Organization / various steps involved in the Organization Process
Organising is that managerial process which seeks to define the role of each individual (manager and operator) towards the attainment of enterprise objectives; with due regard to establishing authority-responsibility relationships among all; and providing for co-ordination in the enterprise as an in-built device for obtaining harmonious groups action.
Following are some popular definitions of organizing:
1. “Organising is the establishment of authority relationships with provisions for co-ordination between them, both vertically and horizontally in the enterprise structure”. -Koontz and O’Donnell
2. “Organising is the process of identifying and grouping the work to be performed, defining and delegating the responsibility and authority and establishing a pattern of relationship for the purpose of enabling people work most effectively to accomplish the objective”. – Louis A. Allen.
As a function of management, organizing is a process; broadly consisting of the following steps:
(1) Determination of the Total Work-Load: The very first step in the process of organizing is to make a determination of all the activities which are necessary to be undertaken for the attainment of the enterprise objectives. This step of organizing is, in fact, nothing but an estimation of the total work-load that must be done for realizing objectives.
(ii) Grouping and Sub-Grouping of Activities i.e. Creation of Departmentation : Total activities determined for achieving enterprises objectives must be classified i.e. putting similar or related activities at one place in the form of a group or sub-group. This step of organizing directly leads to the process of creating departments. If an enterprise is compared to a building, the creation of departments within it would amount to construction of rooms within the building each room meant for a specified special purpose.
(iii) Creation of Manager-Ship through Delegation of Authority: After the scheme of departmentation is finalized; the next step in the process of organizing would be to entrust the responsibility for the functioning of each department to a distinct manager. Creation of manager-ship, in this manner, requires a requisite delegation of authority to each manager to enable the manager to take care of the job assigned to him.
(iv) Division of Work within the Departmental Set-Up-Human Organization: Since no single individual can undertake the performance of the whole of the work assigned to one department; it becomes necessary to resort to division of work-assigning to each person only one part of the total job. As a result to undertaking division of work for all departments; there emerges a human organization within the enterprise.
(v) Arrangement of Physical Facilities to Personnel within the Departmental Set-Up-Material Organisation : Each individual of the enterprise, working in whatever capacity, in any department, must need the basic physical facilities-raw materials, machines and tools, technology and other inputs-for the proper execution of the assigned task. When physical facilities are made available to all personnel in all departments; there emerges a material organization (or a physical-technical organization) within the enterprise.
(vi) Definition and Establishment of Authority-Responsibility Relationships : Having created manager-ship and a human organization within the enterprise; it becomes necessary to devise a system which provides for defining and establishing authority-responsibility relationships among all personnel-managers and operators. As a matter of fact, such relationships must be defined and established throughout the enterprise both-horizontally and vertically.
Process of organising Leading to the Emergence of an Organisational Structure
Some of the note-worthy comments on the above description of the managerial function of organizing are as follows:
(a) As a result of undertaking the process of organizing, there emerges a structure, called the organisational structure (or simply the organisation). In fact, organizing is a managerial process; an organization is the outcome of it.
(b) While designing the organizational structure, the management must plan and provide for co-ordination throughout the organization both, horizontally and vertically. In fact, co-ordination is an in-built device for ensuring harmonious, effective and economical organizational functioning.
(e) The question of a rightful compromise between centralization and decentralization of authority must also be settled, at least initially, at the organization-processing stage. In fact, while delegating authority to departmental heads and subordinate managers at middle and lower levels of the organization, the top management should decide about the issue, as to whether to equip small managers with more of decision making powers or less of it.
Principles of Organisation : Principles of organization, for sake of clarity of discussion and a better comprehension of these, have been classified in the following manner:
(1) Overall Principles- (i) Principle of unity of objective, (ii)Principle of simplicity. (iii)Principle of flexibility.
(II) Structural Principles-(iv)Principle of division of work, (v)Principle of functional definition, (vi)Principle of optimum departmentation, (vii) Principle of unity of direction, (viii) Span of management principle.
(III) Operational Principles- (ix) Principle of adequate delegation, (x) Scalar chain principle, (xi) Principle of unity of comment, (xii) Authority level principle.
Following is a brief comment on each of the above-stated principles of organisation under appropriate categories:
(1) Overall Principles : Under this classification, some of the very fundamental principles of organization are included i.e. principles which are absolutely essential for an effective and logical functioning of the organization.
A brief explanation of the principles under this category is as follows: (i) Principle of unity of objective: Very simply stated, this principle requires that individual and departmental objectives throughout the enterprise must be perfectly harmonized; and that all objectives must be mutually supportive and collectively contributing to overall common objectives.
(ii) Principle of simplicity: The observance of this principle requires that the management must, as far as possible, design a simple organizational structure. A simple structure facilitates a better understanding of superior subordinate relationships; and provides background for better co-operation among people.
(iii) Principle of flexibility: While designing the organizational structure, the management must provide for in-built devices within the structure itself; which would facilitate changes in the organizational structure to be effected as and when environmental factors-internal and/or external- so demand.
(2) Structural Principles : Structural principles of organization relate to those aspects of the organization, which have a bearing on the structuring (or the development) of the organization; its fundamental design and shape.
Some of the important principles, in this context, might be the following ones:
(iv) Principle of division of work: Since the total work of the enterprise cannot be performed by only one person; it is imperative that such work must be suitably divided among a number of persons. In fact, the total managerial work ought to be divided among a number of managers; and the total operational work being divided among a number of operating personnel.
(v) Principles of functional definition: The above stated principle implies that the role (or job) of each individual and of each department of the enterprise must be suitably defined, in terms of the-work content, the authority and facilities required for job performance and the relationship of the job with those of others, in the enterprise.
(vi) Principle of optimum departmentation: There are many ways and bases for creating departments within an organization. According to the principle of optimum departmentation, departments in an organization must be so created and maintained-as to facilitate the best attainment of the common objectives of the enterprise.
(vii) Principle of unity of direction: The principle implies that each group of activities having the same objective must have only one head and only one overall or master plan. As a principle of organization, this concept of unity of direction must be so embedded in designing the organizational structure that for each group of similar activities, there is a provision for only one overall head-having authority over all personnel performing the same function, anywhere, in the organization.
(viii) Span of management principle: The span of management principle is variously called as- the span of control or the span of supervision. However, the phrase “span of management is the widest; including also the notions of span of control and span of supervision. The span of management principle implies that there is a limit to the number of subordinates; whose work could be effectively managed (controlled or supervised) by a superior.
Certain useful observations in the context of span of management principle could be made as under:
(a) There is a limit only to effective management; for ineffective or inefficient management, well, there is no limit. Hence, span of management principle is valid, only in the context of effective management. An example would illustrate the significance of this idea.
For example, in school or college class-room, the number of students must be limited; as no teacher, howsoever competent, could effectively impart learning to an indefinite number of pupils.
As against this situation, take the case of a public speaker who could well address a giant gathering of audience; for therein, it does not matter whether and how far the audience is receptive to the speech of the speaker or how effective is the process of communication between the speaker and the audience. In this latter case, span of management principle is neither valid nor applicable.
(b) What exactly is or must be the number of subordinate’s less than one superior cannot be asserted with precision or certainty as the span of management principle is situational. There is no hard and fast number of subordinates which would determine an optimum span of management under all managerial situations. Among other factors, the competence of the superior and the abilities, skills and requirements of subordinate, are the most dominating factors- likely to determine span of management, in a particular managerial situation.
(c) Span of management principle explains the raison d’eter for the structure of the organization; in case otherwise, a single manager might be in a position to handle and manage the work of all the subordinates; and there would not be any need for a structured organizational structure.
(d) Span of management principle has must to do with the shape of the organizational structure; i.e. whether it would be a tall or a flat-organisational structure. This is the notion implied behind the concepts of narrow vs. wide spans of management. A narrow span of management is one where a superior can handle rather a smaller number of subordinates; while in a wide span of management, the number of subordinates is ‘larger than manageable under a narrow span of management..
Accordingly, a narrow span of management would result in a somewhat taller shape of the organization; and a wide span of management would lead to a comparatively ‘flat’ organization structure. Let us take a hypothetical example to illustrate how a ‘tall’ or a ‘flat’ organization structure would shape out-depending on whether it is a narrow or a wide span of management.
Suppose in an enterprise there are 10 subordinates to managed by the management. Further suppose the span of management is also 10. In this situation, only manager would be required to handle and manage the work of all the ten subordinates.
The organizational structure would appear as follows: Organizational Structure: Now, suppose the span of management is only 5. In this case, the manager would be aided by two assistant managers; and controlling 10 subordinates via two assistants-each assistant manager managing the work of 5 subordinates.
The organizational structure in this case would look like somewhat taller than its counterpart under wide span; and will have more layers of the organization. The following chart illustrates this concept.
Organizational Structure: Without going into the details of the discussion, it would suffice to say that the shape of the organizational structure-tall or flat-has implications for organizational efficiency on grounds of costs of administration, effectiveness of communication and facilities in co-ordination.
(3) Operational Principles : Operational principles of organization could be suggested to be those which have a bearing on the running or functioning of the organization.
Some important principles, under this category, are as follows:
(ix) Principle of adequate delegation: By the principle of adequate delegation, we mean that each managerial position be provided with adequate (or necessary or requisite) authority-to enable the holder of the position i.e. the manager to cope successfully with the requirements of his job.
(x) Scalar chain principle: Scalar chain implies a chain of superiors ranging from the highest rank to the lowest rank-in an organization. The scalar chain forms the base of authority-responsibility relationships among managers and subordinates, in the organisation; thus promoting mutual understanding among superiors and subordinates at different levels of the organization.
As a principle of organization, scalar chain principle requires its incorporation into the design of the organisation, for ensuring smooth running of the enterprise life.
(xi) Principle of unity of command: The above-sated principle implies that an employee must receive orders and instructions, only from one superior, at a time. The observance of this principle is desirable for reasons of removing doubts and confusions from the mind of the employees; and for facilitating exact fixation of responsibility on individuals for the results expected of them.
(xii) Authority-level principle: The authority-level principle implies that managers at particular levels in the management hierarchy must decide only those matters which fall within the purview of the authority vested in their managerial positions.
A natural extension of this principle is that if a manager at any level of the management hierarchy comes across a matter not covered by his authority, the matter must either be referred upwards in the hierarchy or pushed down the hierarchy at the appropriate level for decision.
Importance (or Advantages) of Organisation Process
The importance of organization could be highlighted by reference to the role it plays in the enterprise life, considered in the following analytical manner:
Basic role of the organization (1) Other aspects of role
Let us consider the roles of the organization as planned above:
Basic Role of the Organization: The basic role of the organisation could be expressed by comparing it to a vehicle, which is devised and designed for the attainment of the enterprise objectives.
Just as with the help of a vehicle a person is enabled to reach up to his/ her destination, in a similar manner, a group of persons (comprised in the enterprise) is made in a position to reach their destination i.e. the attainment of common objectives via the vehicle of the organisation.
In fact, for the attainment of enterprise objectives, action on the part of individuals, comprised in a group activity, is necessary; and undertaking such action is facilitated in a planned and systematic manager by the organizational structure, i.e. the organisation.
Basic Role of the Organization
(II) Other Aspects of the Role:
Some important aspects of the role of the organisation could be stated as follows:
(1) Facilitates specialization: An organisation exists basically to take care of and implement the division of work of various types-among managers, subordinates and operators. Such division of work, leading to specialization in various spheres, is instrumental in bringing about increased human efficiency in the organization functioning.
Point of comment : Division of work, not only enables an enterprise to take advantages of specialization, in managerial and operational work; it also makes for order and system, in the functioning of the organisation.
(ii) Avoids omissions, overlapping and duplication of efforts : While dividing work among departments and individuals, during the process of organizing, care is exercised by management to see that:
(a) No part of work, necessary for attainment of objectives, is lost sight of
(b) There is no overlapping or duplication of activities and efforts. while assigning work to individuals and departments.
That way, the organisation leads to an economical, effective and efficient functioning of the enterprise.
(iii) Defines (or clarifies) authority responsibility relationships: An organizational structure defines and clarifies, authority responsibility. relationships among managers and subordinates in the enterprise all through horizontally and vertically. Such clarification of authority responsibility. relationships not only means a smooth functioning of the organizational life; but also promotes good human relations, in the organisation through facilitating mutual understanding of one another.
(iv) Facilitates staffing: The organizational structure is a great aid to efficient staffing. It, by clearly defining various organizational positions managerial and operational, not only points out to the need for appropriate personnel who must man these positions; but also specifies the requirements to be sought after in various personnel in terms of the abilities and skills needed to perform those jobs.
A well-defined organizational structure facilitates personnel development, specially of managers, by allowing job-rotation system. Top management can resort to job-rotational technique, as the requirements of jobs defined in the structure indicate the possibility or otherwise for taking an appropriate decision on matters of shifting among different positions.
(v) Provides for co-ordination: An organisation facilitates co ordination; as the latter is provided for in the structure of organisation as an in-built device. Needless to say, that a well-designed and defined organizational structure provides for thorough co-ordination-horizontally and vertically; and enables management to relish the essence of manager ship and take the enterprise to the heights of success.
(vi) Establishes channels of communication: Communication among the personnel in the enterprise is not only the basis of the operational life of the organisation; but also is instrumental in fostering good human relations through creating a base for mutual understanding. An organizational structure helps to establish various channels of communication; relating people to one another through the scalar chain and other organizational links.
But for the organisation, communication could only be casual, erratic and least authentic or there could be a situation of an absolute communication gap.
(vii) Facilitates ‘Management by Exception’: Management by exception is a philosophy in which the top management would concentrate only on exceptional or critical matters (like strategy formulation, policy-making, controlling significant deviations in performance by personnel etc.); leaving the rest of routine and operational matters to subordinates throughout the enterprise.
Such a system of management i.e. management by exception could not be initiated and installed in the enterprise, just casually or all of a sudden; rather a sound organizational structure paves the Way and creates an environment for the introduction of this philosophy in a gradual and systematic manner. As a matter of fact, management by exception is noting, but the highest state of decentralization of authority; and the latter could be provided for while designing and structuring the organisation.
(viii) Copes with environmental changes : Environmental changes being reflected in conditions like-super fast changing technology, accentuating competition, emerging latest social and cultural values, extending State regulation of trade and industry etc. are well taken care of by a sound organisation.
The organisation could, of course, face such challenges by resorting to changes in the systems of management styles, reorganization of departments, providing facilities for research and development and effecting improvements in the operational life and undertaking other like measures.
(ix) Leads to growth and expansion: A sound organisation leads an enterprise along growth lines. Growth and expansion of the enterprise, which is imperative even for survival in a highly dynamic economy is much facilitated by the organisation through- creating more departments, enlarging existing departments, widening span of management, providing for better and more effective co-ordination and communication devices and all this taking place within the existing system, structure and functioning of the enterprise.
(x) Produces synergism: A sound organisation through ensuring effective integration of departmental functioning helps the enterprise to take advantage of the synergy feature of the business system. The more compact and responsible is the organizational structure; the more would be the advantages of the synergy effect.
Forms of Business Organization
There are various types or forms of business organization process.
(1) Sole Proprietorship: The vast majority of small businesses start out as sole proprietorships. These firms are owned by one person, usually the individual who has day-to-day responsibility for running the business. Sole proprietorships own all the assets of the business and the profits generated by it. They also assume complete responsibility for any of its liabilities or debts. In the eyes of the law and the public, you are one in the same with the business.
Advantages of a Sole Proprietorship
(i) Easiest and least expensive form of ownership to organize.
(ii) Sole proprietors are in complete control, and within the parameters of the law, may make decisions as they see fit.
(iii) Profits from the business flow-through directly to the owner’s per sonal tax return.
(iv) The business is easy to dissolve, if desired.
Disadvantages of a Sole Proprietorship
(i) Sole proprietors have unlimited liability and are legally responsible for all debts against the business. Their business and personal assets are at risk.
(ii) May be at a disadvantage in raising funds and are often limited to using funds from personal savings or consumer loans.
(iii) May have a hard time attracting high-caliber employees, or those that are motivated by the opportunity to own a part of the business.
(iv) Some employee benefits such as owner’s medical insurance premiums are not directly deductible from business income (only partially as an adjustment to income).
(2) Partnerships: In a Partnership, two or more people share owner ship of a single business. Like proprietorships, the law does not distin guish between the business and its owners. The Partners should have a legal agreement that sets forth how decisions will be made, profits will be shared, disputes will be resolved, how future partners will be admitted to the partnership, how partners can be bought out, or what steps will be taken to dissolve the partnership when needed; Yes, its hard to think about a “break-up” when the business is just getting started, but many partner ships split up at crisis times and unless there is a defined process, there will be even greater problems. They also must decide up front how much time and capital each will contribute, etc.
Advantages of a Partnership
(1) Partnerships are relatively easy to establish; however time should be invested in developing the partnership agreement.
(ii) With more than one owner, the ability to raise funds may be in creased.
(iii) The profits from the business flow directly through to the partners’ personal tax return.
(iv) Prospective employees may be attracted to the business if given the incentive to become a partner.
(v) The business usually will benefit from partners who have complementary skills.
Disadvantages of a Partnership
(i) Partners are jointly and individually liable for the actions of the other partners.
(ii) Profits must be shared with others.
(iii) Since decisions are shared, disagreements can occur.
(iv) Some employee benefits are not deductible from business income on tax returns.
(v) The partnership may have a limited life; it may end upon the with drawal or death of a partner.
Types of Partnerships that should be considered:
1. General Partnership : Partners divide responsibility for manage ment and liability, as well as the shares of profit or loss according to their internal agreement. Equal shares are assumed unless there is a written agreement that states differently.
2. Limited Partnership and Partnership with limited liability: “Lim ited” means that most of the partners have limited liability (to the extent of their investment) as well as limited input regarding management decision, which genrally encourages investors for short term projects, or for invest ing in cap.cal assets. This form of ownership is not often used for operating retail or service businesses. Forming a limited partnership is more complex and formal than that of a general partnership.
3. Joint Venture : Acts like a general partnership, but is clearly for a limited period of time or a single project. If the partners in a joint venture repeat the activity, they will be recognized as an ongoing partnership and will have to file as such, and distribute accumulated partnership assets upon dissolution of the entity.
(3) Corporations: A Corporation, chartered by the state in which it is headquartered, is considered by law to be a unique entity, separate and apart from those who own it. A Corporation can be taxed; it can be sued; it can enter into contractual agreements. The owners of a corporation are its shareholders. The shareholders elect a board of directors to oversee the major policies and decisions. The corporation has a life of its own and does not dissolve when ownership changes.
Advantages of a Corporation
(i) Shareholders have limited liability for the corporation’s debts or judgments against the corporation.
(ii) Generally, shareholders can only be held accountable for their investment in stock of the company. (Note however, that officers can be held personally liable for their actions, such as the failure to withhold and pay employment taxes.
(iii) Corporations can raise additional funds through the sale of stock.
(iv) A Corporation may deduct the cost of benefits it provides to officers and employees.
(v) Can elect S Corporation status if certain requirements are met. This election enables company to be taxed similar to a partnership.
Disadvantages of a Corporation
(i) The process of incorporation requires more time and money than other forms of organization.
(ii) Corporations are monitored by federal, state and some local agencies, and as a result may have more paperwork to comply with regulations.
(iii) Incorporating may result in higher overall taxes. Dividends paid to shareholders are not deductible from business income; thus this in come can be taxed twice.
