7.6: Organizing — The Second Function of Management

A second key function of managers is organizing, which is the process of coordinating and allocating a firm’s resources in order to carry out its plans. Organizing includes developing a structure for the people, positions, departments, and activities within the firm. Managers can arrange the structural elements of the firm to maximize the flow of information and the efficiency of work processes. They accomplish this by doing the following:

• Dividing up tasks (division of labour)
• Grouping jobs and employees (departmentalization)
• Assigning authority and responsibilities (delegation)

Organizing is the function of management that involves developing an organizational structure and allocating human resources to ensure the accomplishment of objectives. The structure of the organization is the framework within which effort is coordinated. The structure is usually represented by an organizational chart, which provides a graphic representation of the chain of command within an organization. Decisions made about the structure of an organization are generally referred to as organizational design decisions.

Organizational Structure

Businesses use organizational charts to depict the reporting structure within the organization. Depending on the number of layers in an organizational chart, the company’s command chain can be identified along with each manager’s span of control. Span of control can be defined as the total number of direct subordinates that a manager can control or manage. The number of subordinates managed by a manager varies depending on the complexity of the work.^[1] The vertical lines in an organizational chart represent a few things: flows of communication as well as the authority relationships among people working at various levels of the organization.

Organizing also involves the design of individual jobs within the organization. Decisions must be made about the duties and responsibilities of individual jobs, as well as the manner in which the duties should be carried out. Decisions made about the nature of jobs within the organization are generally called “job design” decisions.

Organizing at the level of the organization involves deciding how best to departmentalize, or cluster, jobs into departments to coordinate effort effectively. There are many different ways to departmentalize, including organizing by function, product, geography, or customer. Many larger organizations use multiple methods of departmentalization.

Organizing at the level of a particular job involves how best to design individual jobs to most effectively use human resources. Traditionally, job design was based on principles of division of labour and specialization, which assumed that the narrower the job content, the more proficient the individual performing the job could become. However, experience has shown that it is possible for jobs to become too narrow and specialized. For example, how would you like to screw lids on jars day after day, as you might have done many decades ago if you worked in a company that made and sold jellies and jams? When this happens, negative outcomes result, including decreased job satisfaction and organizational commitment, increased absenteeism, and turnover.

Many organizations have attempted to strike a balance between the need for worker specialization and the need for workers to have jobs that entail variety and autonomy. Many jobs are now designed based on such principles as empowerment, job enrichment and teamwork.

How Companies Get Jobs Done

Building an organizational structure engages managers in two activities: job specialization (dividing tasks into jobs) and departmentalization (grouping jobs into units).

• Job Specialization.Organizing activities into clusters of related tasks that can be handled by certain individuals or groups is called job specialization. This aspect of designing an organizational structure is twofold: 1) Identify the activities that need to be performed to achieve organizational goals. 2) Break down these activities into tasks that can be performed by individuals or groups of employees.
• Departmentalization. Departmentalization is grouping specialized jobs into meaningful units. Depending on the organization and the size of the work units, they may be called divisions, departments, or just plain groups. Traditional job groupings result in different organizational structures, and for the sake of simplicity, we focus on two types—functional and divisional organizations.

Types of Divisional Organization with Company and Industry Examples

A divisional organizational structure is a type of organizational structure where a company is divided into independent divisions that operate like their own companies within the larger organization. Each division has its own resources, teams, and responsibilities.

• Product Divisions. An organizational design where a company is structured around its different product lines. Examples: General Motors uses product-based divisions for their various automotive lines — Buick, Cadillac, Chevrolet, and GMC.
• Customer Divisions. An organizational design where the company is structured around different customer groups or segments, allowing it to tailor products, services, and operations to meet specific customer needs. Example: Johnson & Johnson is divided into three consumer-based structures — consumer business, pharmaceuticals, and professional business.
• Process Divisions. An organizational design where the company is structured around the processes needed to create a product or service. Example: Many hospitals use a process-based organizational structure, organizing departments around key stages of patient care such as intake, treatment, recovery, and discharge to improve efficiency and outcomes.
• Geographical Divisions. An organizational design where the company is structured by geographical location, allowing it to respond to customers more effectively based on their physical location. Example: Adidas is set up so that it can operate effectively in the five regions of the world where it operates.