ORGANIZATION THEORIES

AND BEHAVIOUR

UNIT 1
Afor
B.B.A
 THE CONCEPT OF ORGANIZATION
• Organization is a place where two or more people work together in a
structured way to achieve a specific goal or set of goals. Goals are
fundamental elements of organizations.
• e.g. ONGC, INFOSYS, Indian Railways etc.
• Organization can be compared to a human body. The human body consists
of hands, feet, eyes, ears, nose, fingers, mouth etc. These parts perform
their work independently and at the same time, one part cannot be a
substitute to another. The same principle is also applicable in the
organization. The organization consists of different departments and each
department performs its work independently and cannot be a substitute to
another.
• According to Talcott Parsons: “Organization is defined as a social unit
which is deliberately constructed and reconstructed to seek specific goals.”
CONT…
• According to W.R. Scott: “Organizations are defined as collectivities
that have been established for the pursuit of relatively specific
objectives on a more or less continuous basis. Organizations have
more or less fixed boundaries, a normative order, authority rank, a
communication system and an incentive system which enables various
types of participants to work together in the pursuit of common goals.”
• According to Louis A. Allen: “Organization can be defined as the
process of identifying and grouping the work to be performed,
defining and delegating responsibility and authority and establishing
relationships for the purpose of enabling people to work most
effectively together in accomplishing objectives.”
 CONT..

Functions of Determination of activities: It means the decision and division of various activities to achieve
Organization the objectives of the organization.

Grouping of activities: The identical activities of an organization are grouped under one
individual or a department.

Allotment of duties to specified persons: To ensure effective performance, the grouped

activities are allotted to specified persons.

Delegation of authority: It will be very difficult for a person to perform the duties effectively,
if there is no authority to do it. While delegating authority, responsibilities are fixed.

Define relationship: When a group of persons are working together for a common goal, it is
necessary to define the relationship among them. If it is done, each person will know who is
his boss, from whom he has to receive orders and to whom he is answerable.

Coordination of various activities: The delegated authority and responsibility should be

coordinated by the chief managerial staff. This person has to see whether all the activities are
going on to accomplish the objectives of the organization or not.
CONT…
People

ELEMENTS
OF
Environment Technology
ORGANIZA
TION

Organizational
Structure
 MEANING OF ORGANIZATION
THEORY
• Organization theory is a set of concepts, and principles that provide
• framework for systematic study of structure, functioning and performance
• of organization and of the behavior of individuals and groups working in
• them.
• Organization theory explains how organization structures are built. It also
• suggests how organization can be designed to improve their effectiveness.
• Organizational theories are broadly classified into three types:
1. Classical Theory
2. Neo-Classical Theory
3. Modern Theory
 MEANING OF ORGANIZATION BEHAVIOUR
• In simple terms, organizational behavior refers to the behavior of persons in an
organization.
• Behavior is anything that the human does. It is any response or reaction of an individual.
The basic unit of behavior is activity.
• Organizational behavior is the study of what people do in an organization and how their
behavior affects the organization’s performance.
• Running a large company or even a small one, is no easy task. The field of OB helps
understanding the complexities of people’s behavior on the job.
• Understanding others behavior helps the person to understand them and provides guidelines
for influencing the behavior of the person in the organization.
• Knowledge about human behavior would be useful in improving an organization’s
effectiveness.
• OB is both art and science. It is considered as art because it contains knowledge about
behavior of individuals. It is considered as science because it involves application of
 CLASSICAL THEORY
• It is the oldest theory of organization.
• It originated from the writings of classical management thinkers such as Taylor and Fayol.
• According to the classical theory, the organization is considered as a machine and the
human beings as different components/parts of that machine.
• In Classical theory, more emphasis is on the organization rather than the employees
working therein.
• The classical theory has the following characteristics:
1. It lays emphasis on detecting errors and correcting them once they have been committed.
2. It focuses on objectives and tasks and not on the human beings performing the tasks.
3. The human beings are considered to be relatively homogeneous and unmodifiable. Thus,
labor is not divided on the basis of different kinds of jobs to be performed in an organization.
4. It is assumed that employees are relatively stable in terms of the change, in an
organization.
5. It aims at maximizing control.
Cont…
Criticism of classical theory:
1. It ignores human aspect and views human beings as components of
the organization machine.
2. It believes that people at work can be motivated solely through
monetary incentives.
3. It is an authoritarian theory.
4. It is based on certain principles which are based mainly on
experience and not tested by scientific researches.
5. It regards organization as a closed system instead of open system.
Thus it ignores the influence of external factors on organization and
its members.
 CLASSICAL THEORY OF SCIENTIFIC ORGANIZATON MANGEMENT

• The concept of scientific Management was introduced by Frederick Winslow Tylor in U.S.A
in the beginning of 20th century this concept was further carried on by Frank and Lilian
Gilbreth, Henry Gantt, George Berth, Edward Feline etc.
• Scientific management was concerned essentially with improving the operational efficiency at
the shop-floor level. Taylor defined scientific management as: “ Scientific management is
concerned with knowing exactly what you want men to do and then see in that they do it in the
best and cheapest way.”
• The scientific method consists essentially of (a) Observation (b) Measurement (c)
Experimentation and (d) Inference.
• Taylor approaches: (a)Science, not rule of thumb (b) Harmony, not discord (c) Co-operation,
not individualism (d) Maximum output, in place of restricted output (e) The development of
each man to his greatest efficiency and prosperity.
• Elements of Scientific Management The techniques which Taylor regarded as its essential
elements or features may be classified as under: (a) Scientific Task and Rate-setting, work
improvement (b) Planning the Task (c) Vocational Selection and Training (d) Standardization
(of working conditions, material equipment etc.) (e) Specialization (f) Mental Revolution.
 CLASSICAL THEORY OF ADMINISTRATION
• The real father of modern operational management theory is the French industrialist
Henry Fayol.
• Fayol looked at the problems of managing an organization from top management
point of view. He has used term administration instead to management emphasizing
that there is unity of science of administration.
• For him, administration was common activity and administrative doctrine was
universally applicable. Therefore, management is a universal phenomenon.
However, he has emphasized that principles of management are flexible and not
absolute and are usable regardless of changing and special condition.
• Fayol found that activities of an industrial organization could be divided into six
groups:1. Technical activities - Production, manufacture, adaptation. 2. Commercial
activities - buying, selling and exchange. 3. Financial activities - search for and
optimum use of capital. 4. Security activities - protection of property and persons. 5.
Accounting activities - stock-taking, balance sheet, cost, and statistics. 6. Managerial
activities - planning, organization, command, co- ordination and control.
 Fayol’s Principles of Organization Management:

1 Division of work
2 Authority and Responsibility
3 Discipline
4 Unity of Command
5 Unity of Direction
6 Subordination of Individual Interest to General Interest
7 Renumeration of personal
8 Centralization
9 Scalar Chain
10 Order
11 Equality
12 Stability of Tenure
13 Initiative
14 Esprit de Corps
 CLASSICAL THEORY: BUREAUCRATIC
MODEL
• Max Weber, a German Sociologist developed the bureaucratic model. His model of bureaucracy include:
1. Hierarchy of authority.
2. Division of labor based upon functional specialization.
3. A system of rules.
4. Impersonality of interpersonal relationships.
5. A system of work procedures.
6. Placement of employees based upon technical competence.
7. Legal authority and power.
• Bureaucracy provides a rigid model of an organization. It does not account for important human elements.
The features of Bureaucracy are: 1 . Rigidity, impersonality and higher cost of controls. 2. Anxiety due to
pressure of conformity to rules and procedure. 3. Dependence on superior. 4. Tendency to forget ultimate
goals of the organization.
• Bureaucratic Model is preferred where change is not anticipated or where rate of change can be
predicated. It is followed in government departments and in large business organizations.
 NEO-CLASSICAL THEORY
• The neo-classical theory originated from the findings of famous Hawthorne
experiments conducted under the leadership of Mayo.
• The neo-classical school focuses attention on human beings and their
behavior in organizations.
• According to this theory, the organization is the social system, and its
performance does get affected by the human actions.
• The neo-Classical theory posits that an organization is the combination of
both the formal and informal forms of organization, which is ignored by the
classical organizational theory. The informal structure of the organization
formed due to the social interactions between the workers and gets affected
by the formal structure of the organization. Usually, the conflicts between the
organizational and individual interest exist, thus the need to integrate these
arises
 Cont…

• Characteristics of neo-classical organization theory:

1. The social environment on the job affects people and is also affected by the people.
2. Integration between organizational and individual goals is a must.
3. Money is only one of the motivators but not the sole.
4. Two way communication is necessary for sound functioning of the organization.
5. Team work is essential for cooperation and higher productivity.
• Criticism of neo-classical theory:
1. It is not a new theory of organizations. It is merely a modification of classical
theory.
2. The structures of organization suggested by this theory are not suitable in all
situations.
3. The theory over- emphasizes on human aspect. Consequently, other aspects
remained ignored or neglected.
 Neo-Classical Theory:Hawthorne Experiment
• Group of researchers conducted experiment in Harvard School of Business from 1927 to 1932, Lead researchers
were Elton Mayo and Fritz Roethlisberger, gave Hawthorne theory. The Hawthorne Experiments brought out
that the productivity of the employees is not the function of only physical conditions of work and money wages
paid to them. Productivity of employees depends heavily upon the satisfaction of the employees in their work
situation.
• The Hawthorne experiment consists of four parts. (1) Illumination Experiment: This experiment concluded that
there is no consistent relationship between output of workers and illumination in the factory. There must be some
other factor which affected productivity.
(2) Relay Assembly Test Room Experiment: Experiment was concluded by observing work-group of 6 girls
working in informal and friendly manner. The researchers concluded that socio-psychological factors such as feeling
of being important, recognition, attention, participation, cohesive work-group, and non-directive supervision held the
key for higher productivity.
(3) Mass Interview Programme: The researchers interviewed a large number of workers with regard to their
opinions on work, working conditions and supervision. The researchers observed that the replies of the workmen
were guarded. Therefore, this approach was replaced by an indirect technique, where the interviewer simply listened
to what the workmen had to say. The findings confirmed the importance of social factors at work in the total work
environment.
(4) Bank Wiring Test Room Experiment: The experiment was conducted of 14 workers. The production records of
this group were compared with their earlier production records. It was observed that the group evolved its own
production norms for each individual worker, which was made lower than those set by the management. Because of
this, workers would produce only that much, thereby defeating the incentive system. Those workers who tried to
produce more than the group norms were isolated, harassed or punished by the group .
 MODERN THEORY
• The modern theory of organization views organization as a system.
• The Modern theory is the integration of valuable concepts of the classical models with the
social and behavioral sciences.
• This theory posits that an organization is a system that changes with the change in its
environment, both internal and external.
• Characteristics of modern organization theory:
1. It considers organization as a system composed of many subsystems such as managerial,
technical, social sub system.
2. It regards individual as complex being who can be motivated in multitude of ways.
3. It is multi- disciplinary theory as draws concepts and principles from several disciplines such
as sociology, psychology, economics, engineering and so on.
4. It covers both the micro and macro environment of the organization. The macro environment
is external to the organization, while the micro environment is internal to the organization.
5. It ensures better flow of communication at all the levels and ensures effective control.
Cont….
6. The modern theory considers the organization as an open system. This means an
organization consistently interacts with its environment, so as to sustain and grow
in the market. Thus, this theory differs from the classical theory where the
organization is considered as a closed system.
7. Since the organization is treated as an open system, whose survival and growth
is determined by the changes in the environment, the organization is said to be
adaptive in nature, which adjusts itself to the changing environment.
8. The modern theory is probabilistic and not deterministic in nature. A
deterministic model is one whose results are predetermined and whereas the results
of the probabilistic models are uncertain and depends on the chance of occurrence.
• Criticism of modern organization theory:
1. It is not a unified theory of organization but a mixture of several theories. 2. It is
based on past empirical studies and there is nothing new in it.
 ORGANIZATIONAL GOALS
• An organizational goal is the end-point toward which activities are aimed. It is the target or end that managers
want to reach. Goals provide direction and serve as a reference point.
• Goals are the raisin deter of an organization. In other words, goals are the reason for the existence of an
organization. If an organizations fails to achieve its goal, it can be said that it has failed in its objectives. Thus,
goals are critical to organizational success and effectiveness.
• Organizations are purposive. They have specific goals to attain. In the process of attaining these goals, they
mobilize various resources-human as well as non-human (financial, physical, technical, etc.) available to them.
Organizational goals, in fact, provide an idea about the character, in tensions, activities, and behavior of an
organization.
• The nature of goals differs from organization to organization. A business enterprises wants to make a profits or to
increase its market share, or to attain higher ethical standards in the conduct of all its affairs. A social organization
like a university, in contrasts, may have an objective of increasing access to higher education, or provide relevant
and quality education to students in given fields of study. A non-profit hospital aims at improving community
health or patient care through mobile camps.
• The goals are more precise, specific, measurable, and focused statements. They should state clearly what is to
improved changed, reduced, or maintained.
• Organizational goals are as far as possible, expressed in quantitative measurable, and concrete terms desired to be
achieved within a given time period. Goals are firm commitments of the organization to accomplish something
specific.
TYPES OF ORGANIZATIONAL GOALS
One useful scheme for describing organizational goals was provided by Charles Perrow. He
has identified the following types of organizational goals:
• Officials goals: These goals are the formally stated goals of an organization described in its
charter and annual reports and they are emphasized in public statements by key executives.
• Operative goals: are the outcomes that the organization actually seeks to attain through its
operating policies and activities.
• Operational goals: Organizational goals define the performance objectives and desired behaviors
within an organization.
However, a typical social organization today has multiple stakeholders-groups of people, and
consequently has multiple goals, which, at times, may be mutually conflicting. According to
Perrow, multiple organizational goals can be classified into four major categories:
• Output goals: These goals are the "end product," such as consumer products, services, health
care, or education.
• System goals: System goals relate to the organization itself, and they consist of such things as
growth, stability, profit, efficiency, market share.
• Product goals: Product goals consist of the characteristics of the goods or services,
such as quality, styling, uniqueness, variety, and price.
• Derived goals: refer to the way an organization uses its power and influence to
achieve other social or political goals (such as employee welfare, community
services, or political aims).
Henry Minztberg has provided a different classification of goals:
• System goals.: There are four system goals: survival, efficiency, control, and
growth.
• Formal goals.: Formal goals are used by managers to tell everyone what they are
doing.
• Ideological goals.: These goals are what the people within the organization believe
in.
• Shared personal goals: These goals are what people within the organization come
together to accomplish for their mutual benefit.
• Organizations direct their scarce resources and energies into area that will help them to attain their goals. To motivate efforts
goals should be linked to reward. An organization may have multiple goals to pursue in a given period of time. When
organizations have such multiple goals to attain within limited time, financial and material resources, priorities are fixed. Most
crucial and urgent goals are given top priorities.
• Organizational goals are created in an attempt to achieve a desired state of profit and success. General organizational goals are
found in the mission /vision statement of the company, but details of those goals are defined in the business plan.
• IMPORTANCE OF GOALS
1.Focus Attention of Individuals and Groups to Specific Activities and Efforts of Organizations: When an organization's goals
are known to individuals and group, it will help them in channelizing their activities towards attaining organization's goals. In other
words the goals prescribe the course of action to individuals and groups which will be helpful and complementary to the
achievement of organization's goals.
2. Provide a Source of Legitimacy to Action by Members: Once this course of action has been decided for the individuals and the
groups within the framework of organizational goal, it will promote legitimacy and justification to individual’s or group’s actions
and decisions.
3. Serve as a Standard of Performance: Goals provide a measure of individual’s or group’s performance. They may help the
organization members to evaluate the level of their performance in the perspective of organization's goals.
4. Affect the Structure of Organization: Goals and structure are intimately related to each other. The relationship among people in
the form of authority and responsibility or the positions to be created at different levels has to be decided on the basis of
organizational goals.
5. Provide Clues about the Nature and Character of Organization: The nature and character of an organization may be known
by its goals. For instance, the goal of maintaining the quality of product without much regard to return on investment may help the
outsider to hold the organization and its members in very high esteem.
 DETERMINANTS OF GOALS
ORGANISATIONAL GOALS CAN BE DETERMINED :
1. LEVEL WISE (top, middle, and lower level):
Organizations are generally divided into three levels-top, middle and bottom. Generally, organization goals are formulated at the top of
the pyramid and filter down. In some cases, the reverse is also true. Based on this classification of organizational levels, four types of
goals can identified.
a) Mission: The organizations must first visualizes what they aim to become. They develop and formulate inspiring statements of the core
purposes of their work. These mission statements, thus, reflect the focus, image, philosophy, and aspirations of the organization.
b) Strategic Goals: They are developed in view of the mission of the organization. They outline overall organizations goals relating to
different dimensions of their business like profit making, product development, resources allocation, human resource development,
research priorities, and so on. These are therefore, organization set strategic goal.
c) Tactical or Intermediate Goals: Tactical or intermediate goals are set to translate the strategic goals into action. These goals involve the
middle level managers. Compared with strategic goals, these goals have a some what shorter time span, and more specific and concrete
focus .The focus of tactical goals is on how to rationalize actions necessary to achieve the strategic goals.
d) Operational Goals: Operational goals are set for lower-level management. The main concern here is with shorter term issues associated
with intermediate or tactical goals. The supervisory level staff members are responsible for develop in and implementing operational
goals that will meet the tactical goals. Activities and resources are assigned to individuals and groups to carry out some portion of the
operational goals. The operational goals affect employees day to-day-activities.
2. TIME WISE (short-term, medium-term, and long-term):
Organizational goals are also set across different time span. It is a common practice divide goals into three time frames-long term,
medium and short-term. Missions have infinite time horizon. Strategic goals are long term and cover many years, perhaps even decade.
Intermediate or tactical goals are medium term and usually cover periods from one to five years. Operational goals are short term and
have a time frame of one year or less.
 GOALS DISPLACEMENT
• Goal Displacement is a situation in which the original goals of the organization
are superseded by the new goals which are developed during the course of
time. Goal displacement can happen because of many reasons and at many levels,
with the only objective of ensuring the growth and prosperity of the company.
• Organizations develop initial goals to be achieved and for achieving them some
methods and rules are devised and followed. But during the course of time, these
rules and procedures may become primary and more important than the original
goals. The new goals may serve the interest of the employees or the management
of the organization. This is an inevitable threat organizations face.
• In cases where the organization's original goals are already achieved or when the
original goals are no longer necessary, goal displacement has positive effects
which help to organization to direct its energy elsewhere. For example an
organization which was initially intended to fight polio would displace its goals
once the vaccine for polio is invented.
• If the individual goals conflict with the organization goals then goal displacement
happens at personal level. Giving more importance to the means by which the goals are
achieved than the end results may displace the goals. And also if the long term goals are
substituted by the short term goals or if the original goals of the organization are
uncertain or abstract, goal displacement takes place.
• The concept was first used by MERTON (1949) to explain how the inflexibility of for
mal rules can lead to individuals using tactics of survival which displace the official goal
s of an organization. Merton's example revealed how government officials tended to act i
n ways which protected their interests rather than served the public
• Examples: ln some of the government schools, performance of teachers may be decided
on the basis of attendance and punctuality. And gradually these become the key criteria
for performance measurement than the way of teaching and results.
 GOALS DISTORTION
• Goal distortion is an extreme form of goal displacement. It implies
misunderstanding or misapplication of organizational goals. In an
organization, there may be several cases of goal distortions particularly when
the official goals are transformed into the operating goals.
• In organizations, where means- ends relationship is there, which suggests that
the ends of each lower unit are means for the higher unit, is distorted if it is
extended to a large extent; because the relationship is carried out by a large
number of people, each aware of the limited aspect of the organizational goals
only.
• Some major factors responsible for goal distortion are overemphasis on
certain aspects of goals, blockage in communication, sub-unit goal
internalization, and remote view of overall goals at lower level.
• For example, in banks, while allocating the budgets for various
branches, each branch is being allotted a particular amount for giving
loans and advances. The success of the branch is measured in terms of
the loans disbursed by it, not in terms of the effectiveness of these
loans or earnings to the bank out of these loans.
• Another example can be training imparted to the managers of an
organization. The particular department of the organization may
measure its success on the basis of the number of the training
programs and not on the quality of these programs. The goal may be to
train the managers for effectiveness
 ORGANIZATIONAL AND INDUSTRIAL
GOALS
• What business are you in? If you’re operating in a fast-growing industry like IT, technical services, or construction,
you should choose objectives that match your growth goals and include movement in a positive direction.
• For example, those might include launching a new product or increasing gross revenue within the next year. If
you’re in a slow-growing industry, like sugar manufacturing or coal-power production, choose company objectives
that focus on protecting your assets and managing expenses, such as reducing administrative costs by a certain
percentage
• What’s your objective within your industry? Two similar businesses in the same industry can have two very
different strategies. Your objective will determine the objectives you set as much as your industry.
• To further explain, here’s a business objectives example based on strategy. Think of two financial services
companies: Goldman Sachs and E*TRADE. Both handle customer finances and investments, but (generally
speaking) Goldman Sachs prioritizes high-touch, personal relationships, while E*TRADE values high-tech, self-
service relationships. As a result, the two organizations undoubtedly have distinct objectives. From a marketing
perspective, Goldman Sachs might focus on referrals and connections, and E*TRADE on social media and
customer service automation. Or from an HR perspective, Goldman Sachs could set objectives based on retention
and client relationships, and E*TRADE on technical skills and product development.
• Your business could have the same mission and purpose as another, but if it takes a different approach to achieve
that purpose, you should have a unique set of objectives
 INTEGRATION OF GOALS
ORGANIZATIONAL AND INDIVIDUAL GOALS:
• Edger H. Schein gave the view that there is a psychological contract between the individual and the
organization. Both the individuals and the organization have mutual expectations from each other.
This is beyond the formal contract of service between the two which lays down the economic terms
and conditions of the employment.
• The classical organization theorists assumed the organizational and individual goals to be
complementary. According to them there was no conflict between these two goals. According to
Henri Fayol “If at all, there is any conflict between the interests of the organization and an
individual, the organizational interest must prevail.” On the other hand, according to the Human
relationists, the in-congruency between the goals of the organization and individuals is inevitable.
• They suggested the satisfaction of human needs and achieving good human relations in the
organization as means to the accomplishment of organizational goals. Thus, it is for the management
to create environment for the satisfaction of individual needs for greater organizational effectiveness.
INTEGRATION OF ORGANISATIONAL AND INDIVIDUAL GOALS:
• In actual practice, no organization and individual has completely opposite or
completely compatible goals. We can say that some integration is always there between
the individual and organizational goals. In this context, HARRY LEVINSON advocated
the process of reciprocation. The process of fulfilling mutual expectations and
satisfying mutual needs in the relationship between a man and his work organization is
conceptualized as a process of reciprocation. It is a complementary process in which the
individual and the organization seem to become a part of each other.
• The person feels that he is a part of the organization and concurrently, he is a symbol
personifying the whole organization. There are two models based on the reciprocation
or the integration process through which the goals are integrated.
(a) Fusion process
(b) Inducement contribution process.
 Fusion Process
The fusion process is based on the assumption that individual goals and organizational goals are not totally opposing. There is,
generally, an interaction between these two.
• This interaction leads to two sub processes:
(i) Socialization
(ii) Personalization.
• According to E.W. Bakke and Chris Argyris, “as a result of socialization, individuals are made into agents of the organization
and/or the informal groups. The process by which the individual is made into an agent of the formal organization is called the
formal socializing process and by which he is made an agent of the informal group is called the informal socializing process. And
it is through personalization process that the individual achieves his personal goal of self actualization and by which organization
and informal groups are made into agencies for the individual.”
• Both socialization and personalization processes occur simultaneously in the organizations.
• If both are not coherent, two situations will arise:
(i) If the organizational goals are being achieved without contributing much towards The fusion process is based on the achievement
of individual goals, it means that socialization process is occurring much strongly.
(ii) If the individual satisfies his needs from work without totally opposing giving much to the organization, personalization process
is operating much strongly.
• Operation of this process indicates that the organization to some degree remakes the individual and individual to some degree
remakes the organization. Thus, it maintains the integrity of the organization in the face of the divergent interests of individuals,
groups, other organization, itself, which each hope to realize through its contact with the other. The higher the fusion score better
is the result for both the individual and the organization.”
 Inducement-Contribution Process
• Another process for the integration of individual and organizational goals was developed
by James G. March and Herbert A. Simon. Their inducement-contribution process
concentrates on those intellectual processes which tend to lie at the heart of large scale
organizations.
• The basic characteristics of this process are as follows:
(i) Each organizational member gets inducements for the contributions made by him to the
organization.
(ii) Each member will continue to give his contributions so long as inducements are more
or equal to contributions (assuming that the member is in a position to value both
contributions and inducements).
(iii) The contributions from various members (and groups) are the source through which
the organization produces inducements for the members.
(iv) The organization will continue to give inducements or receive contributions so long as
contributions are sufficient to give inducements.
 CONCEPT OF ORGANISATIONAL
STRUCTURE
• Some organizations, such as a high school volunteer club, exist to help
people in need. Other organizations, such as a student council, exist to
give students a voice at school. Business organizations exist to earn
profits. To meet their goals, they organize their employees into some
kind of structure.
• Companies adopt organizational structures in order to minimize
confusion over job expectations. Having an organizational structure
helps them coordinate activities by clearly identifying which
individuals are responsible for which tasks.
• According to Peter Drucker, organizational structure is an
indispensable means, and a wrong structure will seriously impair
business performance and may even destroy it. Organizational
structure must be so designed as to make possible the attainment of the
objectives of the business for five, ten or fifteen years hence.
• An organizational structure should be designed to clarify who is to do
what takes and who is responsible for what results, to remove
obstacles to performance caused by confusion and uncertainty of
assignment, and to furnish decision-making and communications
networks reflecting and supporting enterprise objectives.
 DETERMINENTS OF
ORGANISATIONAL STRUCTURE
Managements need to seriously consider how they wish to structure the
organization. Some of the critical factors that need to be considered are:
• The size of the organization
• Nature of the business
• Technology
• The objectives and the business strategy to achieve them
• The organization environment
 The size of the organization
The size of a business has a very important effect on the organizational structure that a management
adopts. Very small, single-person businesses need no organizational structure at all. Companies with only
a few employees can also function well without a formal structure. Once a business employs more than
just a few employees, however, a formal structure is necessary. Moreover, for a business to be successful,
its structure must change as the business continues to grow.
• STAGE 1: GROWTH THROUGH CREATIVITY During the first stage of growth, entrepreneurs with
new ideas create products or services for which there is a market. Their businesses tend to be small.
They usually lack formal structures, policies, and objectives. The company founder is involved in
every aspect of the business and makes all decisions.
• STAGE 2: GROWTH THROUGH DIRECTION Once a company grows, it enters the second stage of
its growth cycle. During this stage, the company grows in size, and the company founder is no longer
solely responsible for all decision making. Instead, the company relies on professional managers. The
managers are responsible for various functions, including planning, organizing, and staffing.
• STAGE 3: GROWTH THROUGH DELEGATION Sometimes a company’s structure becomes too
rigid, and decision making becomes too centralized. Lower-level employees feel left out of the
decision-making process. Top executives find themselves too far removed from the customer to make
good decisions.
 Nature of business
• The nature of business implies that type of product or service a company
produces is another important factor affecting its organizational structure. In
general, the number of levels within an organization increases as the level of
technical complexity increases. This means that a company that produces
sophisticated electronic equipment is likely to have more levels of management
than a company that produces garden tools. Companies that produce technically
complicated products also are likely to have a larger percentage of managers and
supervisors than companies that produce simpler products.
• The president of a large water company that has 7,500 employees aptly summed
up this relationship between product and organizational complexity. He noted,
“We don’t need more management than a toy store does.” A company with just a
few layers of management has a flat organizational structure.
 Technology
• Technology is a combination of tools, techniques and know- how and
has a major influence on organizational structure. The design of the
organizational structure would depend upon whether the technology is
simple and routine requiring few repetitive tasks.
• Joan Woodward studied the relationship between technology and
organizational structure in the early 1960’s among some English
manufacturing firms. She concluded that technology is a major
influence on organizational structure.
The objectives and the business strategy to
achieve them
• Goals are important part of organization’s strategies; structure should
facilitate goal achievement.
Simple strategy ➛ simple structure
Elaborate strategy ➛ more complex structure
• Certain structural designs work best with different organizational
strategies.
Passionate pursuit of innovation ➛ organic ((highly adaptive and flexible
structure)
Passionate pursuit of cost control ➛ mechanistic (rigid and tightly
controlled structure)
 The organization environment
• Environment is a constraint on managerial discretion.
• Environment also has a major effect on an organization’s structure.
• Stable environment: mechanistic structure (rigid and tightly controlled
structure)
• Dynamic/uncertain environment: organic structure (highly adaptive
and flexible structure)
• Helps explain why so many managers today have restructured their
organizations to be lean, fast, and flexible.
 TYPES OF ORGANISATIONAL
STRUCTURE
• Functional Organizational Structure
• Product Organizational Structure
• Geographic Organizational Structure
• Matrix Organizational Structure
• Hybrid Organizational Structure
• Boundaryless Organizational Structure
• Virtual Organizational Structure
Functional Organization Structure
• The functional structure is the most common model found in most organizations.
Organizations with such a structure are divided into smaller groups based on
specialized functional areas, such as operations, finance, marketing, Human
Resources, IT, etc.
• The organization’s top management team consists of several functional heads (such
as the VP Operations, VP Sales/Marketing). Communication generally occurs
within each functional department and is communicated across departments
through the department heads.
• This structure provides greater operational efficiency as employees are functionally
grouped based on expertise and shared functions performed. It allows increased
specialization as each group of specialists can operate independently.
• In spite of the above benefits there are some issues that arise with this structure.
When different functional areas turn into silos they focus only on their area of
responsibility and do not support other functional departments. Also expertise is
limited to a single functional area allowing limited scope for learning and growth.
Product Organizational Structure
• This is another commonly used structure, where organizations are organized
by a specific product type. Each product category is considered a separate unit
and falls within the reporting structure of an executive who oversees
everything related to that particular product line. For example, in a retail
business the structure would be grouped according to product lines.
• Organization structured by product category facilitates autonomy by creating
completely separate processes from other product lines within the
organization. It promotes depth of understanding within a particular product
area and also promotes innovation. It enables clear focus with accountability
for program results.
• As with every model, this model also has a few downsides like requirement of
strong skills specializing in the particular product. It could lead to functional
duplication and potential loss of control; each product group becomes a
heterogeneous unit in itself.
Geographic Organizational Structure
• Organizations that cover a span of geographic regions structure the
company according to the geographic regions they operate in. This is
typically found in organizations that go beyond a city or state limit and
may have customers all across the country or across the world.
• It brings together employees from different functional specialties and
allows geographical division. The organization responds more quickly
and efficiently to market needs, and focuses efforts solely on the
objectives of each business unit, increasing results.
• Though this structure increases efficiency within each business unit, it
reduces the overall efficiency of the organization, since geographical
divisions duplicate both activities and infrastructure. Another main
challenge with this model is that it tends to be resource intensive as it
is spread across and also leads to duplication of processes and efforts.
Matrix Organizational Structure
CONT…
• A matrix structure is organized to manage multiple dimensions. It provides for
reporting levels both horizontally as well as vertically and uses cross-functional teams
to contribute to functional expertise. As such employees may belong to a particular
functional group but may contribute to a team that supports another program.
• This type of structure brings together employees and managers across departments to
work toward accomplishing common organizational objectives. It leads to efficient
information exchange and flow as departments work closely together and
communicate with each other frequently to solve issues.
• This structure promotes motivation among employees and encourages a democratic
management style where inputs from team members are sought before managers
make decisions.
• However, the matrix structure often increases the internal complexity in organizations.
As reporting is not limited to a single supervisor, employees tend to get confused as to
who their direct supervisor is and whose direction to follow. Such dual authority and
communication leads to communication gaps, and division among employees and
managers.
Hybrid Organizational Structure
CONT…
• Hybrid organizations are a combination of values and elements which
are based on social impacts in different sectors like private, public, etc.
and revenue generation. Basically, when organizations combine to
fulfil the common social and profit generating goals, such
organizations are known as hybrid organizations. It is also a
combination of functional and product organizations.
• Limitations: increases organizational conflict and increases
administration cost.
• Advantages: organizational and divisional goals are aligned, efficiency
in functional working, and divisions are flexible
 Boundaryless Organizational Structure
• An organization whose design is not determined by a predefined structure.
Instead the organization seeks to eliminate the chain of command, places no
limits on spans of control, and replaces departments with empowered teams.
• The term boundaryless organization was coined by Jack Welch, former chair
of General Electric (GE), who wanted to eliminate vertical and horizontal
boundaries within GE and break down external barriers between the
company and its customers and suppliers.
• This idea may sound odd, but many successful organizations are finding they
can operate more effectively in today’s environment by remaining flexible
and unstructured: The ideal structure for them is not having a rigid,
predefined structure. Instead, the boundaryless organization seeks to
eliminate the chain of command, to have limitless spans of control, and to
replace departments with empowered teams.
 Virtual Organizational Structure
• A virtual organization has elements of a traditional organization, but also
relies on recent developments in information technology to get work done.
Thus, the organization could consist of a small core of full-time employees
plus outside specialists hired on a temporary basis to work on opportunities
that arise.
• The virtual organization could also be composed of employees who work
from their own home offices—connected by technology but perhaps
occasionally getting together face to face.
• The inspiration for virtual organizations comes from the film industry. If
you look at the film industry, people are essentially “free agents” who move
from project to project applying their skills—directing, talent search,
costuming, makeup, set design—as needed.
 IMPORTANCE OF ORGANISATIONAL
STRUCTURE
• Clear definition of authority, responsibility relationship facilities better
understanding of the objectives and the policies of the enterprise.
• Organizational structure lays down both channels and the patterns of
communication. It facilitates proper administration.
• It helps to coordinate activities of the component parts in order to
facilitate the realization of the goals of the organization.
• It helps in growth and diversification of the activities of an organization.
• Workers, participation in organization increases their cooperation and
improves their will to work. It stimulates initiation and creative thinking.
• Implementation of policies and the achievement of the goals become
easier.
• It prevents duplication of functions and makes it possible to achieve
maximum production with minimum efforts.
 ENVIRONMENT AND STRUCTURE
• The environment in general means, all the forces that
surround you. Therefore, in the context of business, the
business environment refers to the sum total of
all the external and forces constituting
individuals, and institutions that are totally out of
the business control but it does affect its
performance.
• It implies that the business environment plays a major
role in any business and the business does not possess
any control over it. The only thing the organization can
do is to manage its internal operations and coordinate
with the external factors.
CONT…

Well, there is a vast diversification of business environment, but broadly speaking

there are two main categories of the business environment.
• External Environment: The sum of forces that affect the business operations from
outside the business organization is known as the external environment. It implies
all the external forces that influence the business activities, and the business has no
control over it. There are two types of external environment:
Micro Environment: Suppliers, Customers, Intermediaries, Competitors, and Public.
Macro Environment: Economic, Political, Legal, Technology, Global, Socio-
Cultural, Demographic, Natural, and Ecological.
• Internal Environment: The sum of forces that affect the business operations
within the business organization is known as the internal environment. These
forces lie within the business organization only and businesses can manage them as
well according to their needs. Following are the components of the internal
environment:
Business Objects, Financial Resources, Human Resources, Internal Resources,
Technological Factors, New Developments, and Work Culture.
 DESIGNING AND ORGANISING
STRUCTURE
• In simpler terms, “Organizational Design” refers to defining, designing, and re-structuring organizational
structure. The very process of organizational design is aimed at finding any type of defective or
dysfunctional elements related to an organization’s system, organization structure, process, and work
culture. Identification of these elements leads to their rectification so that they can better fulfil an
organization’s objective.
• Organizational design and organizational structure are interrelated to each other, yet have a slight
difference. The organizational structure represents organizations in an immovable or static form that can
be presented through a diagram, popularly known as “Organogram.” These diagrams or organization
charts provide an easy interpretation of different functions of organizations and their relationships.
• In contrast, the organizational design represents the dynamic view of an organization. It is more of
processes and methods which help in organizational structuring and restructuring for smooth and
effective functioning. It is also based on change management whereby the organizational demands
change their structure and functioning to meet needs for technological advancements, market factors,
meeting regulations, customer needs and expectations, etc. With the help of the organizational design,
weaker systems of an organization can be identified and corrective steps can be taken to strengthen them.
Elements Of Organizational Design
1. Chain Of Command/Line
Of Command
The authority and power are
delegated from top to bottom
i.e. in an organization top
management gives
instructions to the bottom
team and all the employees at
each level. Further, the
accountability of an
employee’s job flows upward
to the management. It gives
clarity of the reporting
structure in an organization.
2. Span Of Control
“Span Of Control” demonstrates how
wide is the area of the direct control
of supervisors over their subordinates
which is directly related to how many
subordinates (in numbers) report to a
senior or supervisor; which, in turn,
depends on the number of tasks
performed at different levels. In case
of more tasks, the span of control will
be wider. It also depends on other
aspects like geographical location, the
ability of the team and superior, the
complexity of tasks, etc.
 3. Centralization and Decentralization

Centralization refers to centralizing A decentralized organization is the

an organizational system where one where planning and decision-
planning and decision-making making are handed over to middle or
authority is allotted either to a single low-levels.
person or the top management.
4. Specialization
Large organizations divide some
of its functions based on the
specialized areas and, so, subtasks
are defined in different tasks.
These subtasks are distributed
among individual job roles.
5. Formalization

• Formalization refers to the process of specifying

or mentioning rules, procedures, and duties to the
employees as an individual as well as to the teams,
departments, units, and the whole organization by
managers in written form too. Formalization
indicates the goals and vision of an organization,
tasks, hierarchy and relationships, authority and
responsibilities, different processes, and work
methods.
• A formal organization emphasizes on job roles,
responsibilities, and assigning work to the
individuals as per the requirement of roles. These
are controlled by rules and procedures.
• An informal organization emphasizes on
individuals, and the job responsibilities are
designed based on individual employee skills and
preferences irrespective of the department in
which he/she is working. An individual can be
assigned the role of different departments as well
based on self-interest, skills, etc.
 6. Departmentalization

• As the name
states, “Departmentalization” is the
process of dividing organizational
functions into different departments as
per specializations of jobs or
responsibilities so that the common
tasks can be handled by specialized
teams.
• In rigid departmentalization, there is
almost no interaction between different
teams and each team works as per their
area of specialization.
• In loose departmentalization, the teams
are free to interact with each other and
can work together for common tasks.
 PLANNING OF THE STRUCTURE
Organizational structure is something that is best decided upon internally, through a
process of critical thinking and discussion by members of the group.
In your discussions, your answers to the following list of questions may guide your
decisions.
• What is your common purpose? How broad is it? Groups with broader purposes often
have more complicated structures, complete with many layers and parts, than do groups
with more narrow purposes.
• Is your group advocacy oriented or service oriented? Service organizations use "top
down," one-person-in-charge structure much more often than do advocacy based groups.
• Is your organization more centralized (e.g., through the work of a specific agency ) or
decentralized (e.g., different neighborhoods working independently on the same
problem)? A decentralized group might find a "top-down" structure inappropriate, as
such a group often has several peers working together on an issue.
• How large is your organization? How large do you envision it becoming? A very small
organization may wish to remain relatively informal, while a community-wide group might
require a more formal structure. A related question, with similar consequences, is:
• How large is the community in which you work?
• How old is your organization? How long do you envision it lasting? A group formed to resolve a
single issue might not need a formal structure at all, while an organization with long-term goals
may want something more concrete, with clearer divisional responsibilities and authority.
• Is the organization entirely volunteer, or are there (or will there be) paid staff? How many? An
organization with many paid staff members may find it more necessary to have people "in
charge," as there are generally more rules and responsibilities for paid staff members, and thus,
there must be more supervision in carrying out these roles.
• Should yours be a new organization, or part of an existing structure? Do you really need to form
a new structure, or would it be better to work within existing structures? Sometimes, your goals
may be better met if you are part of (or linked with) another organization.
THANKYOU