Defining an Organization

The Role of Management in an Organization

Management is tasked with generating an organizational system and integrating operations for high efficiency.

Learning Objectives

Categorize the three primary managerial levels in an organization

Key Takeaways

Key Points

  • Management may be described as the the people who design an organization ‘s structure and determine how different aspects of the organization will interact.
  • Management entails six basic functions: planning, organizing, staffing, leading, controlling, and motivating.
  • Different levels of management will participate in different components of this design process, with upper management creating the initial organizational architecture and structure.
  • Organizational design is largely a function based on systems thinking: identifying the moving parts within an organization that add value and ensuring that these parts function together as an effective and efficient whole.
  • Organizational design is less static in modern organizations; therefore, management must actively adapt organizational design to various challenges, opportunities, and technological improvements to maintain competitive output.

Key Terms

  • organization chart: A graphic display of reporting relationships, which sometimes displays position titles and position holders.
  • systems thinking: The process of understanding how parts influence one another within a whole.

Management and Organizational Design

Management can be described as the people who design an organization’s structure and determine how different aspects of the organization will interact. When designing an organization, managers must consider characteristics such as simplicity, flexibility, reliability, economy, and acceptability. Different levels of management will participate in different components of this design process, with upper management creating the initial organizational architecture and structure.

Organizational design is largely a function based on systems thinking. Systems thinking involves identifying the moving parts within an organization that add value and ensuring that these parts function together as an effective and efficient whole. Perspective is essential in systems thinking: a manager’s role in organizational design is to refrain from thinking of departments, individuals, processes, and problems as separate from the system and instead think of them as indivisible components of the broader organizational process.

Modern organizations exist within a framework of globalization and constant technological disruptions; as a result their organizational design is less static than in the past. Management must actively adapt organizations to meet various challenges, opportunities, and technological improvements to maintain competitive output. Because the organization is always changing, the problems of process and design are essentially limitless. Using a systems approach, managers view their objectives as moving targets and actively engage in expanding the organization day by day.

Management Processes

Organizations can be viewed as systems in which management creates the architecture for the system of production. Managers’ role in organizational design is central but must be understood in the context of their overall responsibilities within the organization.

Management operates through functions such as planning, organizing, staffing, leading/directing, controlling/monitoring, and motivation. These functions enable management to create strategies and compile resources to lead operations and monitor outputs.

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The functions of management: Management operates through four main functions: planning, organizing, directing (i.e., leading), and controlling (i.e., monitoring and assessing).

Management Hierarchy

All levels of management perform these functions. However, the amount of time a manager spends on each function depends on the level of management and the needs of the organization—factors which play a role in organizational design.

  • Top-level managers include the board of directors, president, vice-president, CEO, and other similar positions. They are responsible for planning and directing the entire organization.
  • Middle-level managers include general managers, branch managers, and department managers, all of whom are accountable to the top-level management for the functions of their departments. They devote more time to organizing and directing.
  • First-level managers include supervisors, section leads, foremen, and similar positions. They focus on controlling and directing.

As a result of this hierarchy, upper management will view the organizational design from a macro-level and consider all moving parts of the organization. Middle-management will generally focus on operations within functional or geographic areas. Lower-level managers will look at specific processes within functions or regions. From an organizational-design perspective, the higher managers are in the organization, the broader the view they will take and the greater number of moving parts they will consider.

Basic Types of Organizations

Most organizations fall into one of four types: pyramids/hierarchies, committees/juries, matrix organizations, and ecologies.

Learning Objectives

Describe the basic types of organizations using four common structures

Key Takeaways

Key Points

  • Organizations fall into one of four basic types: pyramids/ hierarchies, committees/juries, matrix organizations, and ecologies.
  • From a business perspective, the choice of organizational design has substantial implications for strategy, authority distribution, resource allocation, and functional approaches.
  • A pyramid/hierarchy has a leader who is responsible for making all decisions that affect the organization. This leader manages other organizational members.
  • Committees/juries consist of groups of peers who decide collectively, sometimes by casting votes, on the appropriate courses of action within the organization.
  • Matrix organizations assign workers to more than one reporting line in an attempt to maximize the benefits of both functional and decentralized organizational forms.
  • In ecologies, each business unit represents an individual profit center that holds employees accountable for the unit’s profitability.

Key Terms

  • common law: A precedent or policy developed by judges through decisions of courts and similar tribunals.
  • functional: A structure that consists of activities such as coordination, supervision, and task allocation.
  • decentralized: A structure where business units operate autonomously and have greater decision-making power.

Basic Organizational Structures

An organization is a social entity with collective goals that is linked to an external environment. Most organizational structures fall into one of four types: pyramids/hierarchies, committees/juries, matrix organizations, and ecologies. From a business perspective, the choice of organizational design has substantial implications for strategy, authority distribution, resource allocation, and functional approaches.

Pyramid/Hierarchy

An organization using a pyramid or hierarchy structure has a leader who is responsible for and makes all the decisions affecting the organization. This leader manages other organizational members. Pyramids and hierarchies often rely on bureaucratic practices, such as clearly defined roles and responsibilities and rigid command and control structures. Like a physical pyramid, these organizations need a sturdy base with sufficient members to support various levels of management within the overall structure so that the organization does not fall short of its goals.

From a business perspective, a hierarchy will often be divided according to function or geography. For example, a global retailer may utilize a geographic hierarchy at the upper level, with each geographic branch creating a functional hierarchy beneath it. A smaller organization operating in a single region may simply have a functional hierarchy.

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The Iraqi Special Security Organization: This organizational chart of the Iraqi Special Security Organization illustrates a hierarchy. Note the multiple separate layers to the organization’s hierarchy; the lowest layer includes individual branches, the next layer involves supervisory directorates, which report to the director’s office, who is accountable to the scientific branch.

Committee/Jury

Committees or juries consist of groups of peers who decide collectively, sometimes by casting votes, on the appropriate courses of action within an organization. Committees and juries have a basic distinction: members of a committee usually perform additional actions after the group reaches a decision, while a jury’s work concludes once the group has reached a decision. In countries with common-law practices, for example, a jury of peers render innocent or guilty verdicts in the court system. Juries are often used to determine athletic contests, book awards, and similar contests.

In the business world, a committee structure is more commonly found in smaller institutions. A start-up company with three people, for example, may easily function as a committee in which decisions are made via discussion. Committees represent a decentralized approach to organizational design and tend to have a collaborative, often unstructured workplace. The more people involved, the more disparate and less effective committee structures become.

Matrix

Matrix organizations assign employees to two reporting lines, each with a boss representing a different hierarchy. One hierarchy is functional and assures that experts in the organization are well-trained and assessed by bosses who are highly qualified in the same areas of expertise. The other hierarchy is executive and works to ensure the experts bring specific projects to completion. Matrix organizations are by far the most complex and are more common in large corporations.

Projects can be organized by product, region, customer type, or other organizational need. The matrix structure combines the best parts of both separate structures. In a matrix organization, teams of employees perform work to take advantage of the strengths and compensate for the weaknesses of both the functional and decentralized forms of organizational structure. Matrix organizations may be further categorized as one of the following types:

  • Weak/Functional Matrix: A project manager with limited authority is assigned to oversee cross-functional aspects of the project. Functional managers maintain control over their resources and project areas.
  • Balanced/Functional Matrix: A project manager is assigned to oversee the project. Power is shared equally between the project manager and functional managers, combining the best aspects of functional and project-oriented organizations. This system is the most difficult to maintain because of difficulties in power-sharing.
  • Strong/Project Matrix: A project manager is primarily responsible for the project. Functional managers provide technical expertise and assign resources as needed.

Ecology

In ecologies, each business unit represents an individual profit center that holds employees accountable for the unit’s profitability. These kinds of organizations foster intense competition, as all members are paid for the actual work they perform. Ineffective parts of the organization are left to fail and thriving parts are rewarded with more work. Companies that use this organizational structure define roles and responsibilities strictly, and each business unit tends to operate autonomously. In an ecology organization, clearly defined, measurable objectives that reflect the business’s goals are critical.

The Organizational Chart

An organization chart is a diagram that illustrates the structure of an organization.

Learning Objectives

Compare the various types of organization charts that describe company structures

Key Takeaways

Key Points

  • Organization charts are a vital tool of management and can be classified into three broad categories: hierarchical, matrix, and flat (or horizontal).
  • Organization charts illustrate the structure of an organization, the relationships and relative ranks of its business units/divisions, and the positions or roles assigned to each unit/division.
  • Before working with an organization, employees should procure a copy of its organizational chart. A new employee or manager can then understand how authority is distributed within the organization and with whom to consult about various concerns.

Key Terms

  • decentralized: Dispersed rather than concentrated in a single, central location or authority.

The Purpose of Organization Charts

An organization chart (sometimes called an organizational chart, an org chart, or an organogram) is a diagram that illustrates the structure of an organization, the relationships and relative ranks of its business units/divisions, and the positions or roles assigned to each unit/division.

Examples of such roles include managers of various departments, subordinates within these departments, directors, and chief executive officers. When an organization chart grows too large, it can be split into smaller charts that show only individual departments within the organization.

Prior to applying for a job or beginning work with an organization, a prospective employee should procure a copy of the organization chart. New employees or managers can then know with whom to consult about particular issues, as well as understand the distribution of authority within the company. The org chart can also provide insight into the broader strategy of the company—such as the degree of innovation versus process control being pursued, the flexibility of project management, the degree of autonomy, and the broader company culture.

The different types of organization charts include hierarchical, matrix, and flat (also known as horizontal). These are described briefly below.

Hierarchical Organization Charts

A hierarchical organization is an organizational structure with several reporting layers. Every entity within the organization—except for the owners—is subordinate and reports to a higher level entity.

Matrix Organization Charts

A matrix organizational chart displays how people with similar skills are pooled together for work assignments.

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Matrix organizational chart: In a matrix structure, the organization is grouped by both product and function. Product lines are managed horizontally and functions are managed vertically. This means that each function—e.g., research, production, sales, and finance—has separate internal divisions for each product.

Flat or Horizontal Organization Charts

A flat organization chart shows few or no levels of intervening management between staff and managers. A flat chart will simply look like a line of boxes with no overt authority implied.