THE INSTITUTE OF FINANCE MANAGEMENT

MSD 06202 - FUNDAMENTALS OF MANAGEMENT

TOPIC 5: ORGANIZING FUNCTION

5.1. Meaning and scope of organizing

The term 'Organization' is used in Management in two different ways as a structure and as a
process.

Organization as a structure refers to the network of relationships among jobs and positions in an
enterprise. It is a structural framework/ skeleton within which the efforts of different people are
coordinated and related to each other.

Organization as a process refers to one of the important function of management which involves
determining, arranging, grouping and assigning the activities to be performed for the attainments of
organizational objectives.

Organizing, like planning, must be a carefully worked out and applied process. This process
involves determining what work is needed to accomplish the goal, assigning those tasks to
individuals, and arranging those individuals in a decision-making framework (organizational
structure).

THUS

 Organizing is the process of the process of defining and grouping activities of the enterprise
and establishing the authority relationship among them.
 Organizing involves identifying the work to be done, dividing work and coordinating efforts to
accomplish goals
 If organizing process is not conducted well, the results may yield confusion, frustration, loss of
efficiency, and limited effectiveness.
 The end result of the organizing process is an organization - a whole consisting of unified parts
acting in harmony to execute tasks to achieve goals, both effectively and efficiently

The purpose of organizing is to;-

Divides works to be done into specific jobs and departments

Assigns tasks and responsibilities associated with individual jobs
Coordinate diverse organizational tasks
Cluster (grouping) jobs into units
Establish relationship among individuals, groups and departments
Establishes formal line authority
Allocate and deploy organizational resources

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5.2. Steps in organizing process
A properly implemented organizing process should result in a work environment where all team
members are aware of their responsibilities.

In general, the organizational process consists of five steps

i. Review plans and objectives.

Objectives are the specific activities that must be completed to achieve goals. Plans shape the
activities needed to reach those goals. Managers must examine plans initially and continue to do so
as plans change and new goals are developed.

ii. Determine the work activities necessary to accomplish objectives.

The activities necessary to accomplish objectives are to be determined. Although this task may seem
overwhelming to some managers, it doesn't need to be, Managers simply list and analyze all the
tasks that need to be accomplished in order to reach organizational goals.

iii. Classify and group the necessary work activities into manageable units.

Closely related and similar activities are grouped together to form departments, divisions and or
sections. A manager can group activities based on four models of departmentalization: functional,
geographical, product, and customer.

iv. Assign activities and delegate authority.

Managers assign the defined work activities to specific individuals based on experience knowledge
and ability to carry out the activity effectively. Also, they give each individual the authority (right)
to carry out the assigned tasks.

v. Design a hierarchy of relationships.

A manager should determine the vertical (decision-making) and horizontal (coordinating)

relationships of the organization as a whole so that people knows their boundaries and positions.
Next, using the organizational chart, a manager should diagram the relationships.

Review plan and Identification of Grouping of activities

objectives Activities

Design a hierarchy of Assigning of duties &

Authority delegation of authority

Figure 1 The organizational process.

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5.3. An overview of concepts connected to organizational structure

A. Organizational structure

The typically hierarchical arrangement of lines of authority, communications, rights and duties of an
organization.

Organizational structure determines how the roles, power and responsibilities are assigned,
controlled, and coordinated, and how information flows between the different levels of management

There are two types of organization structure – Centralised and decentralised structure

 In a centralized structure, the top layer of management has most of the decision
making power and has tight control over departments and divisions.
 In a decentralized structure, the decision making power is distributed and the departments
and divisions may have different degrees of independence.

NB:
 A structure of an organization will depends on the organization's objectives/ goals, strategy,
Size, People, environment and Technology. So when designing an internal organization
structure, mgt must consider these items carefully

A good organizational structure should have.... (Features)

 Unity of Objective
 Division of Work and Specialization
 Parity of Responsibility and Authority
 Functional Definition
 Scalar Chain
 Unity of Command
 Balance all organization aspects above
 Flexibility
 Delegation and facilitation of leadership
 Allow an organization to attain efficiency
 Continuity
 Authority level (Exceptional) principle and Cooperation- Only Matters beyond level
(exceptional) should be referred to the top/higher level
 Coordination
 Span of Control

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 B. Organizational charts
Refers to the visual representation of how a firm intends authority, responsibility,
and information to flow within its formal organizational structure. OR

Refers to a diagram that shows the structure of an organization and the relationships and
relative ranks of its parts and positions or jobs

It usually shows different organizational functions/departments (accounting, finance, human

resources, marketing, production, R&D, etc.) and their subdivisions as boxes linked with lines along
which decision making power travels downwards and answerability travels upwards

C. Formal and informal organization

Formal Organization is formed when two or more persons come together. They have a common
objective or goal. They are willing to work together to achieve this similar objective.

Formal Organisation has its own rules and regulation. These rules must be followed by the
members (employees and managers). A formal organisation has a system of co-ordination. It also
has a system of authority. It has a clear superior-subordinate relationship.

In a formal organisation, the objectives are specific and well-defined. All the members are
given specific duties and responsibilities. Examples of formal organisation are:- a company, a
school, a college, a bank, etc.

Informal Organisation exists within the formal organisation. An informal organisation is a network
of personal and social relationships. People working in a formal organisation meet and interact
regularly. They work, travel, and eat together; therefore, they become good friends and companions.
There are many groups of friends in a formal organisation. These groups are called informal
organisation.

An informal organisation does not have its own rules and regulation. It has no system of co-
ordination and authority. It doesn't have any superior-subordinate relationship or any specific and
well-defined objectives. Here in informal organisation, communication is done through the
grapevine

D. Departmentalization

A department is division, branch or some other organization unit over which a manager has
authority for performance of a task; thus departmentation is the process of dividing work (grouping
activities) of the organization into departments or other manageable units.

Departmentation or departmentalisation is the process of grouping tasks into jobs, then combining
jobs into effective work group and then combining work groups into identifiable segments or
departments

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 E. Span of control

Span of control (sometimes called span of management) refers to the number of workers who report
to one manager. There should be a limit of subordinates that a manager can supervise (the span
should be wide or narrow), due to limited time, capacity and attention available to a manager.

A wide span of management exists when a manager has a large number of subordinates. Generally,
the span of control may be wide when

 The manager and the subordinates are very competent.

 The organization has a well-established set of standard operating procedures.
 Few new problems are anticipated.
A narrow span of management exists when the manager has only a few subordinates. The span
should be narrow when
 Workers are located far from one another physically.

 The manager has a lot of work to do in addition to supervising workers.

 A great deal of interaction is required between supervisor and workers.
 New problems arise frequently.
NB: The span of management may change from one department to another within the same
organization.

F. Authority and power in organizations

Authority is the formal and legitimate right of a manager to make decisions, issue orders, and
allocate resources to achieve organizationally desired outcomes. A manager's authority is defined in
his or her job description and or position held in an organization.

Organizational authority has three important underlying principles:

 Authority is based on the organizational position, and anyone in the same position has the
same authority.
 Authority is accepted by subordinates. Subordinates comply because they believe that
managers have a legitimate right to issue orders.
 Authority flows down the vertical hierarchy. Positions at the top of the hierarchy are vested
with more formal authority than are positions at the bottom.
Power refers to the ability or capacity to influence the behaviour or attitude of other individuals.
Power is broad concept than authority as the fact Authority is derived from the position
while Power is derived from many sources like technical competences, seniority, expertise,
dominating personality etc.

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See below the different between authority and power

Authority is;- Power is

Formal right to command Personal ability/capacity to command

Resides in the position held by person Resides in the person who exercise it

Positional and institutional Personal through personal qualities

Always flows downward - can be delegated Flows in all direction - cannot be delegated

Visible from organizational chart Not visible

Narrow term - on source Broad concept - can achieve result when

authority fails

G. Line authority Vs Staff authority

Line Authority
 Is that which entitles a manager to direct the work of an employee.

 It is the employer – employee relationship the extend vertically from the top most executive
to the lowest subordinate throughout the entire organisational structure as per chain of
command

Staff authority
 Refers to position with same authority level that has been created to support, assist, advice
and some time reduce some of information burden to those holding the line authority.

 It resulted as organizations gets large and more complex, thus line managers find that they
do not have the time, expertise or resources to get their job done effectively.

Staff officers are experts engaged to advise the line officers in the performance of their duties.
Mostly these specialists do not have power to command over subordinates in other departments,
they are purely advisory in nature.

Line officers are the executives, and the staff officers are their advisers.

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 H. Delegation of authority

A concept related to authority is delegation. Delegation is the downward transfer of authority from
a manager to a subordinate. Most organizations today encourage managers to delegate authority in
order to provide maximum flexibility in meeting customer needs. In addition, delegation leads to
empowerment, in that people have the freedom to contribute ideas and do their jobs in the best
possible ways.

NB: The ability to delegate is crucial to managerial success. Managers need to take the
following steps if they want to successfully delegate responsibilities to their teams.

i. Determination of the results expected - manager need to define the result expected from his
subordinates for achievements of organizational goals.

ii. Specifically assign tasks to individual team members - The manager needs to make sure
that employees know that they are ultimately responsible for carrying out specific
assignments.

iii. Give team members the correct amount of authority to accomplish assignment, an
employee is assigned authority appropriate with the tasks given. A classical principle of
organization warns managers not to delegate without giving the subordinate the authority to
perform to delegated task.

iv. Make sure that team members accept responsibility - Responsibility is the flip side of the
authority coin. Responsibility is the duty to perform the task or activity an employee has
been assigned. Delegation of authority gives a subordinate the right to make commitments,
use resources, and take actions in relation to duties assigned.

v. Create accountability. Team members need to know that they are accountable for their
projects. Accountability means answering for one's actions and accepting the
consequences.

NB: Despite the perceived disadvantages of delegation, the reality is that a manager can improve
the performance of his or her work groups by empowering subordinates through effective
delegation. Few managers are successful in the long term without learning to delegate effectively.

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 I. Centralization and decentralization

The general pattern of authority throughout an organization determines the extent to which that
organization is centralized or decentralized.

A centralized organization systematically works to concentrate authority at the upper levels. In

a decentralized organization, management consciously attempts to spread authority to the lower
organization levels.

A variety of factors can influence the extent to which a firm is centralized or decentralized. The
following is a list of possible determinants:

 The external environment in which the firm operates. The more complex and
unpredictable this environment, the more likely it is that top management will let low-
level managers make important decisions.

 The nature of the decision itself. The riskier or the more important the decision, the
greater the tendency to centralize decision making.

 The abilities of lower level managers. If these managers do not have strong decision-
making skills, top managers will be reluctant to decentralize.

 The organization's tradition of management. An organization that has traditionally

practiced centralization or decentralization is likely to maintain that posture in the
future.

NB: In principle, neither philosophy is right or wrong. What works for one organization may or may
not work for another. Every organization must assess its own situation and then choose the level of
centralization or decentralization that works best.

5.4. Importance of organizing

There are several importance of organizing, here are some of them;-

 Facilitates specialization
 Defines formal relationship
 Avoids omission overlapping and duplication of activities
 Facilitates staffing
 It Provides effective administration
 Establishment channel of communication
 Facilitates coordination
 Well defined jobs
 It clarifies authority
 Provides a sense of security- clarifies power
 Attainment of goals

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5.5. Revision Questions (Topic 5)

1 What do you understand by the term organizing?

2 Briefly explain the steps necessary in organizing activities of the organization

3 Why is it important for managers to organize activities?

4 Explain the meaning of organizational structure.

5 What are the basic principles for a good organizational structure?

6 Differentiate centralization from decentralization as used in an organization

7 What are necessary steps that enable managers to effectively delegate authority to lower
level?

8 Briefly explain the concept of Authority and Power in any organization.

9 What does it mean by the term 'span of management'?

10 Differentiate formal and informal organization

11 Write short notes on the following terms as used in organizational structure

a. Departmentation e. Staff authority

b. Authority f. Centralization

c. Organizational charts g. Delegation of Authority

d. Line Authority h. Span of control

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