Organizing is establishing the internal organizational structure of the business. The focus is on
division, coordination, and control of tasks and the flow of information within the organization.
Managers distribute responsibility and authority to job holders in this function of management.(1)
Organizational Structure
Each organization has an organizational structure. By action and/or inaction, managers structure businesses. Ideally, in developing an organizational structure and distributing authority, managers' decisions reflect the mission, objectives, goals and tactics that grew out of the planning function. Specifically, they decide:
1. Division of labor
2. Delegation of authority
3. Departmentation
4. Span of control
5. Coordination
Management must make these decisions in any organization that has more than two people. Small may not be simple. Note Dan and Nancy's organizational alternatives in the third transparency for this section. Dan and Nancy have three organizational chart alternatives for their two person business. As shown on the page following Dan and Nancy's organization charts, who reports to whom and why may not be apparent in a slightly more complex business with three employees and five family members involved.
Organizational structure is particularly important in family businesses where each family
member has three hats (multiple roles): family, business and personal. Confusion among these
hats complicates organizational structure decisions.
Division of Labor
Division of labor is captured in an organization chart, a pictorial representation of an organization's formal structure. An organization chart is concerned with relationships among tasks and the authority to do the tasks. Eight kinds of relationships can be captured in an organization chart:
1. The division/specialization of labor
2. Relative authority
3. Departmentation
4. Span of control
5. The levels of management
6. Coordination centers
7. Formal communication channels
8. Decision responsibility
Organization charts have important weaknesses that should be of concern to managers
developing and using them:
1. They may imply a formality that doesn't exist.
2. They may be inconsistent with reality.
3. Their usual top down perspective often minimizes the role of customers, front-line managers and employees without management responsibilities.
4. They fail to capture the informal structure and informal communication.
5. They often imply that a pyramidal structure is the best or only way to organize.
6. They fail to address the potential power and authority of staff positions compared with line
positions.
Delegation of Authority
Authority is legitimized power. Power is the ability to influence others. Delegation is distribution of authority. Delegation frees the manager from the tyranny of urgency. Delegation frees the manager to use his or her time on high priority activities. Note that delegation of authority does not free the manager from accountability for the actions and decisions of subordinates.
Delegation of authority is guided by several key principles and concepts:
Exception principle - Someone must be in charge. A person higher in the organization handles exceptions to the usual. The most exceptional, rare, or unusual decisions end up at the top management level because no one lower in the organization has the authority to handle them.
Scalar chain of command - The exception principle functions in concert with the concept of scalar chain of command - formal distribution of organizational authority is in a hierarchial fashion. The higher one is in an organization, the more authority one has.
Decentralization - Decisions are to be pushed down to the lowest feasible level in the organization. The organizational structure goal is to have working managers rather than managed workers.
Parity principle - Delegated authority must equal responsibility. With responsibility for a job must go the authority to accomplish the job.
Span of control - The span of control is the number of people a manager supervises. The organizational structure decision to be made is the number of subordinates a manager can effectively lead. The typical guideline is a span of control of no more than 5-6 people. However, a larger span of control is possible depending on the complexity, variety and proximity of jobs.
Unity principle - Ideally, no one in an organization reports to more than one supervisor. Employees should not have to decide which of their supervisors to make unhappy because of the impossibility of following all the instructions given them.
Line and staff authority - Line authority is authority within an organization's or unit's chain of
command. Staff authority is advisory to line authority. Assume a crew leader reports to the
garden store manager who in turn reports to the president. Further assume that the crew leader
and store manager can hire and fire, and give raises to the people they supervise. Both the crew
leader and store manager have line authority. To contrast, assume that the president has an
accountant who prepares monthly financial summaries with recommendations for corrective
action. The accountant has staff authority but not line authority.
Departmentation
Departmentation is the grouping of jobs under the authority of a single manager, according to some rational basis, for the purposes of planning, coordination and control. The number of departments in an organization depends on the number of different jobs, i.e., the size and complexity of the business.
Farm businesses are most likely to have departments reflecting commodities and services. For
example, a large dairy farm might be organized into dairy, crop, equipment and office
departments. The dairy department might be further divided into milking, mature animal and
young stock departments.
Informal Structure
The formal structure in each organization that has been put in place by management has an accompanying informal structure. Management does not and cannot control the informal structure.
The informal structure has no written rules, is fluid in form and scope, is not easy to identify, and has vague or unknown membership guidelines.
For management, the informal structure may be positive or negative. Positive qualities include the ability to quickly spread information and provide feedback to the information. The informal structure gives people a sense of being in the know. Management can feed information into the informal structure at very low cost. The informal structure can also help satisfy employees' social needs.
The negative qualities of the informal structure mirror the positive qualities in several ways. The
more juicy a rumor, the more likely is the informal structure to repeat it, expand it and make it
into the "truth." Management may not know what information is flowing through the informal
structure. Employees can waste a great deal of time nurturing and participating in the informal
structure. Finally, the informal structure can fence out new employees, "rate breakers," and
change agents no matter the extent to which the formal structure makes them a part of the
organization.
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