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Understanding Business Organization: Key Concepts and Structures

This lecture provides an overview of the importance of organizing within a business as it scales from small to larger operations. It covers the differences between formal and informal organizations, types of authority (formal vs. informal), and the principles guiding organization such as division of labor and unity of command. Different organizational structures are explored, including functional, product, territorial, and matrix structures, along with their advantages and disadvantages. A solid understanding of these concepts is essential for effective management and decision-making.

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Understanding Business Organization: Key Concepts and Structures

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  1. Lecture 8 Introduction to business Organizing the Business www.AssignmentPoint.com

  2. Why organize? • When business grows from a single handed operation to a multi employed and multi handed operation, organizing becomes necessary. • Increase in operation size requires more employees to produce and sell more. • When there are multiple tasks and activities in the business, it requires a structured way of doing things. www.AssignmentPoint.com

  3. Formal & Informal organizations • The formal organization is the one put together by management and created by those who have authority, responsibility and accountability. • The informal organization is the one that had been started by a single owner with the help of a network of personal and social relationships. www.AssignmentPoint.com

  4. Formal authority • Formal authority is the right to give orders, responsibility and authority to a subordinate employee. Formal authority can be of two types: • Line authority is an unquestioned & direct authority given to a manager • Staff authority is an advisory authority to oversee a situation and to make recommendations but doesn’t have any authority to take actions. www.AssignmentPoint.com

  5. Centralized & Decentralized authority • Centralized authority • An organization in which all authority to make decisions is done by a small group of managers. • Decentralized authority • An organization in which a significant authority is delegated to subordinate managers or supervisors. www.AssignmentPoint.com

  6. Sample organization chart CEO Director Director Manager Manager Manager Supervisors Supervisors Supervisors Supervisors Supervisors Production workers, operators, and all other lower level workforce www.AssignmentPoint.com

  7. Principle of organizing • Principle • A guideline that managers can use in making decisions. • Division of labor • A principle of organization that a job can be performed more efficiently if the job holder is allowed to specialize. • Unity of command • The principle of organization that no employee should report to more than one superior. www.AssignmentPoint.com

  8. Principle of organizing (contd.) • Scalar principle • It is a principle that authority and responsibility should flow from highest to the lowest manager. • Span of control • The principle of organization that limits the number of subordinates reporting to a senior. • Downsizing • Downsizing is the reduction of layers of management or staffs from the organizational hierarchy. www.AssignmentPoint.com

  9. Organizational Structures • Functional Structure • A structure in which each unit or department has a different set of activities and responsibilities. • Accounting, Sales, Marketing, HR, etc • Advantages. Helps in becoming more skilled when working with similar activities • Disadvantages. Sometimes there are some jobs that needs helps from other departments. Thus it becomes an obstruct getting the job done by other department www.AssignmentPoint.com

  10. Organizational Structures (contd.) • Product Structure • A structure where a manager and his/her team is in charge of and has a responsibility for a product or product line. • Product (beauty soap) Line (all beauty soaps) • Advantages. Whole team effort is given on a particular product or product line. • Disadvantages. Budget constraints, Authority constraints, & Time constraints. www.AssignmentPoint.com

  11. Organizational Structures (contd.) • Territorial Structure • An organization structure where units are divided on the basis of territory or geographical region. • Long range bus service, Retailers, etc. • Advantages. It allows a coordination at the point of sale which means speedier service. • Disadvantages. Duplication in product and services often occurs thus reduces the quality. www.AssignmentPoint.com

  12. Organizational Structures (contd.) • Matrix Structure • A functional structure combined either a product or project structural arrangement • Banking, Insurance, Universities, Electronics, etc • Advantages. Can handle dual focus on a specific product or service. Communication and work sharing becomes more clear. • Disadvantages. Confusion in responsibilities. Excessive costs. Struggle for power and authority between managers. www.AssignmentPoint.com

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