17 Organization: Meaning and Types

Niti Goyal

Introduction

The organizational structure seeks to establish relations among all the persons working in the organization. Under the organizational structure various posts are created to perform different activities for the attainment of objectives of the enterprise. Relations among persons working on different posts are determined. The purpose of defining the relation is to clarify as to who is superior and who is subordinate. Therefore, it can be asserted that the establishment of relations among various persons working in the enterprise is called organizational structure.

Organizational structure cannot be similar for all the organizations because the nature of work and its size are different in respect of each enterprise. So, organizational structure is designed in accordance with these characteristics of the enterprise. Thus, there can be many forms or designs of organizational structure. Organizational structure once decided may also undergo changes as the situation changes.

Definitions of organizational structure: –

According to Hurley, “Organization structures are patterns of relationship among the various positions in a firm and among the various people occupying the positions.”

According to William H. Newman, “Organization structure deals with the overall organizational arrangement in an enterprise.”

Designs/Forms/Types of organizational structure:

There are different types of organizational structures. Different business enterprises have different organizational structure depending upon their characteristics. However, whatever formal organizational structure a firm chooses, there is a parallel structure that runs along with any formal structure that is called as informal organisational structure. The formal organisation is usually delineated by an organisational chart and job descriptions. The official reporting relationships are clearly known to every employee. Along with the formal organisation, there exists a parallel structure which evolves on its own out of the patterns of human interaction within an organisation that are not officially prescribed. This is known as informal organisation , also known as grapewine. Formal organisational structures are categorised as:

1. Line Organization
2. Line and Staff Organization
3. Functional Organization
4. Committee Organization

These organisational structures are briefly described in the following paragraphs:

1. Line Organisational Structure:

Line organisation is the simplest and the oldest form of organisation. A line organisation has only direct, vertical relationships between different levels in the firm. In this type of organisational structure only one of type of authority exists. i.e. line authority. Here authority flows vertically from top to bottom. It is also known as military organisation Single line organisational structure has been shown in fig 1 below.

Figure 1: Single Line Organizational Structure.

Features:

1. Simplest form of organisational structure.

2. Authority flows vertically in a straight line from top to bottom.

3. Only one type of authority exists i.e.line authority.

4. Specialized services donot exist in this form organization.

5. Line officers have complete authority to do their respective functions. They can independently take decisions in their areas.

6. Unity of command is observed in this organisation structure.

7. Departmentalization may exist in this form of organisation depending upon the organizational needs.

Advantages:

1. A line structure tends to simplify and clarify responsibility, authority and accountability relationships. The levels of responsibility and authority are likely to be precise and understandable.
2. Promotes fast decision making.
3. Simple to understand.
4. Because line organisations are usually small, managements and employees have greater closeness.

Disadvantages:

1. Neglects specialists in planning
2. Overload key persons.
3. Inadequate communication
4. Monopoly over decisions.
5. Not suitable for large sized concerns.
6. scope of favouritism since the departmental head is almost all in all the same for the activities of his department.

A variant of simple line organisation is Departmental Line Organisation. Departmentalization may exist in this form of organisation depending upon the organizational needs. In the departmental line organization the General manager is at the top of the hierarchy and many departments are created under him. For the establishment of the departments all the activities of the enterprise are divided among different groups. For example, purchase of material and production will be under the department of production, finance department will take care of accounts and finance; the job of sales and advertisement will be handled by the marketing department and similarly the function of staffing be performed by the personnel department. A head of every department is called departmental manager who handles the work of every department . However, this organisational structure is suitable for small sized firms only where the business produces only single product. Departmental line organization has been clarified in the following diagram: –

Figure 2: Departmental Line Organizational Structure

(2) Line and staff organization: Line and Staff organisation is in a way extension of line organisation. Under this organization structure, two types of authorities exist together , line authority and staff authority. The function of line managers is similar to their functioning under the line organization but some staff or experts are also appointed as advisors to the line officers. The function of line officers is to take decisions, while the function of the staff officers is to advice them. Staff officers are experts in their respective fields and offer useful advice after analyzing the problems presented by the line officers. In this way the work of thinking and execution is done by different persons and this removes the main flaw of the line organization. It can be adopted in case of medium to large business enterprises.

Characteristics of Line and Staff Organization: –

(1) The work of ‘thinking’ and ‘execution’ is divided into two parts. The staff executives do the ‘thinking’ function while the line executives do the executive function.

(2) The line authority of the line manages is similar as in line organisation and the benefit of the advice of the staff experts also become available.

(3) The subordinates of the line executives remain their subordinates alone and they cannot be treated as the subordinates of the staff executives.

(4) The experts have only the right to tender advice, its rejection or acceptance depends on the line executives.

(5) The principle of unity of command remains implemented because the orders are received only through a single officer.

(6) The movement of authority is from top to bottom.

Figure 3: Line and Staff Organisation

Advantages of Line & Staff organisation are as follows:

1. Sound decision: Sound decision making is possible in this organisation structure as specialist advice of staff managers is available to line executives for decision making.

2. Specialisation possible: The work of thinking and execution are divided and, therefore, the staff executives and the line executives attain specialisation in their respective fields. It also increases organisational efficiency.

3. Advantage of line organization: This organisation system is an improved version of the line organization, therefore, it has all the advantages of line organisation.

4. Research facilities: The staff executives do not have to remain busy in daily routine and the line executives ask for their suggestion only in special circumstances. Therefore, the staff executives have enough time at their disposal for research work. During this time they discover new procedures which benefit the enterprise.

5. More facility of expansion: Legal and other complexities are increasing in modern business. In these circumstances the expansion of business becomes difficult. However, when an organisation has the services of the experts available to it, expansion becomes easy.

6. Decrease in production costs: Experts find out new methods of production which make it easier to produce of good quality products with minimum cost.

7. Discipline: In this organisation because of the unity of command there is no problem on account of discipline.

Apart from advantages there are some disadvantages also which are:-

(i) Conflict between Line and Staff Authority: Even through a line and staff structure allows higher flexibility and specialization it may create conflict between line and staff personnel.

(ii) Dependence on Experts: Line managers may not like staff personnel telling them what to do and how to do it even though they recognize the specialists’ knowledge and expertise.

(iii) Some staff people have difficulty adjusting to the role, especially when line managers are reluctant to accept advice.

(iv) Staff people donot have any authority in implementing their advice, this may discourage them and may also lead to line and staff conflict.

(v) Costly : This organisational structure is costly to operate as staff experts are specialists and hence, high remuneration need to be paid to them. Also, their services may not benefit the organisation since implementation of their advice is solely in the hands of line managers.

The line and staff organisation is suitable for medium to large sized business. Since the legal and other complexities have increased, it has become almost a dream to achieve success in business in the absence of experts. The chief drawback of this kind of organisation is the conflict between two types of authorities. Their conflict can be ended by clearly defining their relations.

(3) Functional organization: – The father of Functional organization is Fredric W. Taylor who is better known as the father of Scientific Management. Functional organization is completely based on the principle of specialization and under it the ability of the experts is fully utilized. In Functional organization, specialists are put on the top positions throughout the enterprise who have the authority to give advice and also get it implemented. Their authority is known as functional authority.

Taylor recommended that there should be functionalization not only at the top level but also at the shop level where workers have to produce goods.

The whole work in the organization is divided in various departments. Similar type of work and transactions are put in one department under the control of a departmental manager who is responsible for carrying out various activities of their departments in the organization. Various departments are known as functional areas of management viz., Purchases, Sales, Finance, Production, and Personnel etc. In functional organization, at the top level of management, a subordinate anywhere in the organization will be controlled and commanded directly by number of managers operating in different departments.

For example, any functional heads and Marketing Director can direct the subordinates throughout the organization. This means that subordinates receives orders from several specialists, managers working above them.

The following diagram shows the functional organisation at the top level:

Not only at the top level, Taylor recommended functionalization at the foreman level also. Functionalization at the foreman level has been called as Functional Foremanship by Taylor. Rather than a single foreman supervising many workers (usually 40-50), he advocated appointment of eight different specialist foremen discharging different functions. Every worker in the organization is directly connected with these foremen.

The eight specialist foremen are:

(a) Route Clerk, (b) Instructions Card Clerk, (c) Time and Cost Clerk, (d) Shop Disciplinarian, (e) Gang Boss, (f) Speed Boss, (g) Repair Boss, and (h) Inspector. The first four bosses operate from Planning Department, whereas the other four function in the production department and are known as Executive Functional Bosses.

Functional foreman-ship has been clarified in the following diagram:

Suitability: – This system is useful for big business enterprise having a large scale production and where experts’ knowledge is necessary.

Advantages of Functional Organization: –

Full use of Experts’ Knowledge because he knows that his decision will be implemented.
Efficiency is increased by separating mental function from manual function since workers are advised by experts.
Mass Production possible because of the availability of the benefit of specialization.
Functional structure permits flexibility and organizational structure can easily be adjusted as per expansion or contraction needs of the business.

Some of the disadvantages are: –

Violation of Principle of Unity of Command which is an important principle of management. It leads to complexity and confusion ,reducing work efficiency.
Co-ordination in functional structure becomes difficult in view of the help sought from functional experts.
Difficult to Fix Responsibility since principle of unity of command which is the most important principle of management is disobeyed.
Functional organisation is characterised by conflict among experts due to disagreement on certain issues.
Maintenance of specialist’s staff of the highest order is expensive for a concern.

(4) Committee Organization: – Committee Organization is not a form of business organization which can be implemented independently. In other words, it cannot be implemented as a regular and independent organization. It is used with purpose of helping the other regular forms of organization.

According to Newman, “ A committee consists of a group of people specially designed to perform some administrative acts”.

Types of Committees: – In business organization generally four types of committees are established:-

(1) Advisory Committee: – When a committee possesses the authority of staff executives or the experts, it is called advisory committee. Experts in different fields are appointed as members of the committee who take decision only after mutual deliberations. They however do not have the authority to get these decisions implemented.

(2) Executive Committee: – A committee which has the authority to take decisions and also get them implemented is called executive committee. Board of Directors in the company organization is an example of executive committee. Whatever decisions are taken by the Board of Directors they are implemented through the medium of the General Manager.

(3) Joint Consultative Committee: –In this committee the representatives of the workers and managers deliberate upon the common interests and make mutual relations sweet.

(4) Special Purpose Committees: – Committees which are appointed with special aims are called special purpose committees like budget committee, pay committee, financial consultation committee, etc. Features of Committee Organisational Structure:

(a) Formed for managing certain problems or situations

(b) committee decisions are temporary in nat.ure

Advantages:

1. Committee decisions are better than individual decisions.

2. Better interaction between committee members leads to better co-ordination of activities

3. Participative decision making which also promotes and leads to creative thinking.

5. Basics for reducing conflicts

6. Better commitment for implementation

7. Better solution for complicated problems

Disadvantages:

1. Committees may delay decisions, consume more time and hence more expensive.

2. Group action may lead to compromise and indecision.

3. More chances of conflict

4. Very high probability of ‘Buck passing’

5. Lack of secrecy

6. Probability of diversion from main issue.

The Informal Organisation

An informal organisation is a set of relationships and patterns of human interaction within an organisation which are not officially prescribed. Alongside the formal organisation, an informal organisation structure exists which consists of informal relationships created not by officially designated managers but by organisational members at every level. Since these informal relationships cannot be avoided , they can be used for the benefit of the organisation if handled judiciously. The informal organisation has the following characteristics

(i) Its members are joined together to satisfy their personal needs (needs for affiliation, friendship etc.)

(ii) It is continuously changing

(iii) The informal organisation is dynamic.

(iv) It involves members from various organisational levels.

(v) It is affected by relationship outside the firm.

(vi) Certain people are assigned greater importance than others by the informal group.

vii. Even though an informal organisational structure does not have its own formal organisational chart, it has its own chain of command:

Benefits of Informal Organisation:

(i) Assists in accomplishing the work faster.

(ii) Helps to remove weakness in the formal structure.

(iii) Lengthens the effective span of control.

(iv) Compensates for violations of formal organisational principles.

(v) Provides an additional channel of communication. (vi) Provides emotional support for employees.

(vii) Encourages better management.

Disadvantages of informal organisation:

(i) May work against the purpose of formal organisation.

(ii) Reduces the degree of predictability and control.

(iii) Reduces the number of practical alternatives.

(iv) Increases the time required to complete activities. v) spreads rumours

Summary:

In this chapter we have studied different types of organizational structures. There are mainly two types of organizational structures: Formal and Informal Organization structures. Formal organization means an organization in which the responsibilities, authority and mutual relationships among all the employees working in an enterprise are clearly defined. Formal organization can be categorised in to four parts which are (1) line organization (2) line and staff organization (3) functional organization and (4) Committee organization. Each type of organization has their advantages and disadvantages. Each type of organization is suitable for different type of business depending on many factors like nature of business, its size, technology used, long term goals and the environment etc. And the second type is informal organization, which is not established deliberately but comes into existence because of common interests, tastes, religious and communal relations. Both formal and informal organisational structures exist simultaneously in an organisation.

References

Business Management: Dr. P. C. Pardeshi
Management: Tasks, Responsibilities, Practices: Peter Drucker
Management: A Global Perspective, Herold Koontz