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Text 3.1. Read the text and explain the concepts of a) organising; b) organising function; c) organising process.

Organising Function

Every day the ordinary things in our lives have to be organised. We organise our efforts to study for an exam and we organise our budget to maximise our buying power. Factories organise to produce their products and airlines organise to get a flight off the ground. We could not have built an automobile, split the atom, or put an astronaut on the moon without organisation.

Nowadays, the process of decision-making in management has grown more complex. There is, however, a limit to the number of decisions that can be made by one person, a limit to the amount of responsibility that is given to individual employees and the number of people that one person can manage directly in an efficient way is also limited.

Organising, then, is extremely important, as it is connected with the fundamentals of any organisation. It is a mechanism which can be used to put plans into action and the process of establishing orderly uses for all resources within the management system and the arrangement of all elements of an organisation to achieve its strategic objectives. A thorough organising effort by the manager will help to minimise costly weaknesses such as duplication of effort and idle organisational resources.

The organising function is the process of breaking down the overall task into individual jobs along with delegated authority to do those jobs and then putting them back together in units, or departments, of an optimal size. Thus, we can describe the organising function as dividing tasks into jobs, delegating authority, determining appropriate bases for departmentalising jobs and deciding on the optimal number of jobs in a particular department.

The organising process has five main steps: (1) to reflect on plans and objectives; (2) to establish major tasks; (3) to divide major tasks into subtasks; (4) to allocate resources and directives for subtasks; and (5) to evaluate the results of the implemented organising strategy. The manager should continually repeat these steps. Through this repetition, the manager continually obtains feedback to help improve upon the existing organisation.

People operate in groups in order to achieve objectives that they cannot achieve by working individually. In an efficiently-run company, the activities of the various groups and the responsibilities of the individuals who work within them must be carefully defined in an organisational structure to achieve company policy.

W o r t h y o f N o t e

The purpose of the organising function is to achieve coordinated effort through

•establishing proper authority relationships, and

•building an effective company structure.

Text 3.2. Read the text about organising principles and outline the key elements of the hierarchy principle.

Organising Function: Authority Relationships

through Four Organising Principles

As was mentioned above, the key elements in the organising function are authority relationships and a company structure. Authority relationships are based on the four key principles in organising: hierarchy, centralisation, specialisation and coordination.

The first, hierarchy principle, involves such elements as chain of command, bureaucracy, authority and responsibility.

Elements of the Hierarchy Principle

Chain of Command

Most organisations have a hierarchical or pyramidal structure, with one person or a group of people at the top and an increasing number of people below them at each successive level. There is a clear line or chain of command (scalar chain) running down the pyramid. All the people in the organisation know what decisions they are able to make, who their superior (or boss) is (to whom they report), and who their immediate subordinates are (to whom they can give instructions).

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Historically, line subordination is the oldest type of organisation structure. The main idea of it is direct vertical relationships between the positions and tasks of each level, and the positions and tasks above and below each level. For example, a sales manager may be in a line position between a vice-president of marketing and a salesperson. Thus, a vice-president of marketing has direct authority over a salesperson. This chain of command simplifies the problem of giving and taking orders.

Thus, the chain of command is a series of superior-subordinate relationships and the formal channel that determines authority, responsibility and communications. Starting at the top of the organisation with the president and progressing down to the unskilled employees, the managerial chain of command is a hierarchy of jobs differentiated by authority. Managers must provide for an unbroken chain of command from top to bottom. At the same time, they must recognise the need to bypass the chain when conditions warrant.

Bureaucracy

The principle of hierarchy is also based on bureaucracy. Bureaucracy establishes a relation between people at the top, such as directors or elected politicians, and their subordinates. The legitimacy of the top people arises from an external source, such as ownership, appointment or election, while the rights and duties of others in the organisation come from delegation. These rights are normally prescribed in written rules. These rules are embodied in a job description, which is a summary of an individual’s job activities within an organisation or a listing of specific activities that must be performed by the holder of the position. But organisation members are expected to continually rethink and renegotiate their tasks, and individual job activities within the organisation may have to be changed.

Authority and Responsibility

Authority is the formal right of a manager to act as a manager, i.e. to plan, decide, give instructions, allocate resources and control in order to achieve the aims of the organisation. Authority is generally defined as the legally or organisationally sanctioned right to make a decision without approval by a higher-ranking manager. At least three features of organisational authority can be pointed out: (1) it resides in the position and not the person; (2) it must be accepted by subordinates; and (3) it can be transferred from one level to another.

Apart from managerial positions, any employee who has been given a job to do must also be given a commensurate amount of authority with which to do it. Authority, in this situation, is the right to perform or command. Authority does not only allow its holder to act in a certain designated way, but also allows the holder to directly influence the actions of others through orders that the holder issues.

Closely tied to authority is responsibility. It mirrors authority in the fact that responsibility is the duty to act according to the authority that has been delegated. Responsibility is perhaps the most fundamental ingredient that channels the activity of both managers and all other individuals within the organisation. Responsibility is the obligation to perform an assigned activity and a commitment that people take upon themselves to handle their jobs to the best of their abilities. The source of this responsibility lies within the individual person. If a person accepts a job, he/she agrees to carry out a series of duties or activities. A responsible employee is one who gets the job done. Since a person accepts responsibility, there is no way responsibility can be assigned or passed on to somebody else.

Normally, managers are given responsibility that matches their authority. If responsibility is excessive, the manager’s job becomes very difficult, relying on persuasion rather than giving orders. If the balance swings the other way, there is the possibility of a manager using power for personal, wasteful or, ultimately, tyrannical ends. Thus, authority and responsibility are two sides of one and the same process; they are inseparable from each other and closely interrelated.

W o r t h y o f N o t e

Three types of organisational authority can be identified: 1) line authority, 2) staff authority, and 3) functional authority.

The terms line and staff describe the kinds of authority associated with certain positions in an organisation and exercised by those occupying these positions.

1) Line authority is the most fundamental type of authority within an organisation. It reflects the existing superior-subordinate relationship, which involves the right of a superior to give orders to a subordinate. Line authority is the right to make decisions and give orders concerning main organisational activities. Overall, line authority pertains to matters directly connected with the final product of a company, with the result being the attainment of organisational objectives.

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Line authority refers to the right of an executive to demand accountability from those persons under his or her supervision. Accountability implies that individuals are liable or accountable for how well they use their authority and perform predetermined activities. If such activities are not performed, some type of penalty or punishment will be forthcoming. However, some kind of reward will follow if predetermined activities are performed well. Line authority flows down from the chief executive to the first subordinate and then through each successive subordinate.

The line managers concentrate on the main processes of the organisation. So, line authority is derived from operational activities in a direct sense. In manufacturing, for example, these could be obtaining materials, production and distribution. In other words, the line functions contribute directly to accomplishing organisational objectives.

2)When a company grows in size and becomes more complex, there is a need for specialists. In such a case administrators organise staff departments and add staff specialists to do specific work. These people are usually busy with services; they are not tied in directly with the company product. The activities of the staff departments include, for example, accounting, personnel or human resource, credit and advertising. Generally, they do not give orders to other departments.

Consequently, staff authority is the right to advise or assist those who possess line authority and other staff personnel. Staff authority exists to enable those responsible for improving the effectiveness of line personnel to perform their required tasks. Members of the accounting and personnel departments, for example, have staff authority. Thus, staff authority is of an advisory character for the line; it facilitates the attainment of the major organisational objectives in an indirect manner. The notion of authority in the staff concept exists in the sense that those executives to whom the suggestions are made are expected to consider the advice very carefully, although compliance is not mandatory.

Obviously, line and staff personnel must work closely together to improve the efficiency and effectiveness of the organisation. Staff authority, however, does not demand accountability. Rather, it describes an advisory relationship between executives. The Vice-President, Research and Development, for example, may make suggestions to the Vice-President, Marketing, or the Vice-President, Finance, or to other executives.

3)Functional authority is sometimes called traditional or classical, because it was the first organising system to be studied and developed. It is still widely used by organisations that are not extremely large. Functional authority implies dividing organisations into units with distinct tasks and responsibilities as well as grouping workers according to the broad task they perform. The specific lines of division correspond to those activities which are most critical to the organisation.

The traditional functional departments of a business are production, marketing and finance. These are the broad activities or functions every business must perform to attain its objectives.

If the organisation or a given department is large, major departments can be subdivided functionally as well. These subdivisions are termed derivative departments. The essential idea is to make increased use of specialisation and keep spans of management reasonably small. One must be careful, however, that the departments do not become more concerned about subunit objectives than overall objectives. The concept of derivative departments is applicable to all systems of organisational design.

It is reasonable to conclude, then, that although authority can exist within an organisation in various forms, these forms should be used in whatever combination will best enable individuals to carry out their assigned responsibilities and thereby best help the organisation to accomplish its objectives. When trying to decide what authority combination is best for a particular organisation, the manager must keep in mind that the use of each type of authority naturally has both advantages and disadvantages. These advantages and disadvantages are set out in the table below.

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Text 3.3. Read the text about the principle of centralisation/ decentralisation and spell out the role of delegation in it.

Centralisation/Decentralisation Principle

Delegation

Delegation is the process of assigning job duties and related authority to specific organisation members. According to some scientists, there are three steps in the delegation process, any of which may be either observable or implied.

1)The first of the three steps is to assign specific duties to the individual. In all cases the manager must be sure that the subordinate has a clear understanding of what these duties entail. Whenever possible, the manager should take care to state the activities in operational terms so that a subordinate will know exactly what action must be taken to perform the assigned duties.

2)The second step of the delegation process is to grant appropriate authority to the subordinate. The subordinate must be given the right and power within the organisation to accomplish the assigned duties.

3)The last step of the delegation process is to create the obligation for the subordinate to perform the duties. The subordinate must be made aware that he/she has the responsibility to complete the duties that have been assigned to him/her and that he/she has accepted.

In practice delegation exists in most organisations, but in varying degrees. The problem of delegating authority involves balancing the advantages and disadvantages of decentralisation and centralisation of authority.

Centralisation versus Decentralisation

The terms centralisation and decentralisation are used to describe the general degree to which delegation exists within an organisation or the degree of authority that is given to various levels of management and to the divisions of an organisation. These terms can be visualised as being at opposite ends of a delegation continuum which ranges from complete centralisation to complete decentralisation. It is apparent that centralisation implies that minimal amounts of job activities and authority have been delegated to subordinates by management, while decentralisation implies that significant amounts have been delegated.

Worthy of Note

Centralisation refers to the level in the hierarchy at which decisions are made. In a centralised organisation, they are made by those near the top, whereas decentralisation means that authority passes to lower levels. The latter features less monitoring of employee decision-making and performance.

Measuring centralisation of an organisation is difficult because nowadays decentralisation is the fashion, the “buzz” word. Many claim its existence while behaviour shows otherwise. On the other hand, all firms are decentralised to some extent. But the degree of decentralisation depends upon the needs of the organisation and the philosophy of those who structure it.

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Decentralisation requires delegation of authority to make decisions. In fact, decision-making authority should be delegated to the lowest organisational level having the required competence and knowledge and consistent with organisational needs for coordination and control. This is easier said than done. Many executives find it extremely difficult to relinquish any authority for fear it will diminish their status in the firm. Moreover, some executives sincerely believe that lower level personnel simply are not capable of making the decisions that they should make. Given the required degree of competence, however, routine operational decisions are generally more appropriately made by those immediately responsible for the outcomes than by higher level executives whose positions separate them from the action.

It should be understood, of course, that delegation of authority does not relieve the executive of accountability for the actions of those to whom the delegation is made. But it does relieve the executive of the necessity of devoting time to a consideration of problems that could be handled effectively by someone else. More time is thus made available for dealing with major problems.

The possibilities for decentralisation vary from firm to firm and from time to time. Crisis, for example, leads to centralisation. Excellent companies have “loose-tight” characteristics. On the one hand, they have a simple structure, generally based on product divisions which also have great autonomy. These divisions have control over functions like product development, purchasing, finance, personnel, etc. On the other hand, the centre of these excellent companies – top management – provides “firm central direction”. It continually stresses the “core values” of the organisation, e.g. quality, need for innovation, service, informal communications, and so on. These central values provide the context within which staff can be creative and even take risks.

It is normal for people to like independence and to dislike control. The more educated staff are, the more they will want to make decisions and to have authority. However, it is not easy to have more decentralisation if the right staff are not available, because it is one thing to prescribe diversity, decentralisation and differentiation and it is another to manage it.

Advantages and Disadvantages of Centralisation

Generally speaking, the benefits of centralisation lie in gains in economic performance through administrative cost savings, taking advantages of economies of scale, avoiding wasteful conflict and competition among units, common policy for whole organisation, easier coordination and control, effective deployment of special resources and quicker decision-making.

Consequently, among arguments against cetralisation are wasteful administration, poor motivation, excessive rules and control as well as top-heavy headquarters. Moreover, cetralisation is thought to stifle initiative and prevent decision-making close to places of work.

Advantages of Decentralisation

Many organisations, large and small, choose to follow the policy of decentralisation of authority and enjoy its advantages.

1)The first advantage of decentralised authority is that it encourages managers to develop their decision-making ability and take essential training for promotion into positions of greater authority and responsibility. In the decentralised environment, they have to adapt to and deal with difficult decisions.

2)Such responsibilities lead directly into the second advantage of decentralised authority: its competitive climate. Managers must prove themselves if they are to advance; they can be readily compared with their peers on the basis of actual decision-making performance. And being evaluated on such criteria, rather than on personality, motivates managers to contribute and perform because advancement can be directly related to results.

3)The third advantage of decentralisation is that managers are able to exercise more autonomy, and this increases job depth and satisfies their desire to participate in problem solving. This freedom can lead to managerial creativity and ingenuity, which contribute to the flexibility and profitability of the organisation.

4)Another plus is that decentralisation helps to develop people because staff get more responsibility, make more decisions, and so gain experience for later managerial positions.

5)Moreover, unlike “tight” centralised structures, the “loose” decentralised ones are more flexible, better able to make quick decisions and adapt to change in the competitive environment.

Disadvantages of Decentralisation

Decentralisation also has some readily identifiable disadvantages.

1) First, decentralisation of authority usually requires more intensive and expensive management training. The initial cost of training is high because managers must often be retrained to make decisions. Even if additional training is not necessary, the cost increases because the organisation needs to employ more highly skilled individuals to handle the increased responsibilities.

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2)A second disadvantage is that decentralisation requires more sophisticated planning and reporting methods. Even though the authority is delegated, upper management cannot delegate its responsibility for achieving the organisation’s mission and objectives. Therefore, upper management must implement more extensive planning and reporting procedures when authority is decentralised. Consequently, the flow of information to upper management increases.

3)A third disadvantage is that top management may be unwilling or unable to delegate authority. These managers may equate authority with power and, therefore, view delegation as undermining their power and influence in the organisation.

A wise organisation will consider all aspects and effects of centralisation/decentralisation policies when taking a decision which is to introduce at a greater extent. For example, such activities as allocation of capital investment and R&D expenditure, design of information systems or purchasing of major items can be centralised, while such tasks as management of day-to-day operations, small-scale purchasing, sales or recruitment may be better decentralised.

Text 3.4. Read the text about the last two organising principles and outline their main ideas.

Specialisation and Coordination Principles

Specialisation

The most important consideration in dividing tasks is specialisation of labour. Work can be more efficient when employees specialise. They focus on a limited number of activities and hone their skills accordingly. Organisations develop around this principle.

The gains derived from specialisation of labour can be calculated in purely economic terms. On the one hand, as the job is divided into ever smaller elements, additional output is obtained but, on the other hand, more people and capital must be employed to do the smaller jobs. At some point, the costs of specialisation in labour and capital begin to outweigh the increased efficiency of specialisation or output, and the cost per unit of output begins to rise.

The problem of determining the appropriate degree of specialisation becomes more difficult as the task becomes more abstract. For example, managerial work is more abstract than blue-collar work. Managers do not produce tangible products that can be weighed or measured in some way. Managers seldom use tools or equipment. They get their work done by communicating, thinking and acting. Specialisation among blue-collars may lead to low motivation as workers carry out a single repetitive and boring job. Still, one must investigate the potential for gains due to specialisation.

W o r t h y o f N o t e

As with many other aspects, the problem concerns not whether specialisation is good or bad but finding its right pattern and degree.

Coordination

Coordination refers to the need for staff to act in unison and requires collaboration both within and between departments. Four basic methods can be distinguished to achieve coordination: line management, liaison staff, information systems and cross-functional teams.

1) Line management

Line managers, working within an appropriate hierarchical structure, are fundamental in achieving order. Design is based partly on seeing coordination as a critical responsibility of managers at each level.

2) Liaison staff

Coordination difficulties for line managers derive from complexity and the number of tasks to be linked. One solution is the appointment of liaison, or linking, staff who connect the work of several individuals or departments and are not attached to any of the manufacturing section. At a broader level, leading companies making ranges of consumer goods rely on product, or brand, managers to coordinate each line (see details in Reading II).

3) Information systems

Information systems enable transmission of vast quantities of information through and between organisations irrespective of hierarchical, departmental or geographical separation. Improved information systems help to share information and in this way support coordination that is vital to achieve synergies between units.

4) Cross-functional teams

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Cross-functional teams, known sometimes as task forces or working parties, work on problems involving several departments. They gather different perspectives and expertise. Task forces or working parties are either temporary or represented in the permanent structures of matrix organisations.

However, the problem with coordination is that, as departments become stronger, their staff develop loyalties to their immediate managers and colleagues. Barriers between departments increase and hinder the management of work flow across them.

Concept check

1.Why is the significance of the organising function growing? What is its essence?

2.Complete the chart with the five steps of the organising process.

3. Complete the chart with the two ingredients through which the organising function is implemented and explain them.

4.Draw a chart illustrating the key principles (and their elements) of establishing authority relationships.

5.Define and describe in detail the first element of the hierarchy principle – chain of command. Give examples of the scalar chain in organisations with different forms of public and private ownership.

6.Speak about the essence of bureaucracy as an element of the hierarchy principle.

7.Give the definition of authority as an aspect of the hierarchy principle and point out its three main features.

8.What is responsibility? What is the correlation between authority and responsibility?

9.What is the underlying message behind the concept of line authority?

10.What is accountability and how is it linked with the performance results?

11.Why do companies need staff positions? What are the main peculiarities of staff authority?

12.What is functional authority? Analyse its pros and cons in comparison with line and staff authority.

13.Draw three flow charts to illustrate line, staff and functional authority, and describe them.

14.Define the process of delegation and name its steps.

15.Summarise all advantages and disadvantages of centralisation/decentralisation in the table below. Get ready to justify your arguments.

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15.Why are superiors too sensitive to decentralisation?

16.Look back at Text 3.4 about specialisation and coordination as organising principles, and complete the sentences below.

1)Specialisation is … .

2)The main advantage of specialisation is … .

3)The economic disadvantage of specialisation might be … .

4)The difference of applying the specialisation principle to whiteand blue-collar workers consists in … .

5)Coordination can be defined as … .

6)Coordination in organisations can be hindered by … .

7)Methods to overcome barriers in coordinating organisational activities include: а) …

b)…

c)…

d)…

READING II

ORGANISING FUNCTION:

REPRESENTING ORGANISATIONAL STRUCTURES

Think ahead

Have you ever seen an organisation chart? Describe it. If no, can you imagine how it looks like? Discuss this with your partner.

Key concepts and terms

Match up the words on the left with the definitions on the right.

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Text 3.5. Read the text and clarify the necessity of finding an appropriate structure for organisations.

General Overview of Organisational Structures

Departments and Departmentalisation

The most common method of establishing formal relationships between resources in an organisation is by establishing departments. Basically, a department is a unique group of resources established by management to perform some organisational tasks. The process of establishing these departments within the management system is called departmentalisation. This process typically creates departments based upon such factors as the work functions being performed, the product being assembled, the territory being covered, the target customer and the process designed to manufacture a product.

Definition and Purpose of an Organisational Structure

A company organisation structure should aim at providing an efficient work system, a means of communication and satisfaction for the company personnel. First, in terms of efficiency, a business must try to maximise the output of goods and services which result from a given input of resources. This is possible only when a company structure functions smoothly. Second, the success of a company depends on a steady flow of full and correct information. Therefore, an appropriate communications system must exist to ensure that the right information reaches the right people. Finally, a well-defined organisation provides the means for individuals to assess their relations with others who work for the same company. In a system which is suitably organised, this should serve as the basis for job satisfaction.

Depending on the decisions of managers which concern dividing tasks, delegating authority and departmentalising jobs, organisational structures can vary quite considerably. Modern management theory is based on the principle that there is no one best structure; rather, the appropriate structure varies from situation to situation. The challenge to management is to design the appropriate structure.

Organisational structure means the relationship between positions and people who hold these positions. It is considered by many to be the anatomy of the organisation, providing a foundation within which the organisation functions. Thus, similar to the anatomy of a living organism, the structure of an organisation acts as a framework. The idea of structure as a framework focuses on the differentiation of positions, formulation of rules and procedures, and prescriptions of authority.

Organisation structures try to balance the need to specialise with the need to coordinate. Therefore, the organisational design both differentiates and integrates. Yet, many choices are available for splitting staff into departments. Within a department people have work that is more closely related than with that of members of other departments. The snag is that these links can be drawn in many ways, and change as new situations arise. Hence, there is the variety of functional, divisional, matrix and network structures that we shall examine later.

Organisation Chart/Organogram

Organisation charts or organograms describe organisational structures. They are useful in studying formal relationships and staff deployment between departments. Two dimensions of the chart are used to depict:

1)hierarchy – number of levels, chain of command and span of control; and

2)specialisation – division of tasks between managers and deciding who is responsible for linking their work at each level.

Span of control mentioned above is worth paying special attention to. It refers to the number of people who report directly to a manager. This span affects organisational design. A narrow span of control, in which two or three people report to a superior, results in a tall organisational structure as is shown below.

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