FOR POLYTECHNIC STUDENT AHMAD TAMIMI BIN MD SOM NORZILA BINTI SALIM SHARIFAH YUHAYU BINTI SYED HAMID Management Principles of
AHMAD TAMIMI BIN MD SOM NORZILA BINTI SALIM SHARIFAH YUHAYU BINTI SYED HAMID Management Principles of
Published by: POLITEKNIK KOTA KINABALU NO.5, JALAN POLITEKNIK,KKIP BARAT KOTA KINABALU ,INDUSTRIAL PARK 88460 KOTA KINABALU,SABAH TEL ;088-401800 FAX :088-499960 WEBSITE: https://polikk.mypolycc.edu.my © Politeknik Kota Kinabalu First Edition,2023 All right reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical including photocopy, recording, or any information storage and retrieval system without permission in writing from Politeknik Kota Kinabalu Principle of Management i
TABL E O F C O N T E N T S CHAPTER 1: INTRODUCTION TO MANAGEMENT 1. Definition of management 2. The importance of management 3. The levels of management 4. The management functions 5. Mintzberg’s managerial roles 6. The management skills 7. The evolution of Management EXERCISE PREFACE ACKNOWLEDGEMENTS ABOUT THE AUTHORS CHAPTER 2: PLANNING 1. Planning in organization 2. Purpose of planning 3. Types of planning 4. Planning process EXERCISE CHAPTER 3: ORGANIZING 1. Organizing in Organization 2. The Importance of Organizing 3. The Steps in Organizing Process 4. The Six Key Elements in Organizational Structure 5. The Organizational Design EXERCISE CHAPTER 4: LEADING 1. Motivation in Organization 2. The Theories of Motivation 3. Leader and Leadership in Organization 4. The Theories of Leadership 5. Organizational Communication EXERCISE: i ii iii 1 2 4 5 6 9 10 16 17 17 18 22 22 23 24 26 28 36 43 44 46 52 53 62 69
TABL E O F C O N T E N T S CHAPTER 5: CONTROLLING 1. Concept of controlling in organization. 2. Define controlling in organization. 3. The importance of controlling. 4. The controlling process. 5. The principles of effective controlling in organization. 6. The types of controlling in organization. EXERCISE CHAPTER 6: STAFFING 6.1 Definition staffing in the organization 2. Importance of staffing 3. Staffing Process 4. Career development and maintaining staff turnover EXERCISE CHAPTER 7: DECISION MAKING 1. Definition of Decision Making 2. Types of Decisions 3. Conditions of Decision Making 4. Decision-Making Process 5. Group Decision-Making Technique 6. Advantages and Disadvantages of Group Decision Making EXERCISE 70 70 71 72 73 75 78 79 79 81 100 102 103 104 105 107 110 113 116
PREFACE i With the name of Allah, Most Gracious, Most Merciful. Principle of Management expose the student to the principle and concepts of management. This book designed to meet the scope and sequence requirements of the introductory course on management. The topics and contents in this books are compiled based on the Polytechnic syllabus and suitable for Polytechnic students especially in Diploma in Accounting, Diploma in Marketing and Diploma in Logistics and Supply Chain Management. This books consists of seven chapter – Introduction of Management, Planning, Organizing, Leading, Controlling, Staffing and Decision making. Each chapter begins with learning outcomes and ends with exercise, which are adapted from final exam question. Diagrams and tables in colour have also been used to make the points raised better understood. We hope this book will beneficial to all students and add value to their educational journey
ACKNOWLEDGEMENTS ii Praise is to Almighty Allah for giving us the strength to arrange and revise this note book. First and foremost, we would like to express our sincere gratitude to our families for their love and unwriting support. We could not have completed this book then without the understanding and patience given to us. This book, is the product to great teamwork and we are indebted to all our team members who made the organizing of this notebook a pleasure. We would like to thank the Head of Commerce Department, Politeknik Kota Kinabalu and Head of Programmes Commerce Department, Politeknik Kota Kinabalu of who enthusiastically and constantly motivated and help us in improving the writing of notebook.
Ahmad Tamimi Bin Md Som Currently working as Senior Lecturer of Commerce Department at Politeknik Kota Kinabalu, Sabah. Holds Master BBA (Hons) Marketing from UiTM and of Marketing from UKM. Having been experienced as an industrial practitioner, Head of Diploma in Marketing Program and academician for the past 20 years, his expertise is in the field of marketing and organization management. Norzila Binti Salim Norzila is the lecturer working in the Commerce Department, Politeknik Kota Kinabalu, Sabah. She holds Master of Business Administration from Universiti Teknologi Mara and Degree of Finance from Universiti Utara Malaysia.. Have been are lecturer for past 15 years, she specializes in financial management. About The Author iii Sharifah Yuhayu Binti Syed Hamid Currently Senior lecturer at Commerce Department, Politeknik Kota Kinabalu, Sabah. She has Degree in Human Resource Management (Hons) from University Utara Malaysia and Masters in Technics and Vocational Education from Kuittho, Johor. Having been experienced as Head of Marketing Programme and academician over 20 years and specializes in marketing field.
CHAPTER 1: INTRODUCTION TO MANAGEMENT Learning outcome: After studying this chapter, students will be able to: Define management and explain the importance of management. Describe the management level in an organization. List the managerial responsibilities and skill required of managers at each level of management. Relate the evolution of management thought and describe their contribution to field of management. 1.1 Definition of management Management is the process of planning, organizing, leading and controlling the work of organization members and of using all available organizational resources effectively and efficiently to achieve stated organizational goals. According to Certo (1997): management a process to accomplish organizational goals by working with humans and other organizational resources . Ivancevich et al. (1997) ; Management a process that is conducted by one or more individuals to coordinate the work activities of employees, capital, raw material and technology to achieve results of high quality that might not be achieved by individuals working alone. Management Institute of Malaysia (MIM) defined management as the process of completing tasks through and with other people. As conclusion, management is the coordination and administration of tasks to achieve a goal by continuous activities like; planning, organizing, leading and controlling. The management of a organization needs to be able to make decisions and resolve issues in order to be both effective and beneficial. Good management practice is key to the success or failure of an organization. 1
Management applies various techniques to increase efficiency and effectiveness in an organization and this techniques aim to optimize the use of resources, reduce wastage and costs. iii. Encourages teamwork and builds team spirit Successful coordination of various departmental activities develops unity as well as encourages employees to work as a team. Figure 1.2: The importance of management. i. Directs the Organization Management is responsible for the direction of the organization. Example: Top management setting up the organization’s mission, vision and goals All manager ensure right activities are carry out correctly to achieve these goals by directing and supervising their subordinates in their tasks. ii.Increases efficiency and effectiveness 2 1.2 The importance of management
Management must take care of the interest of the organization’s shareholders, staff, customer and other iv. Improves work life quality Management is used in organization to design job structure. Efficient design of job structure and effective reward systems allow creativity, innovation & career growth. Thus, employees will be satisfied, work life balance and motivated in their job. vi.Integrates various Interests stakeholder as well as society. Thus, efficient management can integrate these differences in the organizational duties & responsibilities v. Meets the challenges of change Change is a challenge that is ever present and becoming more intense and critical in business today. The efficient management allows organization to come up with solutions that can help overcome threats or create opportunities. vii.Contributes to society’s prosperity Management enables an organization to create cheaper and better products through research and development. Good management will be ensuring the scarce resources are efficiently utilized Prospering organization leads to better economy, employment opportunities and income, which in turn will be beneficial to society. 3
Top line manager is positioned at the highest level in the management hierarchy. They are also known as strategic managers. Top line manager are responsible for the overall and of the management administration organization. They are responsible for develop policies, organizational establishing organizational goals, objective and corporate social responsibility. Top line manager directly responsible for middle line managers and first line manager. i.Top line managers Middle line managers are positioned between top line managers and first line managers in the management hierarchy. They are also known as tactical managers Middle line managers are directly responsible for the performance of first line manager. Middle line manager are responsible implementation 4 for policies and organizational plans set by top line manager. ii.Middle line managers 1.3 The levels of management Figure 1.3: The level of management.
iii.First-line managers First line managers are managers positioned at the lowest level in the management hierarchy, usually at the operational level in an organization. They are also known as front line manager or operational managers. First line managers determine the success of the organization because their main responsibility is to monitor and ensure that daily operation are carried out smoothly. First line manager have limited power and authority in the organization. 1.4 The management functions Figure 1.4: The management functions defining goals, establishing strategies and 5 developing action plans to coordinate activities towards accomplishing organizational goals. A lack of planning before engaging in any activity implies recklessness, lack of judgement or short sightedness in performance of any work. i.Planning The process of
1.5 Mintzberg’s managerial roles Henry Mintzberg identified 10 key managerial roles. Each roles represents the activities managers undertake to accomplish of planning, organizing, leading and controlling. Mintzberg divided the 10 managerial roles into three categories: Interpersonal : creating interpersonal relationship or managing through people. Informational : disseminating information or managing by information Decisional : Decision-making or managing through action ii.Organizing Involves developing an organization’s structured, coordinating and allocating the organization resource to accomplish the goals and objective. iii.Controlling Process of monitoring actual organizational activities to ensure that they conform to planned activities and correcting deviations. iv.Leading/directing The process of directing and influencing all organizational members involved, motivating them and resolving conflicts towards achieving organizational goals. 6
Category 7 Role Activity Informational Monitor Disseminator Spokesperson Seek and receive information, scan papers and report, interpersonal maintain contact with stakeholder. Transmits information to others organization email, report, members, send memos, makes phone calls. Communicate with outsider through media in speeches, report and memorandums. Interpersonal Figurehead Leader Liaison Performs ceremonial/ symbolic duties such as greeting client, signing legal documents. subordinates, Direct and motivate trains, advise and communicate with subordinates and clients. Act as an intermediary Maintain information link in and beyond the organization.
Category 8 Role Activity Figure 1.5: The Mintzberg’s managerial roles. Decisional Entrepreneur Disturbance handler Resource allocator Negotiator new project, opportunities, Initiate spot identify areas of business development. Take corrective action crises, resolve among staff, to external during conflicts adapt changes resource, budgets, set Allocate schedule, priorities. Represent department during negotiation of union contract, supplier, representative at departmental meetings.
and the proficiency in performing skill includes mastery of methods, techniques and equipment involved in specific functions. A technical skill also includes specialized knowledge, analytical ability, competent use of tools in specific discipline. i.Technical skill : Understanding specific tasks. A technical 1.6 The management skills Figure 1.6: The management skill iii.Interpersonal skill : Demonstrated in the way manager relates to workers, including the ability to motivate, facilitate, coordinate, lead, communicate and resolve conflict. abilities and analytical abilities. ii.Conceptual skill : Conceptual skills involve information processing, the manager’s thinking, processing, planning 9
classical approach advocates specialization centralized leadership and decision making of labour, and profit Figure 1.7: The evaluation in management i. Classical approaches (1911-1947) Classical management theories are based on the belief that workers only have physical and economic needs, and do not consider the workers’ social need or job satisfaction. The 1.7 The evolution of Management maximization. The major theories that emerged during this period are: a) Scientific management The rapid growth of industrialization and the factory system in the 1800s gave rise to many management challenges for organizations. Problem arose in equipping the plants, organizing managerial structures, training employees, scheduling complex manufacturing operations and dealing with increased worker dissatisfaction that led to strikes. The scientific management views assume that people are primarily motivated by economic gains. Focus is placed on an individual’s or a worker’s productivity and its main objective is to improve economic efficiency, especially labour productivity. 10
The pioneers of scientific management are: i.Frederick Winslow Taylor (1856-1915) ii.Frank Gilbreth (1868-1924) and Lilian Gilbreth (1878-1972) iii. Henry Gantt (1861-1919) b) Bureaucratic management The bureaucratic management theory emphasized organizational rules, management hierarchies, a clear division of labour and detailed rules and procedures. Max Weber, a German social historian, was recognized as the creator of bureaucratic management. identified the five functions and 14 principles 11 which summarized his management experiences. He of management. Figure 1.7.1: Max Weber (1864-1920) c) Administrative management The theory focused on basic management functions and the manager’s task within organization. Henri Fayol a French mining engineer, publish a book
Figure 1.7.2: Henri Fayol (1841-1945) The general management principle as summarized by Fayol (1841-1925) 1.Division of work Specialization allows the individual to build up experience and to continuously improve his skills. Thereby he can be more productive. 2.Authority The right issues commands, along with which must go the balance responsibility for its function. 3.Discipline Employee must be obey, but this two sided; employee will only obey orders if management play their part by providing good leadership. 4.Unity of command Each worker should have only one boss with no other conflicting lines of command. 5.Unity of direction People engaged in the same kind of activities must have the same objectives in a single plan. This is essential to ensure unity and coordination in the enterprise. Unity of command does not exist without unity of direction but does not necessarily flow from it. 12
The general management principle as summarized by Fayol (1841-1925) 6.Subordination of individual interest Management must see that the goals of the firms are always paramount 7.Remuneration Payments is an important motivator although by analyzing several possibilities, Fayol points out that there is no such thing as a perfect system. 8.Centralization (or Decentralization) This is a matter of degree depending on the condition of the business and the quality of its personnel. 9.Scalar chain (Line of authority) A hierarchy is necessary for unity of direction. But lateral communication is also fundamental, as long as superiors know that such communication is taking place. Scalar chain refers to the numbers of levels in the hierarchy from the ultimate authority to the lowest level in the organization. It should not be over stretched and consist of too many levels. 10.Order Both material order and social order are necessary. The former minimizes lost time and useless handling of materials. The latter is achieved through organization and selection. 13
The general management principle as summarized by Fayol (1841-1925) 11.Equity In running a business a combination of kindliness and justice id needed. Treating employees well is important to achieve equity. 12.Stability of tenure of personnel Employee work better if job security and career progress are assured to them. An insure tenure and high rate of employee turnover will affect the organization adversely. 13.Initiative Allowing all personnel to show their initiative in some way is a source of strength for the organization. Even though it may well involve a sacrifice of personal vanity on the part of many managers. 14.Esprit de corps Management must faster the morale of its employees. He further suggests that :Real talent is needed to coordinate effort, encourage keenness, use each person’s abilities, and reward each one’s merit without arousing possible jealousies and disturbing harmonious relations.’ 14
quantitative techniques, techniques information such as mathematical models and computer techniques are helping the ii. Behavioural approaches (late 1700s-1950s). This approach promotes a leadership style that focuses on workers’ human need for work related satisfaction and good working conditions. iii. Quantitative approaches (1940s-1950s) This approach to management involves the use of 15 simulations to improve decision making. Three main quantitative theories are: a.Management science theory i.Also know as operation research, management science involves the use of computerized mathematical models and statistical methods to increase the effectiveness of the decision making process. b. Operations management theory i.Operations management generally concerned with organization to produce products or services more efficiently. It is less mathematically and statistically and may be considered as a type of applied management science. Some of well known statistical tools that are still used today are: The Critical Path Method (DuPONT) The PERT c. Management information system (MIS) theory. MIS focues on implementing computer based designing and information system for use by management. Raw data is processed to useful information to enable effective decision making.
iv.Contemporary approaches (1960s-present) Contemporary or modern approaches are based on the concept that the organization is an adaptive system which has to adjust to changes in its environment. It also recognizes the social responsibilities to society such as customers, employee, shareholders, supplier trade union and government. Two major contemporary approach are: a. System approach The system approach to management attempts to view the organization as a unified, directed system of interrelated parts, which have common goal. As a system, an organization receives inputs (information and human resources), then change these inputs through a transformation process (technology and management skill) to produce output (product or service). Feedback from supplier and consumers give impact the inputs received by organization. b.Contingency approach An approach which believe that there is no one best way to manage because situations will determine the appropriate management action and approached to take. EXERCISE 16 1.Define management. 2.Explain TWO (2) contemporary approaches in the evolution of management. 3.Describe TWO(2) importance of management. 4.Discuss THREE (3) types of skill that a manager must have and give example.
CHAPTER 2: PLANNING Learning outcome: After studying this chapter, students will be able to: Define planning in an organization Explain the purpose of planning Discuss the types of planning in organization Apply the steps in planning process 1. Planning in Organization What is Planning ? Planning is defined as the process of analysing relevant current or past information, with the purpose of measuring and forecasting the future in order to achieve organizational goals. It is also a management function which involves the setting of goals and deciding how best to achieve them 2. Purpose of planning. There are four reasons for planning. They are; 17 evaluated in a time frame can be Goals specific used as performance standards employees evaluate to assist and managers their work performance. With planning, performance against we can compare actual the goals, identify any significant deviations and take necessary corrective action. to managers and nonmanagers alike. When they know what they work are, they can coordinate their activities , cooperate with each other and do what it takes to accomplish those goals 2. Provide direction Planning provides direction 1.Set the standard to facilitate control.
When work activities are 18 coordinated around established plans, redundancy minimized. Beside, can be when the planning are well, inefficiencies can be eliminated Planning uncertainty managers reduces by forcing to look ahead, anticipate change, consider the impact of change, and appropriate Even can’t through eliminate develop responses. planning change or uncertainty, managers plan in order to anticipate change and develop the most effective response to it. 2.3 Types of planning There are three types of planning. They are explained based on the table below; Type Strategic Tactical Operational Definition Involves setting longterm goals and objectives for an organization and selecting suitable actions to allocate organizational resources in order to achieve these goals. Is performed by middle-line managers or tactical managers to achieve goals set at the strategic level. This type of planning provides specific guidance on the roles and responsibilities of the relevant parties in the organization operational goals, based on the implementation of the strategic and tactical planning. 3.Minimize waste and 4.Reduces the impact of redundancy. changes.
Type 19 Operational Other Initiated by Duration Top-line manager Performed by middle-line managers or tactical managers to achieve goals set at the strategic level. Is conducted for a period more than 5 years and it also known as long-term planning. Is performed for a time duration of one year or less. Also known as short-term planning Is developed and determined by first line managers or operational managers. This type of planning involves a shorter period of time, between 1 and 5 years. Also known as midterm planning. Consists of:- single use plans (Program, Project, Budget) standing plans (Policy, Procedure, Rule) Strategic Tactical
Figure 2.2.1 Single use plan 20
Figure 2.2.2 Standing plans 21
EXERCISE 1.Define 'planning'. 2.Describe five purpose of planning. 3.Describe THREE (3) main types of plans managers make and the level of management that makes each of these plans. 4.Describe the steps in a planning process. 2.4 Planning process A proper planning process ensure activities do not deviate from the original goals set by top management. Figure 2.3 Planning process 22
CHAPTER 3: ORGANIZING Learning outcome: After studying this chapter, students will be able to: Define organizing in an organization. Recognize the importance of controlling in an organization Identify the steps in organizing process Apply six key elements in organizational structure Discuss traditional and contemporary organizational structure design 3.1 Organizing in Organization What is Organizing? It is process of arranging an organization’s structure and coordinating employees, resources, policies and procedures to achieve the goals & objectives identified in the plan. This process involves making decisions about how specialized jobs should be, the rules to guide employees’ behaviours, and at what level decisions are to be made. For example, a company needs several specialized departments to ensure the smooth operation of their operations such as finance department (controlling income and expenses), human resources department (appointment and training of staff), marketing department (managing promotions and sales), production department (handling the process of producing the company's products) and so on. What is Organizational Structure? It is the way how each activity, jobs and resources allocated and the way how different departments are coordinated. It shows the hierarchy within an organization or also known as the ‘organization chart’ to show the position of a department in organization its relationship. 23
For example, every organization is usually formed from 4 main components which are top level management, middle level management, first level management and a group called as nonmanagement employees. Each level has its own duties and roles as determined by its level in the organization chart. What is Organizational Design? Organizational design is a process of shaping the way organizations are structured and run or how organizational chart looks like. It defines the responsibilities and requirements of each job and department and how it assists the company in achieving its goals (will be discussed further in sub-topic 3.5). 24 Figure 3.1: Example of Organizational Chart 3.2 The Importance of Organizing i. Specialization Organizational structure is a network of relationships in which the work is divided into units and departments. This division of work is helping in bringing specialization in various activities of concern. ii. Well Defined Jobs Organizational structure helps in putting right men on right job which can be done by selecting people for various departments according to their qualifications, skill and experience. This is helping in defining the jobs properly which clarifies the role of every person.
iii. Clarifies Authority Organizational structure helps in clarifying the role positions to every manager. This can clarifying be done by the powers to every manager and the way he has to exercise those powers should be clarified so that misuse of powers do not take place. Well defined jobs and responsibilities in bringing managers attached efficiency working. helps into This helps in increasing productivity. iv. Co-ordination Organization is a means of creating co-ordination among different departments of the enterprise. It creates clear cut relationships among positions and ensure mutual cooperation among individuals. Harmony of work is brought by higher level managers exercising their authority over interconnected activities of lower level manager. v. Effective Administration The organization structure is helpful in defining the jobs positions. performed managers The roles to be by are Specialization different clarified. is achieved through division of work. This all leads to efficient and effective administration. 25
3.3 The Steps in Organizing Process 26 i. Listing the Job The obvious first step in the process of organizing is to identify the work that has to be done by the organization. So, the manager needs to list all the work and the tasks to be done to achieve the goals of the organization. Identification of the work helps avoid miscommunication, overlapping of responsibilities and wastage of time and effort. ii. Dividing the Jobs Job will be allocated according to their abilities and skills. Job division must be conducted in a fair and balanced way. For the sake of a smooth flow of work and smooth functioning of the organization, similar tasks and activities should be grouped together. Hence, we can move to the next step to create departments within the company. Figure 3.3: The Organizing Process
iii. Establishing the Departments It refers to gathering employees who would be performing the same tasks into one group. For example, group the task and employee into specialized group such as finance, administration, marketing etc. Depending on the size of the organization and the volume of work, an organization can have several department and divisions. And every department has a manager representing them at the top-level of the management. In smaller organizations sometimes these departments are clubbed together under one manager. iv. Coordinating the Jobs The manager must ensure that all activities carried out by various employees and groups are well coordinated. Otherwise, it may lead to conflicts between employees, duplication of work and wastage of time and efforts. He must ensure all the departments are carrying out their specialized tasks and there is harmony in these activities. The ultimate aim is to ensure that the goal of the organization is fulfilled. v. Performing Evaluations and Adjustment Last but not least it is a continuous process that is evaluating the effectiveness of all previous steps involved in the whole organizing process. Sometimes it will require a manager to make necessary adjustment if there any problem and changes happen such as train or replace incompetent staff, adding or reducing the number of divisions etc. 27
3.4 The Six Key Elements in Organizational Structure 28 Figure 3.4: Key Elements in Organizational Structure i. Work Specialization (Key Element #1) Introduced by Adam Smith (1723-1790) and known as division of labor. It is a process of dividing work activities into separate job tasks. Means that, individual employees focus on one activities that they specialize on rather than the entire activities. Among of the advantages of work specialization are employees become skilled and efficient, saves on training cost, reducing error in performing task, efficient use of organizational resources etc. However, there are some disadvantages such as repetitive work can lead to boredom, in some situation it will increase operation cost because expertise requires high salary, discourage employee creativity and potential of doing multi-task etc.
For example, at the Wilson Sporting Goods factory in Ada, Ohio, workers make every football used in the National Football League and most of those used in college and high school football games. To meet daily output goals, the workers specialize in job tasks such as molding, stitching and sewing, lacing, and so forth. This is an example of work specialization, which is dividing work activities into separate job tasks. Individual employees ‘specialize’ in doing part of an activity rather than the entire activity in order to increase work output. ii. Departmentalization (Key Element #2) Departmentalization is an organizational structure that separates people into groups, or departments, based on a particular set of criteria. These departments have their own leadership and work together to complete tasks. With large or complicated projects, multiple departments may work together. Organizations use departmentalization as a good way to organize a large number of people. departmentalization effectively integrates work, allowing people to communicate with and learn from their departments easily. Here are the common types of departmentalization: a. Departmentalization by Functional This type of departmentalization drives the company to creates departments based on several different functions that they perform for the company. For example, you will head together all the specialists related to finance under a finance department and with marketing under that department and not vice-versa. 29
perfect for a large-scale 30 company deals with multiproducts. It gives full attention that and ensures specialized production facilities to every product. d. Departmentalization by Customer Customer departmentalization require a company to puts its focus on customer needs and wants, and creates departments in accordance with different class or type of clients and customers. Each department will be leaded by a different manager, and responsible to gives full attention and best services to fulfill customer’s requirement and satisfaction. e. Departmentalization by Process When a company group its activities by the production processes, it is known as process departmentalization. Usually they group the activities on the basis of work or customer flow. Thus, each department requires adequate material and manpower to conduct their operations and tasks smoothly. b. Departmentalization by Geographic When a company organizes departments or grouping it activities based on geographical location or territory, it called as geographic departmentalization. Multinational firms have their offices all around the nation or world, and they have created departments based on the regions to handle company activities. c. Departmentalization by Product If the company group its activities or tasks based on the products produced, it means they are practicing product departmentalization. This type of departmentalization is
Figure 3.4 (ii): Types of Departmentalization iii. Authority and Responsibility (Key Element #3) Authority is the legal and formal right to make decisions, carry out actions and direct others in matters related to the duties and goals of position. With this authority, it gives a manager’s right to make decision or to take actions in order to complete their given duties and will enable managers to give orders to their employees and delegates some of their power to the subordinates. On the other hand, responsibility is the outcome of authority. It entails the obligation of the subordinate to perform their duties thoroughly, who has been assigned by his superior. Responsibilities require employee characteristics that are trustworthy, negotiable and always follow the rules. Therefore, the responsibility given can be implemented perfectly. Authority-Power Relationship Power is something that is referred to as the ability to influence the attitude or behaviour of any individual. While authority is generally a representation of someone’s position. It is derived from multiple sources like seniority, technical competence, etc. The power of a manager is considered as their ability to ask the subordinates whatever they wish them to do. In simpler terms, when you broaden the concept of authority, you get the power. 31
Figure 3.4 (iii): Types of Power iv. Span of Control (Key Element #4) The term is referring to the numbers of subordinates who report directly to a manager or supervisor. In simple words, span of control means the manageable number of subordinates of a superior. The bigger the number of the subordinates a manager controls, the broader is his/her span of control. Generally, two types of span can be seen in organizations that are: a. Wide Span of Control Suitable for smaller organizations with few management levels. This type of control lead to less interaction between managers and subordinates. Since authority is centralized, the decision-making process is more efficient. 32
Figure 3.4 (iv-a): Example of Wide/Flat Span of Control b. Narrow Span of Control Suitable for large organization, which tend to have many organizational levels. Enables managers to interact with their subordinates more frequently. However, the many management levels can lead to bureaucracy and make the decision-making process inefficient. 33 Figure 3.4 (iv-b): Example of Narrow/Tall Span of Control
v. Centralization and Decentralization (Key Element #5) When a company starts to grow, one of the biggest issues is how to organize their management, a decision-making in particular. There are two main branches of how management will organize, either using centralization or decentralization authority. Companies usually fall somewhere between these extremes. a.Centralization It refers to a process where the concentration of decision making is in a few hands. All the important decision and actions at the lower level, all subjects and actions at the lower level are subject to the approval of top management. In short, no distribution of power to subordinates, managers have the full authority and the employees only follow the given orders. b.Decentralization 34 It is a systematic delegation of authority at all levels of management in organization. In a decentralization concern, authority in retained by the top management for taking major decisions and framing policies concerning the whole concern. Rest of the authority may be delegated to the middle level and lower level of management. In short, it refers to the distribution of power from the management to the employees and subordinates have the authority to make the decisions, identify problem and suggest suitable solutions.
vi. Formalization (Key Element #6) It refers to how standardized an organization’s jobs are and the extent to which employee behaviour is guided by rules and procedures. Highly formalized organizations have explicit job descriptions, numerous organizational rules, and clearly defined procedures covering work processes. Employees have little discretion over what’s done, when it’s done, and how it’s done. However, where formalization is low, employees have more discretion in how they do their work. In other words, formalization in an organization is the degree to which fixed rules and procedures dictate how employees should behave. It includes organization’s policy, procedure, rules and job description that are written and stated in detail. 35 Figure 3.4 (v): Centralization/Decentralization Advantages and Disadvantages
Figure 3.4 (vi): Differences Between Policy, Procedure, Rules and Job Description 3.5 The Organizational Design Organizational design is a process of shaping the way organizations are structured and run. It defines the responsibilities and requirements of each job and department and how it assists the company in achieving its goals. It involves many different aspects of life at work, including team formations, streamlining workflows, resource allocation, lines of reporting, decisionmaking procedures, communication channels, and and implementing the organizational chart. The goal of organizational design is to create an efficient and wellfunctional organization where the company’s organizational structure aligns with its core competencies and strategy. A wellexecuted organizational design process creates more efficient workflows, a better customer experience, and higher profit margins. 36
Figure 3.5: The Types of Organizational Design i. Traditional Organizational Design A traditional organizational design and structure follows a system in which power flows upward through the organization, and all employees follow a chain of command which may look like a pyramid. The chief executive officer (CEO) would sit at the top, and the layer underneath would consist of department managers who report to the CEO and oversee the overall operations of their department. Next would be first-line managers, or supervisors, who manage the daily operations of their department or teams and below are the non-management employees who report to them. 37 The goal of organizational design is to create an efficient and wellfunctional organization where the company’s organizational structure aligns with its core competencies and strategy. A wellexecuted organizational design process creates more efficient workflows, a better customer experience, and higher profit margins.
a. Simple Structure A simple organizational structure is a basic organizational design structure with low departmentalization, little work specialization, wide spans of control, centralized authority typically with the Founder, and little formalization or rules that govern operations. A start-up is a typical example of an organization having a simple structure because apart from the founder there may be one or few employees who do multi-task, and take care of all that has to be done to help attain organizational goals. 38 Figure 3.5 (i-a): Example of Simple Structure b. Functional Structure A functional organizational structure sees its employees divided into various teams or departments based on their skillset. There will be separate departments for Human Resources, Finance, Marketing, etc. This form of departmentalization of skills ensures that work provided to a department is handled in a very productive manner as the employees have good knowledge, and practical abilities specific to their domain. This structure is most useful when a company produces a single product or service. Figure 3.5 (i-b): Example of Functional Structure
c. Divisional Structure A divisional organizational structure divides employees into teams or departments based on specific products, projects, or geographical locations. This sort of organizational structure is especially useful when the company is large or provides a number of products and services where each unit is responsible for its resources, budget, workflow, and other processes. For example, a bank might have one department for retail banking, another for investment banking, and a private banking division as well. 39 Figure 3.5 (i-a): Example of Simple Structure ii. Contemporary Organizational Design In recent years, the increase of the dynamic and more complex business environment requires a company to adopt a more contemporary organizational design and structure. This type of structure is more flexible in nature and able to adapt to any changes successfully. Structurally, it has less job specialization, few layers of reporting and decentralized approach.
a. Team-Structure A team structure is an organizational structure where an entire firm is made of workgroups. They define the relationships between leadership, team activities, and group members. Creating a team structure helps you determine what your employees will do, whom they’ll report to, and how decisions will be made across the company. In a team structured organization there is no hierarchy or chain of command. Therefore, teams can work the way they want to, and figure out the most effective and efficient way to perform their tasks. 40 Figure 3.5 (ii-a): Example of Team Structure b. Matrix-Project Structure A matrix organization is a work structure where team members report to multiple leaders. It operates in a horizontal and vertical organizational structure where the team members report to a project manager as well as their department head. Suitable for organizations that operate in an environment that is constantly changing (due to competition and technological changes) or organization have many short-term projects (advertising firms, research and development laboratories).
Figure 3.5 (ii-b): Example of Matrix-Project Structure c. Boundary-Less Structure Boundaryless organizations do not have structures and its approach to business is based on the free flow of information and ideas to drive innovation, efficiently and growth in a constantly changing environment. In this structure, organization will reduce the following four types of boundaries; Vertical. This is the traditional, hierarchical structure. Reducing management layers allows ideas to travel freely through the organization, and new initiatives can be implemented without managers stifling potential innovation. Horizontal. This is the functional separation, including departments and other silos. By removing horizontal boundaries, ideas can easily be shared and implemented crossfunctionally. External. This is separation within the value chain. By working closely with customers and suppliers, implementing innovations will be more effective. Geographical. This refers to the separation between countries or geographies and is a specific form of horizontal separation. By integrating different geographies, innovations will spread more easily and can be implemented faster. 41
Figure 3.5 (ii-c): Example of Boundary-Less Structure 42 One of the most interesting things about boundary-less companies is that there is very little face to face communication between employees. Such an organization relies heavily on technology. Employees mainly communicate using technology, such as via text, email, social media, video conferencing and various other virtual methods of communication. This makes it possible for them to communicate with each other from wherever they without having to physically be in the same vicinity. They, therefore, do not have to deal with geographically imposed barriers to working together.