“Sound organization structure is an essential prerequisite of efficient management” – Discuss this statement and point out the various principles which should be followed in developing organization structure
Organization is the backbone of management. Without efficient organization, no management can perform its functions smoothly. Sound organization contributes greatly to the continuity and success of the enterprise. Once A. Carnegie, an American industrialist, said, “Take away our factories, take away our trade, our avenues of transportation, and our money. Leave nothing but our organization, and in four years we shall have re-established ourselves”.
That shows the significance of managerial skills and organization. However, good organization structure does not by itself produce good performance – just as a good constitution does not guarantee great presidents or good laws a moral society. But a poor organization structure makes good performance impossible, no matter how good the individuals may be. The right organizational structure is the necessary foundation; without it the best performance in all other areas of management will be ineffectual and frustrated.
CONCEPT OF ORGANISATION STRUCTURE
Organisation structure may be defined as the established pattern of relationships among the components of the organisation. Organisation structure in this sense refers to the network of relationships among individuals and positions in an organisation. Jennifer and Gareth have defined organisation structure as the formal system of task and reporting relationships that controls, coordinates and motivates employees so that they cooperate and work together to achieve an organisation’s goals. In fact organisation structure describes the organisation framework.
Just as human beings have skeletons that define their parameters, organisations have structures that define-theirs. It is like the architectural plan of a building. Just as the architect considers various factors like cost, space, special features needed etc. while designing a good structure, the managers too must look into factors like benefits of specialisation, communication problems, problems in creating authority levels etc., before designing the organisation structure.
The manager determines the work activities to get the job done, writes job descriptions, and organises people into groups and assigns them to superiors. He fixes goals and deadlines and establishes standards of performance. Operations are controlled through a reporting system. The whole structure takes the shape of a pyramid. The structural organisation implies the following things :
· The formal relationships with well-defined duties and responsibilities; · The hierarchical relationships between superior and subordinates within the organisation; · The tasks or activities assigned to different persons and the departments; · Coordination of the various tasks and activities;
· A set of policies, procedures, standards and methods of evaluation of performance which are formulated to guide the people and their activities.
The arrangement which is deliberately planned is the formal structure of organisation. But the actual operations and behaviour of people are not always governed by the formal structure of relations. Thus, the formal arrangement is often modified by social and psychological forces and the operating structure provides the basis of the organisation.
Sound organization is an essential prerequisite of efficient management. It helps an organization in the following ways: 1. Enlarges abilities: It helps individuals to enlarge their capabilities. Division of work enables an individual to specialize in the job in which he is proficient, leading to better utilization of resources and talents.
2. Facilitates administration: It facilitates administration by avoiding waste motions, overlapping work and duplication of effort. Departmentation enables proper planning of work. Confusion and misunderstanding, over who is to perform what work, is avoided by specifying the role of managers clearly. Proportionate and balanced emphasis is put on various activities.
3. Facilitates growth and diversification:Sound organization helps in keeping activities under constant vigil and control. The organization can undertake more activities without dislocation. Talents and resources are put to good use. Opportunities are seized quickly and exploited fully, which ultimately pave way for growth and diversification. 4. Permits optimum use of resources: Human, technical and material resources are put to good use. Right persons are given right jobs. There is proper allocation of work. People know that they are supposed to do, well in advance. Necessary functions are determined and assigned, so that personnel and physical facilities are utilized effectively. 5. Stimulates creativity. It offers stimulating opportunities to people at all levels, to use their skills on jobs best suited to their nature. Delegation helps people at lower levels to do more challenging work. The higher ups, in turn, can concentrate on strategic issues putting their creative abilities to good use.
6. Facilitates coordination: Organization is an important way of achieving coordination among different departments of an enterprise. Clear authority relationships and proper assignment of work facilitates the task of achieving coordination at all levels. Poor organization leads to improper arrangement of duties and responsibilities. As a result, unimportant and trivial issues are given top priority. Activities that should be integrated or centralized are spread out and put to improper supervision.
Incompetent individuals are overused while talented people are under utilized. Delays, duplications and waste motions occur with frustrating regularity. Expenses mount up. These would create utter confusion, chaos and conflict. Poor organization may mean improper arrangement of facilities and failure to achieve goals of objectives, management thinkers have laid down certain statements from time to time, from certain generally accepted understandings, which may be called the principles of organization. The principles are guidelines for planning an efficient organization structure. Therefore, a thorough understanding of the principles of organization is essential for good organization.
The important principles of organization
1. Consideration of Objectives. An enterprise strives to accomplish certain objectives. Organization serves as a tool to attain these objectives. The objectives must be stated in clear terms as they play an important role in determining the type of structure, which should be developed. The principle of consideration of objectives states that only after the objectives have been stated, an organization structure should be developed to achieve them.
2. Division of Work and Specialization. The entire work in the organization should be divided into various parts so that every individual is confined to the performance of a single job, as far as possible, according to his ability and aptitudes. This is also called the principle of specialization. More a person continues on a particular job, the better will be his performance.
3. Definition of Jobs. Every position in the organization should be clearly defined in relation to other positions in the organization. The duties and responsibilities assigned to every position and its relationship with other positions should be clearly defined so that there may not be any overlapping of functions.
4. Separation of Line and Staff Functions. Whenever possible, line functions should be separated from staff activities. Line functions are those, which accomplish the main objectives of the company. In many manufacturing companies, the manufacturing and marketing departments are considered to be accomplishing the main objectives of the business and so are called the line functions and other functions like personnel, plant maintenance, financing and legal are considered as staff functions.
5. Chain of Command. There must be clear lines of authority running from the top to the bottom of the organization. Authority is the right to decide, direct and coordinate. The organization structure should facilitate delegation of authority. Clarity is achieved through delegation by steps or levels from the top position to the operating level. From the chief executive, a line of authority may proceed to departmental managers, to supervisors or foremen and finally to workers. This chain of command is also known as scalar principle of organization.
6. Parity of Authority and Responsibility. Responsibility should always be coupled with corresponding authority. Each subordinate must have sufficient authority to discharge the responsibility entrusted to him. This principle suggests that if a plant manager in a multi-plant organization is held accountable for all activities in his plant, he should not be subject to orders from company headquarters specifying the quantity of raw materials he should buy or from whom he should purchase raw materials. If a supervisor is responsible for the quality of work of his department, he should not be asked to accept as a member of his workforce an employee who has been hired without consulting him.
7. Unity of Command. No one in the organization should report to more than one supervisor. Everyone in the organization should know to whom he reports and who reports to him. Stated simply, everyone should have only one boss. Receiving directions from several supervisors may result in confusion, chaos, conflicts and lack of action. So each member of the organization should receive directions from and report to one superior only. This will avoid conflict of command and help in fixing responsibilities.
8. Exceptional Matters. This principle requires that organization structure should be so designed that managers are required to go through the exceptional matters only. The subordinates should take all the routine decisions, whereas problems involving unusual matters and policy decisions should be referred to higher levels.
9. Span of Supervision. The span of supervision means the number of persons a manager or a supervisor can direct. If too less number of employees are reporting to a supervisor, his time will not be utilized properly. But, on the other hand, there is a limit to the number of subordinates that can be efficiently supervised by an executive. Both these points should be kept in mind while grouping and allocating the activities to various departments. It is difficult to give a definite number of persons a manager can direct. It will depend upon the nature of the work and a number of other factors.
10. Balance of Various Factors. There should be proper balance in the formal structure of the organization in regard to factors having conflicting claims, e.g., between centralization and decentralization, span of supervision and lines of communication and authority allocated to departments and personnel at various levels.
11. Communication. A good communication network is essential to achieve the objectives of an organization. No doubt the line of authority provides readymade channels of communication downward and upward, still some blocks in communication occur in many organizations. The confidence of the superior in his subordinates and two-way communication are the factors that unite an organization into an effectively operating system.
12. Flexibility. The organization structure should be flexible so that it can be easily and economically adapted to the changes in the nature of business as well as technical innovations. Flexibility of organization structure ensures the ability to change with the environment before something serious may occur. So the organization structure should be such that it permits expansion and contraction without disrupting the basic activities.
13. Continuity. Change is the law of nature. Many changes take place outside the organization. These changes must be reflected in the organization. For this, the form of organization structure must be able to serve the enterprise and to attain its objectives for a long period of time.
Types of Organizational Structure in Management
Small companies can use a variety of organizational structures. However, a small company’s organization structure must be designed to effectively meet its goals and objectives, according to the Lamar University article titled “Organizational Structure” on its website. Types of organizational structure in management can include flat structures as well as functional, product and geographical-structured organizations.
Flat Organizational Structure
Many small companies use a flat organizational structure, where very few levels of management separate executives from analysts, secretaries and lower-level employees. Flat organizations work best when a company has less than 20 employees, especially if the company employs one or two employees per department. One advantage of using a flat organizational structure for management is that decisions can be made relatively quickly. The flat organizational lacks the typical bureaucracy of taller organizational structures–those with many levels of management.
Functional Organizational Structure
A functional organizational structure is centered on job functions, such as marketing, research and development and finance. Small companies should use a functional organization when they want to arrange their organizational structure by department. For example, a small company may have a director, two managers and two analysts in the marketing department. The director would likely report to the Chief Executive Officer, or CEO, and both managers would report to the director. In addition, each manager may have an analyst reporting to them. A functional organizational structure works well when small companies are heavily project-focused. Directors can assign certain projects to managers, who can then divvy up tasks with their analysts. The department can then more effectively meet their project deadlines.
Product Organzational Structure
A product organizational structure has managers reporting to the president or head of the company by product type. Product organizational structures are primarily used by retail companies that have stores in various cities. However, stores in each city may still need a local human resources or marketing department to carry out functions locally. For example, a small department store company may have a vice president of sporting goods, housewares and general merchandise at the corporate office. One manager may report to each vice president. However, each manager may oversee the work of one or more field marketing employees who travel and handle local marketing stores in several states. These field marketing employees may work for the sporting goods manager one week in League City, Texas, then do merchandising for the housewares manager another week in the Sugarland, Texas, market.
Geographical Organizational Structure
The Small Business Administration is responsible for defining small businesses in different industries. For example, in manufacturing, the SBA usually considers a company with 500 or fewer employees a small business. Point is, small businesses are still large enough to use a geographical organizational structure. A geographical organizational structure is when companies decentralize the functional areas.
For example, unlike the product organizational structure, there may be a local marketing, finance, accounting and research development person based in each region. For example, a small consumer products food company may be large enough to place a marketing research manager and analyst in each of six different regions. This can be important because consumers in various areas have different tastes. Hence, a geographical structure will enable the company to better serve the local market.
The study of organisational structure is necessary to understand organisational effectiveness. In simple terms better the structure of an organisation more effective would be the organisation and vice versa. You must be aware that some organisations perform better and grow more rapidly than other. On the extreme side some organisations perform badly and within a short period of time go out of business.
Determinants of Organisational Effectiveness
Several factors influence the organisational effectiveness
Managerial Policies and Practices
Managerial policies and practices integrate the entire organisation, maintain balance among the interest groups in the organisation, and accommodate them with the external environment. Managerial policies and practices have a direct bearing on the Organisational effectiveness. The major managerial policies and practices are as follow : Strategy: A strategy is a plan for interacting with the competitive environment to achieve organizational goals. Goals define where does the organisation want to go and strategies define how will the organization reach there. In other words, strategy is the determination of basic long term goals of the organisation, the adoption of the courses of action and the allocation of resources necessary to achieve them. The strategy is the most important factor of an organisation which decides the future course of action for the organisation. New strategy is often selected based upon environmental needs, and then the top management attempts to redesign the organisation to achieve those ends. Strategy: A strategy is a plan for interacting with the competitive environment to achieve organizational goals.
Goals define where does the organisation want to go and strategies define how will the organization reach there. In other words, strategy is the determination of basic long term goals of the organisation, the adoption of the courses of action and the allocation of resources necessary to achieve them. The strategy is the most important factor of an organisation which decides the future course of action for the organisation. New strategy is often selected based upon environmental needs, and then the top management attempts to redesign the organisation to achieve those ends. Decision-making: Decision-making is choosing among alternatives. It has close relationship with all traditional management functions. The decision that management makes has a profound impact on the success of an organisation.
Rewards: Organisational success to a large extent depends on how is management able to gain support of its team by way of compensating them for the efforts they are making for the achievement of organizational goals. It is primarily meant to sustain employee morale and improve or maintain productivity. Communication: It is the linkages among members of the organisation whereby they exchange information. The organisational structure has to provide for a perfect communication among different members of the organisation. Organisational communication is the grease that enables any organisational change.
Organisational effectiveness is influenced to a great degree by the external environmental characteristics. It is dependent on how is the external environment predictable, complex and hostile to the organisation and its activity. The major characteristics are as follow : Predictability: Predictability refers to how certain or uncertain an organisation may be towards supply of various resources; human, raw material etc. It is an element of external environment. Complexity: Environment complexity refers to the heterogeneity and range of activities which are relevant to an organisation’s operations. How many diverse groups from external environment the organisations have to deal with. Hostility: A hostile environment is one in which the underpinning of the organisation is threatened. How is an organisation viewed by the people at large. You may recall the case of Union Carbide after the Bhopal gas leakage about the hostility of environment
The characteristics of the human resource could make or break an organisation. It is employee characteristics, which is reflected in the success or failure of an organisation. The major characteristics are as follow : Goals: Goals define where the organisation wants to go. Goals are intentions that an individual or an organisation would like to achieve in the course of their working. Goals provide a directional nature to people’s behaviour and guide their thoughts and actions. Skills: Skill is the ability to engage in a set of behaviour that are functionally related to one another and that lead to a desired performance in a given area. The skill can be technical, managerial, behavioural etc.
Motives: A motive is an inner state of a person that energizes activates, or moves and directs towards the achievement of a pre defined goal. The motivated employees have high motives to perform better and achieve the targets. Attitudes: Attitudes are evaluative statements- either favourable or unfavourable concerning objects, events, or people. Attitudes influence job behaviour and hence organisational effectiveness. Values: Values represent basic convictions or a specific mode of conduct. It generally influences an individual’s attitude and behaviour. The value that a person holds influences his or her motivation and subsequently behaviour.
Organisational characteristics refer to the general conditions that exist within an organisation. Various organisational characteristics influence organisational effectiveness. The major characteristics are as follow: Structure: An organisational structure defines how are job tasks formally divided, grouped and coordinated. For organisational effectiveness, six elements need to be addressed while designing organisational structure. These are: work specialisation, departmentation, chain of command, span of control, centralisation and decentralisation, and formalization. Technology: The term technology refers to how does an organisation transfer its inputs into outputs.
Every organisation has at least one technology for converting financial, human and physical resources into products or services. The choice of technology and its use influences organisational effectiveness. Size: In a narrow sense organisational size refers to the number of people in an organisation. But, if we take a broader view, size refers to the physical capacity of the organisation, the personnel available to the organisation, the organisational inputs or outputs and the discretionary resources available to an organisation. It is the size which influences the structure which in turn influences organisational effectiveness.
Benefits of organisational effectiveness:
· Structures and behaviours are aligned with business needs. · Disruption to business is minimised which reduces operational risk. · Employee morale is sustained which maintains productivity. · The right employees and talent are retained.
· Employees objectives and rewards are aligned to business goals.
Organisation structure refers to the grouping of activities and establishing pattern of relationship among the various parts of the organisation. It involves the assignment of tasks, establishment of hierarchical relationship, creation of policies, procedures, coordination and control of all activities in the organisation. The Organisational designs are dependent on a wide variety of factors; namely the management philosophy, the size of the organisation, the type of technology, and the external environmental factors.
Therefore, there cannot be tailor-made solutions for all organisations. The ultimate aim for the organisation is to be effective and organisational structure is a tool in the attainment of organisational objectives. The components of organisational effectiveness are managerial policies and practices, employee characteristics, organizational characteristics and the environmental characteristics. Organizational structure is what ensures that your organization will function smoothly and as you intended. You should think about structure early in the development of your organization, but be aware that the type that fits best may change as your organization grows.