Formal Organization

The plan of organization pictured on an organization chart is called the formal organization. A formal organization is designed to plan work, to fix responsibility, to supervise work, and to measure results. To understand the nature of the formal organization, a knowledge of departmentation, organization charts, and various types of formal organization must be mastered.

Departmentation

The process of intentionally organizing work into distinct areas is called departmentation. Although each of the areas is most often called a department, some firms prefer the term "division"; others use "section" or "branch." For example, there may be a purchasing department in one firm while in another company the same function is called a purchasing division. In other firms, the use of each term may imply a hierarchy of organization. For example, reading from the top of an organization chart to the bottom, a vice-president may head a division, a manager may head each of the several departments in the division, and a supervisor may be in charge of each of the sections in each de­partment. This type of structure is commonly found in government organizations and in many large corporations. Effective AOMs develop and maintain up-to-date organization charts for reasons noted in the following paragraphs.

Charting the Formal Organization

An organization chart is a graphic picture of the functional units in a firm showing how they are tied together along the principal lines of authority. Such charts, as illustrated in this chapter, are management tools that indicate the flow of work, the span of control, and the major responsibilities for work in each functional area or department. In order to keep charts simple and easy to understand, unnecessary detail should be avoided; and, if needed, several charts may be prepared to give a complete guide to a company's organization.

No matter how well organized the firm, people must understand the structure in order to make the organization plan work. In this respect, charts help workers to understand basic reporting relationships, which is important in developing teamwork and in reducing buckpassing and duplication of work effort. Having available an up-to-date chart helps the AOM in identifying lines of decision-making authority which, in turn, can help to disclose inconsistencies and overly complex work assignments. Then, too, charts are especially useful for managers in the orientation of new personnel since charts tie together the entire organization structure.

Having a chart available, however, is no assurance that good organization exists. Since they show only the present structure, with little regard for the future, many charts quickly become obsolete; and when they are not updated, charts become relatively useless to managers. Most charts are criticized because they show only the formal relationships within a firm and not how much authority has been granted at any one point in the structure. Most charts also ignore informal relationships, which are discussed in a later section of this text.

Figure 2-4 presents ten suggestions for preparing organization charts.

Figure 2-4 Suggestions for Preparing an Organization Chart

1. Identify the chart fully showing the name of the company, date of preparation, and title of person or name of department responsible for preparation. If the chart is for one division of the company only, include such information as part of the title.

2. Starting at the top of the organization structure, identify the major functions (divisions, departments, and so on) and then the secondary functions to be charted.

3. Use rectangular boxes to show either an organizational unit or a person. Several executives functioning as a committee occupy one box.

4. The vertical placement of the boxes shows relative positions in the organizational hierarchy; however, due to space limitations, line units are frequently shown one level below staff units. (See Figure 2-7.)

5. Any given horizontal row of boxes should be of the same size and should include only those positions having the same organizational rank.

6. Use vertical and horizontal solid lines to show the flow of line authority; use dotted lines to show functional and staff authority.

7. Lines of authority enter at the top center of a box and leave at the bottom center; they do not run through the box. Exception: the line of authority to a staff assistant or an assistant-to may enter the center of one side of the box. (See Figure 2-7.)

8. The title of each position should be placed in the box. The title should be descriptive and show function. For example, vice-president is not sufficient as it does not show function. The functional area, e.g., manufacturing, should be included even though it is not a part of the official title. Titles should be consistent; if necessary, revise titles so they are both consistent and descriptive.

9. Include the name of the person currently holding the position unless personnel turnover is so great that revision of the chart is burdensome.

10. Keep the chart as simple as possible; include a legend if necessary to explain any special notations. When preparing a separate chart for an organizational unit, include the superior to whom the unit reports and the date the chart was approved.

These suggestions are not hard-and-fast rules, for charts should be modified when the occasion demands. Often organization charts are housed in the organization manual. This manual explains in narrative form the organization, duties, and responsibilities of the departments and all other functional areas of the firm. Charts for each of the main forms of o­ganization are shown in the following section, where each chart is drawn using the rules listed in Figure 2-4.

Types of Formal Organization

Through the years many types of formal organizations have evolved based upon the specific needs of management. Those organization structures available to the AOM are described briefly in this section.

Line Organization. The earliest and simplest form of organization structure is the line organization, also known as the scalar or military type. In line organization, authority is passed down from top management to middle managers in charge of particular activities and from them down to supervisors who are directly in charge of workers at the operative level. As shown in Figure 2-5, authority flows in an unbroken line — the chain of command—from the president to the individual office worker.

Figure 2-5 Partial Line Organization in Administrative Office Management

The line organization is simple and easy to understand. In a line organization, the division of authority and responsibility and the corresponding duties to be performed are clearly identified. In turn, the performance of duties can be easily traced to a worker and to the person supervising that worker. In the line organization a minimum of red tape in decision making is found, thus enabling action to be taken quickly. On the other hand, each supervisor is responsible for a wide variety of duties and may not be expert in all these areas. Usually there is little coordination among departments, as each department is concerned chiefly with its own work. Thus, specialization at the supervisory level may be lacking. At each succeeding level of organization, the variety of duties performed often overloads middle managers and supervisors. As a result, they are unable to tend to all matters requiring their personal attention.

The line form of organization is found in government agencies, in military organizations, and in small business firms. However, few business offices follow a "pure" line organization, although some phases of work in large firms may follow a line-organization plan.

Functional Organization. The concept of functional organization was originally developed by Frederick W. Taylor to provide for specialized skills at the supervisory level in the plant. To handle the mental and physical aspects of production, a clerical force consisting of a time and cost clerk, an instruction card clerk, an order of work and route clerk, and a shop disciplinarian was provided. The objective of the functional organization was to provide specialists at the supervisory level who would be in charge of the work related to their specialties in departments other than their own.

When applied to an office, the functional organization might appear as shown in Figure 2-6.

Figure 2-6 Partial Organization Chart Showing Functional Organization Structure

Instead of having one large general office to carry out administrative work for the firm, there are four divisions each headed by a vice-president; and in each division there is a staff of office workers. Notice that each of the main functions has line authority (the solid lines) over the office staff. At the same time the office staff in each division is supervised by a specialist in employee training, with the dotted lines in Figure 2-6 representing the functional authority. (Many other specialties exist in larger firms.) Thus, each of the office workers has two supervisors, with the exception of the Employee Training area, where line authority exists between the Employee Training Supervisor and the office staff. Such a "two-boss" arrangement represents a violation of the unity-of-command principle cited earlier in this chapter. At the same time, however, such a structure may be defended on the basis of its being an application of the principle of specialization also discussed earlier.

In the functional form of organization, each supervisor devotes time to only one phase of work. Such specialization provides for increased efficiency since the workers are given expert and skilled supervisory attention. However, with the development of so many kinds of independent specialists, confusion can result due to overlapping of authority and a lack of fixed lines of responsibility. As a result, the functional form lends itself to "buck-passing." Since the workers must report to two or more supervisors, conflicting instructions are often given, which results in friction. Because of all its disadvantages, a "pure" functional organization, like the line form, is rarely found in business today. As described in the following paragraphs, however, the workable principles of the line form and the functional form have been brought together in the commonly used line-and-staff form of organization.

Line-and-Staff Organization. In a line-and-staff organization, policies and practices at the top management level are carried out on a line plan. Further down the line of authority and responsibility, the work is carried out on a functional basis, department by department. The staff feature emerges when a group of experts assist management as advisers to all the various departments. In many organizations, the AOM is a line officer who is responsible for certain business activities but acts as a staff specialist offering expert advice to many other functional departments requiring administrative services, such as records management, word processing, and reprographics.

As shown in the partial line-and-staff organization chart in Figure 2-7, there is a clear-cut flow of authority and responsibility from the top to the bottom of the organization.

TOP MANAGEMENT

•: TO PRESIDENT

MIDDLE MANAGE­MENT

Administrative Office Manager

OPERATIN Supervisor MANAGEMENT

Services I fSUPERWSOflSJ

Supervisor Factory Accounting

Supervisor Sales Accounting

Supervisor General Account™

woro rrocessmg Telecommunications Records Management Reprographics Micrographics Office Equipment &

Layout Mailing

Cost Accounting Factory Payrolls Factory Equipment Inventories

Accounts Receivable Claims & Adjustments Sales Analysis

General Ledger

Accounts Payable

Taxes

Property Accounting

OPERATIVE

LEVEL

/WORKERS)

Figure 2-7 Partial Line-and-Staff Organization

Operating efficiency through specialization is achieved since middle managers, such as the AOM, directly control the employees under them and are held responsible for specific activities. Supervisors, such as the head of administrative services, report through the AOM to the controller. The supervisors, however, are not burdened with all the varied duties that they would have under the line form of organization. The personnel in the staff positions shown in Figure 2-7 (internal auditing, systems and procedures, personnel, budgets, and reports) act as advisers and provide services for line managers throughout the organization. (In Figure 2-7, only the relationship of the staff positions to the controller is illustrated.)

An assistant-to, or administrative assistant, serving as a personal assistant to his or her chief, is often found in many firms. The assistant-to the president, as shown in Figure 2-7, is a form of staff authority. The duties of the assistant-to vary widely from one firm to another and may vary from time to time within the same company. No specific line authority is associated with the position since au­thority is granted only for the completion of each individual assignment. Assistants-to do not act in their own behalf; rather, they act as personal representatives of their supervisors.

Staff managers usually have the necessary line authority to supervise their own departments, but their basic responsibilities are to provide expert advice and to render services for the line managers. Traditionally staff managers do not give orders directly to line personnel outside the staff managers' departments, nor do they ordinarily have the authority to put their recommendations into action. The authority and responsibility for operations rest with the line managers.

Today, however, as a result of the increased complexity of business operations and the development of new concepts in technology and the behavioral sciences, the traditional distinction between line and staff has become blurred in many firms. Danger arises when specialists are added to the staff without any clear understanding of how their activities interact with those of the line personnel. Disagreements arise and friction occurs when staff departments usurp line authority and exert this authority over individuals and departments in line positions. Line managers, in turn, may hesitate to accept accountability and may abdicate their authority. It should be remembered, how­ever, that line managers are users of the services rendered by staff personnel, whose job is to make the line operations more productive at lower costs.

Alternatives to the line-and-staff concept, which by its very nature may create problems with interpersonal relationships, are presented in the following sections.

Committee Organization. With the growth of larger and more complex organizations, the need for interaction and coordination among personnel at all levels has increased. To meet this need, the committee organization provides a structure where authority and responsibility are jointly held by a group of individuals rather than by a single manager. The committee form of organization is usually employed in conjunction with, or as a modification of, the regular line-and-staff structure.

Sometimes committee organization is expanded by the addition of a second level known as a management council, which enables as many of the supervisors as possible to participate in decision making. The management council can be effective in handling specific problems pertaining to individual departments and in helping to sponsor new ideas and theories for consideration by top management.

Other types of committee organization are:

1. Work groups—formed by various executives and their subordinates to obtain coordination among the primary functions of the firm.

2. Task forces — consisting of representatives of several functions to handle interdepartmental problems.

3. Staff groups — whose primary purpose is to integrate a basic management activity, such as planning within the firm.

4.Labor-management committees —whose objective is to find solutions to labor problems before the union contract expires.

5. Codetermination — where employees participate in decision making at upper-management levels, sometimes being appointed to the board of directors.

6. Matrix organization — a relatively new form of structure whose popularity is growing, as discussed in the following section.

Advantages of Committee Organization. Those favoring group decision making point out the following advantages of committee organization:

1. People often accept a group decision rather than the dictates of one person.

2. Members of the group actively participate in their interactions. This provides better teamwork and supervisors think of their organization more as a cohesive unit than in terms of their own individual departments.

3. Broader understandings of the decision are developed since the group the overall conduct of the organization, discusses problems that affect more than one unit of the company's organization, and sees the reasoning behind a particular course of action selected.

4. Plans developed by the group may be executed more easily since all members participate in pooling their knowledge and experience to develop the plans.

Disadvantages of Committee Organization. Others who have served on committees and experienced group decision making point out the following negative features of this form of organization:

1. The group is slower in reaching decisions than one person, although admittedly snap judgments are eliminated.

2. No one individual is fully responsible for any decisions made by the group since the majority rules. As a result, compromise decisions that may not be of the best quality are often made.

3. Group meetings consume much valuable time and often little more is done during a meeting than displaying ignorance and exchanging prejudices. Too often the committee is faced with time-consuming problems that should be handled by individual executives.

Matrix Organization. Matrix organization, sometimes called project organization, combines both vertical authority relationships and horizontal or diagonal work relationships in order to deal with complex work projects. The objective of matrix organization is to obtain a higher degree of coordination than can be obtained in the conventional organization structures discussed above. Work is organized around several ongoing projects rather than around the specialized departments or functional areas found in the line or the line and-staff organizations. As shown in the simple form of matrix organization in Figure 2-8, four functional managers, with their vertical authority relationships, are positioned along the vertical axes.

Figure 2-8 Matrix Organization

The managers of the three projects are placed along the horizontal axes. The functional managers and the project managers have dual authority over those working in the matrix unit. At the top of the matrix, or grid, is the president or the chief executive officer, who is responsible for balancing the power be­tween the dual orientations — the functional managers and the project managers. Each employee on the matrix (represented by a square) is held uniquely accountable to two supervisors — one functional manager in the department where the employee regularly works and one special project manager who uses the employee's services for a varying period of time. Thus, the matrix organization form seemingly violates the principle of unity of command. Because of the conflicts that may occur when personnel have two supervisors, matrix organizations are difficult to manage. Each matrix manager appears to have overlapping, and often conflicting, roles of authority and responsibility.

Along with being complicated to manage, the matrix organization is faced with added pressures to share its human resources. For example, in Figure 2-8, assume that the manager of Project A is responsible for installing and operating a new management information system. At various stages of the project manager's work, team members are drawn upon from the functional areas as needed. This allows the project manager to obtain expertise from systems and procedures analysts, computer center personnel, financial ana lysts, and administrative services support personnel as well as advice from outside vendors of forms, equipment, and furniture. When the project is completed, the personnel are returned to their various de­partments or cost centers for assignment to new projects.

Matrix organization designs have been adopted by large domestic corporations, multinational companies, government agencies, and hospitals and health agencies. These firms have found that more than one kind of orientation is needed in order to manage their matrix organizations. For example, outside pressures may require an insurance company to respond simultaneously to one orientation—its product line competition (life, fire, marine, automobile) — and to another orientation— area differences (urban vs. rural or West vs. East). When responding to two or more environments, an increased amount of information must be collected and processed in the matrix. With so much information to be processed in a matrix organization, the decision-making process is often delegated to lower levels in the organization. Hence, decisions are made at levels where the relevant knowledge needed to process the information resides, and the upper levels of the matrix organization do not become overloaded with day-to-day operational decisions. In such a case, the span of control of the chief executive officer can be broadened be­cause he or she is freed from daily decision making, which is now handled at lower levels in the matrix.