PRINCIPLES OF MANAGEMENT PART 2

was provided by Elton Mayo’s Hawthorne studies. Neoclassical theorists did not totally reject the classical model, but only Argyris and Rensis Likert, whose contributions to the development of management thought have already been discussed in detail in lesson 2. The main propositions of neoclassical theory are as follows:
• In every organisation, in addition to the technical system, there exists a social system:
• Along with the formal organisation structure, there also exists an informal organisation;
• Human beings have diverse motivational patterns and try to fulfill different types of needs;
• Quite often there exists a conflict between individual and organisational objectives. Hence the need for integration between the two; and
• Cooperation among people is not automatic but has to be achieved through appropriate behavioural interventions.
Appraisal of Neoclassical Theory
Neoclassical theory of organizations marked a significant departure from the classical theory in that it raised several new concepts like informal organisation, group norms, non-economic motivators, irrational behaviour, etc.
Consequent to the findings of Hawthorne studies and the writings of behavioural scientists, concepts like flat structure, decentralization and informal organisation have found increased usage in the design of the organisation structure. In the place of the traditional tall structures which are beauracratic in their functioning, flat structures are emphasized. As against delays in decision-making, hierarchical controls and communication bottlenecks in the tall structures, flat structures with wide span of control are found suitable to motivate human beings.
Another postulate of the neoclassical theory is decentralization-closely related to flat structure. Decentralized structure offers autonomy and freedom to people in decision-making. It assures operational freedom. The existence of informal organisation in the formal organisation is by far a significant breakthrough of the neoclassical theory. While formal organisation is a deliberate creation of the management, informal organisation is the spontaneous outcome of the people to satisfy their social and psychological needs. Various aspects relating to informal organisation are discussed in the subsequent section of this lesson.
Criticisms of the Neoclassical Theory
The neoclassical theory to organisational design compensates for some limitations in the traditional classical model. But it too has been criticized on the following grounds:
• The neoclassicists share the classical assumptions that there is “one best way” to design an organization. They overlook environmental, technological, and other variables that might affect an organization’s design;
• The neoclassicists oversimplify human motivation. Not everyone is motivated by the non-monetary aspects of work, nor can all work be made intrinsically challenging and rewarding; and
• The coordination of decentralized, fragmented groups to achieve organizational goals may be more difficult than the neoclassicists suggest, particularly when the objectives of lower-level employees are not consistent with the goals of upper-level managers.
Modern Approaches to Organisational Design
As discussed in the preceeding sections, hierarchical organisational structures are centralized. Information flows slowly. So also the decisions. Modern approaches to organisational design take into account the business environment, technology and people. As such, while designing the structure, an understanding of the environment in essential.
i. Environment
Business environment may be classified into stable, dynamic and turbulent. Stable environment is one with no unexpected or sudden change. Change in technology, market demand, and socio-economic and political conditions occur infrequently and modifications can be planned in advance. But these days’ stable business environments are hard to find.
As against stable environment where changes are infrequent, dynamic environment is characterized by frequent changes. These changes, to a certain extent, can be predicted. Trends are likely to be apparent and organizations can easily try to adjust. However, the rate of change in the environment may be high in some industries while it is low in some other industries. It is also quite possible that the once stable environment may become a dynamic one. For example, the environment of many businesses in India till a few years ago was quite stable. But as the economy is opened up, unprecedented changes are taking place in the Indian economy.
Turbulent environment, on the other hand, is characterized by unexpected changes and surprises. As Peter Drucker has described the present age as “the age of discontinuity”, managements are taken by surprises. Spectacular breakthroughs in technology, sudden change in the market preferences, political uncertainties, etc., make the environment very turbulent.
In the light of the changes in the environment whether they are predictable or unpredictable, the organisational structure has to be designed in such a way that it matches with the environment. Burns and Stalker on the basis of their extensive research classified organisational systems into ‘mechanistic’ and ‘organic’ structures. In a stable environment mechanistic structures would do well because the emphasis in such systems is on achieving excellence in the routine tasks, whereas organic systems are preferable in a dynamic or turbulent environment. Some combinations of the two systems may also be used.

ii. Technology and Structure
Apart from the environment, technology also influences the structure. By technology we mean the task related know-how used by the organisation. Management researcher Woodward had studied about 100 British manufacturing firms and established relationship between technology and structure. He classified technology into: Unit production, batch or mass production and process production.
Unit production refers to the production of individual items tailored to customer’s specifications. The technology used is not very complex and output is produced largely by individual crafts people.
Mass production refers to the manufacture of large quantities of products, mostly on an assembly line. Process production refers to the production of materials that are sold by weight or volume such as chemicals, sugar, cement etc. The following are the findings of the Woodward’s study on the relationship between technology and organisation structure.
• The more complex the technology, the greater is the number of managers and management levels. In other words, complex technologies require greater degree of supervision and coordination:
• The span of management increases from unit to mass production and then decreases from mass to process production. Lower level employees in both unit and process production firms tend to do highly skilled work. As a result, narrow span becomes inevitable. In mass-production, on the other hand, assembly line workers perform mostly routine tasks. Large number of such workers can be supervised by one manager; and
• The greater the technology complexity of the firms, the larger is the clerical and administrative staff.
The foregoing analysis shows that all these variations in technology, with influence the organisation structure which in turn will affect the performance. Successful firms are those that design the structure in accordance with the technological requirements of the firm.
iii. Aspirations of the People
Along with the environment and technology, the attitudes and aspirations of the people need due consideration in the design of the structure. Unlike in the past, where classical theorists’ assumptions about human beings held good, there has been a sea change in the attitudes and aspirations of the people in the recent years. Peter Drucker has rightly described the present day workers as “knowledge workers”. They want more challenging jobs and participation in the decision-making process. They are self-motivated and direct their activities themselves.

In view of such raising aspirations and expectations, organisational structures have to be designed in such a way that their aspirations are taken care of. The structure has to provide an environment where individuals have freedom and autonomy. That is why, these days there is lot of talk about flexible systems and loose controls in the organizations. The objective behind all these structural changes is to identify and encourage creative people. In a competitive environment as of today, in the final analysis, it is the quality of human resource which makes a difference when all the other things are equal. In the place of rigid and beauracratic systems which stifle the innovative abilities of people, the emphasis at present is towards flexible systems. As such the structure should facilitate to satisfy the ego needs of the people.
formal and informal organisations
Much of what is discussed and understood about organizations in general relate to the formal organisation. In many organisation structure. Authority-responsibility relationships among people are clearly visible. Information flows from one level to another or from one individual to another in a formal way. All the relationships find a place in the organisation chart. The roles of the people are clearly defined and they are expected to perform the roles of the people are clearly defined and they are expected to perform the roles as stipulated to achieve the goals. Thus formal organisation is a deliberately created entity to achieve certain specific objectives.
Informal organisation on the other hand, refers to the network of personal and social relations not established by formal authority but arising spontaneously as people associate with one another. The emphasis within informal organisation is on people and their relationships, whereas formal organisation emphasizes official positions in terms of authority and responsibility. Thus, informal organisation refers to unofficial relationships that inevitably occur between individuals or groups within the formal organisation.
As such in any organisation, both formal and informal organizations exist. Both are not mutually exclusive. But are complementary. The actual organisation structure is the result of both formal and informal relationships. The existence of informal organisation within the formal organisation can easily be seen in any formal system, be it a business enterprise, educational institution or a voluntary organisation.
The need for Informal Organisation
The inadequacy of the formal organisation to meet certain social and psychological needs is the basic reason behind the emergence of informal organisation. Because the formal organisation does not provide for all the social interactions, members try to find out alternative ways of association. As the
Hawthorne experiments revealed, membership in informal groups give people psychological benefits in every respect as important as the salary paid to them by the employer. The following are some of the major reasons for the emergence of informal organisation.
i. The desire to socialize with others
Keith Davis observes that “along with lien’s technical imperative, there is also a social imperative to work together. Man is a social being. He wants to belong, to associate with others rather to work in isolated loneliness. Out of this basic drive of man, the informal organisation arises”. It is, therefore, quite natural when people work together in groups, they tend to socialize with fellow employees to satisfy their own social and ego needs. These needs are not normally satisfied by the formal organisation. Informal organisation, on the other hand, provides them opportunity to interact with people of their liking based on so many personality factors. We can easily observe in any formal organisation, like minded people coming together and forming into groups.
ii. Disillusionment with the routine
Excessive specialisation these days in a way contributes for the employee aloofness. People become bored with the routineness in tasks and feel psychological fatigue. They don’t get the pride or satisfaction, for what they perform constitutes only a small portion in the total task. People try to overcome this boredom through interactions with others. Such informal interactions which encompass a whole gamut of issues both related to job and personal life help, in releasing the tension created on the job. Informal organisation thus helps in filling up the psychological vacuum created by dull, boring and monotonous jobs.
iii. Hierarchical command and control
Commands and controls characterize formal organisation. Wherever there is hierarchy, it goes without saying that things happen in a formal way. Reporting relationships are clear, information flows along the formal lines of authority and responsibility of the people. There exists a superior-subordinate relationship where superiors tend to exercise control which may not be liked by subordinates. While the subordinate cannot defy the superior, to compensate for the inner conflict, he tries to find out an association where he does not face any such control. Thus informal organisation provides him the necessary forum where he gets the psychological relief and solace by sharing his agony with others.
iv. Protection of interests
In addition to the above factors, informal organisation strives to protect the interests of its members by working as regulatory device. At times individual grievances are also redressed in organizations by informal groups. The opinions and view points of the people are channelized through the informal bodies. Many
limitations which otherwise would be faced by a member as an individual are overcome, because the informal organisation takes care of the interests of the members.
v. Need for assistance
Formal organisation provides for subordinates consultation with the superior for advice when confronted with work related problems. But many people hesitate for fear of criticism. Further more, every organisation has a large number of rules governing procedures. Therefore, people often prefer to resolve their needs for assistance through peers. We often find in organizations employees consulting their colleagues on so many work-related problems rather than their superiors.
vi. People like to know what is going on around them, especially if it affects them. It may take some time for people to get information through formal channels. Sometimes, superiors may deliberately withhold certain information from subordinates. Therefore, an important reason for joining informal organisation is to get information through informal channels. It satisfies individual’s need for psychological security and affiliation as well as provide them with much faster access to job-related information. The informal communication, often called grapevine also carries social gossip.
Problems and Benefits with Informal Organisations
Though the existence of Informal organisation is a natural outcome in any organisation, many managers perceive them as bad. Some managers even carry an erroneous notion that informal organisation is a reflection of ineffective management. They therefore try either to suppress them or to ignore their impact. In the process, they fail to take advantage of the informal organisation by overreacting to the negative aspects disregarding the positive aspects.
i. Problems with informal organizations
It is true in some cases; informal organizations may function in ways that are counter productive. They may stand in the way of organisation’s achieving the objectives. For instance, one of the consequences of informal organisation is the spread of rumours that are false and lead to negative attitudes towards management. The informal groups may set norms for productivity. The work-to-rule and slow-down techniques often adopted by workers in many instances are the result of the dictates of the informal organisation. Individuals often tend to conform themselves to the group standards or pressures which may cause performance to be below the standards set by management.
Another evil effect of the informal organisation is the tendency to resist change. Such an attitude often impedes the much needed innovation and adoption of changes as demanded by the exigencies of the environment. However, such counterproductive behaviour is often a reaction to the group’s perception of how management is treating them. Group members perceive that they are being treated unfairly and respond as any individual would in such a situation.
ii. Benefits of Informal Organisation
Since group membership is contingent on working for the organisation, loyalty to the group may translate into loyalty to the organisation. For instance, many people refuse higher paying jobs with other companies because they are reluctant to give up the solid ties developed at the present company. It is possible for groups’ objectives to be compatible with those of the organisation. At times the performance norms of informal organisation may be higher than those of the formal organisation. For example, the intense team spirit characteristic of some organizations which results in a strong drive to succeed is often an outgrowth of informal relationships. Similarly, the grapevine may help the formal organisation by supplementing the formal communication network.
By failing to work effectively with them, or engaging in actions to deliberately suppress informal organizations, manages often become unable to harness these potential benefits. In any event, whether a particular informed organisation is harmful or beneficial, one thing is certain that it exists and musty be dealt with.
Therefore, as a manager, you must learn to cope effectively with informal organisation.
Managing the Normal Organisation
Management writers have fully realized the importance of handling informal organizations to help the formal organisation attain its objectives. Scott and Davis offer the following suggestions:
• Recognize that the informal organisation exists, and nothing can destroy it completely without also destroying the formal organisation. Therefore, management should accept it, work with it, and not threaten its existence;
• Listen to the opinions of informal leaders and group members.
• Consider possible negative effects on the informal organization before taking any action.
• Decrease resistance to change by allowing the group to participate in decision – making; and
• Control the grapevine by promptly releasing accurate information.
4. Revision points
Organisational Theories
• Classical Organisation Theory
• Neoclassical Organisational Theory
• Modern Approaches to Organisational Theory
Formal and informal Organisations
• The need for informal Organisation
• Problems and Benefits with informal Organisation
• Managing the Informal Organization
5. Intext questions
 Discuss some of the problems and benefits of informal, Organisations.
 Why should the environmental force to taken into account while creating on organisation structure. Examine a few important importances that affect the structure.
6. Summary
Different approaches have been developed over the years to explain the process of organizations. The classical theory which emphasized technical and other operational aspects of the job; the neo-classical theory where the emphasis human element in the organizations with due recognition to the existence of a social system along with the technical system; and the modern approach where organisation structure has to designed in tune with the environmental demands have been discussed in this lesson. Besides, the distinction between the formal and informal organizations and how informal organizations come into being in the formal systems – the reasons there of, the problems and benefits have also been presented in detail.
7. Terminal exercises
 Discuss some of the problems and benefits of informal, Organisations.
 Why should the environmental force to taken into account while creating on organisation structure. Examine a few important importances that affect the structure.
8. Supplementary material
 Burns, Tom and Stalker, G.M, 1961. The management of Innovation, Tavistock, London.
 Woodward, Joan, 1965, Industrial organisation, Oxford University Press, London.
9. Assignments
 What are the basic tenets of the classical organisation theory? Is this theory relevant to the design of the present day organisation structure? If it is so, give the details elaborately.
10. Suggested readings
 Davis, Keith, 1993. Human Behaviour at Work, Tata McGraw-Hill, New Delhi.
 Drucker, Peter. F. 1969.The age of Discontinuity, Harpet & Row, New York.
 Stoner, James A.F... And Freeman, E.R. 1989. Management, Prentice-hall of India, New Delhi.
11. Learning activities
 Have you ever been in a solution where informal groups norms put you in role conflict with formal rganization standards? If so, present such situations in details.


Chapter – 5: Departmentation
1. Introduction
The managerial function ‘organizing’ involves the creation of a structure most appropriate for the organization’s objectives and other internal and external factors. The best structure is the one that enables the organization to interact effectively with its environment, to efficiently channel the efforts of its people, to make efficient use of its resources and thereby to meet the needs of its customers and attain its objectives.

2. Objectives
After studying this lesson, you should be able to:
• Understand the process of departmentation:
• familiarize yourself with various methods of departmentation; and
• Acquire the necessary skills to design the appropriate structure which serves the need of the company.
3. Content

steps in designing organisation structure
Ernest Dale describes organizing as a multistep process, According to him, it involves:
• Detailing all the work that must be done to attain the objectives:
• Dividing the total work load into activities that can logically and comfortably be performed by one person or by a group of persons;
• Grouping the related tasks in a logical manner (this activity is known as departmentation);
• Setting up a mechanism to coordinate the work of members into a unified whole by establishing authority – responsibility relationships, and
• Monitoring the effectiveness of the organisation and making adjustments to maintain or increase effectiveness.
It is important to remember that the resulting structure is not a static form, like the structure of a building. Since structure is based on plans, a major revision of plans may necessitate a corresponding modification of structure. As such, organizing and reorganizing are ongoing processes. Successful organizations continuously assess the appropriateness of their structure and change it in accordance with the dictates of the environment. It is anybody’s knowledge that these days every issue of leading business magazines widely reports news relating to reorganization underway in some large company or the other.
departmentation
Although organizations have much in common with one another, they also differ in many ways. Some organizations are large, some are small and some operate in only one product area like Tata Iron and Steel Company (TISCO0. Others like Larsen and Toubro (L&T) and ITC operate in many diversified areas. Some operate in a small geographic area, whereas others like Coca-cola, Procter and Gamble, and IBM, for instance, do business in many countries of the world. To cope with these differences in objectives, strategies and situations, managers use various systems of departmentation.
Departmentation is the process of dividing the organisation into manageable subunits. The subunits are often referred to as departments, divisions, or sections. By whatever name the units are called, the process is known as departmentation.
functional departmentation
This is perhaps the most logical and basic form of departmentation. Functional departmentation is the process of dividing the organisation into units on the basis of the firm’s major activities. It involves grouping employees according to broad tasks they perform. Normally separate departments are created for all the key activities of the business. For example, in a manufacturing company, the activities essential to the existence of the company are production, marketing, and finance. However, in non-manufacturing concerns these functions differ. IN a transport company, the key areas may be operations, sales and finance. Thus, public utility concerns like electricity, transport, banking, insurance and hospitals have their own distinct key functional areas. In all these cases, under functional departmentation, major or
primary departments are created along the key functional areas of the respective businesses.
If the organisation or given department is large, or in other words, as the organisation grows, major departments can be subdivided. These sub-divisions are called derivative departments. The essential idea is to make increased use of specialisation. A typical functional organisation with major functions and derivative functions are shown in the following Exhibit-1.

exhibit - 1
functional departmentation













The following are the advantages and disadvantages of functional departmentation.
Advantages
• It is the most logical and simple form of departmentation;
• It makes efficient use of specialised resources and skills;
• It makes supervision easier, since each manager has to be an expert in only his functional area of operation;
• It fosters development of expertise in specialised areas.
Disadvantages
• Functional departmentation is often found to be inadequate to meet the growing needs of the business, particularly as the organisation expands or diversifies its activities;
• Further, decision-making becomes slow as the functional managers have to get the approval of the headquarters;
• It is also difficult to determine accountability in a functional structure, If a product fails, the question as to who is responsible cannot be easily answered; and
• Functional managers tend to develop narrow perspective and loose sight of the bigger picture. Members of each department feel isolated from those in other departments. For example, manufacturing department may be obsessed with cost reduction and meeting the delivery dates neglecting the quality control. As a result, marketing department may be flooded with complaints.
product/market departmentation
As the organisation grows, either by broadening its product line, or by expanding geographically, some of the disadvantages of functional structure begin to be move apparent. In such a case, management will create semi-autonomous divisions for each product or market. Three patterns are adopted generally by organizations depending on the specific requirements to overcome the limitations of functional structure. They are product, territorial and customer departmentation.
i. Product Departmentation
One of the most common ways in which businesses grow is by increasing the number of products they make and sell. If the organisation is successful, several product lines may attain such high sales that they require a separate division. Large organizations like Shaw Wallace. Kirloskar, Voltas, ITC, Hindustan Lever, have coped with the expansion of their product lines by creating separate departments or divisions for the various products they make. Under product departmentation, a single manager often referred to as the brand or product manager is a delegated authority over all activities required to produce and market that product. As against functions in the functional departmentation, basis products or services become the primary or major departments in the product departmentation, as shown in exhibit - 2.





















LAN TABLE




















Advantages
• Product departmentation places attention and effort on the basic products, the success of which is critical to the survival of the organisation;
• Since all revenues and costs are assigned to a particular product, cost centres can be established, high profit areas can be encouraged and unprofitable product lines can be dropped. Thus, responsibility for cost reduction and profits can be established at the division level;
• Proper coordination of all functional areas can be achieved as all the functional managers work as a team under close supervision of the product manager. Since the department or division is multifunctional, it often operates like a complete company.
• Enables quick response to changes in environment as compared with functionally organized firm;
• Provides managers a training ground in general management which is useful in overcoming narrowness of interest, and
• Expansion and diversification of activities is made easy by creating new departments for the new products that are added to the existing ones.
Disadvantages
• Requires more persons with general management abilities as more and more departments are created for the various products;
• The product departments may try to become too autonomous, thereby presenting top management with a control problem;
• It is also common to find product departments engaged in the duplication of efforts. Each product unit has its own functional departments. These may not be sufficiently large to make maximum use of facilities. Thus product departmentation becomes an expensive organisational form.
ii. Customer Departmentation
Some organizations sell a wide variety of goods or services that appeal to different groups of customers, each of which has distinguished needs. In such a case, departments are created around customer groups, Customers are the key to the way activities are grouped. For instance, commercial banks organize their activities around customer groups to cater to their specific needs. As such, we find separate departments or divisions for agricultural, industrial and merchant banking operation. Similarly, we find Blue Star Company organizing its air-conditioning business around domestic and industrial air – conditioning units; Exhibit-3 illustrates a typical customer departmentation in a large bank.




exhibit - 3



















Advantages
• Customer departmentation facilitates concentration on customer needs. This is almost all in line with the customer orientation professed by many organizations these days;
• Customer makes the feels that they have an understanding supplier. For example, the manufacturer may sell to wholesalers and industrial buyers. Wholesaler requires a product of dependable quality with assured supplies. The industrial buyer wants a product of high quality plus a service that includes installation and repair of the product and the specific training of employees.
• Helps the organisation to get the correct feel of the market dynamics in terms of preferences of the customers, competitors’ strategies, etc.
Disadvantages
• Difficult to coordinate operations between competing customers’ demands’
• Requires considerable expertise on the part of managers in understanding customers’ problems and specific needs:
• There is a possibility of under utilization of facilities and employees specialised in terms of customer groups. Small organizations particularly can not afford the expenditure involved because some amount of duplication of the facilities is inevitable.
iii. Territorial Departmentation
When an organization operate in different geographical areas, each with distinct needs, it is desirable to create the departments along geographical lines, as illustrated inExhibit-4. The process of creating departments along the geographical lines is termed territorial departmentation. This type of organisation makes it easier for the organisation to cope with variations in laws, local customs and customer needs, and Public utilities like transport companies, insurance companies, etc. adopt territorial departmentation. Similarly, a large scale organisation operating both in domestic and international markets may have separate departments for both the markets. A Gain, different department or divisions may be created for different regions of the world. Many multinational companies organize their global activities with regional headquarters in different regions of the world.

EXHIBIT - 4













Advantages
• Territorial departmentation makes possible concentration on markets and marketing channels in different geographical areas;
• Develops opportunities for more efficient marketing activities because of better face- to-face communication with local interests. and
• Makes possible effective utilization of locally available resources besides being able to cater to the region – specific – variations in terms of preferences and sentiments of the people.

Disadvantages
• In this type of departmentation, there are problems in training people to think in terms of markets rather than products;
• Requires more persons with general management abilities; and
• Increase problem of top management control because of the distance between the corporate headquarters and the regional offices.
The three patterns of departmentation discussed above –product, customer and territorial departmentation broadly characterize the divisional structure. All the three patterns have advantages and disadvantages. The variations in the patterns are in response to the specific factors in the environment. The choice of any of these structures, therefore, would be based on which of the factors management judges to be more important and critical in the light of the strategies and objectives.
Project organisation
The use of the project organisation has increased in the last few years. It is currently being employed in numerous undertakings engaged in the execution of construction activities, turnkey projects and research and development projects. The project organisation can take various forms, but the important characteristic that distinguishes it from other forms is; once the project is completed, the organisation is disbanded or phased out. By definition, project management involves, “the gathering of the best available talent to accomplish a specific and complex undertaking within time, cost and quality parameters, followed by the disbanding of the team upon completion of the undertaking”. The group members then go on to another project, return to their permanent home department in the organisation, are given jobs elsewhere in the organisation, or in some cases, are phased entirely out of the firm.
The matrix structure
The matrix structure is a hybrid organisational form, containing characteristics of both project and functional structures. In consumer goods industries, it could contain the characteristics of both product and functional departments. This structure allows operational responsibilities to be divided into two parts. One part contains all the responsibilities associated with the management of an independent business and is given to an individual who is called ‘business manager’ or ‘product manager’. The other part contains all the responsibilities related to the management of resources needed to get the job the done. The person responsible for these is the usual ‘functional manager’ or ‘resource manager’ in charge of the functions like production, marketing, finance, personnel and so on.
The matrix is built around a cooperative relationship between the project/product manager and the functional / resource manager. Thus, project staff members in a matrix structure have a dual responsibility. First, they are responsible to the head of their functional department, the person who has assigned them to the project. The functional department head is their line superior and will continue to be so. But the project manager exercises what is called project authority over the project staff. Exhibit – 5 presents these dual responsibilities in a matrix form of organisation.

EXHIBIT - 5


















Functional Authority
Project Authority

When the concepts of functional and project authority are brought together, the result is an organisation structure that is both vertical and horizontal. The vertical pattern is brought about by the typical line authority flowing down from superior to subordinate. The horizontal authority flow is caused by the fact that both the scalar principle and unity of command principle are violated.
Companies like Larsen & Toubro (L&T), Western India group, U.P. Construction Corporation. Afcons-Pauling etc., adopt this structure for the execution of various projects. For instance. L&Ts construction of Jawaharlal Football stadium in Madras and Afcons-Pauling’s laying the East Coast road are big projects themselves. The execution of such projects is entrusted to a team drawn from the functional departments of the headquarters. The overall responsibility for the project lies with the Project manager. The people that work in the project are
responsible to the project manager as well as their functional head from whom they are drawn. Similarly, in the multi-product consumer goods industries, as in the case of projects, responsibility for different products may be placed on product managers as could be seen in the exhibit. The matrix may be temporary or permanent. In construction and turnkey activities, project is disbanded after the execution, where as it may take a permanent form in the case of a consumer goods company.
Advantages of Matrix Organisation
David I. Cleland and William R. King identify the advantages as follows:
• Utilization of manpower can be flexible because a reservoir of specialists is maintained in functional departments. These specialists can be deployed to the various projects for optimum use of their services;
• Responsibility for the overall execution, management and project is with the project manager who acts like a chief executive;
• Specialized knowledge is available to all projects or products on an equal basis. Knowledge and experience can be transferred from one project to another;
• Project people have a functional home when they are no longer needed on a given project;
• A better balance between time, cost and performance can be obtained through the built-in checks and balances and the continuous negotiations carried on between the project and the functional organisation.
Disadvantages
Many of the drawbacks mentioned below of the matrix structure can not be avoided. Managers have to learn to deal effectively with them.
• The major disadvantage relates to power struggles. Since use of the matrix means use of dual command, managers often end up in conflicts;
• Matrix entails wide use of group decision making because group cooperation is required for success. The inevitability of group cooperation at times delays decision making;
• If the organisation has too many projects, the result may be severe layering of matrixes. Uncontrolled growth of matrix structures often results in power struggles between managers;
• Matrix structure may be expensive. The dual chain of command may cause management costs to double.
When there is an economic crunch and the organisation has to cut back, matrix structures are the first to go. Despite the drawbacks, these of matrix structure have spread too many industries. In addition to construction and engineering, consumer goods, banking, insurance and computer companies are now using it. Variations of matrix are also used by hospitals and other professional organisation.
contingency organisation design
The contingency approach to organisational design suggests using whatever approach is most effective. Accordingly, so many flexible structures are adopted these days to meet the specific needs of the organizations. The idea is that the internal functioning of organizations must be consistent with the demands of the organisation’s task, technology, external environment, and the needs of its members if the organisation is to be effective. This approach basically implies the development of a contingency theory of organisation. The approach is based on the exigencies of the situation.
William F. Gleuck offers the following guidelines for contingency design:
• When low cost and efficiency are the keys to successful goal achievement, organizations should use functional departmentation.
• When the environment is complex, matrix structure is effective;
• If the organisation is large and operates in a stable environment, it can afford to formalize the structure.
• The greater the intensity of competition, the greater will be the degree of decentralization.
• The greater the volatility of the environment, the more decentralized and flexible the organisation has to be; and
• Companies that implement the organisational style appropriate to their strategy will be more effective than those that use an in appropriate style.

4. Revision points
Introduction
Steps in Designing Organisation Structure
Departmentation
Product/Market Departmentation
• Product Departmentation
• Customer Departmentation
• Territorial Departmentation
Product Organisation
The Matrix Structure
Continentals Organisation Design

5. Intext questions
 What are the five types of power? Identify and describe each with suitable examples.
 Explain the process of delegation of authority in an organization. Discuss the factors that in an organization. Discuss the factors that encourage it and those that discourage it.
6. Summary
The managerial function organizing is the process of identifying the important activities to be performed to achieve the objective, grouping of related activities, assigning such groups of activities of people and providing for coordination by establishing authority-responsibility relationships among people. Creation of departments within the organization – the process known as departmentation, resulting in the design of a structure is an important task in organizing. Different patterns of departmentation are used by organizations depending on their specific requirements. Important among them are functional, product, customer, and territorial departmentation. Matrix organization which is a hybrid form of both functional and project / product departmentation is also being increasingly used by organizations operating in highly competitive markets. The question that what kind of structure is best has no single right answer. It depends on the situation. Some firms needs stable systems while some other needs flexible systems. The nature of the task, technology, environment and the needs of the organizational members are some of the factors that influence the design of the structure.
7. Terminal exercises
Considering the changes that are taking place in the Indian economic environment in the post – liberalization era, do you believe there will be a trend towards centralization or decentralization over the next few years? Give reasons.
8. Supplementary material
 Chester A. Barnard, 1938. The functions of the executive, Harward University Press, Cambridge.
 Claude S. George, Jr. 1968. The History of Management Thought, Prentice- hall, England Cliffs, J.N.
 Harold Koontz and Cyril O’Donnell, 1976, Management: A Systems and Contingency Analysis of Managerial Functions, McGraw-Hill, New York.
9. Assignments
How are delegation and decentralization related? Discuss the important factors that influence the degree of decentralization in an organization.
10. Suggested readings
 Harey Sherman, 1966. It All Depends: A Pragmatic Approach to organisation, quoted in A.F. Stoner and Freeman, Management, 1989, prentice-hall India, New Delhi.
 Arthur G. Bedian, 1993. Management, The Dryden press New York.
 Richard M. Hodgets, 1986. Management: Theory, process and practice, Academic press, New York.
11. Learning activities
Considering the changes that are taking place in the Indian economic environment in the post – liberalization era, do you believe there will be a trend towards centralization or decentralization over the next few years? Give reasons.
12. Key words:


Chapter – 6: Line and staff relations

1. Introduction:
Effective functioning of the formal organisation depends on the authority-responsibility relationships among people working in groups to achieve the objectives. Different types of relationships are possible throughout the organisation structure. We will, in this lesson, understand the line and staff authority relationships.
Perhaps no other area of management has created as much confusion as the line and staff authority. Though the concepts have been present in management literature for many years, they still remain to be clouded with conflict and confusion. The viewpoints of different authors widely differ in regard to the line and staff relationships. Let us, therefore, first understand what the line and staff authority mean.

2. Objectives
After studying this lesson, you should be able to:
• Understand the concepts of line and staff authority;
• Describe the major reasons for the conflicts between line and staff managers;
• Suggest ways and means to achieve proper harmony between the two; and


3. Content
LINE AND STAFF CONCETPS
There are two approaches, to understand line and staff concepts. One approach lays emphasis on the basic functions of the business. Accordingly, functions of an enterprise are classified into line and staff functions. To quote Louis Allen: “Line functions are those which have direct responsibility for accomplishing the objectives of the enterprise and staff refers to those elements of the organisation that help the line to work most effectively in accomplishing the primary objectives of the enterprise.
Thus, organisational objectives are the basic determinant of line and staff functions and with the change in the objectives, line and staff functions may change. A line function in one organisation may be staff function in another. For example, personnel unction in an employment agency is line but it is a staff function in a manufacturing organisation. In a manufacturing organisation whose basic objective is to produce and sell goods, production and marketing are line functions and others such as finance, personnel, legal, etc. are staff functions. Further, within a department, there may be line and staff function, for example, in marketing department, selling may be line function whereas market research is a staff function.
The other approach lays emphasis on the authority and views that line and staff are two kinds of authority. According to this approach, line authority is defined as a direct authority which a superior exercise over his subordinates to carry out orders and instruction. The exercise of this authority is always downwards, that is, from a superior to a subordinate. Staff authority involves giving advice to line managers to carry on the operation. The flow of this authority may be in any direction depending on the need of such an advice. Koontz and others have defined line and staff authority as follows.
“Line authority becomes apparent from the scalar principle as being that relationship in which superior exercises direct supervision over a subordinate – an authority relationship in direct line or steps. The nature of staff relationship is advisory. The function of people in a pure staff capacity is to investigate, research, and give advice to line managers to whom they report”.
It is common that in actual practice, some variations may exist. The variations are more pronounced in the case of staff authority. As presented in exhibit-1, variations in the Staff authority may be seen in a continuum.
EXHIBIT - 1

Line Staff
authority authority
(Command) (Advice)


Functional Concurring Compulsory
authority authority Staff consultation

The distinction between line and staff is important because staff must be provided if the growing organisation is to accomplish its goals. Line and staff relationships are established to guide people in the way they work together. But, for practical purposes it should never be looked upon as an inflexible barrier. The differentiation between line and staff is necessary for the following reasons:
LINE AUTHORITY
Line authority exists between superior and his subordinate. In the organizing process, authority is delegated to the individuals to perform the activities. The individuals, in turn, assign some of the activities to persons working below them in the hierarchy and delegate them authority. This process goes on, creating superior subordinate relationships in the organisation. The direct relationship between a superior and his subordinate is created through the enforcement on line relationship. Such a relationship works as follows:
As a Chain of Command: A command relationship exists between each superior and subordinate. Line authority is the heart of this relationship because it entitles a superior to direct the work of his subordinate.
As a Channel of Communication: Line authority can be treated as a channel of communication between members of the organisation. Communication up and down in the organisation flows through the line relationship. Barnard has emphasized the role of line relationship as a channel of communication by suggesting that line communication should be established and every member of the organisation should be tied into the system of communication by having someone to report to and others to report him. Such a line can be maintained easily through the chain of command.
As a Carrier of Responsibility: The line relationship carries ultimate responsibility for the work assigned. Though the process of assigning activities goes on till the level where actual work is performed by operatives, each individual in the line is accountable for the proper performance of the activities assigned to him.
STAFF AUTHORITY
The relationship between a staff manager and the line manager with whom he works depends in part on the staff duties. A man who only gathers facts or only checks on performance will have relationship with line manager that are different from those of a man who has concurring authority. Such variations between line and staff relationships as discussed earlier, run along a continuum with only advice at one extreme point and functional authority at other extreme point. In between, two more situations represent compulsory staff consultation and concurring authority. (See exhibit-1) The different shades of staff authority are discussed below:
Advisory Staff Authority
This is the type of staff relationship popularly associated with the term staff authority. An advisory staff manager provides advice, assistance, and information and it depends on the line manager whether these are put into action or not. Thus, a staff man relies largely on persuasion to get his ideas put into effect. In the absence of power of command, he must build confidence in his opinions. Therefore a staff manager has to depend on his persuasive skills.
Compulsory Staff Consultation
Some organizations prescribe the practice of compulsory staff consultation. Under this arrangement, a staff man must be consulted before action is taken. However, line manager is free to take action of his choice after consulting staff. Compulsory consultation supplements more general requirements for successful staff work, the requirements that a staff would have access to any information that relates to his field of interest.
Concurring Authority
At times, a staff man may be granted authority so that no action can be taken until he agrees to it. For example, quality control inspector must pass on raw material or semi finished products before they move to the next stage of production, or agreement with employees over the matter of wages should be entered only after the personnel manager has agreed to it. The idea of concurring authority is that the staff viewpoint is incorporated into operating decisions. It is a better arrangement because of which line manager can not take needless action. These considerations suggest that concurring authority is granted only when the viewpoint represented by a staff man is particularly important when possible delay in action will not be serious. For example, it may be prescribed that a finance manager can not withhold capital expenditure simply because of his disapproval of capital expenditure plan, but he can withhold it because funds are not available of funds can not be arranged. In government organizations, normally wide-ranging concurring authority is granted to staff men.
LINE AND STAFF CONFLICT
Line and staff relationship implies that both support each other harmoniously to achieve organisational objectives. However, there are frequent instances of conflict between line and staff in the organizations, resulting in friction and loss of time. The various factors leading to line-staff conflict can be grouped into three categories: apprehensions of line managers, apprehensions of staff, and nature of line-staff relationship. Let us examine how these apprehensions generate conflict.
Apprehensions of Line Managers
Line Managers, who are responsible for the final results leading to the achievement of organisational objectives, feel that staff people work against them in the following ways.
i. Lack of Responsibility: Line managers often allege that staff people do not carry any responsibility in the organisation, but enjoy authority. Lack of responsibility makes them complacent and they do not care far the ultimate objectives of the organisation. On top of all this, line managers contend that they will be criticized if things go wrong; while the staff will get the rewards if things go well. This disparity between authority and responsibility and also between contributions and rewards is a source of jealousy between line and staff.

ii. Encroachment of Line Authority: Line managers perceive that staff people encroach upon their authority by advising on matters which fall within their jurisdiction. Whenever there is any such encroachment the result is resentment, hostility, and open or hidden reluctance to accept advice and recommendation.
iii. Dilution of Authority: There is also a feeling that staff people dilute line authority. Line managers fear that their responsibility will be reduced because of the addition of staff thereby making their job less challenging. Such a feeling of insecurity makes the managers suspicious of staff managers.
iv. Theoretical Bias: Often the advice and recommendation of staff people suffer from theoretical bias because of two reasons. First, they tend to think within the context of their own speciality, and thus lack practical implication. Second, as staff people are away from the actual operational scene, they are not able to fully appreciate the actual dimensions of the problems and their recommendations may not be practicable.
APPREHENSIONS OF STAFF MANAGERS
Similar to the contention of line managers, staff people have their own arguments and try to find fault with the line managers. The focus of the staff arguments centres normally around the following:
i. Lack of Proper Use of Staff: Staff people feel that the line managers do not make proper use of their services and decisions are made without inputs from staff. They are informed after the action has been taken. By virtue of his position, a line manager can accept, amend, or reject the advice of staff irrespective of its quality and practicability. Further, when something goes wrong in the area of his operation, staff person from concerned field in made the scapegoat.
ii. Resistance to New ideas: Line managers often resist new ideas because new ideas mean that there is something wrong with their present way of working. Thus new ideas are treated as fault-finding device in their operation. As against this, staff people are more innovative in the areas of their speciality. Because line people are reluctant to new ideas, many of the efforts of staff people go waste.
iii. Lack of proper Authority: Staff people feel that they contribute to the realization of organisational objectives without really enjoying any authority. Line managers clearly hold most of the cards and enjoy enormous authority. It is not necessary to consult staff before arriving at a decision. Even when staff is consulted, it is not necessary that staff advice is put into practice. As a result staff specialists feel that if they have the best solution to a problem, they should have authority over line managers to force the solution.
Nature of Line-Staff Relationship
In addition to the factors discussed so far, following inherent characteristics of line and staff relationship also contribute to conflicts and tensions.
i. Divergent Backgrounds: Line and staff-people, often have different backgrounds and individual characteristics. Staff people in contrast to line, are
generally younger, better educated, more poised in social interaction, more articulate and individualistic. As a result, they often look down on the less educated line people who must have worked their way up through the organisation. These differences create an atmosphere of mistrust and hatred between them. Thus, both of them work in an environment of hostility.
ii. Lack of Demarcation Between Line and Staff: Though in theory, line and staff authority is clear, often in practice, demarcation between line and staff is rarely clear. Many jobs in line and staff defy description and relationship between them is not clarified. In such cases, there is a possibility for overlap and gap in authority and responsibility which can affect personal relationships.
iii. Lack of proper Understanding of Authority: Assuming that line and staff authority is made clear in the organisation, in practice, people may fail to understand the exact nature. This misunderstanding may lead to encroachment of authority either by line or by staff people.
ACHIEVING HARMONY BETWEEN LINE AND STAFF
The following guidelines, if understood thoroughly may solve many problems.
1. Line people have the ultimate responsibility for the successful operation of the organisation. Therefore, they should have authority for making operating decisions.
2. Staff people contribute to achieve organisational objectives by making recommendations and providing advice in their respective fields. In some situation, they may be granted functional authority through which they can ensure that their recommendations are put in operation.
3. Since in most cases, solicitation of advice and acceptance of that is usually at the option of the line people, it becomes imperative for the staff to offer advice and service.
4. Barring few exceptional situations where time factors is of utmost importance for decision making, line should be impressed upon the need for compulsory consultation 5. Staff people should sell their ideas to line people. They should rely more on the authority of knowledge and competence rather than authority of position.
How to make better use of staff
Staff people are needed in the organisation because line people may not able to solve the problems which require special knowledge and expertise. The effectiveness of line people depends to a large extent on how they make use of staff. For making proper use of staff, following points are important.
1. There should be encouragement and education to line people as to how to make maximum use of staff effectively. Line people can not make use of staff unless they know what a specialist can do for them. At the same time, staff people also have a responsibility to let line people know now they can contribute for the better performance of line activities.
2. In order to make proper use of staff, they should not be kept busy in unimportant work because it does not serve any meaningful purpose. Instead, they should be assigned critical work in the area of their speciality.
3. Staff people should be involved at the basic stage of planning of an activity rather than when the problem becomes critical. When they are involved at the level of planning, many of the problems may not arise.
4. If the people have taken some actions directly affecting staff activities without consulting staff people. They should be informed immediately about such actions. The information will help in removing misunderstanding, if any, crated in the minds of staff people.

5. Revision points
 Line and Staff Concepts
 Line Authority
 Staff Authority
 Line and Staff Conflict
 Achieving harmony between Line and Staff

6. Intext questions
 Line - staff conflict for many reasons. State reasons and examine the following adages: “Staff should be on tap, not top”, and “Staff should sell, not tell”.
 What are the important sources of conflict between line and staff managers? How do you resolve the conflicts? State some real situations?
7. Summary
Line positions may be defined as those directly responsible for achieving the organization’s goals. Staff positions provide expert advice and service to the line. Staff authority ranges from being limited to advising on request, to compulsory consultation, to concurrent authority, to functional authority. Because of the differences in the nature of authority between the two, it is not uncommon to hear about the conflicts between the line and staff managers. Each look at the other with suspicion. As a result, in fighting and always trying for one gunmanship are quite natural in organizations. The concepts of the line and staff authority, reasons for the conflicts and the ways and means of achieving harmony have been discussed in this lesson.
8. Terminal exercises
 Describe the difference between the advisory authority, concurrent authority and functional authority.
9. Assignments
 What are the important sources of conflict between line and staff managers? How do you resolve the conflicts? State some real situations?
10. Suggested readings
 Arthur G. Berdan, 1993. Management, the Dryden press, New York.
 Harold Koontz, Cyril O’Donnell and Heinz Welhrich. 1984 Management, McGraw – Hill, Tokyo.
 George R. Terry and Stephen G. Franklin, 1988, Principles of Management, AITBS, Delhi.
11. Learning activities
 What are the important sources of conflict between line and staff managers? How do you resolve the conflicts? State some real situations?
12. Key words


Chapter- 7 : committee organization
1. Introduction
The available evidence on the practices in the corporate sector shows that the use of committees sin all types of organizations is on the increase. As the emphasis on the group decision-making and participation increases, so also the use of committees in the company’s affairs

2. Objectives
After studying this lesson, you should be able to
• Familiarize with various aspects related to the committee form of organization.

3. Content
The available evidence on the practices in the corporate sector shows that the use of committees sin all types of organizations is on the increase. As the emphasis on the group decision-making and participation increases, so also the use of committees in the company’s affairs. If adequate care is exercised in respect of the following factors, the benefits far outweigh the disadvantages.
i. Authority and scope must be specified: The terms of reference to the committee and the authority of it have to be clearly defined. That is, whether the committee has the authority to make decisions, or its job is just to make recommendations. If the scope and authority of the committee are not clearly defined, quite often, members may end up in deliberating issues that are not referred to the committee at all.
ii. Size of the committee: Though there is no exact number regarding the size of the committee, the complexity of interrelationships naturally increases with the size of the group. If the group is too large, it may be difficult for the members to communicate effectively, on the other hand, if it is too small, the purpose behind the use of committee may be lost. As a general rule, a committee should be large enough to promote deliberations and to provide an opportunity for the consolidation of wisdom and expertise of many members; Research indicates that the ideal committee size is five, when all the five members possess adequate skills and knowledge to goal with the subject assigned to the committee.
However, if the committee is to have all interested groups participate in its deliberations, the number may be large. If all the interested groups are not represented, the committee’s work may be criticized. In such a situation where the need for representation of the interested parties, makes the committee too large, one option could be to constitute sub-committees by breaking down the problems to be studied.
iii. Selection of Members: For the committee to be successful, the members on the committee must be good at understanding the problems and analysing them. They must also be good at performing well in a group. Every member must have the right temperament, verbal and analytical ability and capacity for working with others. Selection of members requires judgement about the personal characteristics of members, their functional background and level in the organisation. The basic objective is decisions. Committees are likely to function better if members are friendly, known to each other and respect each other. Committees which include members drawn from different levels are unlikely to function effectively because there from the lower levels may not very actively participate in discussions because of the variances in this formal positions in the organizations. For example, workers representatives, and the boards of management of many organizations and the teachers representatives on the various administrative bodies of universities are found to be not very effective purely because of this factor.
iv. Nature of the subject matter: Careful selection of the subject matter to be entrusted to the committee is equally important. Certain subjects can be handled effectively by a committee while others can be handled better by individuals. For instance, research and development which depend on the individual creativity cannot be entrusted to a committee. On the other hand, for the establishment of major objectives and formulation of policies and review and coordination of work, committee may be preferred.
v. Effectiveness of Chair person: The chairperson in fact, is the leader of the committee. Therefore, the effectiveness of the committee depends on the chairperson’s skills and motivation. His basic functions include planning for the meetings, preparing the agenda, supplying some preliminary information to the members and conducting the meetings effectively. The chairman must not act in a prejudicial way and yield to the pressure of a few members. He has to monitor and coordinate the proceedings such that effective decisions are taken by the committee. He has to see that the minutes of the meetings are recorded properly, circulated to all the members. Modifications suggested and action taken on recommendations should also be communicated.
4. Revision points
Committees
5. Intext question s
What are committees?
6. Summary