Management Organization

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♦  Organization is management function which determines the way in which company is going to achieve planned goals and activities.

♦  After selecting objectives and appropriate strategy for achieving goals, it is necessary to form an effective organization as an instrument of achieving the specified strategy, plan or goal.

♦  Designing the organization as a tool includes the process of building organizational structure, the definition of organizational procedures and the use of organizational funds.

♦  The design of organization includes activities such as evaluating the entire company’s task according to the execution, stages, object, level, purpose, formation of jobs (exact definition of work), formation of organizational units (connecting jobs results in services, departments, etc.), designing economic relations between organizational units (relations in acquisition of income, relations in investment of capital, etc.), design of control system (forms of management bodies, their competences and responsibilities, their relations), formation of working groups (working atmosphere, labor protection); flow of information, products or materials; space (location, schedule, etc.).

♦  According to Marin Buble, this complex set of activities can be divided into three main groups:

•  design of organizational structure,

•  design of management and

•  identification of economic relations between separate parts of the enterprise.



♦  Organizational structure of a system consists of the elements of a system, as well as of the relations between these elements.

♦  This, of course, applies to the enterprise as a business system.

♦  When it comes to separate business functions within the enterprise, organizational structure represents a framework within which these functions are implemented.

♦  Organizational structure is the system of formal rules on the labor division, roles and coordination of staff working in this field and outside of it.

♦  Organizational structure determines how people should behave in daily affairs.

♦  Organizational structure is most often represented by an organizational scheme.

♦  Organizational chart is a graphic representation of highlighted activities and processes in the organization.

♦  Examining an organizational chart, the components of the organizational structure and their interaction can be clearly identified.

♦  According to Richard L. Daft, there are three key components in determining the organizational structure.

♦  Organizational structure designs formal relation of responsibility, including the number of levels in the hierarchy and the control of managers and headmen.

♦  Organizational structure defines the linkage of individuals into departments and of departments into overall organization.

♦  Organizational structure includes the design of the system, which should ensure effective communication and effort integration through different departments.

♦  These three structural elements refer to both vertical and horizontal aspect of the organization.

♦  For example, the first two elements are the structural framework which shows the hierarchical dimension of organizational scheme.

♦  The third element refers to interaction among employees.

♦  An ideal structure encourages employees to ensure horizontal informing and coordination where and when needed.


♦  When talking about organizational structure, it usually refers to the formal organizational concept that arose as a result of formal planning processes performed by organization management.

♦  This concept clearly defines the communication between the units of the company, who is superior and who is superior.

♦  Also, it defines who submits a work report to whom.

♦  The so-called informal organizational structure should also be taken into account, since it represents social ties based on friendship and/or shared interests between employees.

♦  Keith Davids, who long dealt with the problem of informal organizational structure, defined it as “a network of personal and social relations which is not established or foreseen in a formal organization, but arises spontaneously during socialization”.

♦  Informal relations between groups of people can help in the implementation of everyday tasks and strategic objectives, but can also present a hindrance in achieving them.

♦  It is much easier to communicate and collaborate on assignments with someone you know, even if this person formally and organizationally belongs to some other department.

♦  For a manager, it’s not enough just to know that an informal organization exists.

♦  A successful manager can very skillfully use this type of organization for more effective functioning of the formal organizational structure.

♦  As mentioned, if the group of employees involved in the informal organizational structure during work time or during free time decides to interfere in the implementation of current or even strategic objectives of the enterprise, the achievement of goals will be very difficult to carry out by using only formal institutional ways.

♦  Successful functioning of the enterprise should presume both formal and informal organizational structure, because it is necessary to answer the question whether the current organizational structure will become more efficient or will limit the successful functioning of the enterprise, and, in particular, the realization of its strategic goals.

♦  It is necessary to answer the question which level of management and employees in the organization will be responsible for various tasks, whether everyday tasks, or those concerning the implementation of strategy.

♦  Informal organizational structure makes integrative dimension of formal organization.

♦  Namely, it provides the members of formal organizations a sense of belonging, status, satisfaction and self-esteem.


♦  The ability to organize is also valued function which managers must possess.

♦  Linear organization is primal, hierarchical way of organizing, and entails a very small hierarchy due to the small amount of tasks.

♦  The mentioned organization is stable and simple, and suitable for family economies.

♦  In this type of organization, manager is usually the owner and carries the responsibility, while safety is linked to the family, as well as the distribution of profits.

♦  Business culture reflects family relations, so the changes are small or impossible, while relationship is bureaucratic with the lowest level of impact on democratization.

♦  Group organization in accordance to business functions entails the execution of akin tasks within the same organizational unit.

♦  It is characteristic of small and medium enterprises, and is the most common type in practice, because it is the initial form of organizational structure of many businesses.

♦  This is because it involves a high degree of specialization and division of labor, costs reduction and provides a logical linkage of jobs into business functions, professional leadership and unified coordination of jobs having the same function.

♦  It underlines the value and importance of the basic functions, facilitates the training of managers for management of separate business functions and provides control on top of the company.

♦  Matrix organization is a combination of project and functional organizational structure.

♦  It implies double responsibility of members (in accordance with functions and projects), and it represents the most complex form of organizational structure.

♦  It provides great effectiveness in solving the most complex problems.


♦  Formalization is associated with a number of documents written in the organization.

♦  Documentation includes procedures, job descriptions, regulations and business policy.

♦  These documents describe behavior and activities.

♦  Formalization is often measured by simple counting of number of pages of document within the organization.

♦  Large organizations, with strictly formalized way of doing business, are characterized by a large number of written documents that regulate the activities within the organization.

♦  Enterprises which are just formed have a small number of written documents.

♦  Specialization shows levels at which organization’s objectives are divided into separate jobs.

♦  If the role of specialization is emphasized, each employee will perform only closely defined tasks.

♦  If the role of specialization is not so emphasized, employees will perform a wide range of tasks.

♦  Standardization expresses the level at which similar business activities are executed in a unique way.

♦  Hierarchy of authority shows who is liable to whom, as well as the control range of each manager.

♦  Hierarchy is depicted by vertical lines in the organizational diagram.

♦  It displays the number of employees, subordinated to one manager.

♦  Centralization indicates the number of hierarchical levels, which have powers in decision-making.

♦  When the decision are brought at the highest level, organization is centralized.

♦  When decision-making is delegated at lower organizational levels, organization is decentralized.

♦  Organizational decision-making that can be centralized or decentralized includes purchasing equipment, setting goals, choosing suppliers, defining prices and receiving staff.


♦  The environment in the enterprise can be more or less dynamical.

♦  Depending on the dynamism of the environment, management theory has developed a specific organizational structure.

♦  Classical school of management has charged modern management theory with early models of organizational design, developed by F. Taylor, H. Fayol and M. Weber.

♦  One of the first models of organizational design was bureaucratic model of German sociologist Max Weber.

♦  For Weber, the ideal organizational design required a clear division of labor.

♦  Division of labor contributes to the efficiency. Employees must be trained and prepared to perform specific tasks, in order to perform them well.

♦  The employees selection and promotion must be based on objective qualities and abilities of employees and not on subjective basis.

♦  A formal set of rules and procedures ensures objectivity, fairness and consistency in carrying out of decisions.

♦  Clear borderlines of authority ensure compliance with policies and procedures.

♦  Weber’s model of organizational design is considered to be the best model for hundred years.

♦  Fayol’s management principles also govern questions concerning organization in the same way.

♦  Almost all formal organizations which appeared in 20th century were based on Weber’s and Fayol’s rules and procedures.

♦  At a time, when this model emerged, the enterprise was more predictable and certain than today.

•  Competition was mainly local and known :

•  the introduction of new products was slow;

•  the demand was on the rise and predictable;

•  the markets were less demanding than today;

♦  The competitive threat was soothed by the constant expansion of market and increase of demand.

♦  In such conditions, rules,procedures, specialization and command chains had meaning and effect, because the criterion for survival was cost efficiency.

♦  Weber’s and Fayol’s model of management is today called mechanistic organization model.

♦  Researches of Thomas Burns and G. M. Stalker confirmed that the environment of classical models of organizational design changed in the second half of the twentieth century.

♦  The demand for products dramatically and unpredictably changes, the changes of key players are frequent and unpredictable, while technological innovations and product innovations are frequent.

♦  Survival depends on speed and ability of innovation.

♦  In these environments, the new so-called organicistic model of organizational design occurred.

♦  The purpose of this organizational design is the speed of response to different environment, not efficiency.

♦  In order to improve abilities to respond to the environment stimuli managers in such organizations do not seek to blindly follow the rules and hierarchy.

♦  Departments are less specialized, have more autonomy, and thus react faster.


♦  Joan Woodward’s study empirically confirmed the relationship between models of organizational structure and type of technology.

♦  Enterprises of mass scale and production are the most successful if they are organized according to the principles of mechanicistic organizational model, while enterprises of individual and process production become more effective if they are organized on the principles of organicistic model.

♦  The connection between strategy and structure was noticed by A. D. Chandler.

♦  He studied the interdependence of strategy and enterprise structure.

♦  He characterized the first stage of strategy development by focus on single product and elementary organizational structure.

♦  Together with the growth of enterprise, there is a necessity of functions and their basic integration in the production of narrow assortment of products.

♦  The next level is characterized by the expansion on new markets, what increases the degree of diversification of enterprise operations.

♦  It results in the full development of organizational structure (centralized or decentralized) and vertically integrated structure.

♦  Size effect is manifested as an increase in the number of employees, greater division of labor, higher level of differentiation within organizational units, as well as an increase in the number of organizational levels in management.

♦  The bigger is company, the more specialized are tasks and division of labor, the greater is differentiation within organizational units, and the bigger is the number of organizational levels.

♦  In order that such organizations react quickly, they must develop decentralized organizational models.

♦  Organizational function is still more art than science.

♦  In case organization is considered to be science, the organizational design would be performed by using certain formulas or models.

♦  Managers do not define organizational structure by using particular formula, but by using common sense and feeling of the unique combination of cost, which company wants to offer to the market, as well as by knowing the needs of customers, products, markets and geographical locations.


♦  Organizational structure is not a random choice, a result of luck or inertia of historically determined form.

♦  Manager has the duty and is responsible for deliberate development of structure, which improves company’s business, while simultaneously taking care of many factors.

♦  There is not one best organizational structure.

♦  Already installed organizational structure has a tendency of resistance to change and becomes inflexible.

♦  Too rigid organizational structures undermine organizational sustainability.

♦  Therefore, organizations which want to keep up with changes in the environment should regularly reorganize.

♦  However, it is important to note that structure is in function of strategy, not vice versa.

♦  There are situations which signalize the need for reorganization: in which work is not correctly carried out, in which the goal is not achieved, in which, among the company departments, there are repeated conflicts and misunderstandings related to schedule of resources and activities, in which managers are either overworked, so they coordinate the work of too many employees, or they have too many advisers whose work is not adequately used.

♦  The end of the twentieth century is a period of intense restructuring, reorganization, redesign of existing enterprises, which were looking for a way to be more successful through organizational function.

♦  Enterprises resort to various types of reorganization.

♦  Reorganization entails changes in organizational structure.

♦  These changes can relate to dismissal of a large number of employees and to decrease in organizational levels by displacing employees or by connecting the existing levels or enterprise departments, etc.

♦  Any change in the organizational structure causes resistance.

♦  Therefore, changes in the organizational structure need to be planned.

♦  If an enterprise has problems with organizational design, it is advisable to explore the possibilities of resolving the problem by implementing minor changes into the organizational structure.

♦  Reduction in the context of transition has become synonymous with mass layoffs and causes discontent of the public.

♦  Elimination of middle managers may result in the loss of fine network of knowledge, talent and contacts that greatly contributed to the realization of organizational goals.

♦  The establishment of several independent and autonomous mini-organizational unties substantially increases the need for coordination.


♦  Through the development of organizational structure, managers must decide on the level of authority they will distribute through the organization.

♦  Many believe that the question of authority is the central question of organizational function.

♦  Authority is organizationally and legally regulated: the right of decision-making, freedom and independence in taking actions, as well as the right to impact the activities of other employees.

♦  Sources of authority can be different, for example. knowledge, abilities, skills, physical or psycho-sociographic characteristics.

♦  In business organizations, there are people who are considered authorities because of their networking, popularity, power of attraction, or the so-called referent authority.

♦  In business, managers determine the level of responsibility, and thus define the formal positional power of certain jobs.

♦  The function of organization predicts which power positions in delegation, awarding, fines and similar activities will have separate position in the organizational hierarchy.

♦  If all the power of decision-making, undertaking of activities and directing other people is held in one person, we are talking about the so-called centralized organizational structure.

♦  Centralization is a process of complying to the right of decision-making from only certain levels of management or certain managers that bring all business decisions.

♦  If the power of decision-making, undertaking of activities and directing others is widely scattered through various levels of management, we are talking about decentralized organization.

♦  Decentralization is a process of authority distribution all along the organization.

♦  The right of decision-making is given to all members of the organization in smaller or greater degree, while higher levels of management reserves the right to control these decisions.

♦  Although the current organizational trend is decentralization, Peters and Water-man identified that the most successful enterprises have both principles of centralization and decentralization.

♦  Authority is distributed to operational employees for most of decisions.

♦  Only decision-making on critical key factors of enterprise’s success is centralized.

♦  The assignment of decision-making authority or implementation of actions to employees who are responsible for certain tasks, before the approval of higher instances, is called authorization.

♦  Authorization imposes that manufacturing, control and quality become part of all work description, while all employees obtain the right and obligation to take actions that will positively influence the increase of product and business quality.

♦  Process of authorization of employees is considered to be the central point of quality management process.

♦  By delegating of authority, the command chain is formed as a formal channel of communication between organizational positions.

♦  The command chain establishes a clear relationship in the forwarding of information and instructions.

♦  Unlike former one-way communication, in which good communication was synonym for unidirectional communication, modern business practice require bidirectional instead of former one-way communication.


♦  Between and within individual organizational enterprise units, there are informational, material and financial flows that can be unified within the concept of economic relations in the enterprise.

♦  The essence of economic relationships is the transfer of goods and services within the enterprise, as well as transfer and distribution of capital among responsibility centers.

♦  Responsibility centers are enterprise organizational departments, which are responsible for the accomplishment of specific goals and have certain autonomy: some of them are responsible for the efficient use of resources, some for the realization of incomes and profit, while others for the use of capital.

♦  In accordance to this, there are three basic types of responsibility centers in enterprises:

•  cost centers,

•  profit centers and

•  investment centers.

♦  Cost centers are those parts of enterprise responsible for executing some task in addition to standard costs.

♦  Thus, they aim at economizing with determined sum of costs, which they tend not to exceed.

♦  They are focused on accomplishing particular task of determined quality, in specified time and with predetermined costs.

♦  Their economic decisions are related to operating work plan, staff arrangement according to tasks, proposal of certain forms or amount of costs.

♦  Such centers are typically: sales service, financial service, research service or centers which combine certain stage of work and result in half-product which transfers to the next stage of work.

♦  Their costs are defined by budget and have the character of predetermined costs. Profit centers are company’s departments which have high degree of business autonomy, so they are responsible for the accomplishment of their tasks, the amount of costs, but also fot profits and losses.

♦  Profit centers release their products on the external market at prices formed on that market. Investment centers are organizational units responsible for the use of disposable capital, as well as for the realization of appropriate return on the invested capital, assets and stock-holding values.

♦  Large corporations often develop internal capital market.

♦  In such situations, the allocation of capital is focused on those parts of the enterprise which promise the greatest gain.

♦  The goal is to direct company’s capital to those points which will have the best effect.

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