manager has too many people to oversee, he
might lose his effectiveness and not recognize problems or successes.
A span of four means that for every four managers, sixteen employees can be effectively
managed. Other industries might use a span of eight or another number that describes how the
human resources directors need to disburse managers.

5. Centralization and Decentralization

Centralization and decentralization are organizational design elements deciding the degree which
decision-making is made at one central level or at various levels by employees. For example, all
major budget decisions would filter to the chief executive officer and chief financial officer in a
centralized fashion. Customer service decisions might be decentralized giving those interacting
with customer directions on how to handle issues but the authority to make certain decisions.

6. Formalization of Elements
Smaller organizations tend to have informal elements where large organizations formalize roles
more specifically. The reason smaller organizations use less formal standards is that employees
may serve multiple roles as necessary. Bigger organizations need to formalize elements to ensure
the right stuff gets done on time and correctly.
Formalization might also be seen with specific job duties. For example, there may be a very
specific way that payroll is done to ensure that everyone gets paid on time, with the correct
withholding. The sales department might not be much formalized, and might allow each
representative to find his organic process so that he may succeed.

7. Alternative Structures:

Various Organisational Designs/ Structures:

1. The Simple Structure:
We can think of the simple structure in terms of what it is not rather than what it is. The simple
structure is not elaborate. It has a low degree of departmentalization, wide spans of control,
authority centralized in a single person, and little formalization. It is a “flat” organization; it
usually has only two or three vertical levels, a loose body of employees, and one individual in
whom the decision-making authority is centralized. The simple structure is most widely adopted
in small businesses in which the manager and owner are one and the same. In an organization
chart for a retail men’s store owned and managed by Jack Gold. Although he employs five full-
time salespeople, a cashier, and extra personnel for weekends and holidays, Jack “runs the show.”
Large companies, in times of crisis, often simplify their structures as a means of focusing their
resources.
The strength of the simple structure lies in its simplicity. It’s fast, flexible, and inexpensive to
operate, and accountability is clear. One major weakness is that it becomes increasingly
inadequate as an organization grows, because its low formalization and high centralization tend to
create information overload at the top. As size increases, decision making typically becomes
slower and can eventually come to a standstill as the single executive tries to continue making all
the decisions. This proves the undoing of many small businesses. If the structure isn’t changed
and made more elaborate, the firm often loses momentum and can eventually fail. The simple
structure’s other weakness is that it’s risky—everything depends on one person. One illness can
literally destroy the organization’s information and decision-making centre.
2. The Bureaucracy:
Standardization! That’s the key concept that underlies all bureaucracies. Consider the bank where
you keep your checking account; the department store where you buy clothes; or the government
offices that collect your taxes, enforce health regulations, or provide local fire protection. They all
rely on standardized work processes for coordination and control. The bureaucracy is
characterized by highly routine operating tasks achieved through specialization, very formalized
rules and regulations, tasks grouped into functional departments, centralized authority, narrow
spans of control, and decision making that follows the chain of command. As the opening quote to
this chapter attests, bureaucracy is a dirty word in many people’s minds. However, it does have
advantages. Its primary strength is its ability to perform standardized activities in a highly
efficient manner. Putting like specialties together in functional departments results in economies
of scale, minimum duplication of people and equipment, and employees who can speak “the same
language” among their peers. Bureaucracies can get by with less talented—and hence less costly
—middle- and lower-level managers because rules and regulations substitute for managerial
discretion. Standardized operations and high formalization allow decision making to be
centralized. There is little need for innovative and experienced decision makers below the level of
senior executives.
Listen in on a dialogue among four executives in one company: “You know, nothing happens in
this place until we produce something,” said the production executive. “Wrong,” commented the
research and development manager. “Nothing happens until we design something!” “What are
you talking about?” asked the marketing executive. “Nothing happens here until we sell
something!” The exasperated accounting manager responded, “It doesn’t matter what you
produce, design, or sell. No one knows what happens until we tally up the results!” This
conversation highlights that bureaucratic specialization can create conflicts in which functional-
unit goals override the overall goals of the organization.
The other major weakness of a bureaucracy is something we’ve all witnessed: obsessive concern
with following the rules. When cases don’t precisely fit the rules, there is no room for
modification. The bureaucracy is efficient only as long as employees confront familiar problems
with programmed decision rules.

3. Line Organisational Structure:

A line organisation has only direct, vertical relationships between different levels in the firm.
There is only line department-department directly involved in accomplishing the primary goal of
the organisation. For example, in a typical firm, line departments include production and
marketing. In a line organisation authority follows the chain of command.

Exhibit 10.3 illustrates a single line organisational structure.

Feature:
Has an only direct vertical relationship between different levels in the firm.

Advantages:
1. Tends to simplify and clarify authority, responsibility and accountability relationships
2. Promotes fast decision making
3. Simple to understand.
Disadvantages:
1. Neglects specialists in planning
2. Overloads key persons.
4. Staff or Functional Authority Organisational Structure:
The jobs or positions in an organisation can be categorized as:
(i) Line position:
A position in the direct chain of command that is responsible for the achievement of an
organisation’s goals.
(ii) Staff position:
A position intended to provide expertise, advice and support for the line positions.
The line officers or managers have the direct authority (known as line authority) to be exercised
by them to achieve the organisational goals. The staff officers or managers have staff authority
(i.e., authority to advice the line) over the line. This is also known as functional authority.
An organisation where staff departments have authority over line personnel in narrow areas of
specialization is known as functional authority organisation.
Exhibit 10.4 illustrates a staff or functional authority organisational structure.

In the line organisation, the line managers cannot be experts in all the functions they are required
to perform. But in the functional authority organisation, staff personnel who are specialists in
some fields are given functional authority (The right of staff specialists to issue orders in their
own names in designated areas).
The principle of unity of command is violated when functional authority exists i.e., a worker or a
group of workers may have to receive instructions or orders from the line supervisor as well as the
staff specialist which may result in confusion and the conflicting orders from multiple sources
may lead to increased ineffectiveness. Some staff specialists may exert direct authority over the
line personnel, rather than exert advice authority (for example, quality control inspector may
direct the worker as well as advise in matters related to quality).
While this type of organisational structure overcomes the disadvantages of a pure line
organisational structure, it has some major disadvantages:
They are: (i) the potential conflicts resulting from violation of principle of unity of command and
(ii) the tendency to keep authority centralized at higher levels in the organisation.

5. Line and Staff Organisational Structure:

Most large organisations belong to this type of organisational structure. These organisations have
direct, vertical relationships between different levels and also specialists responsible for advising
and assisting line managers. Such organisations have both line and staff departments. Staff
departments provide line people with advice and assistance in specialized areas (for example,
quality control advising production department).
Exhibit 10.5 illustrates the line and staff organisational chart.

The line functions are production and marketing whereas the staff functions include personnel,
quality control, research and development, finance, accounting etc. The staff authority of
functional authority organisational structure is replaced by staff responsibility so that the principle
of unity of command is not violated.
Three types of specialized staffs can be identified:
(i) Advising,
(ii) Service and
(iii) Control.

Some staffs perform only one of these functions but some may perform two or all the three
functions. The primary advantage is the use of expertise of staff specialists by the line personnel.
The span of control of line managers can be increased because they are relieved of many functions
which the staff people perform to assist the line.

Some advantages are:

(i) Even through a line and staff structure allows higher flexibility and specialization it may create
conflict between line and staff personnel.
(ii) Line managers may not like staff personnel telling them what to do and how to do it even
though they recognize the specialists’ knowledge and expertise.
(iii) Some staff people have difficulty adjusting to the role, especially when line managers are
reluctant to accept advice.
(iv) Staff people may resent their lack of authority and this may cause line and staff conflict.

Features:
1. Line and staff have direct vertical relationship between different levels.
2. Staff specialists are responsible for advising and assisting line managers/officers in specialized
areas.
3. These types of specialized staff are (a) Advisory, (b) Service, (c) Control e.g.,
(a) Advisory:
Management information system, Operation Research and Quantitative Techniques, Industrial
Engineering, Planning etc
(b) Service:
Maintenance, Purchase, Stores, Finance, Marketing.

(c) Control:
Quality control, Cost control, Auditing etc. Advantages’
(i) Use of expertise of staff specialists.
(ii) Span of control can be increased
(iii) Relieves line authorities of routine and specialized decisions.
(iv) No need for all round executives.
Disadvantages:
(i) Conflict between line and staff may still arise.
(ii) Staff officers may resent their lack of authority.
(iii) Co-ordination between line and staff may become difficult.

6. Divisional Organisational Structure:

In this type of structure, the organisation can have different basis on which departments are
formed. They are:
(i) Function,
(ii) Product,
(iii) Geographic territory,
(iv) Project and
(iv) Combination approach.
Exhibit 10.6 illustrates organisational structures formed based on the above basis of
departmentation.
7. Project Organisational Structure:
The line, line and staff and functional authority organisational structures facilitate establishment
and distribution of authority for vertical coordination and control rather than horizontal
relationships. In some projects (complex activity consisting of a number of interdependent and
independent activities) work process may flow horizontally, diagonally, upwards and downwards.
The direction of work flow depends on the distribution of talents and abilities in the organisation
and the need to apply them to the problem that exists. The cope up with such situations, project
organisations and matrix organisations have emerged.

A project organisation is a temporary organisation designed to achieve specific results by using

teams of specialists from different functional areas in the organisation. The project team focuses
all its energies, resources and results on the assigned project. Once the project has been
completed, the team members from various cross functional departments may go back to their
previous positions or may be assigned to a new project. Some of the examples of projects are:
research and development projects, product development, construction of a new plant, housing
complex, shopping complex, bridge etc.
Exhibit 10.7 illustrates a project organisational structure.

Feature:
Temporary organisation designed to achieve specific results by using teams of specialists from
different functional areas in the organisation.

8. Matrix Organisational Structure:

Matrix structure is found in advertising agencies, aerospace firms, research and development
laboratories, construction companies, hospitals, government agencies, universities, management
consulting firms, and entertainment companies. It combines two forms of departmentalization:
functional and product. Companies that use matrix-like structures include ABB, Boeing, BMW,
IBM, and Procter & Gamble.
The strength of functional departmentalization is putting like specialists together, which
minimizes the number necessary while allowing the pooling and sharing of specialized resources
across products. Its major disadvantage is the difficulty of coordinating the tasks of diverse
functional specialists on time and within budget.
Product departmentalization has exactly the opposite benefits and disadvantages. It facilitates
coordination among specialties to achieve on time completion and meet budget targets. It provides
clear responsibility for all activities related to a product, but with duplication of activities and
costs. The matrix attempts to gain the strengths of each while avoiding their weaknesses.
The most obvious structural characteristic of the matrix is that it breaks the unity-of-command
concept. Employees in the matrix have two bosses: their functional department managers and their
product managers.
Exhibit 15-5 shows the matrix form in a college of business administration.

The academic departments of accounting, decision and information systems, marketing, and so
forth are functional units. Overlaid on them are specific programs (that is, products). Thus,
members in a matrix structure have a dual chain of command: to their functional department and
to their product groups.
A professor of accounting teaching an undergraduate course may report to the director of
undergraduate programs as well as to the chairperson of the accounting department.
The strength of the matrix is its ability to facilitate coordination when the organization has a
number of complex and interdependent activities. Direct and frequent contacts between different
specialties in the matrix can let information permeate the organization and more quickly reach the
people who
need it.
A matrix also achieves economies of scale and facilitates the allocation of specialists by providing
both the best resources and an effective way of ensuring their efficient deployment.
The major disadvantages of the matrix lie in the confusion it creates, its tendency to foster power
struggles, and the stress it places on individuals. Without the unity-of-command concept,
ambiguity about who reports to whom is significantly increased and often leads to conflict. It’s
not unusual for product managers to fight over getting the best specialists assigned to their
products.

Advantages:
1. Decentralised decision making.
2. Strong product/project co-ordination.
3. Improved environmental monitoring.
4. Fast response to change.
5. Flexible use of resources.
6. Efficient use of support systems.

Disadvantages:
1. High administration cost.
2. Potential confusion over authority and responsibility.
3. High prospects of conflict.
4. Overemphasis on group decision making.
5. Excessive focus on internal relations.

9. Hybrid Organisational Structure:

Exhibit 10.9 (a) illustrates the hybrid organisational structure.

Exhibit 10.9 (b) illustrates a combination structure

Advantages:
1. Alignment of corporate and divisional goals.
2. Functional expertise and efficiency.
3. Adaptability and flexibility in divisions.

Disadvantages:
1. Conflicts between corporate departments and units.
2. Excessive administration overhead.
3. Slow response to exceptional situations.

Uses:
Used in organisations that face considerable environmental uncertainty that can be met through a
divisional structure and that also required functional expertise or efficiency
This type of structure is used by multinational companies operating in the global environment, for
example, International Business Machines USA. This kind of structure depends on factors such as
degree of international orientation and commitment.

10. The Informal Organisation:

An informal organisation is the set of evolving relationships and patterns of human interaction
within an organisation which are not officially presented. Alongside the formal organisation, an
informal organisation structure exists which consists of informal relationships created not by
officially designated managers but by organisational members at every level. Since managers
cannot avoid these informal relationships, they must be trained to cope with it.

8. Management Process:

Authority and Responsibility Relationship:

1. Authority: Power of a person determines the authority in terms of allocation of resources
efficiently, to take decisions and to give orders so as to achieve the organizational objectives.
Authority of a manager therefore must be well-defined. All people who have the authority should
know what is the scope of their authority and they shouldn’t miss use it. Authority is the right to
give commands, orders and get the things done. The top-level management has full authority.
Authority always flows from top to bottom. It explains how a superior gets work done from his
subordinate by clearly explaining what is expected of him and how he should go about it.
Authority should be accompanied with an equal amount of responsibility. Delegating the authority
to someone else doesn’t imply escaping from accountability. Accountability still rest with the
person having the authority.

2. Responsibility: Responsibility is the duty of the person to complete the task assigned to him. A
person who is given the responsibility should ensure that he accomplishes the tasks assigned to
him. If the tasks for which he was held responsible are not completed, then he should not give
explanations or excuses. Responsibility without adequate authority leads to discontent and
dissatisfaction among the person. Responsibility flows from bottom to top. The middle level and
lower-level managers hold more responsibility. The person held responsible for a job is
answerable for it. If he performs the tasks assigned as expected, he is bound for praises.

3. Accountability: Accountability means giving explanations for any variance in the actual
performance from the expectations set. Accountability cannot be delegated. For example, if ‘A‘ is
given a task with sufficient authority, and ‘A‘ delegates this task to B and asks him to ensure that
task is done well, responsibility rest with ‘B‘, but accountability still rest with ‘A‘. The top level
management is most accountable. Being accountable means being innovative as the person will
think beyond his scope of job. Accountability, in short, means being answerable for the end result.
Accountability can’t be escaped. It arises from responsibility. Therefore, every manager i.e., the
delegator has to follow a system to finish up the delegation process. Equally important is the
delegate’s role, which means his responsibility and accountability is attached with the authority.

Relationship between Authority and Responsibility while accountability is the obligation of

individual to carry out his duties as per standards of performance Authority flows from the
superiors to subordinates and instructions are given to subordinates to complete the task.
Comparison Chart between Authority & Responsibility:

BASIS FOR
AUTHORITY RESPONSIBILITY
COMPARISON

Meaning Authority refers to the power or Responsibility denotes duty or

right, attached to a particular job obligation to undertake or accomplish a
or designation, to give orders, task successfully, assigned by the senior
enforce rules, and make or established by one's own
decisions and exact compliance. commitment or circumstances.

What is it? Legal right to issue orders. Corollary of authority.

Results from Formal position in an Superior-subordinate relationship

organization

Task of manager Delegation of authority Assumption of responsibility

Requires Ability to give orders. Ability to follow orders.

Flow Downward Upward

 BASIS FOR
AUTHORITY RESPONSIBILITY
COMPARISON

Objective To make decisions and To execute duties, assigned by superior.

implement it.

Duration Continues for long period. Ends, as soon as the task is

accomplished.

Organisational Control Mechanism:

Control mechanisms play an important role in any business organization, without which the roles
of managers get constrained. Control is required for achieving the goals in a predefined manner
because it provides the instruments which influence the performance and decision-making process
of an organization. Control is in fact concerned with the regulations applied to the activities within
an organization to attain expected results in establishing policies, plans, and practices.
Control mechanisms can be set according to functions, product attributes, geographical attributes,
and the overall strategic and financial objectives.

Objectives of Control:
There are three major objectives for having a control mechanism in an international firm.
They are −
 To get data and clues for the top management for monitoring, evaluating, and adjusting
their decisions and operational objectives.
 To get clues based on which common objectives can be set to get optimum coordination
among units.
 To evaluate the performance metrics of managers at each level.

9. Organisational Decision Making:

Organisational Decision Making:

Decision-making is one of the most important aspects of your small business, but the process of
arriving at a decision on must be precise, so that it will yield the best results. It’s also important to
remember that even though you and your executive team will make the major decisions, there are
a number of smaller decisions that your managers and staff members will make, sometimes
without your input.
The decision-making process involves the following steps:
1. Define the problem.
2. Identify limiting factors.
3. Develop potential alternatives.
4. Analyse the alternatives.
5. Select the best alternative.
6. Implement the decision.
7. Establish a control and evaluation system.