Chapter Four

The organizing function and organization

Organizing is the process of identifying and grouping tasks to be performed, assigning responsibilities and
delegating authority and establishing relationships for the purpose of enabling workers to work most effectively
together in the accomplishments of objectives.
The organizing function involves the following sub functions:
 Identification of activities required for the achievement of objectives and implementation of plans.
 Grouping of activities based on similarity of jobs so as to create self-contained jobs.
 Assignment of jobs to employees.
 Delegation of authority so as to enable them to perform their jobs and to command the resources needed
for their performance.
 Establishment of a net-work of coordinating relationships.
4.2 Classification of organization
Formal and Informal Organizations
A. Formal organization is the official organizational structure created by management. It is organization formed
purpose fully to achieve well defined and formal objectives.
B. Informal organization is the network of personnel and social relationships that arises spontaneously as people
associate with one another in a work environment. It is natural grouping of people in the work situation based on
their behavioral patterns, interests, beliefs, objective etc.
The organization can be classified on the basis of authority and responsibility assigned to the personnel and the
relationship with each other. In this way, an organization can be either formal or informal.
Formal organization
The formal organization represents the classification of activities within the enterprise, indicates who reports to
whom and explains the vertical journal of communication which connects the chief executive to the ordinary
workers. In other words, an organizational structure clearly defines the duties, responsibilities, authority and
relationships as prescribed by the top management.
In an organization, each and every person is assigned the duties tend given the required amount of authority and
responsibility to carry out this job. It creates the co-ordination of activities of every person to achieve the
common objectives. It indirectly induces the worker to work most efficiently. The inter-relationship of staff
members can be shown in the organization chart and manuals under formal organization.
Characteristics of formal organization
The important characteristics of a formal organization are given below
1. it is properly planned
2. It is based on delegated authority.

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 3. it is deliberately impersonal
4. The responsibility and accountability at all levels of organization should be clearly defined.
5. organizational charts are usually drawn
6. unity of command is normally maintained
7. It provides for division of labor.
Advantages of formal organization
1. The definite boundaries of each worker are clearly fixed. It automatically reduces conflict among the
workers. The entire building is kept under control
2. Overlapping of responsibility is easily avoided. The gaps between the responsibilities of the employees
are filled up.
3. Buck-passing is very difficult under the formal organization normally exact standards of performance are
established under formal organization. It results in the motivating of employees.
4. A sense of security arises from classification of the task.
5. There is no chance for favoritism in evaluation and placement of the employee.
6. It makes the origination less dependent on one man Keith Davis observes that formal organization is and
should be our paramount organization type as a general rule. It is the pinnacle of man's achievement in a
disorganized society. It is man's orderly, conscious and intelligent creation for human benefit.
Arguments Against formal organization
1. In certain cases, the formal organization may reduce the spirit of imitative.
2. Sometimes authority is used for the sake of convenience of the employee without considering the need for
using the authority.
3. it does not consider the sentiment and values of the employees in the social organization
4. the formal organization may reduce the speed of informal communication
5. It creates the problems of coordination.
Informal organization
Informal organization is an organizational structure which establishes the relationship on the basis of the likes and
dislikes of officers without considering the rules, regulations and procedures. These types of relationships are not
recognized by officers but only felt, the friendship. Mutual understanding and confidence are some of the reasons
for existing informal organization, for example, a salesman receives orders or instructions directly from the sales
manager instead of this supervisor. The informal organization relationship exists under the formal organization
also. The informal organization relationship or informal relations give a greater job satisfaction and result in
maximum production.
According to C.J Bernard, "informal organization brings cohesiveness to formal organization. It brings to the
members of a formal organization a feeling of belonging, status of self respect and gregarious satisfaction.

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Informal organizations are important means of maintain the personality of the individual gains certain effects of
formal origination which tend to disintegrate personality." of the individual against certain effects of formal
organization which tend to disintegrate personality."
Informal organizations have some characteristics
i. Group norms-are unwritten laws that govern the behavior of members of the informal
organization
ii. group cohesiveness:- the members of informal organization are stick together
iii. group leader ship:- informal organization has a leader , i.e., the informal leader, this person
is the most active one from among the others
iv. Communication net worked. The organization has communicated net work called grapevine.
v. Don't have boundary: - informal organization cut across the entire formal organization
without following chain of command so managers can also be members of the informal
group.
vi. Informal organization arises without any external cause i.e. voluntarily.
vii. It is a social structure formed to meet personal needs.
viii. Informal organization has no place in the organization chart
ix. The rules and traditions of informal organization are not written but are commonly followed.
x. Informal organization develops from habits, conduct, customers and behavior of social
groups.
Even though informal organization is not established officially it exists and it is there always in the formal
organization. It may affect the formal organization positively or negatively and management should recognize
that informal organization exist in the formal organization; for the benefit of the formal organization.
Impacts of the informal organization
The informal organization can affect the organization positively and negatively.
Positive impact
Informal organization can provide some benefits to formal organization
 Support management:- sometimes in providing advices, generate new ideas in performing activities to
attain organizational objectives.
 Creates stability in the work environment since workers have their own group to satisfy their needs they
tend to work for long period of time in the organization. Informal groups increasing starlet decreasing
turnover.
 Provides channels of communication:- individuals who are new for the organization can easily be
informed about the organization through informal organization members.

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 Encourages development of management, managers can develop their ability of leading because they may
participate in leading of informal organizations besides formal organization
Negative impact
Creates Conflicts: - most of the times members of the informal organization may conflict with their formal boss
while they are trying to satisfy their informal leader.
Change resistance: - sometimes management may want to change operational systems. But informal group may
not agree to adopt the changes.
Can expand rumor and false information:- informal organization may of compurgation inch is informal so the
degree of passing mere gossips and incorrect information may be high.
How to work with informal organization
Management should not attempt to eliminate informal organization as it is impossible to eliminate it. Rather they
have to make use of informal organization for the benefit of formal organization.
Managers should consider the following factors to use informal groups.
 Realize the existence of informal groups
 Identify the roles of members in each informal group
 Use information to work with informal groups
Informal and formal organization compared
1. Informal organization emphasizes on people and their relationships. the formal organization
emphasizes on formal organizational positions
2. The coverage or power of effectiveness in informal organization is informal power that attached
to the individual. In the formal organization the formal authority comes directly from the
positions and person has it only when occupying that position
3. Formal organizations may grow to be extremely large, but informal organizations tend to
remain smaller in order to maintain the personal relationships as a result large
organization contains a number of informal original
formal organization informal organization
1. it arises due to delegation of authority - it arises due to social interaction of people
2. It gives importance to terms of authority and functions. - It gives importance to people and their relationships.
3. It is created deliberately. - it is spontaneous and natural
4. the formal authority is attached to a position - The informal authority is attached to a person.
5. rules, duties and responsibilities of workers are given in - No such written rules and duties followed in informal
writing organization
6. Formal organization comes from outsiders who are - Informal organization comes from those persons who
superior in the line of organization. are objects of its control.

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7. Formal authority flows from upwards to downwards. - Informal authority flows upwards to downwards or
horizontally.
8. formal organization may grow to maximum size - Informal organization tends to remain smaller.
9. It is created for technological purposes. - it arises from man's quest for social satisfaction
10. Formal organization is permanent and stable. - there is no such permanent nature and stability

Impacts of the informal organization

The informal organization can affect the organization positively and negatively.
Positive impact
Informal organization can provide some benefits to formal organization
 Support management:- sometimes in providing advices, generate new ideas in performing activities to
attain organizational objectives.
 Creates stability in the work environment since workers have their own group to satisfy their needs
they tend to work for long period of time in the organization. Informal groups increasing starlet
decreasing turnover.
 Provides channels of communication:- individuals who are new for the organization can easily be
informed about the organization through informal organization members.
Encourages development of management, managers can develop their ability of leading because they may
participate in leading of informal organizations besides formal organization
Negative impact
 Creates Conflicts: - most of the times members of the informal organization may conflict with their
formal boss while they are trying to satisfy their informal leader.
 Change resistance: - sometimes management may want to change operational systems. But informal
group may not agree to adopt the changes.
 Can expand rumor and false information:- informal organization may of compurgation inch is
informal so the degree of passing mere gossips and incorrect information may be high.
How to work with informal organization
Management should not attempt to eliminate informal organization as it is impossible to eliminate it. Rather they
have to make use of informal organization for the benefit of formal organization.
Managers should consider the following factors to use informal groups.
 Realize the existence of informal groups
 Identify the roles of members in each informal group
 Use information to work with informal groups
1.3 Organization Chart

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Organization Chart- is graphic illustration of the organization’s management hierarchy and departments and their
working relationships. Each box indicates position within the organization and each line indicates reporting
relationships and lines of communication.

Fig 4.2 organizational chart

Organizational chart remains useful because it provides different important information regarding;
 Who reports to whom- that, chain of command.
 Span of control- how many subordinates does a manager have
 Channels of formal communication shown by solid lines that connect each job(box)
 Bases of departmentalization- how organization is departmentalized by function, customer, or product,
geographical etc
 Activities in each position- The labels in boxes describe each individual ‘s activities
 The hierarchy of decision making - where the decision maker for a problem is located
 authority relationships- solid connections between boxes illustrate line authority, Zigzag lines show staff
authority, and broken line show functional authority
Limitation of Organizational Chart
Organizational chart has some limitations since it doesn’t show
 informal communication channel
 Informal relationship among workers
 Degree of authority holds by individuals
1.4 Departmentalization :Meaning and Bases
Departmentalization; is grouping of related activities in to units. After reviewing the plans, usually the first step
in the organizing process is departmentalization. Once jobs have been classified through work specialization, they
are grouped so those common tasks can be coordinated. Similar activities intimately related with a distinct
function are grouped together to form departments.
-It aims at achieving unity of direction, effective communication, coordination and control.

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Bases of Departmentalization
There are some bases for departmentalization but there is no one best way to departmentalize the activities and the
choice of departmentalization depends on the needs of the organization. The major bases of departmentalization
include: function, Product, customer, and territory.
Functional departmentalization- Functional departmentalization involves organizing departments around
essential input activities, Such as production, marketing and finance, which are managerial or technological
functions. The functions reflect the nature of the business. The advantage of this type of grouping is obtaining
efficiencies from consolidating similar specialties and people with common skills, knowledge and orientations
together in common units.
Product Departmentalization- product departmentalization involves organizing departments around products or
services. Companies with multiple products commonly use product departmentalization. Each department may
become self-contained company, making and selling its own products. It assembles all functions needed to make
and market a particular product are placed under one executive. For instance, major department stores are
structured around product groups such as home accessories, appliances, women's clothing, men's clothing, and
children's clothing.
Customer Departmentalization- Customer departmentalization involves organizing departments around needs
of different types of customers. It is grouping of activities and responsibilities in departments based on the needs
of specific customer groups. . For instance, a plumbing firm may group its work according to whether it is serving
private sector, public sector, government, or not-for-profit organizations.
A current departmentalization trend is to structure work according to customer, using cross-functional teams.
This group is chosen from different functions to work together across various departments to interdependently
create new products or services. For example, a cross-functional team consisting of managers from accounting,
finance, and marketing is created to prepare a technology plan.
Territory (Geographic) Departmentalization- Involves grouping of activities and responsibilities according to
territory. All activities in a geographic area are assigned to a particular manager. For example, Merck, a major
pharmaceutical company, has its domestic sales departmentalized by regions such as Northeast, Southeast,
Midwest, Southwest, and Northwest.
Departmentalization by process groups jobs on the basis of product or customer flow. Each process requires
particular skills and offers a basis for homogeneous categorizing of work activities. A patient preparing for an
operation would first engage in preliminary diagnostic tests, then go through the admitting process, undergo a
procedure in surgery, receive post operative care, be discharged and perhaps receive out-patient attention. These
services are each administered by different departments.
Matrix departmentalization- is departmentalization that combines the functional and product structures. With
matrix departmentalization, the employee works for a functional department and is also assigned to one or more

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products or projects. The major advantage of matrix departmentalization is flexibility. The major disadvantage is
that each employee has two bosses a functional boss and a project boss-conflict can result when two people give
orders.

Fig 4.3 Departmentation

4.5 Span of management (span of control)
Span of control refers to the number of employees reporting to manger, in other words, the number of
subordinates a manger directly supervises. No fixed number of subordinates is there to be supervised by a single
manger; the number depends on different actions which include perplexity (puzzlement).
1. Complexity and variety of subordinates job:- if subordinates are dealing with complex and many jobs,
they will contact with managers frequently to get more assistance, so for manger to give assistance to
subordinates they need to lead only few subordinates
2. Ability and competence of mangers:- if mangers are capable of grasping problems easily and finding
solutions for problems quickly then can supervise more number of subordinates.
3. Managers willingness to delegate authority:- if mangers are permissible or willing to delegate
authority, they can mange or supervise many number of subordinate
4. The geographic location of organizational departments:- if the departments are located in one-area
mangers can control many number of subordinates otherwise few subordinates are advised.
Wide and narrow spans of control
Based on the numbers of subordinates supervised by mangers in organizational departments, span of control can
be classified in to wide and narrow span of control.

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Wide span of control:-span of control in which as many as 10 or 15 people may report to the same person, results
in a flat organization structure.
 If the number of subordinates is many it is wide span of control.
A narrow span of control:- span of control in a tall organizational structure.
 If number of subordinates is few it is narrow span of control nearly, but not always real, if number of
subordinates is 10 to 12 and if it is <10. It is narrow span of control.

Fig 4.4 wide span of control

Fig 4.5 narrow span of control

Authority and power and their sources
Organizational structure is a means of facilitating the achievement of organizational objectives. Such structures
are not static, but dynamic. They reorganize in response to changing conditions that occur in the environment,
new technology, or organizational growth. Organization structures are dependent upon the employees whose
activities they guide. Supervisors rely upon power and authority to ensure that employees
Authority: - is the formal and legitimate right of a manger to make decisions, give orders, and allocate resources,
is the right to command.
The organizational structure provides the framework for the formal distribution of authority. Formalization is the
degree to which tasks are standardized and rules and regulations govern employee behavior. It influences the
amount of discretion an employee has over his or her job. In an organization with high degrees of formalization,
job descriptions and policies provide clear direction. Where formalization is low, employees have a great deal of
freedom in deciding how thy conduct their work. Within the same organization, different departments may have
different degrees of formalization. For example, in a hospital, doctors have freedom in selecting treatments, drugs,

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and methods for treating patients. However, the hospital physical plant staff has a strict schedule for cleaning
buildings, mowing lawns, and maintaining the facilities
Source of authority-comes with the territory, “making that authority is legal right of manager because of the
position he or she occupies in the organization. Thus authority is defined in each mangers job charter. The
person who occupies a position has his/her formal authority as long as he or she remains in that position. As the
job changes in scope and complexity, the amount and kind of formal authority possessed should be changed.
Types of authority
In an organization three different types of authorities are created by the relation ships between individuals and
departments.
i. Line authority – defines the relationship between superior and subordinates. Any manager who supervises
operating employees or other manger has line authority. It allows mangers to give direct orders, evaluate the
actions, reward and punish employees. It is responsible to make decisions and issue orders down the chain of
command.

Fig 4.6 Line Authority Chain of Command

ii. Staff authority- is the authority to serve in an advisory capacity: - managers who provide advice or technical
assistance are granted advisory authority.
This staff or advisory authority provides no basis for direct control over the subordinates or activities of other
departments; however, with in the staff managers own department, he or she can exercise line authority. Staff
authority in the form of advice/ assistance flows upward to the decision maker. Staff authority is more limited
authority to advice. It is authority that is based on expertise and which usually involves advising line managers.
Staff members are advisers and counselors who aid line departments in making decisions but do not have the
authority to make final decisions. Staff supervisors help line departments decide what to do and how to do it.
They coordinate and provide technical assistance or advice to all advisors, such as accounting, human resources,
information technology, research, advertising, public relations, and legal services.

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Fig 4.7 Staff Authority
Staff authorities are responsible to advice and assist other personnel.
Functional authority; is an authority which permits staff mangers make decision on specific activities performed
by employees with in other departments. Staff departments often use functional authority to control their
procedures in other departments.
 Is the right of staff personnel to issue orders to line personnel in established areas of responsibility?
 Ex. The maintenance department assists production by keeping the operating activity. If the maintenance
determines that a machine is unsafe, the department may issue an order to line manger to use the machine,
but it cannot suggest which products are produced

President
H/

Maintaining Marketin Finance

Product
g Fig 4.8Functional authority

Responsibility and Accountability

Equally important to authority is the idea that when an employee is given responsibility for a job, he or she must
also be given the degree of authority necessary to carry it out. Thus, for effective delegation, the authority granted
to an employee must equal the assigned responsibility. Upon accepting the delegated task, the employee has
incurred an obligation to perform the assigned work and to properly utilize the granted authority. Responsibility
is the obligation to do assigned tasks. The individual employee is responsible for being proficient at his or her job.
The supervisor is responsible for what employees do or fail to do, as well as for the resources under their control.
Thus, responsibility is an integral part of a supervisor's authority.
Responsibilities fall into two categories: individual and organizational. Employees have individual responsibilities
to be proficient in their job. They are responsible for their actions. Nobody gives or delegates individual
responsibilities. Employees assume them when they accept a position in the organization. Organizational
responsibilities refer to collective organizational accountability and include how well departments perform their
work. For example, the supervisor is responsible for all the tasks assigned to his or her department, as directed by
the manager.

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When someone is responsible for something, he or she is liable, or accountable to a superior, for the outcome.
Thus, accountability flows upward in the organization. All are held accountable for their personal, individual
conduct. Accountability is answering for the result of one's actions or omissions. It is the reckoning, wherein one
answers for his or her actions and accepts the consequences, good or bad. Accountability establishes reasons,
motives and importance for actions in the eyes of managers and employees alike. Accountability is the final act in
the establishment of one's credibility. It is important to remember that accountability results in rewards for good
performance, as well as discipline for poor performance.
Power and Its Sources
Power is ability to exert influence in the organization. OR Power is the ability to exert influence in the
organization beyond authority, which is derived from position. In addition to authority; supervisors have more
personal sources of power to draw upon for getting things done. Everyone has power in one form or another and it
is by exercising this power that organizations get things accomplished. Supervisors who are capable of achieving
their objectives independently of others are said to possess strength. When these "strong" supervisors involve and
incorporate others into their plans and activities they are making use of power, and in fact increasing the total
amount of power available to incorporate into a particular situation or problem. Involving employees in setting
objectives and making decisions as it relates to their jobs empowers everyone, and results in greater job
satisfaction and commitment, as well as increased productivity. Empowering employees provides them with
greater autonomy
- It is ability to influence others’ behavior.
Power can be positional and personal.
Position power is derived from top management and is delegated down the chain of command.
Personal power is derived from the follower based on the individual behavior.
* A person does not need to be manager to have power. Some administrative assistants of top mangers have
considerable power, but no authority. Manager can a acquire power from several different sources, based on these
sources power can be:

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Fig 4.9 Source of Power
(i). Legitimate or position power – The power possessed by manger and derived from the positions they occupy
in the formal organization. . This position power is broader than the ability to reward and punish, as members
need to accept the authority of the position
(ii) Reward power- The power that comes from the ability to promise or grant rewards. Mangers have the ability
to decide on raises, promotion favorable performance appraisals, and preferred work shifts. Reward power
results in people doing what is asked because they desire positive benefits or rewards. Rewards can be anything a
person values (praise, raises, and promotions)
(iii) Coercive power – is a power which enables mangers to force individuals to attain their work assignments or
to punish those workers who failed to attain their job assignments. Coercive power is the threat of sanctions. It is
dependent on fear and includes, but is not limited to the ability to dismiss, assign undesirable work, or restriction
of movement. The punishment may include; demotion, terminating employment etc
(iv) Referent (charismatic) power – is the power that is based on the kind of personality or charisma an
individuals has and how others perceive it. Referent power refers to a person who has desirable resources or
personal traits. It results in admiration and the desire to emulate. It is the power obtained from the attitude of
people toward someone or from idea that one has on himself.
(iv). Expert Power- is power derived from an individual’s knowledge and expertise. Others listen to and follow
the person with expert power because she/he is regarded as capable and knows how to do things right. Employees
with expert power are often promoted to management.
Delegation, Centralization and Decentralization
Delegation is the process of assigning authority and creating obligation to accomplish objectives.
 Is the down ward transfer of formal authority from one person to another
Process of Delegation
Delegation- involves some activities which include
1. Assignment of Tasks- identifying tasks to be performed and assign the tasks to subordinates. It is a
primary activity in delegation of authorities.
2. Delegation of Authority- Once tasks are assigned, employees should be given as much authority as
possible which enable them to make decision regarding their job assignments.
3. Creation of Obligation- Managers have to create accountability with subordinates for fair use of
authority and effective performances of activities.
4. Establishment of Control System- The fourth step in delegation process is establishing adequate
control system for evaluating the results of delegation. Because the delegated manager is responsible
for the performance of his subordinates. S/he has to evaluate their progress from time to time to ensure
that authority is utilized effectively for right purpose. Delegation is an integral component of the

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 organizing process. Since a manager is responsible for the performance of such a large variety of tasks,
activities and functions that s/he can not perform them all by his/herself. S/he assigns a part of his/her
work to his/her subordinates.

Fig 4.10 Steps in Delegating

Merits of delegation
 It freed managers from routine activities and enables them to focus on critical ones.
 It acts as a tool of development and motivation of employees.
 It is means of pushing down decision to lower level so decisions are likely to be timelier as well as
realistic.
Obstacles to Delegations
 Managers believe that they can do better decisions
 Managers are afraid of losing importance
 Some managers do not know how or what to delegate
 Subordinates lack confidence in their activities etc.
Centralization and decentralization
Centralization is a philosophy of management that focuses on systematical retaining of authority in the hand of
higher level managers. I.e. it is the degree to which decision-making is concentrated in top management's hands.
Decentralization is a philosophy of management that focuses on systematical delegation of authority through out
the organization to middle and lower level managers. ; is the extent to which decision-making authority is pushed
down the organization structure and shared with many lower-level employees.
If authority is decentralized:
-Greater number of decision will be made at lower level
-Important decisions are made at lower level, and subordinates will refer less their
superiors to make decisions.
The reverse is true if authority is centralized.

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In centralization decision making criteria are limited to top level management. But In decentralization are
delegated to lower level. Centralized organizations have more levels of management with narrow spans of control.
Employees are not free to make decisions. Decentralized organizations have fewer levels of management with
wide spans of control giving employees more freedom of action. All other things being equal, a wide span of
control is more efficient because it requires fewer managers. However, it is important to recognize that, at some
point, effectiveness will decline.
The current trend is toward broadening decentralization. As competition intensifies the need for organizations to
be responsive increases. This has made employees, usually those at the lower levels, who are closest to customers
extremely important. They are an excellent source of knowledge and implement changes that directly impact
performance. Giving this group more input into certain decision-making activities can result in increased firm
performance. Generally; tall organization structures are more of centralized. Flat organizations Structures are
more of decentralize.
Groups and committees
Group;-is a social unit consisting of two or more interdependent, interactive individuals who are striving to attain
common goals.
Types of groups
Formal groups are groups established by an organization, their membership and structure are formed by the
management of the organization
Formal groups are may be classified as follows
I. Task group/work group consists of people with different skill for performance of a common task.
II. Command group consists of managers and their employees formed due to authority and
responsibility relationship.
III. Mediating group a group formed to resolve conflict that may arise between departments and
individuals.
IV. Policy making group:- a group established to formulate operating policy.
Informal groups are groups created spontaneously when member join together voluntarily because of similar
interest.
Committees
Committee is a group of members that represents functional areas of expertise.
It is best example of formal group
The primary function of committee is to make or suggest decisions on problems requiring integration of different
departments.
Types of committee
Generally committees can be ad hoc or standing

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i. Adhoc committees: - are those formed for a particular purpose. If the objectives are for which they
are established have been met, they are disbanded (dispersed). They are temporary.
ii. Standing committee- are permanent in nature. They are not disbanded. In large organizations they
often take the form of finance committees and personnel committee and there is always enough work
to justify their existence.