Question

Information form the book!!!!

The organizing function involves acquiring resources and arranging them in a rational manner to achieve goals. As we noted in the lecture on management, the organizing question extends over many different resources, but for our purposes we will focus on the human side of organization. How should our employees by assigned to groups in order to best accomplish the work? Who should report to whom? How many layers of management should there be in the structure?
The answers to these questions are best designed by remembering four cardinal rules of organization.
1. Organization follows planning. It is not the first task of management but the second, and, if we don't have goals and objectives in mind, organizational design becomes problematic.
2. The complexity of the organizational structure should match the size of the enterprise and complexity of its task. On the one hand, we are restating the obvious, namely that it is simply logical that Boeing will have a more elaborate structure than a small espresso stand. However, it is also suggesting something more subtle. Organizational structure needs to be dynamic. Enterprises grow and the structure that may be effective early on in the life of the company may become ineffective as the company becomes larger. Organizational structure is not etched in stone.
3. Duties and responsibilities within the structure need to be clearly defined. There needs to be a chain of command, that establishes who reports to whom. In a good structure, there should also be unity of command. This means that each employee reports to one and only one manager (not necessarily the same manager). Multiple managers for the same employee can have the effect of inefficiency, confusion and drop in morale among employees, as they struggle to reconcile orders from different sources.
4. There is a limit to the number of subordinates any manager can supervise. The number of subordinates reporting to a manager is called his span of management or span of control. What is that number? It varies greatly with context. An experienced manager with highly developed skill sets may be able to supervise more employees than one who is less skilled. The nature of the work also makes a difference. For complicated tasks, which produce many questions - and, therefore, more management intervention - a narrower span of control is in order. Also, managers who have a mature workforce under them - mature meaning attitude not age - may be able to supervise more of them, since the need for close supervision may not be as critical.
One of the key issues that must be addressed in designing an organizational structure is how to group employees under managers. What departments should be set up and how should employees be assigned to them. There are five logical approaches to these questions.
1. Functional Departmentalization. This is a method by which we group employees according to what they do. For example, we may have a welding department that contains all of the welders.
2. Process Departmentalization. This method breaks down the work into segments and employees are assigned according to where they fall in the process. Note that welders might be assigned to different groups if welding is required at different stages of the process.
3. Geographical Departmentalization. Geographical departmentalization has two aspects, physical geography and temporal geography. For physical geography, employees are grouped according to where they are located. This might be typical for a retailer who has two shops. Employees who work at one shop are one department, while those who work at the other would be in another. Temporal geography assigns employees on the basis of when they are at work. This is the day shift-night shift distinction.
4. Product Departmentalization. If a company makes one than one product, it may departmentalize employees according to the product they are working on. Most often this departmentalization is around brand and is found in a variety of industries from consumer products to automobiles.
5. Customer Departmentalization. When a company serves different types of customers that have different needs, it may be useful to departmentalize according to who the customer is. Government, for example, buys many products and services, but does so according to its own procedures. To serve this market, departments can be set up who sell exclusively to government.
The actual organizational structure has some traditional forms. First is line organization. This is a structure in which authority flow top to bottom through layers. The line organization is typically found in smaller enterprises.
A second option, for larger enterprises is the line and staff organization. This is essentially a line organization to which staff positions are added. Staff are experts in certain functions - human resources is an example - and play an advisory role to managers throughout the company. By themselves, staff have no authority (other than the authority of expertise). Others in the organization do not report to them and they advise, not tell, other managers what to do. The purpose of staff positions is efficiency. Staff are used to provide specific expertise to the entire organization rather than replicate the function in multiple organizational areas.
A third form is the matrix organization. It is appropriate mainly in project oriented companies. An example might be an engineering and construction firm. It takes on a project that has a defined end. When it is over, the project goes away. The problem for the firm is how to mobilize employees quickly and ensure that they operate according to standards. Such a firm might set up functional departments, which provide training and oversight, and, when a project is undertaken, draw its personnel from these departments to work under a project manager (who has responsibility for the project). When the project is over, employees are released back to the departments for reassignment. Matrix organization breaks the rule of unity of command in that an employee is responsible to the project manager while on assignment and simultaneously reports to the functional department's manager. Conflict can sometimes take place, although typically the project manager has the greater authority since he is engaged in a revenue producing activity.
Finally, there is Committee Organization. This is when responsibility for decisions rests with a group of managers or a committee. This is only apparent at the top levels of management and has been tried by a variety of firms, including Microsoft. Its success has been varied and seems to work with certain kinds of managers.

Problems:

GROWING PAINS

Tom Johnson started his own business in 1997, building boat trailers for small craft. Whatever the reason, Tom found that the demand for his product increased month by month. Soon, he had hired a couple of employees and was quite pleased with the financial rewards of his business. This pattern continued over the two years that Tom was in operation, so that by January of 1999, the company employed 24 people. All of them reported to Tom, who, naturally, was both owner and manager.

Despite his good fortune, Tom was becoming increasingly uneasy about the direction his company was taking. He found it more and more difficult to manage the expanded work force, and felt that things might be getting a bit out of control. Reinforcing his feeling was the company's latest financial report, which revealed that the costs of producing trailers were increasing dramatically.

On the other side of town, Bob Patterson, owner and president of Patterson Furniture, another fast growing company, faced a different set of problems. The company sold furniture to both retail and commercial accounts, making its sales through three public showrooms and an outside sales staff to deal with commercial customers.

As president, Bob had four managers reporting to him, the supervisors of each store plus the head of the outside sales department. Each manager, in turn, had a staff of over 20 employees in their particular area, and were responsible for their entire operation. This included selling, naturally, but also hiring and firing, purchasing, promotion and budgeting. Each manager had two assistant managers to assist him.

This set up seemed to work well at first, but lately Bob was having some doubts. His managers seemed to exhibit signs of what Bob thought of as overwork. Decisions were being made at the last minute, and never did the managers send him a report he had asked for a minute sooner than it was due. The quality of their decision making had also seemed to decline. Two of the four managers had made what had amounted to disastrous hiring decisions over the past three months, and valuable resources were squandered training personnel who were to be let go within a few weeks.

It wasn't as bad as it sounded. The company was making money and Bob was confident that his managers were all first rate people. The vast majority of the things they did turned out right. Still, he wondered if something should be done to correct the present situation or, at least, prevent it from getting worse.

What would your advice be to these two entrepreneurs?

The answer needs to be very detailed and specific!

Answer 1

Advice to Tom Johnson –

Tom’s business of building boat trailers from small craft was working fine in the first two years of inception. It is a small business and the demand was increasing on a monthly basis. Problem arose when the company stared growing to meet the increasing demands. Increase in the number of employees is a good move but the lack of planning for the structure of the Organization made him pay the prices leading to an increase in production costs and thereby reduced profitability.

1. Planning –With the growth of business, complexity comes into the picture. There should be properly designed goals and objectives for the organization.

2. Organization structure – Managing two employees at the start of the business then growing to 24 people and still keeping the reporting of all. This creates a lot of problems as Tom’s role is getting diluted in between ownership and management. He is definitely not getting any time to plan, take appropriate decisions. Also, it is not easy to handle a team is 24 and growing. He should hire three managers and delegate his managerial tasks to them and give the reporting of all employees. It is easier to manage 3 people and still keep an eye on the tasks/activities performed. Structure should be dynamics based on the changing needs.

3. Duties and responsibilities - He can set the goals and objectives of the managers which are aligned to that of the business. He can delegate the responsibilities with appropriate authority and make them accountable to the tasks performed by the managers.

4. Team size – For now, hiring 3 managers and giving a team of 8 each can be analyzed. If need be, one can hire more managers if it is working well for the business.

5. Design – With the growing business and having more work in steps of the process involving the building of boat trailers, employees can be distributed into one particular step based on their level of expertise. This will bring in more efficiency into the business and will result in lower cost of production.

6. Dynamic structure – The structure of the organization should be dynamic based on the changing conditions/situations that the business comes across. For now, Tom can go ahead with Line organization. But with the increase demands, he can think of Line and staff organization in future years. With the growth, staff positions will definitely bring in the level of expertise required to the entire business and help increasing the efficiency levels to a great extent.

Advice to Bob Patterson –

Bod is the owner and president of Patterson Furniture and has come across the signs of overload of work for his 4 managers. Things haven’t got worse yet as most of the things do turn out right but they are likely so. Prevention is better than cure! It is better for him to make some changes to order to make sure that the company keeps on growing at a good pace without any glitches in between.

1. Planning –With the growth of business, complexity comes into the picture. There should be properly designed goals and objectives for the organization.

2. Organization structure – Current situation is too bad for the managers as they are responsible for a variety of tasks like selling, hiring and firing, purchasing, promotion and budgeting. Various departments should be created called Process Departmentalization likes Sales department, purchase department, human resource department. This will help grouping people based on their expertise and will help increasing efficiency and quality to a great extent.

3. Duties and responsibilities – He can set the goals and objectives of the Department managers which are aligned to that of the whole process of furniture. He can delegate the responsibilities with appropriate authority and make them accountable to the tasks performed by the managers.

4. Team size – Bob has 4 managers working under him. But, every manager is handling a team of over 20 employees with two assistants. Considering the current signs of overload which is clearly understandable even for the most efficient people, more managers should be hired say 4 and the team to be distributed in halves so that it becomes easier to manage human resource.

5. Design – Process Departmentalization is a great advice to Bob for the furniture company.

6. Dynamic structure – The structure of the organization should be dynamic based on the changing conditions/situations that the business comes across. For now, Bob’s company is following Line organization. But with the increase demands and the department works, he can think of Line and staff organization. With the growth, staff positions in sales, production, marketing, etc. will definitely bring in the level of expertise required to the managers of that department and help increasing the efficiency levels to a great extent.