Why is Organization Important for Productivity?

Explore the comprehensive analysis of organization, including its definitions, characteristics, functions, elements, and principles. Understand how effective organizational structures enhance management processes, optimize resource allocation, and promote efficient teamwork to achieve common goals. Discover key concepts from renowned thinkers and the importance of adapting to both internal and external factors for long-term success.

Organization: Definitions, Characteristics, Functions, Elements, and Principles

Introduction to Organization: Organization is fundamental to effective management; without an efficient organizational structure, management cannot operate smoothly. It represents the second stage in the management process, aiming to integrate various business activities to achieve predetermined goals.

Essentially, an organization is the framework of duties and responsibilities assigned to personnel to perform different functions and attain business objectives. In simpler terms, it is a group of people collaborating to achieve a common goal, coordinating their efforts for the efficient operation of the business.

Key Concepts and Definitions of Organization

The term ‘organization’ is viewed in several ways, including as a process, a structure of relationships, a group of people, and an open, dynamic system.

Definitions by Eminent Thinkers:

• Louis Allen: Organization is the process of identifying and grouping work, defining and delegating responsibility and authority, and establishing relationships to enable people to work most effectively together to accomplish objectives. He sees it as an instrument for achieving goals by clearly defining each person’s work, authority, and responsibility.
• Wheeler: Internal organization is the structural framework of duties and responsibilities for personnel performing various functions within the company—a blueprint for action to achieve management-set goals. Wheeler views it as the process of fixing duties and responsibilities.
• Koontz and O’Donnell: Organization is the establishment of authority relationships with provisions for both vertical and horizontal coordination within the enterprise structure. They emphasize its role as a coordinating mechanism.
• Oliver Sheldon: Organization is the process of combining the work individuals or groups must perform with the necessary facilities for execution, ensuring the best channels for efficient, systematic, positive, and coordinated effort. It aids in the efficient use of resources through duty division.
• Spriegel: In its broadest sense, organization refers to the relationship between various factors in an endeavor. Factory organization focuses on internal relationships like personnel responsibilities, machine arrangement, and material control. Overall, it’s the structural relationship among all factors in the enterprise, coordinating factors of production to achieve objectives.

Other Definitions

• George Terry: Organizing is the establishment of effective authority relationships among selected work, persons, and workplaces for the group to work together efficiently. He defines it as creating relationships for efficient work performance.
• C. H. Northcott: Organization is the arrangement by which tasks are assigned to they so their individual efforts effectively contribute to a defined common purpose. The purpose is to coordinate the activities of individuals for enterprise goal attainment.
• L.H. Haney: Organization is a harmonious adjustment of specialized parts for the accomplishment of some common purpose or purposes, coordinating various activities for common goal attainment.

Organization is the mechanism developed by management to unify employee efforts toward achieving set objectives.

Understanding the Concept of Organization

In management, ‘organization’ means the formal arrangement of work among institutional members, clearly defining authority and responsibility for optimal achievement of goals. Without defined duties and relationships, planning is ineffective.

The concept highlights organizing as:

1. As a Structure: It is a network of vertical and horizontal authority-responsibility relationships among people performing tasks. It divides work into units (departments), assigns specific tasks, and aims to maximize organizational and individual welfare. It focuses on positions rather than people.
2. As a Process: It defines relationships through a process focused on efficient goal achievement. This involves:
   • Identification of total work.
   • Grouping work into smaller units.
   • Assigning work, authority, and responsibility to individuals.
   • Establishing relationships for integrated effort towards organizational goals.

The structure is the outcome of the process; they are complementary. Organization is a structured, ongoing process for achieving predefined goals.

Concept of Organization

An organization is a structure where people unite to achieve common goals, believing their needs are better met as a group. Individual and group goals are sometimes foregone for organizational goals to maximize benefits from limited resources. It is influenced by external factors (politics, economy, law) and internal factors (plans, objectives, policies). While internal factors are controllable, the organization must constantly adapt to external factors.

Scope and Functions of Organization

Organization, as a management element, is the executive structure and basic framework for executive decision-making.

Scope of Organization:

1. Identifying and grouping activities for corporate objectives.
2. Assigning activities to appropriate units (divisions, departments, sections, individuals).
3. Providing authority, delegation, coordination, and communication.
4. Providing physical factors like facilities and equipment for a good work environment.

The four basic elements are: (i) The work, (ii) The People, (iii) The authority, responsibility, and (iv) The relationships.

Special Functions of a Good Organization:

1. Maximizing Output: Enabling management to maximize output through an efficient man-machine system.
2. Smooth Communication: Ensuring an effective network of communication and information flow.
3. Job Satisfaction: Offering individuals interesting and meaningful jobs, making the organization humanistic, not just mechanistic.
4. Image Development: Creating, maintaining, and developing its own image or individuality, ensuring customer goodwill, investor confidence, and employee belonging.

Characteristics of an Organization

Key characteristics of an organization include:

• Large Scale: Modern organizations are often large in terms of employment and investment, making direct contact between employer and employee difficult.
• Division of Work: Total work is divided into activities and functions, assigned to different persons for efficient accomplishment, leading to specialization.
• Co-ordination of Activities: Co-ordination is essential for harmonious functioning, typically managed by departmental and organizational heads.
• Huge Investment and Complicated Technology: Modern organizations require substantial investment and complex technology, necessitating assistance from specialists.
• Mutually Agreed Purpose: All activities are goal-oriented, requiring a clear, shared purpose.
• Proper System of Working: Characterized by well-defined hierarchical levels, a chain of command, rules, procedures, and a communication network for consistency and uniformity.
• Differentiation: Systematic division of labor and assignment of authority/responsibility based on specialization.
• Interaction with Other Systems: Organizations are interdependent with and influenced by other systems (social, political, etc.), necessitating constant interaction and adaptation.

A modern organization is an ideal coordination of specialized functions for attaining agreed purposes through a well-defined system and the principle of division of labor, interacting with its social environment.

Nature of Organization

Internal Attributes:

1. Common Goal: The primary reason for existence, binding the structure together.
2. Division of Labour: Work is divided into functions, organized into specialized departments.
3. Authority Structure: Positions are arranged in a graded series (chain of command), defining superior-subordinate relationships, authority, and responsibility.
4. Group: People form the dynamic element, working in groups within various departments.
5. Communication: Information flows freely through official and informal (grapevine) channels, mostly in written form.
6. Coordination: Diverse departmental efforts are integrated toward the common objective.
7. Environment: Influenced by external factors (social, political, economic, legal) and internal factors (materials, machines, technology, resources, human capital).
8. Rules and Regulations: Governed by a set of rules for orderly conduct.

Nature of Business Organisation (Art or Science):

Business organization is considered both an art and a science.

• As an Art: Art is the application of skills and knowledge to achieve a desired result. Business organization is an art because managers use skill and knowledge to solve complex business problems and achieve enterprise objectives. It is a creative art concerned with motivating and coordinating people’s work.
• As a Science: Science is a systematized body of knowledge establishing cause-and-effect relationships, evolved through observation, with universally applicable principles. Business organization is a science because it is an organized body of knowledge with developed principles and rules. However, because it deals with human behavior, which is unpredictable, it is considered a ‘Soft Science’ or “Behavioural Science,” meaning its principles are not as exact or universally absolute as those in physical sciences.

Objectives of Organization

Companies establish an organization to achieve the following objectives:

1. To Administer Economy in Production (Cost Reduction): An effective organization aims to reduce production, distribution, or operating costs. This economy leads to cheaper goods, improved quality, higher wages, increased profitability, and ultimately, greater societal benefit and return on investment.
2. To Serve the Society: An organization aims to serve both society and the enterprise. Serving society (providing quality goods at the right time and price) earns recognition, strength, and stimulus. Social gain is crucial for long-term growth and goodwill.
3. To Economize the Use of Available Resources: Ensuring the judicious and planned use of all resources (scarce and abundant) to guard against future non-availability.
4. To Establish Healthy Relations between Labour and Capital: Promoting harmonious human relations based on behavioral sciences to quickly and honestly attain enterprise objectives, increasing both profitability and productivity.

Essential Elements of a Good Organization

A good organization is characterized by the following essential elements:

1. Achievement of Objectives: It must be capable of overcoming problems and successfully achieving the predetermined objectives of the enterprise.
2. Harmonious Grouping of Functions: Functions must be divided and adjusted harmoniously for easy and successful implementation.
3. Completeness and Non-Repetition: It must be complete, including all activities without duplication.
4. Perfect Co-Ordination: Co-ordination is the essence, integrating all activities toward enterprise objects.
5. Reasonable Span of Control: Officers should have a limited span of control (e.g., five to six subordinates) for proper control at all levels.
6. Proper Utilisation of Resources: Ensuring resources are utilized effectively for the success of the business.
7. Provision for Expansion (Flexibility): Adequate flexibility for necessary adjustments according to changing circumstances, preventing missed opportunities.
8. Employees Satisfaction: Satisfying employees to increase morale and encourage greater contribution to the enterprise’s success.
9. Executable and Economical Policy: The system must be easily understood, implemented, and framed so that all employees can contribute their efforts easily and economically.

Steps Involved in the Organization Process

Organizing is the process of grouping activities and assigning authority/responsibility. The steps involved are:

1. Knowledge of Objectives: Clearly determining the enterprise’s or department’s objectives, ensuring they are precise, complete, and free from ambiguity, and kept in view of the environment.
2. Division of Work into Activities: Identifying the total work needed to achieve the objectives and dividing it into component activities (e.g., production, finance, marketing).
3. Grouping the Activities: Grouping similar and important activities into practical units or departments (e.g., grouping purchasing, machining, and assembling under manufacturing).
4. Defining and Assigning Activities to Jobs: Clearly defining jobs and assigning related activities to fix accountability, authority, and responsibility.
5. Fitting Personnel into Jobs: Allocating jobs to properly qualified people to ensure competence and responsibility.
6. Delegation of Required Authority: Vesting the personnel with commensurate authority to carry out the job, as authority without responsibility (and vice-versa) is meaningless.
7. Creating Organisational Relationships: Establishing line, functional, or line and staff relationships so everyone knows to whom they are accountable, ensuring clarity and coordination.

Requirements of a Sound Organization

A sound organization requires:

1. Realization of Objectives: Every part of the organization must be aligned with and contribute to the overall objectives and goals.
2. Harmonious Grouping of Functions: Functions and tasks must be grouped to facilitate active consultation and co-ordination with minimum overlap or confusion.
3. Clear Allocation of Duties and Responsibilities: A clear plan with well-defined duties, responsibilities, and relationships, often illustrated by organization charts.
4. Reasonable Span of Control: The number of subordinates controlled by a manager should be effective—neither too large (unwieldy) nor too small (underutilizing the manager’s ability).
5. Promotion of Satisfaction: Since human beings are the most important element, the organization should facilitate the achievement of personal goals, often through building informal relationships alongside the formal structure.
6. Effective Communication: Essential for smooth working, involving quick, easy, two-way information flow between top management and workers to remove uncertainty, misunderstanding, and friction, and provide co-ordination.
7. Provision for Growth (Dynamism): The structure must be fairly stable yet flexible enough to adapt to changing circumstances and contain elements for growth and expansion.

Main Functions of Organization

The core functions of organizing are:

1. Determination of Activities: Deciding and dividing the total work into various parts and sub-parts needed to achieve objectives.
2. Grouping of Activities: Grouping identical activities under one individual or a department (e.g., grouping canvassing, advertisements, and debt collection under the sales department).
3. Allotment of Duties to Specified Persons: Assigning grouped activities to specialists (e.g., Purchase Manager, Production Manager), often providing necessary training.
4. Delegation of Authority: Providing the necessary authority to specified persons to perform their assigned duties effectively, along with fixing responsibility.
5. Defining Relationship: Clearly defining the relationships among personnel so everyone knows who is their superior, from whom they receive orders, and to whom they are answerable.
6. Co-Ordination of Various Activities: The Chief Managerial Staff must coordinate all delegated authority and responsibility to ensure all activities are moving toward the organizational objectives.

Important Principles of an Organization

The success of an organization hinges on the principles it adopts. Key principles include:

1. Principle of Definition: Clearly defining and fixing the duties, responsibilities, authority, and organizational relationship of each worker.
2. Principle of Objective: All activities at all levels must be geared toward achieving the main objectives of the organization.
3. Principle of Specialisation or Division of Work: Grouping the entire work into departments or sections, and then further into units, to ensure maximum efficiency and assigning work based on an individual’s qualifications, resulting in specialization.
4. Principle of Co-Ordination: Ensuring smooth and effective accomplishment of work through co-ordination among workers and departments.
5. Principle of Authority: Delegating maximum powers from senior members to subordinates based on their ability, often serving as motivation.
6. Principle of Responsibility: Each person is accountable for their completed work. Responsibility can be delegated to some extent, and the responsibility of junior staff must be clearly defined.
7. Principle of Explanation: Clearly explaining the extent of liabilities to a person when allocating duties so they can accept authority and discharge duties properly.
8. Principle of Efficiency: Ensuring work is completed efficiently with minimum members, resources, time, and within the right time.
9. Principle of Uniformity: Maintaining equal status, authority, and powers among same-line officers to avoid dual subordination, conflicts, and increase co-ordination.
10. Principle of Correspondence (Parity): Authority and responsibility must be equal to avoid misuse of authority or ineffective performance due to lack of power.

Other principles

1. Principle of Unity of Command: A subordinate should receive instructions/directions from only one authority/boss to avoid neglecting duties or confusion.
2. Principle of Balance: Scientifically arranging the sequence of work between separate functioning units to ensure smooth flow and timely completion.
3. Principle of Equilibrium Balance: Adjusting the organizational structure (e.g., dividing overloaded sections) in response to changes in business activities and work-load.
4. Principle of Continuity: Periodically re-operating objectives, re-adjusting plans, and providing opportunities for future management development.
5. Principle of Span of Control: Defining the maximum number of subordinates an individual can effectively supervise, ensuring smooth functioning.
6. Principle of Leadership Facilitation: Appointing persons with qualities like honesty, devotion, enthusiasm, and inspiration to key positions.
7. Principle of Exception: Senior officers only intervene when work deviates from plans, reducing the workload of middle and top-level officers, freeing their time for policy and planning.
8. Principle of Flexibility: The structure must be adaptable to the changing business environment, allowing for expansion or contraction and avoiding complicated procedures.
9. The Scalar Principle (Chain of Command): Establishing a line of authority and communication flowing from top to bottom, ensuring everyone knows their superior and accountability.
10. Principle of Simplicity and Homogeneity: Maintaining a simple organizational structure for easy understanding, enabling staff to maintain equality, and clearly defining responsibility.
11. Principle of Unity of Direction: Ensuring all groups/departments cooperate and focus their efforts (through sub-plans) on attaining the main objectives/major plan.
12. Principle of Joint Decisions: Encouraging more than one officer to examine and decide on complicated problems, leading to better, more sustainable decisions based on various organizational aspects.

Analysis of Organization Structure

Peter Drucker suggests three types of analysis for creating a sound organization structure:

1. Activities Analysis: Analyzing the organization’s purpose/objectives to identify the required activities, grouping them, assigning departments to capable persons, and delegating authority to achieve desired goals.
2. Decisions Analysis: Determining the types of decisions needed to carry out the work, the level at which they must be made, and how each manager must be involved, thus fixing decision levels.
3. Relations Analysis: Examining the types of relationships developed within the organization:
   • Vertical: Superior-subordinate relationship.
   • Lateral: Expert/specialist advising a manager at the same level.
   • Diagonal: Specialist exercising authority over a subordinate in another department.

Parts and Coordinating Mechanisms of an Organisation (Henry Mintzberg)

Henry Mintzberg elegantly categorized organizational configurations based on a key part of the organization and the predominant coordinating mechanism.

Key Parts of an Organization:

1. Operating Core: The operators performing the main work directly related to producing goods and services (e.g., lecturers, assembly line workers).
2. Strategic Apex: The top-level management with ultimate responsibility for guiding the organization towards its mission and goals (e.g., Board of Directors, CEO).
3. Middle Line: The chain of managers connecting the strategic apex to the operating core, transferring information and possessing formal authority (e.g., General Managers, Divisional Managers).
4. Techno-Structure: Departments that standardize specific organizational aspects (e.g., inspection for quality, personnel for manpower quality, design for product dimensions).
5. Support Staff: Departments/units providing specialized services outside the main work area (e.g., transportation, canteen, security), often outsourced.

Coordinating Mechanisms:

1. Direct Supervision: One person supervises the work of others (common in small start-ups).
2. Mutual Adjustment: Coordination achieved through informal communication between functional experts (common in project teams).
3. Work Process Standardization: Coordination embedded in the standardized process itself (e.g., an assembly line).
4. Outputs Standardization: Coordination achieved through required finished product or service specifications and standards.
5. Skills or Knowledge Standardization: Coordination achieved through the personnel’s qualifications, training, and experience (e.g., a surgical team).

Note: As an organization grows, coordination often moves from Mutual Adjustment (2) to Direct Supervision (1) to Standardization of Work Process (3) to Standardization of Outputs or Skills (4, 5).

Organizational Configurations (Typology):

1. Simple Structure: Key Part: Strategic Apex. Main Coordinating Mechanism: Direct Supervision. Example: Small retail store, corporation run by an entrepreneur. The Strategic Apex centralizes and controls.
2. Machine Bureaucracy: Key Part: Techno-Structure. Main Coordinating Mechanism: Work Process Standardization. Example: National post office, steel company. The Techno-structure standardizes work processes to increase its influence.
3. Professional Bureaucracy: Key Part: Operating Core. Main Coordinating Mechanism: Skills Standardization. Example: General hospital, university. Operators professionalize and coordinate through standardized skills, seeking maximum autonomy.
4. Divisionalized Form: Key Part: Middle Line. Main Coordinating Mechanism: Outputs Standardization. Example: Vast majority of private firms. Middle management groups the organization and coordinates via output standards, seeking autonomy for unit management.
5. Adhocracy: Key Part: Support Staff. Main Coordinating Mechanism: Mutual Adjustment. Example: Space agency, consultancy organizations. Support staff coordinates via mutual adjustment, prioritizing collaboration and innovation in decision-making.

Types of Organizations (Legal Entities)

Managers must be aware of the legal structure of their organization. The broad types include:

1. A Sole Trader or a Trading or a Proprietary Firm: Owned by a single individual or family. A proprietary firm implies a single source of supply for a unique product/service.
2. A Partnership Firm: Owned by more than one person, registered under the partnership act, with agreed-upon proportions of ownership and investment.
3. A Co-Operative Society: Formed under the Co-operative Societies Act with multiple members and appointed managers.
4. Joint Stock Company: Formed under the Companies Act, subject to regulatory authorities like SEBI if listed.
   • Public Limited Company: No restrictions on public share selling; unlimited number of shareholders.
   • Private Limited Company: Restrictions on public share selling; shareholder limit typically 50.
5. Holding Company and Subsidiary Company: A Holding Company controls the management of another company, the Subsidiary Company.
6. A Public Sector Company: 100% controlled and owned by the Central or State Government, operating under strict government rules and regulations.
7. Other Types: A Corporation, an Autonomous Corporation/Enterprise/Organisation, a Bank or Financial Institution, a Foreign Company, a Joint Venture Company, and a Multinational Company (MNC).

Importance and Advantages of Organization

The profound importance of organization captured by A. Carnagie’s statement: “Leave nothing but our organisation, and in four years we shall have re-established ourselves.”Advantages of Organization:

1. Facilitates Administration: Makes administration simple and efficient by allowing delegation of authority, encouraging management by exception, and avoiding confusion and duplication through sharp job descriptions.
2. Facilitates Growth and Diversification: Provides the framework for company growth. A live organization plans for change and re-organization well ahead of an administrative crisis caused by growth.
3. Provides Optimum Use of Technological Advances: The structure must adapt to technological changes, especially given the heavy fixed costs of modern equipment.
4. Encourages Human Relations Approaches: Proper organization facilitates the intensive and effective use of human resources.
5. Stimulates Creativity: Promotes independent, creative thinking and initiative by providing clear spheres of activity with broad latitude for developing better methods. It yields creative results from creative people while routing repetitive work to lower levels and establishing clear accountability.

Organization is the foundation upon which the entire structure of management is successfully built.

Simon’s Theory of Organisation (A Modern Approach)

Professor H. A. Simon’s theory, based on social needs and human psychology, views Organization as a Decision Making Process.

He critiques traditional principles as ambiguous and contradictory, advocating for new thinking and a modern approach focused on decision-making.

Simon’s Basic Principles:

He emphasizes three fundamentals for the structure:

1. Communication: A system that passes on all relevant information to ensure decision-making is easy and acceptable.
2. Authority: Communication must carry authority to accepted without reservation.
3. Loyalty to the Organisation: Decisions should be laudable and foolproof to ensure the unreserved loyalty of the personnel.

Simon’s Five Principles (Later Generalizations):

1. Suitability of a Decision: Decisions should be reasonably sound, appropriate to the circumstances, and in the best interest of the enterprise and affected personnel, based on complete information.
2. Acceptability of Authority: Authority exercised for the common good. It must be acceptable to those who are to abide by it.
3. Excellent Decision is no Substitute to a Satisfactory Decision: Decisions do not need to be ‘excellent’ (a relative term) but must be satisfactory, based on sound judgment, free from prejudice, and widely accepted.
4. Routine Process: Decision-making should be a routine, open, and democratic process where circumstances permit, avoiding unnecessary secrecy.
5. Live to the Role: Decisions must give due weight to human psychology and behavior, supporting the role of the organization in preparing a dedicated and responsible workforce.

Problems of Organization

The life of an organization progresses through stages, each with inherent challenges:

1. At the start: To create a new organizational system.
2. Thereafter: To survive.
3. Then: To stabilize.
4. Later: To earn a good reputation.
5. Next: To achieve uniqueness.
6. Finally: To earn respect and appreciation.

Major Problems in Running an Organization:

• Assuring vitality and growth while preventing delay.
• Integrating personal needs with organizational goals.
• Distributing power and authority effectively.
• Developing mechanisms to reduce intra-organizational conflicts.
• Ensuring effective adaptation to changes in the environment.