ORGANIZATIONAL THEORY

& BEHAVIOUR

ORGANIZATION
STRUCTURE
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 STRUCTURE
• Most organizations have to face up to a number of
crucial issues about the kind of structure that will best
sustain the success of the enterprise. This has been
mainly due to changes in the external environment as
a result of the advancement in information technology.

• In today fast moving world both employees and

customers have easy access to information, thereby
increasing their knowledge and options. This has
forced businesses to be more responsive to the
changes. Not only are the external factors important,
but also the internal needs of the organization must be
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addressed if it is to remain competitive.
 STRUCTURE
• The most frequent issues to be considered are: -

• To what extent should we encourage the

specialisation of roles?

• What degree of standardisation should be imposed on

behaviour and methods, or, to put it another way, what
degree of discretion should be allowed to individual
jobholders?

• How much formality should be encouraged?

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 STRUCTURE
• How many levels of authority should we
establish?

• To what extent should decision-making be

centralised or decentralised?

• These are important considerations and must

be addressed if the organization is to remain
competitive.

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FORMAL STRUCTURES AND THE
DIVISION OF LABOUR
Traditionally, the formal structure of the firm has also
been called the division of labour. Some still use this
term to separate issues concerning the formal
structure of the firm from related questions, such as
those concerning the division of markets, the choice of
businesses, or the selection of a technology.

The formal structure is important because it provides

the foundations for managerial action. It outlines the
job to be done, the person/s (in terms of position) who
are to perform specific activities, and the ways the
total task of the organisation is to be accomplished. In
other words, it is the skeleton of the organisation. 5
 ORGANISATION CHARTS
• Organisation charts are diagrams that depict
the formal structures of organisations. A typical
chart shows the various positions, the position
holders, and the lines of authority that link them
to one another.

• The chart highlights the relationships between

individuals and groups, and help to ensure an
orderly flow of information through the formal
channel within the organization. It can also be
useful for succession planning. 6
 SPECIALISATION
• Specialisation is concerned with the division of
labour within an organisation. It serves to break
down the total mission of an organisation into a
number of subordinate objectives, which in turn
give rise to tasks of various kinds.

• Specialisation by grouping of activities can be

achieved in several different ways. The most
frequent method is that of functional
specialisation.
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 FUNCTIONAL ORGANISATION
• The main advantages of functional organisation
are that by grouping people together on the
basis of their technical and specialist expertise,
the organisation can facilitate both their
utilisation and their co-ordination in the service
of the whole enterprise.

• Functional grouping also provides better

opportunities for promotion and career
development. It also allows training to be done
on specific areas, as against general matters.8
 FUNCTIONAL ORGANISATION
• The disadvantages are primarily the growth of
sectional interests which may conflict with the
needs of the organisation as a whole, and the
difficulties of adapting this form of organisation
to meet issues such as product diversification
or geographical dispersement.

• Functional grouping can lead to suboptimal

decision making by some in authority, where
the interest of the group is placed as a higher
priority than that of the organization. 9
PRODUCT- BASED STRUCTURE
• Another frequent form of group is by product.
This is popular with large organisations having
a wide range of products or services.

• The advantages of a product organisation are

that it enables diversification to take place, it
can cope better with problems of technological
change by grouping people with expertise and
their specialised equipment in one major unit.

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 PRODUCT- BASED STRUCTURE
• The main disadvantage is that each General
Manager may promote his own product group
in a way that creates problems with other
parts of the company.

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 GEOGRAPHICAL STRUCTURE
• Another popular form of organisation is
grouped on a geographical basis. This is
usually adopted where the realities of a
national or international network of activities
make some kind of regional structure
essential for decision-making and control, in
particular.

• This type of structure allows local knowledge

to be used to enhance decision making.
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 MIXED STRUCTURES
• Many companies are opting for a mixed
structure, which may combine the benefits of
two or more of functional, product and
geographical forms of organisation. Two such
mixed structures will be looked at briefly:
divisionalised structures and matrix structures.

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 DIVISIONALISED STRUCTURES
• In these cases, divisional departmentation groups
individuals and resources by product, territories,
services, clients, or legal entities.

• Many large, geographically dispersed organisations

that sell to national and international markets may rely
on departmentation by geography. The savings in
time, effort and travel can be substantial, and each
territory can adjust to regional differences.

• Organizations that rely on a few major customers may

organise their people and resources by client. 14
 MATRIX STRUCTURES
• The main feature of a matrix structure is that it
combines lateral with vertical lines of
communication and authority. This is the
important advantage of combining the relative
stability and efficiency of a hierarchical
structure with the flexibility and informality of an
organic form of structure.

• Like all organisational forms, matrix structures

do have their disadvantages.
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 MATRIX STRUCTURES
• The most important are:-
• The potential conflicts that arise concerning the
allocation of resources and the division of authority as
between project groups and functional specialist;

• The relative dilution of functional management

responsibilities throughout the organisation; and

• The possibility of divided loyalties on the part of

members of project teams in relation to their own
manager and their functional superiors 16
 VERTICAL SPECIALISATION
• In larger organisations, there is a clear
separation of authority and duties by
hierarchical rank. This separation represents
vertical specialisation, a hierarchical division of
labour that distributes formal authority and
establishes where and how critical decisions
are to be made.

• This division creates hierarchy of authority – an

arrangement of work positions in order of
increasing authority. 17
 VERTICAL SPECIALISATION
• Top managers or senior executives plan the
overall strategy of the organisation and plot its
long-term future. They also act as final judges
for internal disputes and certify promotions,
reorganisations and the like.

• Middle managers guide the daily operations of

the organisation, help formulate policy, and
translate top-management decisions into more
specific guidelines for action.

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 VERTICAL SPECIALISATION

• Lower level managers supervise the actions of

subordinates to ensure implementation of the
strategies authorised by top management and
compliance with the related policies established
by middle management.

• As one moves up the organisation in terms of

position they will have more authority, and will
be expected to use more conceptual as against
technical skills.
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 HORIZONTAL SPECIALISATION
• Horizontal specialisation is a division of labour
through the formation of work units or groups
within an organisation.

• Functional departmentation is grouping

individuals by skill, knowledge and action
yields.

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 CHAIN OF COMMAND
• According to Fayol it is the chain of superiors
ranging from the ultimate authority to the lower
ranks, and the chain of command should be
clear. This will help to ensure an orderly flow of
information and supplements the principle of
unity of command.

• Chain of command is a listing of who reports to

whom up and down the firm. Traditional
management theory suggests that each
individual should have one boss and each unit
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one leader.
 CHAIN OF COMMAND
• Under the circumstances, there is a “unity of
command”. Unity of command is considered
necessary to avoid confusion, to assign
accountability to specific individuals, and to
provide clear channels of communication up
and down the organisation.

• Under traditional management, with unity of

command, the number of individuals a manager
can supervise directly is obviously limited.
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 SPAN OF CONTROL
• Span of control refers to the number of
individuals reporting to a supervisor. Narrower
spans of control are expected when tasks are
complex, when subordinates are inexperienced
or poorly trained, or when tasks call for team
effort.

• Narrow spans of control yield many

organisational levels. The excessive number of
levels is not only expensive, but it also makes
the organisation unresponsive to necessary
change. 23
 SPAN OF CONTROL
• New information technologies now allow
organisations to broaden the span of control,
flatten their formal structures, and still maintain
control of complex operations.

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 LINE AND STAFF UNITS
• A very useful way to examine the vertical
division of labour is to separate line and staff
units.

• Line Units and personnel conduct the major

business of the organisation. The production
and marketing functions are two examples.

• In contrast, staff units and personnel assist the

line units by providing specialised expertise and
services, such as accounting and public
relations. 25
 LINE AND STAFF UNITS
• Two useful distinctions are often made in firms.
One distinction is the nature of the relationship
of a unit in the chain of command. Although all
units reporting to a higher level staff unit are
considered staff from an organisational
perspective, some subordinate staff units are
charged with conducting the major business of
the higher unit – they have a line relationship up
the chain of command.

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 LINE AND STAFF UNITS
• A second useful distinction to be made for both
line and staff units concerns the amount and
types of contacts each maintains with outsiders
to the organisations.

• Some units are mainly internal in orientation;

others are more external in focus. In general,
internal line units focus on transforming raw
materials and information into products and
services, whereas external line units focus on
maintaining linkages to suppliers, distributors
and customers. 27
 LINE AND STAFF UNITS
• Internal staff units assist the line units in
performing their function. Normally, they
specialise in specific technical or financial
areas.

• External staff units also assist the line units, but

the focus of their actions is on linking the firm to
its environment and buffering internal
operations.

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 STAFF
• When staff is assigned predominantly to senior
management, the capability of senior
management to develop alternatives and make
decisions is expanded. When staff is at the top,
senior executives can directly develop
information and alternatives and check on the
implementation of their decisions. With new
information technologies, fewer and fewer firms
are placing most staff at the top.

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 STAFF
• They are replacing internal staff with information
systems and placing talented individual further down
the hierarchy.

• Many firms are also beginning to ask whether certain

staff should be a permanent part of the organisation at
all. Some are outsourcing many of their staff
functions.

• The most appropriate pattern of vertical specialisation

depends on the environment of the organisation, its
size, its technology and its goals. 30
 CENTRALISATION AND
DECENTRALISATION
• Different firms use very different mixes of vertical
specialisation, output controls, process controls, and
managerial techniques to allocate the authority or
discretion to act.

• Centralisation is the degree to which the authority to

make decisions is restricted to higher levels of
management.

• Decentralisation is the degree to which the authority to

make decisions is given to lower levels in an
organisation’s hierarchy. 31
 DECENTRALISATION
• Generally speaking, greater decentralisation
provides higher subordinate satisfaction and a
quicker response to diverse series of unrelated
problems.

• Decentralisation also assists in the on-the-job

training of subordinates for higher level
positions. Decentralisation is now a popular
approach in many industries.

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 DECENTRALISATION
• Many people want to be involved in making
decisions that affect their work. Participation
results when a manager delegates some
authority for such decision making to
subordinates in order to include them in the
choice process.

• A highly decentralised organisation is one in

which the authority to commit men, money and
materials is widely diffused throughout every
level of the structure. 33
 DECENTRALISATION
• Conversely, a highly centralised organisation is one
where little authority is exercised outside a key group
of senior managers. Usually the finance and
personnel functions are least decentralised.

• The advantages of decentralisation are chiefly:

• it prevents top-management overload by freeing them

from many operational decisions and enabling them to
concentrate on their strategic responsibilities;
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 DECENTRALISATION
• it speeds up operational decisions by enabling
line units to take local actions without
reference back all the time;

• it enable local management to be flexible in

their approach to decisions in the light of local
conditions, and thus be more adaptable in
situations of rapid change;

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 DECENTRALISATION
• it focuses attention on important cost and
profit-centres within the total organisation,
which sharpens management awareness of
cost-effectiveness as well as revenue targets;

• it can contribute to staff motivation by enabling

middle and junior management to get a taste
of responsibility, and by generally encouraging
the use of initiative by all employees.
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 DECENTRALISATION
• The main disadvantages of decentralisation
are:-

• it requires an adequate control and

communication system if major errors of
judgement are to be avoided on the part of
operational management;

• it requires greater co-ordination by senior

management to ensure that individual units in
the organisation are not working against the
interests of the whole; 37
 DECENTRALISATION
• it can lead to inconsistency of treatment of
customers, clients or public, especially in service
industries;

• it may encourage parochial attitudes in subsidiary

units, who may be inclined to look more into their
own needs than to those of colleagues in the
organisation;

• it does require a plentiful supply of capable and well-

motivated managers, able to respond to the
increased responsibility which decentralisation
brings about. 38
 THE BUREAUCRACY
• Bureaucracy is an ideal form of organisation,
the characteristics of which were defined by the
German sociologist Max Weber. Bureaucracies
rely on a division of labour, hierarchical control,
promotion by merit with career opportunities for
employees, and administration by rule.

• Weber formulated ideas on ideal management

approach for large organizations, and
developed a set of ideas about structure of an
organization that define what we known as
bureaucracy. 39
 TYPES OF BUREAUCRACIES
• There are three popular basic types of
bureaucracies: the mechanistic, the organic,
and the divisionalised approaches.

• Mechanistic type or machine bureaucracy

emphasises vertical specialisation and control
with impersonal co-ordination and a heavy
reliance on standardisation, formalisation, rules,
policies and procedures.

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 MECHANISTIC TYPE
• Organizations of this type stress rules,
policies, and procedures; specific techniques
for decision making; and emphasize
developing well-documented control systems
backed by a strong middle management and
supported by a centralized staff.

• In such organizations flexibility is not an

option, and there is no need for initiative,
since everything is clearly defined.
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 ORGANIC TYPE
• Organic type or professional bureaucracy
emphasises horizontal specialisation, extensive use
of personal co-ordination, and loose rules, policies
and procedures.

• The organization relies on the judgement of experts

and personal means of coordination. When controls
are used, they tend to back up professional
socialization, training, and individual reinforcement.

• Although not as effective as the machine

bureaucracy, the professional bureaucracy is better
for problem solving and for serving individual
customer needs. 42
 DIVISIONALISED APPROACHES
AND CONGLOMERATES
1. Divisionalised approaches; with this approach the
firm is composed of quasi-independent divisions so
that different divisions may be treated as separate
businesses, though they share a similar mission and
system goals. Here each division can pursue a
different strategy.

2. A second hybrid is the Conglomerates. These are

firms that own several different unrelated
businesses. On the surface these firms look like
divisionalized firms, but because the various
businesses of the divisions are unrelated the term
conglomerate is used.
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 DYSFUNCTIONAL TENDENCIES
OF A BUREAUCRACY
• Overspecialisation and failure to mitigate the
resulting conflicts of interest resulting from
specialisation.

• Overuse of the formal hierarchy and

emphasis on adherence to official channels
rather than problem solving.

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 DYSFUNCTIONAL TENDENCIES
• Reification of senior managers as superior
performers on all tasks and as rulers of a
political system rather than as individuals who
should help others reach their goals.

• Overemphasis on insignificant conformity that

limits individual growth.

• Treatment of rules as ends in and of

themselves rather than as poor mechanisms
for control and co-ordination. 45
 FLAT ORGANISATIONS
• Flat organisations tend to have:-
• centralised authority;

• few authority level;

• wide span of control

• A flat structure produces a span of control that

is unmanageable for most managers and
supervisors. 46
 TALL ORGANISATIONS
• Tall organisations tend to have:-
• decentralised authority;

• many authority levels;

• narrow spans of control

• The advantages of tall structures arise mainly

from the ability to sustain a very high degree
of specialisation of functions and roles. 47
 TALL ORGANISATIONS
• The principal disadvantages are connected with
long lines of communication and decision-
making. Thus tall structures seem to go hand
in hand with formality and standardisation,
which may discourage initiative and risk-taking
at operational levels.

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 ORGANISATION LEVELS
• The major factors in determining the number of
levels for any one organisation are likely to be:-

• size of operation,

• nature of operation, especially in relation to the

complexity of production, and

• management style.
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 AUTHORITY AND RESPONSIBILITY
• Authority is the legitimate power to act in certain ways;
it can be delegated to subordinates.

• Responsibility is the obligation to perform certain

functions on behalf of the organisation; responsibility
may range from the very specific to the very broad; it
is commonly called accountability; unlike authority it
cannot be delegated.

• Both of these can be distinguished from power, which

is the ability to implement action, regardless of
considerations of authority and responsibility. 50
 STRUCTURE CONCLUSION
• Organisations are structured in a variety of
ways, dependent on their objectives and
culture.

• The structure of an organisation will determine

the manner in which it operates and its
performance.

• Internal factors such as size, product and skills

of the workforce influence the organisational
structure. 51
 STRUCTURE
• As a business expands the chain of command
will lengthen and the spans of control will
widen.

• The wrong organisational structure will hinder

the success of the business.

• Organisational structures should aim to

maximise the efficiency and success of the
organisation.
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