organization theory booklet

Organization Theory Organization behavior & practice

First Edition 2013

Over the years, business analysts, economists, and academic researchers

have pondered several theories that attempt to explain the dynamics of

business organizations, including the ways in which they make decisions,

distribute power and control, resolve conflict, and promote or resist

organizational change. This publication is recommended for;

Masters introduction to Consumer behavior

Undergraduate Organization Theory exam papers

Business model for Organization Theories

Director Kenya School of Finance & Social Sciences P. O. Box 19496-40123, Mega City-Kisumu Cell: +254 722 976 633 ; 716 455 743 Email: [email protected] ; [email protected] [email protected] [email protected]

2013

Author: Dr. Oloo Sati Jaramogi Oginga Odinga University of Science & Technology

School of Business & Economics

………………..ABA 207 Organization Theories………………..

S O William: Lecturer - Jaramogi Oginga Odinga University of Science & Technology: [email protected] Page - 2 -

TABLE OF CONTENTS PAGES

Preface………………………………………………………………………………..-4-

Nature, meaning, and purpose………………………………………………………-5-

Organization theory background…………………………………………………….-6-

Open-systems theory………………………………………………………………….-8-

Basic organizational characteristics…………………………………………………-10-

Organizational theory in the 1980s and 1990s…………………………………….-12-

Classical management and bureaucracy…………………………………………...-13-

The classical management school…………………………………………..-13-

Models of thinking in organizational theories……………………………..-14-

Scientific management……………………………………………………………...-16-

Bureaucratic management………………………………………………………….-17-

Administrative management………………………………………………………...-18-

Management functions……………………………………………………………..-22-

Organizational structure and design……………………………………………….-26-

Operational organizations and informal organizations…………………………...-28-

Matrix management..……………………………………………………………….-33-

Hierarchy-community phenotype model of organizational structure……………..-38-

Functional structure………………………………………………………………..-42-

Divisional structure…………………………………………………………………-43-

Matrix structure…………………………………………………………………….-44-

Team structure………………………………………………………………………-45-

Network structure…………………………………………………………………...-46-

Total quality in organizations ……………………………………………………...-47-



Philosophies and frameworks ……………………………………………………...-49-

Communication Channel……………………………………………………………-55-

Evolution of Management Thought……………………...…………………………-58-

Corporate Life-Cycle……………………………………...…………………………-59-

Phases of Organization’s Life Cycle Growth………………………………………-61-

Implications for Growth Phases……………………………………………………-63-

Organizational Problems (Normal & Abnormal)…………………..………………-64-

Stages of Corporate Life-Cycles……………………..………………………………-65-

Organizational Downsizing…………………………………………………………-67-

Mergers and Acquisitions’………………….………………………………………-69-

Motives for Mergers…………………………………………………………………-70-

Methods of Merger Analysis…………………..……………………………………-77-

Beneficiaries of Mergers……………………….……………………………………-82-

Corporate Restructuring……………………………………………………………-83-

Revision quizzes and suggested answers…………………………………………...-84-

References……………………………………………..…………………………...-109-



PREFACE

Aims of the book;

This publication is designed to provide a sound understanding of Organizational Theory and is

particularly relevant for;

a) Students pursuing higher level courses and undergraduates pursuing Business Studies,

Management, and any course including Organization Theory.

b) Students preparing themselves for professional and Academics examination.

c) Managers and others in Organization Theory, commerce and local authorities who wish to

obtain knowledge of Organizational Theory to aid them in their organizations operations.

Teaching Methodology;

This book is interactively tailored on teacher-student relationship with practical approach to

emerging issues on Organization Theory and needs in the current market. The publication has

been written in standardized format with review questions, suggested answers and summaries.

Book Objectives

The approach taken in this 1st edition is to teach the key aspects of Organization Theory through

realistic and relevant examples from business arenas and various organizations. The course will

also utilize the application of practical‗s needed for the implementation of Organization Theory.

Class facilitations with lectures on assigned topics and group discussions are essential for any

academic success. The book emphasizes on understanding the concepts in each topic.

Techniques are commonly misused because the concepts are not sufficiently understood.



NATURE, MEANING, AND PURPOSE.

Organization Theory is an assembly of people working together to achieve common objectives

through a division of labor. An organization provides a means of using individual strengths

within a group to achieve more than can be accomplished by the aggregate efforts of group

members working individually. Business organizations are formed to deliver goods or services to

consumers in such a manner that they can realize a profit at the conclusion of the transaction.

Over the years, business analysts, economists, and academic researchers have pondered several

theories that attempt to explain the dynamics of business organizations, including the ways in

which they make decisions, distribute power and control, resolve conflict, and promote or resist

organizational change.

As Jeffrey Peffer summarized in New Directions for Organization Theory, organizational theory

studies provide "an interdisciplinary focus on;

a) The effect of social organizations on the behavior and attitudes of individuals within them,

b) The effects of individual characteristics and action on organization,'

c) The performance, success, and survival of organizations,

d) The mutual effects of environments, including resource and task, political, and cultural

environments on organizations and vice versa, and

e) Concerns with both the epistemology and methodology that undergird research on each of these

topics."

Of the various organizational theories that have been studied in this realm, the open-systems

theory has emerged as perhaps the most widely known, but others have their proponents as well.

Indeed, some researchers into organizational theory propound a blending of various theories,

arguing that an enterprise will embrace different organizational strategies in reaction to changes

in its competitive circumstances, structural design, and experiences.



ORGANIZATION THEORY BACKGROUND

Modern organization theory is rooted in concepts developed during the beginnings of the

Industrial Revolution in the late 1800s and early 1900s. Of considerable import during that

period was the research done by of German sociologist Max Weber (1864 -1920). Weber

believed that bureaucracies, staffed by bureaucrats, represented the ideal organizational form.

Weber based his model bureaucracy on legal and absolute authority, logic, and order. In Weber's

idealized organizational structure, responsibilities for workers are clearly defined and behavior is

tightly controlled by rules, policies, and procedures.

Weber's theories of organizations, like others of the period, reflected an impersonal attitude

toward the people in the organization. Indeed, the work force, with its personal frailt ies and

imperfections, was regarded as a potential detriment to the efficiency of any system. Although

his theories are now considered mechanistic and outdated, Weber's views on bureaucracy

provided important insight into the era's conceptions of process efficiency, division of labor, and

authority.

Another important contributor to organization theory in the early 1900s was Henri Fayol. He is

credited with identifying strategic planning, staff recruitment, employee motivation, and

employee guidance (via policies and procedures) as important management functions in creating

and nourishing a successful organization.

Weber's and Fayol's theories found broad application in the early and mid-1900s, in part

because of the influence of Frederick W. Taylor (1856 - 1915). In a 1911 book entitled

Principles of Scientific Management, Taylor outlined his theories and eventually implemented

them on American factory floors. He is credited with helping to define the role of training, wage

incentives, employee selection, and work standards in organizational performance.

Researchers began to adopt a less mechanical view of organizations and to pay more attention to

human influences in the 1930s.



This development was motivated by several studies that shed light on the function of human

fulfillment in organizations. The best known of these was probably the so-called Hawthorn

Studies. These studies, conducted primarily under the direction of Harvard University researcher

Elton Mayo, were conducted in the mid-1920s and 1930s at a Western Electric Company plant

known as the Hawthorn Works. The company wanted to determine the degree to which working

conditions affected output. Surprisingly, the studies failed to show any significant positive

correlation between workplace conditions and productivity.

In one study, for example, worker productivity escalated when lighting was increased, but it also

increased when illumination was decreased. The results of the studies demonstrated that innate

forces of human behavior may have a greater influence on organizations than do mechanistic

incentive systems. The legacy of the Hawthorn studies and other organizational research efforts

of that period was an emphasis on the importance of individual and group interaction, humanistic

management skills, and social relationships in the workplace.

The focus on human influences in organizations was reflected most noticeably by the integration

of Abraham Maslow's "hierarchy of human needs" into organization theory. Maslow's theories

introduced two important implications into organization theory.

The first was that people have different needs and therefore need to be motivated by different

incentives to achieve organizational objectives. The second of Maslow's theories held that

people's needs change over time, meaning that as the needs of people lower in the hierarchy are

met, new needs arise. These assumptions led to the recognition, for example, that assembly-line

workers could be more productive if more of their personal needs were met, whereas past

theories suggested that monetary rewards were the sole, or primary, motivators.

Douglas McGregor contrasted the organization theory that emerged during the mid-1900s to

previous views. In the 1950s, McGregor offered his renowned Theory X and Theory Y to

explain the differences.



Theory X encompassed the old view of workers, which held that employees preferred to be

directed, wanted to avoid responsibility, and cherished financial security above all else.

McGregor believed that organizations that embraced Theory Y were generally more productive.

This theory held that humans can learn to accept and seek responsibility; most people possess a

high degree of imaginative and problem-solving ability; employees are capable of effective self-

direction; and that self-actualization is among the most important rewards that organizations can

provide their workers.

OPEN-SYSTEMS THEORY

Traditional theories regarded organizations as closed systems that were autonomous and isolated

from the outside world. In the 1960s, however, more holistic and humanistic ideologies emerged.

Recognizing that traditional theory had failed to take into account many environmental

influences that impacted the efficiency of organizations, most theorists and researchers embraced

an open-systems view of organizations.

The term "open systems" reflected the newfound belief that all organizations are unique in part

because of the unique environment in which they operate and that they should be structured to

accommodate unique problems and opportunities. For example, research during the 1960s

indicated that traditional bureaucratic organizations generally failed to succeed in environments

where technologies or markets were rapidly changing. They also failed to realize the importance

of regional cultural influences in motivating workers.



Environmental influences that affect open systems can be described as either specific or general.

The specific environment refers to the network of suppliers, distributors, government agencies,

and competitors with which a business enterprise interacts.

The general environment encompasses four influences that emanate from the geographic area in

which the organization operates.

These are:

Cultural values; which shape views about ethics and determine the relative importance of

various issues.

Economic conditions; which include economic upswings, recessions, regional unemployment,

and many other regional factors that affect a company's ability to grow and prosper. Economic

influences may also partially dictate an organization's role in the economy.

Legal or political environment; which effectively helps to allocate power within a society and

to enforce laws. The legal and political systems in which an open system operates can play a key

role in determining the long-term stability and security of the organization's future. These

systems are responsible for creating a fertile environment for the business community, but they

are also responsible for ensuring via regulations pertaining to operation and taxation that the

needs of the larger community are addressed.

Quality of education; which is an important factor in high technology and other industries that

require an educated work force. Businesses will be better able to fill such positions if they

operate in geographic regions that feature a strong education system.

The open-systems theory also assumes that all large organizations are comprised of multiple

subsystems, each of which receives inputs from other subsystems and turns them into outputs for

use by other subsystems. The subsystems are not necessarily represented by departments in an

organization, but might instead resemble patterns of activity.



An important distinction between open-systems theory and more traditional organization theories

is that the former assumes a subsystem hierarchy, meaning that not all of the subsystems are

equally essential.

Furthermore, a failure in one subsystem will not necessarily thwart the entire system. By

contrast, traditional mechanistic theories implied that a malfunction in any part of a system

would have an equally debilitating impact.

BASIC ORGANIZATIONAL CHARACTERISTICS

Organizations differ greatly in size, function, and makeup. Nevertheless, the operations of nearly

all organizations from the multinational corporation to a newly opened delicatessen are based on;

Division of labor

Decision-making structure

Rules and policies.

The degrees of formality with which these aspects of business are approached vary tremendously

within the business world, but these characteristics are inherent in any business enterprise that

utilizes the talents of more than one person.

Organizations practice division of labor both vertically and horizontally. Vertical division

includes three basic levels top, middle, and bottom. The chief function of Top managers, or

executives, typically is to plan long-term strategy and oversee middle managers. Middle

managers generally guide the day-to-day activities of the organization and administer top-level

strategy. Low-level managers and laborers put strategy into action and perform the specific

tasks necessary to keep the organization operating.

Organizations also divide labor horizontally by defining task groups, or departments, and

assigning workers with applicable skills to those groups. Line units perform the basic functions

of the business, while staff units support line units with expertise and services.



In general, line units focus on supply, production, and distribution, while staff units deal mostly

with internal operations and controls or public relations efforts.

Decision-making structures, the second basic organizational characteristic, are used to organize

authority. These structures vary from operation to operation in their degree of centralization and

decentralization. Centralized decision structures are referred to as "tall" organizations because

important decisions usually emanate from a high level and are passed down through several

channels until they reach the lower end of the hierarchy. Conversely, flat organizations, which

have decentralized decision-making structures, employ only a few hierarchical levels. Such

organizations are typically guided by a management philosophy that is favorably disposed

toward some form of employee empowerment and individual autonomy.

A formalized system of rules and policies is the third standard organizational characteristic.

Rules, policies, and procedures serve as templates of managerial guidance in all sectors of

organizational production and behavior. They may document the most efficient means of

accomplishing a task or provide standards for rewarding workers.

Formalized rules provide managers with more time to spend on other problems and opportunities

and help ensure that an organization's various subsystems are working in concert. Poorly

implemented rules can have a negative impact on business efforts to produce goods or services in

a profitable or satisfactory manner. Thus, organizations can be categorized as informal or formal,

depending on the degree of formalization of rules within their structures. In formal organizations,

say researchers, management has determined that a comparatively impersonal relationship

between individuals and the company for which they work is viewed as the best environment for

achieving organizational goals.

Subordinates have less influence over the process in which they participate, with their duties

more clearly defined. Informal organizations, on the other hand, are less likely to adopt or adhere

to a significant code of written rules or policies.



Instead, individuals are more likely to adopt patterns of behavior that are influenced by a number

of social and personal factors. Changes in the organization are less often the result of

authoritative dictate and more often an outcome of collective agreement by members. Informal

organizations tend to be more flexible and more reactive to outside influences. But some critics

contend that such arrangements may also diminish the ability of top managers to effect rapid

change.

ORGANIZATIONAL THEORY IN THE 1980s AND 1990s

By the 1980s several new organizational system theories received significant attention. These

included Theory Z, a blending of American and Japanese management practices. This theory was

a highly visible one, in part because of Japan's well-documented productivity improvements and

the United States' manufacturing difficulties during that decade. Other theories, or adaptations of

existing theories, emerged as well, which most observers saw as indicative of the ever-changing

environment within business and industry.

The study of organizations and their management and production structures and philosophies

continued to thrive throughout the 1990s. Indeed, an understanding of various organizational

principles continues to be seen as vital to the success of all kinds of organizations from

government agencies to business of all shapes and sizes, from conglomerates to small businesses.

The study continues and although academics are far from a single theory of organization

development each serious academic undertaking adds to the knowledge base on the subject. The

changes in the ways in which we communicate and others brought about by advances in

technology will likely create more opportunity for study. As our societies change, so to do the

ways in which our organizations operate.



Organizational theory

This theory focuses on the identification of organizations‘ patterns and structures that they use to

solve problems, maximize efficiency and productivity, and meet the expectations of

stakeholders.

CLASSICAL MANAGEMENT AND BUREAUCRACY

The Classical Management School

The twentieth century witnessed tremendous management theory ferment and

activity. Efforts were taking place for the development of a comprehensive

management theory. Traditional or classical management school of theory is a

result of such efforts. Henri Fayol (1841-1925) is widely acclaimed as the

founder of the Classical management school.

Classical Management Theory concentrates on efficiency. Classical school has three distinct

branches; scientific management, bureaucratic management, and administrative management. It

envisages a pyramid hierarchical structure, autocratic management, clear chain of command and

short spans of control.

Difference between Lean Management and Classical Management

A lean organization is where a few layers exist in the organization structure, and people at all

levels work together in teams. In such organizations, managers, often in teams, monitor

performance of the organization and plan for quality. They identify processes or problems that

need improvement, and organize and lead people to find solutions. More and more organizations

tend to delegate authority to make decisions to lower levels (empowered teams) lean

organization structure. A classical organization structure is hierarchic with many levels from top

management to workforce.



In classical organizations, particularly in manufacturing industries, people are grouped into

departments based functions. Hence, we observe departments such as marketing, design,

manufacturing, and sales. Following the same reasoning, quality-related activities have been

focused in a "quality department". Such a department would be responsible for assuring the

quality of products through activities such as inspection, and statistical process control. In the

last two decades, a major trend in many organizations has been assigning quality management

tasks to all departments rather than the quality departments only.

Models of thinking in Organizational theories.

According to Ned Herman in physiological and functional specialization of the human brain.

Ned Herrman explains physiological and functional specialization of the human brain by

dicothamizing it into four quadrants (models of thinking).

1. Analytical thinking;

Such skills include demonstration of the ability to apply logical thinking to gathering and

analyzing information, designing and testing solutions to problems, and formulating plans. In

1999, Richards J. Heuer Jr. explained that: Thinking analytically is a skill like carpentry or

driving a car.

2. Imaginative thinking;

The ability to imagine things that are not real : the ability to form a picture in your mind of

something that you have not seen or experienced; The ability to think of new things; Something

that only exists or happens in your mind.

3. Sequential thinking;

Sequential thinking is the process in which thoughts are put into the order of priority concerning

the issue at hand and viewed individually as to their merits and demerits. This enables the

individual to take the right decision.



4. Interpersonal thinking;

Relating to the interactions between individuals: interpersonal skills existing or occurring

between individuals: interpersonal communication or conflict. Interpersonal skills are the life

skills we use every day to communicate and interact with other people, both individually and in

groups. People who have worked on developing strong interpersonal skills are usually more

successful in both their professional and personal lives. Employers often seek to hire staff with

'strong interpersonal skills' - they want people who will work well in a team and be able to

communicate effectively with colleagues, customers and clients.

7% of individuals have dominance in a single quadrant

60% of individuals have double-dominance

30% of individuals have triple-dominance

3% of individuals have quadruple-dominance (whole brain)

Even though individual team members may not have the whole brain (i.e. may have thinking

preferences in less than four quadrants), the chances that the team has access to whole brain

thinking is high. Individual differences due to human characteristics, race, culture and gender

may yield both positive & negative impacts on teamwork.

Diversity in a team may help establishment of synergy, and provides broader viewpoints in

discussion of problems. However, it may also be the source of misunderstandings, conflict and

ethnocentricity. Knowing and accepting individual differences help decreasing negative impacts

of diversity on the team.



SCIENTIFIC MANAGEMENT

Frederick Winslow Taylor (1856-1915) is known as the "father of scientific management".

Taylor began work at the age of 18 as a machinist apprentice to a pattern-maker. He later joined

the Midvale Steel Company as a laborer and became chief engineer in eight years. During his

period at the steel mill Taylor performed comprehensive experiments on worker productivity and

tested what he called the "task system," later developed into the Taylor System and eventually

progressed into scientific management.

Scientific management theory analyzes and synthesizes workflow processes and improving labor

productivity. Scientific management is also called Taylorism, the Taylor system, or the Classical

Perspective. The core ideas of the theory were developed by Frederick Winslow Taylor in the

1880s and 1890s, and were first published in his monographs, Shop Management (1905) and The

Principles of Scientific Management (1911). Taylor believed that decisions based upon tradition

and rules of thumb should be replaced by precise procedures developed after careful study of an

individual at work.

Taylor's experiments included determining the best way of performing each work operation, the

time it required, materials needed and the work sequence. He wanted to establish a clear division

of labor between management and employees.

Following are the four basic principles of scientific management theory:

Study the ways jobs are performed now and determine new ways to do them.

Codify the new methods into rules.

Select workers whose skills match the rules.

Establish fair levels of performance and pay incentive for higher performance.

The scientific management is a 'manager centric' approach. The most fundamental aspect of

scientific management is that the manager is primarily responsible for increasing an

organization's productivity.



Scientific management principles are to be applied by managers in a very specific fashion. The

shortcomings of the Scientific Theory had triggered the quest for more workable solutions and

resulted in the formulation of bureaucratic management, and administrative management

theories. The scientific method was also got refined further during the course of time.

BUREAUCRATIC MANAGEMENT

Max Weber (1864-1920) is one of the strong advocates of bureaucracy. According to Weber the

major characteristics of bureaucracy are:

A well defined hierarchy

All positions within a bureaucracy are structured in a way permitting the higher positions to

supervise and control the lower positions. This provides a clear chain of command facilitating

control and order throughout the organization.

Division of labor and specialization

All responsibilities in an organization are streamlined in a way that each employee will have the

necessary expertise to master a particular task. This necessitates granting each employee the

requisite authority to complete all such tasks.

Rules and regulations

All organizational activities are streamlined in a way that standard operating procedures are

developed to provide certainty and facilitate coordination.

Impersonal relationships between managers and employees

Weber believed that managers should maintain an impersonal relationship with the employees so

that the managers will be free to take rational decisions rather than one influenced by favoritism

and personal prejudice. This organizational atmosphere would also facilitate rational evaluation

of employee outcomes where personal prejudices shall not interfere.



Competence

Competence should be the basis for all decisions made in hiring, job assignments, and

promotions. This would encourage ability and merit as the most important characteristics of a

bureaucratic organization.

Records

Weber felt it is absolutely essential for a bureaucracy to maintain complete files regarding all its

activities. This necessitates an accurate organizational "memory" where accurate and complete

documents will be available concerning all bureaucratic actions and decisions.

ADMINISTRATIVE MANAGEMENT

Henri Fayol (1841-1925) is the prominent advocate of administrative management. He spent his

entire working career with a mining company, where he rose from an apprentice to General

Manager. As a result of his long management career, Fayol developed fourteen management

principles:

1. Division of Work. Division of work, specialization, produces more and better work with the

same effort. It focuses effort while maximizing employee efforts. It is applicable to all work

including technical applications. There are limitations to specialization which are determined by

its application.

2. Authority and responsibility. Authority is the right to give orders and the power to exact

obedience. Distinction must be made between a manager's official authority deriving from office

and personal authority created through individual personality, intelligence and experience.

Authority creates responsibility.

3. Discipline. Obedience and respect between a firm and its employees based on clear and fair

agreements is absolutely essential to the functioning of any organization. Good discipline

requires managers to apply sanctions whenever violations become apparent.



4. Unity of command. An employee should receive orders from only one superior. Employees

cannot adapt to dual command.

5. Unity of direction. Organizational activities must have one central authority and one action plan.

6. Subordination of Individual Interest to General Interest. The interests of one employee or group

of employees are subordinate to the interests and goals of the organization and cannot prevail

over it.

7. Remuneration of Personnel. Salaries are the price of services rendered by employees. It should

be fair and provide satisfaction both to the employee and employer. The rate of remuneration is

dependent on the value of the services rendered as determined by the employment market.

8. Centralization. The optimum degree of centralization varies according to the dynamics of each

organization. The objective of centralization is the best utilization of personnel.

9. Scalar chain. A chain of authority exists from the highest organizational authority to the lowest

ranks. While needless departure from the chain of command should be discouraged, using the

"gang plank" principle of direct communication between employees can be extremely

expeditious and increase the effectiveness of organizational communication.

10. Order. Organizational order for materials and personnel is essential. The right materials and the

right employees are necessary for each organizational function and activity.

11. Equity. In organizations equity is a combination of kindliness and justice. The desire for equity

and equality of treatment are aspirations to be taken into account in dealing with employees.

12. Stability of Tenure of Personnel. In order to attain the maximum productivity of personnel, it is

essential to maintain a stable work force. Management insecurity produces undesirable

consequences. Generally the managerial personnel of prosperous concerns is stable, that of

unsuccessful ones is unstable.



13. Initiative. Thinking out a plan and ensuring its success is an extremely strong motivator. At all

levels of the organizational ladder zeal and energy on t he part of employees are augmented by

initiative.

14. Esprit de Corps. Teamwork is fundamentally important to an organization. Creating work teams

and using extensive face-to-face verbal communication encourages this.

Difference between Bureaucratic & Scientific Management?

Theoretical models try to define the structure and management

of small and large businesses and government organizations. The

bureaucratic and scientific management models belong to the

early classical school. They aim to improve managerial

effectiveness by providing tools and suggesting organizational structures. Bureaucratic

management is common in government organizations, while scientific management is an aspect

of manufacturing operations.

Basics

The basics of bureaucratic management include specialization, hierarchy and formal processes.

Specialization refers to groups of people working in specific functional areas, such as finance

and manufacturing. Hierarchy refers to management layers and formal processes refer to how

companies organize internally and interact externally with investors, suppliers and customers.

Scientific management emphasizes process improvements and efficiencies, and it makes

managers accountable for improving organizational productivity.

Characteristics

Bureaucratic management structures share certain characteristics, such as a defined hierarchy,

rules and regulations, and detailed recordkeeping and documentation. Each position in a

bureaucracy supervises another, thus providing direction and control throughout the

organization. A small business may have everybody in the organization reporting to the owner.



A large business may have layers of department managers and vice presidents reporting

ultimately to the chief executive, who reports to the board of directors, which is accountable to

shareholders. Scientific management involves finding the best way to complete tasks, including

providing financial incentives to employees to improve their productivity. Additionally,

scientific management involves developing a management methodology, selecting and training

employees, and supervising them closely.

Significance

Companies all over the world have adopted bureaucratic management principles. Public sector

organizations--commonly known as bureaucracies--rely on formal processes and hierarchies to

achieve stable structures and consistent results. However, bureaucracies tend to be rigid and slow

to adapt to change, while small businesses need to be flexible and adaptable.

Scientific management has been responsible for steady improvements in business operations,

such as better job definitions, automated inventory tracking, just-in-time manufacturing and

compensation schemes that seek to link incentives to performance.

Issues

The main problem with bureaucratic management is its reliance on top-down direction and

control. Some have argued that this leads to additional management layers, higher cost structures

and slower decision making. Scientific management's insistence on close managerial

involvement may lead to a loss of productivity because employees tend to be more motivated

when they are provided the tools and left alone to do their work.

Other Models

The administrative management method is another classical management model. It consists of a

set of organizing principles, such as division of work, discipline, initiative and teamwork.

Modern management methods include statistical quality management and managing virtual

organizations.



MANAGEMENT FUNCTIONS

Effective management and leadership involve creative problem solving, motivating employees

and making sure the organization accomplishes objectives and goals. There are five functions of

management and leadership: planning, organizing, staffing, coordinating and controlling.

Functions of Managers

Managers just don't go out and haphazardly perform their responsibilities. Good managers

discover how to master five basic functions: planning, organizing, staffing, leading, and

controlling.

Planning: This step involves mapping out exactly how to achieve a particular goal. Say, for

example, that the organization's goal is to improve company sales. The manager first needs to

decide which steps are necessary to accomplish that goal. These steps may include increasing

advertising, inventory, and sales staff. These necessary steps are developed into a plan. When the

plan is in place, the manager can follow it to accomplish the goal of improving company sales.

Organizing: After a plan is in place, a manager needs to organize her team and materials

according to her plan. Assigning work and granting authority are two important elements of

organizing.

Staffing: After a manager discerns his area's needs, he may decide to beef up his staffing by

recruiting, selecting, training, and developing employees. A manager in a large organization

often works with the company's human resources department to

accomplish this goal.

Leading: A manager needs to do more than just plan, organize, and

staff her team to achieve a goal. She must also lead. Leading involves

motivating, communicating, guiding, and encouraging. It requires the



manager to coach, assist, and problem solve with employees.

Controlling: After the other elements are in place, a manager's job is not finished. He needs to

continuously check results against goals and take any corrective actions necessary to make sure

that his area's plans remain on track.

Timings

All managers at all levels of every organization perform these functions, but the amount of time

a manager spends on each one depends on both the level of management and the specific

organization.

Roles performed by managers

A manager wears many hats. Not only is a manager a team leader, but he or she is also a planner,

organizer, cheerleader, coach, problem solver, and decision maker all rolled into one. And these

are just a few of a manager's roles.

In addition, managers' schedules are usually jam‐packed. Whether they're busy with employee

meetings, unexpected problems, or strategy sessions, managers often find little spare time on

their calendars.

In his classic book, The Nature of Managerial Work, Henry Mintzberg describes a set of ten

roles that a manager fills.

These roles fall into three categories:

Interpersonal: This role involves human interaction.

Informational: This role involves the sharing and analyzing of information.

Decisional: This role involves decision making.



Table 1 contains a more in‐depth look at each category of roles that help managers carry out all

five functions described in the preceding ―Functions of Managers‖ section.

Management is the process of reaching organizational goals by working with and through people

and other organizational resources.



Management has the following 3 characteristics:

a) It is a process or series of continuing and related activities.

b) It involves and concentrates on reaching organizational goals.

c) It reaches these goals by working with and through people and other organizational resources.

The 4 basic management functions that make up the management process are described in the

following sections:

1. PLANNING

2. ORGANIZING

3. INFLUENCING

4. CONTROLLING.

PLANNING: Planning involves choosing tasks that must be performed to attain organizational

goals, outlining how the tasks must be performed, and indicating when they should be

performed.

Planning activity focuses on attaining goals. Managers outline exactly what organizations should

do to be successful. Planning is concerned with the success of the organization in the short term

as well as in the long term.

ORGANIZING:

Organizing can be thought of as assigning the tasks developed in the planning stages, to various

individuals or groups within the organization. Organizing is to create a mechanism to put plans

into action.

People within the organization are given work assignments that contribute to the company‘s

goals. Tasks are organized so that the output of each individual contributes to the success of

departments, which, in turn, contributes to the success of divisions, which ultimately contributes

to the success of the organization.



INFLUENCING:

Influencing is also referred to as motivating, leading or directing. Influencing can be defined as

guiding the activities of organization members in he direction that helps the organization move

towards the fulfillment of the goals.

The purpose of influencing is to increase productivity. Human-oriented work situations usually

generate higher levels of production over the long term than do task oriented work situations

because people find the latter type distasteful.

CONTROLLING:

Controlling is the following roles played by the manager:

1. Gather information that measures performance

2. Compare present performance to pre established performance norms.

3. Determine the next action plan and modifications for meeting the desired performance

parameters.

Controlling is an ongoing process.

ORGANIZATIONAL STRUCTURE AND DESIGN

An organizational structure defines how activities such as task allocation, coordination and

supervision are directed towards the achievement of organizational aims. It can also be

considered as the viewing glass or perspective through which individuals see their organization

and its environment.

An organization can be structured in many different ways, depending on their objectives. The

structure of an organization will determine the modes in which it operates and performs.

Organizational structure allows the expressed allocation of responsibilities for different functions

and processes to different entities such as the branch, department, workgroup and individual.



Organizational structure affects organizational action in two big ways:

First, it provides the foundation on which standard operating procedures and routines rest.

Second, it determines which individuals get to participate in which decision making processes,

and thus to what extent their views shape the organization‘s actions.

History

Organizational structures developed from the ancient times of hunters and collectors in tribal

organizations through highly royal and clerical power structures to industrial structures and

today's post industrial structures. In ancient Indian mythology it reflects everywhere that the

King being selected from the merits and he further selected his ministers, they all participated in

their respective specialized field in delivering judgment and making policies for the welfare of

the state. As pointed out by Lawrence B. Mohr, the early theorists of organizational structure,

Taylor, Fayol, and Weber "saw the importance of structure for effectiveness and efficiency and

assumed without the slightest question that whatever structure was needed, people could fashion

accordingly. Organizational structure was considered a matter of choice. When in the 1930s, the

rebellion began that came to be known as human relations theory, there was still not a denial of

the idea of structure as an artifact, but rather an advocacy of the creation of a different sort of

structure, one in which the needs, knowledge, and opinions of employees might be given greater

recognition." However, a different view arose in the 1960s, suggesting that the organizational

structure is "an externally caused phenomenon, an outcome rather than an artifact."

In the 21st century, organizational theorists such as Lim, Griffiths, and Sambrook (2010) are

once again proposing that organizational structure development is very much dependent on the

expression of the strategies and behavior of the management and the workers as constrained by

the power distribution between them, and influenced by their environment and the outcome.



OPERATIONAL ORGANIZATIONS AND INFORMAL ORGANIZATIONS

The set organizational structure may not coincide with facts, evolving in operational action. Such

divergence decreases performance, when growing. E.g., a wrong organizational structure may

hamper cooperation and thus hinder the completion of orders in due time and within limits of

resources and budgets. Organizational structures shall be adaptive to process requirements,

aiming to optimize the ratio of effort and input to output.

Types

There are two mega clusters of organizations i.e. Hierarchical and Flat organization as detailed

below;

Pre-bureaucratic structures

Pre-bureaucratic (entrepreneurial) structures lack standardization of tasks. This structure is most

common in smaller organizations and is best used to solve simple tasks. The structure is totally

centralized. The strategic leader makes all key decisions and most communication is done by one

on one conversations. It is particularly useful for new (entrepreneurial) business as it enables the

founder to control growth and development.

They are usually based on traditional domination or charismatic domination in the sense of Max

Weber‘s tripartite classification of authority.

Bureaucratic structures

Weber (1948) gives the analogy that ―the fully developed bureaucratic mechanism compares

with other organizations exactly as does the machine compare with the non-mechanical modes of

production. Precision, speed, un ambiguity, strict subordination, reduction of friction and of

material and personal costs- these are raised to the optimum point in the strictly bureaucratic

administration. Bureaucratic structures have a certain degree of standardization. They are better

suited for more complex or larger scale organizations, usually adopting a tall structure.



The tension between bureaucratic structures and non-bureaucratic is echoed in Burns and

Stalker's distinction between mechanistic and organic structures.

The Weberian characteristics of bureaucracy are:

Clear defined roles and responsibilities

A hierarchical structure

Respect for merit

Bureaucratic Structures have many levels of management ranging from senior executives to

regional managers, all the way to department store managers. Since there are many levels,

decision-making authority has to pass through more layers than flatter organizations.

Bureaucratic organization has rigid and tight procedures, policies and constraints.

This kind of structure is reluctant to adapt or change what they have been doing since the

company started. Organizational charts exist for every department, and everyone understands

who is in charge and what their responsibilities are for every situation. Decisions are made

through an organized process and a strict command and control structure is present at all times.

In bureaucratic structures, the authority is at the top and information is then flowed from top to

bottom. This causes for more rules and standards for the company which operational process is

watched with close supervision. Some advantages for bureaucratic structures for top-level

managers are they have a tremendous control over organizational structure decisions. This works

best for managers who have a command and control style of managing. Strategic-decision

making is also faster because there are fewer people it has to go through to approve. Some

disadvantages in bureaucratic structures are it can discourage creativity and innovation in the

organization. This can make it hard for a company to adapt to changing conditions in the

marketplace.



Post-bureaucratic

The term of post bureaucratic is used in two senses in the organizational literature: one generic

and one much more specific. In the generic sense the term post bureaucratic is often used to

describe a range of ideas developed since the 1980s that specifically contrast themselves with

Weber's ideal type bureaucracy. This may include total quality management (TQM), culture

management and matrix management, amongst others. None of these however has left behind the

core tenets of Bureaucracy. Hierarchies still exist, authority is still Weber's rational, legal type,

and the organization is still rule bound. Heckscher, arguing along these lines, describes them as

cleaned up bureaucracies, rather than a fundamental shift away from bureaucracy. Gideon

Kunda, in his classic study of culture management at 'Tech' argued that 'the essence of

bureaucratic control - the formalization, codification and enforcement of rules and regulations

does not change in principle; but it shifts focus from organizational structure to the organization's

culture'.

Another smaller group of theorists have developed the theory of the Post-Bureaucratic

Organization; provide a detailed discussion which attempts to describe an organization that is

fundamentally not bureaucratic. Charles Heckscher has developed an ideal type, the post

bureaucratic organization, in which decisions are based on dialogue and consensus rather than

authority and command, the organization is a network rather than a hierarchy, open at the

boundaries (in direct contrast to culture management); there is an emphasis on meta-decision

making rules rather than decision making rules.

This sort of horizontal decision making by consensus model is often used in housing

cooperatives, other cooperatives and when running a non-profit or community organization. It is

used in order to encourage participation and help to empower people who normally experience

oppression in groups.



Still other theorists are developing a resurgence of interest in complexity theory and

organizations, and have focused on how simple structures can be used to engender organizational

adaptations. For instance, Miner et al. (2000) studied how simple structures could be used to

generate improvisational outcomes in product development. Their study makes links to simple

structures and improviser learning. Other scholars such as Jan Rivkin and Sigglekow, and Nelson

Repenning revive an older interest in how structure and strategy relate in dynamic environments.

Functional structure

A functional organizational structure is a structure that consists of activities such as coordination,

supervision and task allocation. The organizational structure determines how the organization

performs or operates. The term organizational structure refers to how the people in an

organization are grouped and to whom they report. One traditional way of organizing people is

by function. Some common functions within an organization include production, marketing,

human resources, and accounting.

This organizing of specialization leads to operational efficiency where employees become

specialists within their own realm of expertise. The most typical problem with a functional

organizational structure is however that communication within the company can be rather rigid,

making the organization slow and inflexible. Therefore, lateral communications between

functions become very important, so that information is disseminated, not only vertically, but

also horizontally within the organization. Communication in organizations with functional

organizational structures can be rigid because of the standardized ways of operation and the high

degree of formalization.

As a whole, a ―Functional organization is best suited as a producer of standardized goods and

services at large volume and low cost. Coordination and specialization of tasks are centralized in

a functional structure, which makes producing a limited amount of products or services efficient

and predictable.



Moreover, efficiencies can further be realized as functional organizations integrate their activities

vertically so that products are sold and distributed quickly and at low cost. For instance, a small

business could make components used in production of its products instead of buying them.

Even though functional units often perform with a high level of efficiency, their level of

cooperation with each other is sometimes compromised. Such groups may have difficulty

working well with each other as they may be territorial and unwilling to cooperate.

The occurrence of infighting among units may cause delays, reduced commitment due to

competing interests, and wasted time, making projects fall behind schedule. This ultimately can

bring down production levels overall, and the company-wide employee commitment toward

meeting organizational goals.

Divisional structure

The divisional structure or product structure consists of self-contained divisions. A division is a

collection of functions which produce a product. It also utilizes a plan to compete and operate as

a separate business or profit center. According to Zainbooks.com, divisional structure in America

is seen as the second most common structure for organization today.

Employees who are responsible for certain market services or types of products are placed in

divisional structure in order to increase their flexibility. Examples of divisions include regional

(a U.S Division and an EU division), consumer type (a division for companies and one for

households), and product type (a division for trucks, another for SUVS, and another for cars).

The divisions may also have their own departments such as marketing, sales, and engineering.

The advantage of divisional structure is that it uses delegated authority so the performance can

be directly measured with each group. This results in managers performing better and high

employee morale. Another advantage of using divisional structure is that it is more efficient in

coordinating work between different divisions, and there is more flexibility to respond when

there is a change in the market.



Also, a company will have a simpler process if they need to change the size of the business by

either adding or removing divisions. When divisional structure is utilized more specialization can

occur within the groups. When divisional structure is organized by product, the customer has

their own advantages especially when only a few services or products are offered which differ

greatly. When using divisional structures that are organized by either markets or geographic

areas they generally have similar function and are located in different regions or markets. This

allows business decisions and activities coordinated locally.

The disadvantage of the divisional structure is that it can support unhealthy rivalries among

divisions. This type of structure may increase costs by requiring more qualified managers for

each division. Also, there is usually an over-emphasis on divisional more than organizational

goals which results in duplication of resources and efforts like staff services, facilities, and

personnel.

MATRIX MANAGEMENT

The Matrix management groups employees by both function and product. This structure can

combine the best of both separate structures. A matrix organization frequently uses teams of

employees to accomplish work, in order to take advantage of the strengths, as well as make up

for the weaknesses, of functional and decentralized forms. An example would be a company that

produces two products, "product a" and "product b". Using the matrix structure, this company

would organize functions within the company as follows: "product a" sales department, "product

a" customer service department, "product a" accounting, "product b" sales department, "product

b" customer service department, "product b" accounting department. Matrix structure is amongst

the purest of organizational structures, a simple lattice emulating order and regularity

demonstrated in nature.



Weak/Functional Matrix: A project manager with only limited authority is assigned to oversee

the cross- functional aspects of the project. The functional managers maintain control over their

resources and project areas.

Balanced/Functional Matrix: A project manager is assigned to oversee the project. Power is

shared equally between the project manager and the Functional manager. It brings the best

aspects of functional and projectized organizations. However, this is the most difficult system to

maintain as the sharing of power is a delicate proposition.

Strong/Project Matrix: A Project manager is primarily responsible for the project. Functional

managers provide technical expertise and assign resources as needed. Matrix structure is only

one of the three major structures. The other two are Functional and Project structure. Matrix

management is more dynamic than functional management in that it is a combination of all the

other structures and allows team members to share information more readily across task

boundaries. It also allows for specialization that can increase depth of knowledge in a specific

sector or segment.

There are both advantages and disadvantages of the matrix structure; some of the disadvantages

are an increase in the complexity of the chain of command. This occurs because of the

differentiation between functional managers and project managers, which can be confusing for

employees to understand who is next in the chain of command. An additional disadvantage of the

matrix structure is higher manager to worker ratio that results in conflicting loyalties of

employees. However the matrix structure also has significant advantages that make it valuable

for companies to use. The matrix structure improves upon the ―silo‖ critique of functional

management in that it diminishes the vertical structure of functional and creates a more

horizontal structure which allows the spread of information across task boundaries to happen

much quicker.



Moreover matrix structure allows for specialization that can increase depth of knowledge &

allows individuals to be chosen according to project needs. This correlation between individuals

and project needs is what produces the concept of maximizing strengths and minimizing

weaknesses.

Organizational circle: moving back to flat circle

The Flat organization is common in small companies (entrepreneurial start-ups, university spin

offs). As companies grow they tend to become more complex and hierarchical, which leads to an

expanded structure, with more levels and departments.

However, in rare cases, such as the examples of Valve Corporation, GitHub Inc. and 37signals,

the organization remains very flat as it grows, eschewing middle managers. All of the

aforementioned organizations operate in the field of technology, which may be significant, as

software developers are highly skilled professionals, much like lawyers. Senior lawyers also

enjoy a relatively high degree of autonomy within a typical law firm, which is typically

structured as a partnership rather than a hierarchical bureaucracy. Some other types of

professional organizations are also commonly structured as partnerships, such as accountancy

companies and GP surgeries.

Often, growth would result in bureaucracy, the most prevalent structure in the past. It is still,

however, relevant in former Soviet Republics, China, and most governmental organizations all

over the world. Shell Group used to represent the typical bureaucracy: top-heavy and

hierarchical. It featured multiple levels of command and duplicate service companies existing in

different regions. All this made Shell apprehensive to market changes, leading to its incapacity to

grow and develop further. The failure of this structure became the main reason for the company

restructuring into a matrix.

Starbucks is one of the numerous large organizations that successfully developed the matrix

structure supporting their focused strategy. Its design combines functional and product based



divisions, with employees reporting to two heads. Creating a team spirit, the company empowers

employees to make their own decisions and trains them to develop both hard and soft skills.

Some experts also mention the multinational design, common in global companies, such as

Procter & Gamble, Toyota and Unilever. This structure can be seen as a complex form of the

matrix, as it maintains coordination among products, functions and geographic areas.

With the growth of the internet, and the associated access that gives all levels of an organization

to information and communication via digital means, power structures have begun to align more

as a wirearchy, enabling the flow of power and authority to be based not on hierarchical levels,

but on information, trust, credibility, and a focus on results.

In general, over the last decade, it has become increasingly clear that through the forces of

globalization, competition and more demanding customers, the structure of many companies has

become flatter, less hierarchical, more fluid and even virtual.

Team

One of the newest organizational structures developed in the 20th century is team and the related

concept of team development or team building. In small businesses, the team structure can define

the entire organization. Teams can be both horizontal and vertical. While an organization is

constituted as a set of people who synergize individual competencies to achieve newer

dimensions, the quality of organizational structure revolves around the competencies of teams in

totality. For example, every one of the Whole Foods Market stores, the largest natural-foods

grocer in the US developing a focused strategy, is an autonomous profit centre composed of an

average of 10 self-managed teams, while team leaders in each store and each region are also a

team. Larger bureaucratic organizations can benefit from the flexibility of teams as well. Xerox,

Motorola, and Daimler Chrysler are all among the companies that actively use teams to perform

tasks.



Network

Another modern structure is network. While business giants risk becoming too clumsy to proact

(such as), act and react efficiently, the new network organizations contract out any business

function that can be done better or more cheaply. In essence, managers in network structures

spend most of their time coordinating and controlling external relations, usually by electronic

means. H&M is outsourcing its clothing to a network of 700 suppliers, more than two-thirds of

which are based in low-cost Asian countries. Not owning any factories, H&M can be more

flexible than many other retailers in lowering its costs, which aligns with its low-cost strategy.

The potential management opportunities offered by recent advances in complex networks theory

have been demonstrated including applications to product design and development, and

innovation problem in markets and industries.

Virtual

Virtual organization is defined as being closely coupled upstream with its suppliers and

downstream with its customers such that where one begins and the other ends means little to

those who manage the business processes within the entire organization. A special form of

boundary-less organization is virtual. Hedberg, Dahlgren, Hansson, and Olve (1999) consider the

virtual organization as not physically existing as such, but enabled by software to exist. The

virtual organization exists within a network of alliances, using the Internet.

This means while the core of the organization can be small but still the company can operate

globally is a market leader in its niche. According to Anderson, because of the unlimited shelf

space of the Web, the cost of reaching niche goods is falling dramatically. Although none sell in

huge numbers, there are so many niche products that collectively they make a significant profit,

and that is what made highly innovative Amazon.com so successful.



Hierarchy-Community Phenotype Model of Organizational Structure

In the 21st century, even though most, if not all, organizations are not of a pure hierarchical

structure, many managers are still blind to

the existence of the flat community structure

within their organizations.

The business is no longer just a place where

people come to work. For most of the

employees, the firm confers on them that

sense of belonging and identity the firm has

become their ―village‖, their community. The

firm of the 21st century is not just a hierarchy which ensures maximum efficiency and profit; it is

also the community where people belong to and grow together, where their affective and

innovative needs are met. Lim, Griffiths, and Sambrook (2010) developed the Hierarchy-

Community Phenotype Model of Organizational Structure borrowing from the concept of

Phenotype from genetics. "A phenotype refers to the observable characteristics of an organism. It

results from the expression of an organism‘s genes and the influence of the environment.

The expression of an organism‘s genes is usually determined

by pairs of alleles. Alleles are different forms of a gene. In our

model, each employee‘s formal, hierarchical participation and

informal, community participation within the organization, as

influenced by his or her environment, contributes to the overall observable characteristics

(phenotype) of the organization. In other words, just as all the pair of alleles within the genetic

material of an organism determines the physical characteristics of the organism, the combined

expressions of all the employees‘ formal hierarchical and informal community participation

within an organization give rise to the organizational structure.



Due to the vast potentially different combination of the employees‘ formal hierarchical and

informal community participation, each organization is therefore a unique phenotype along a

spectrum between a pure hierarchy and a pure community (flat) organizational structure."

Organization Structure chart

Not everyone can be a manager. Certain skills, or abilities to translate knowledge into action that

results in desired performance, are required to help other employees become more productive.

These skills fall under the following categories:

Technical: This skill requires the ability to use a special proficiency or expertise to perform

particular tasks. Accountants, engineers, market researchers, and computer scientists, as

examples, possess technical skills. Managers acquire these skills initially through formal

education and then further develop them through training and job experience. Technical skills are

most important at lower levels of management.

Vice President

President

Directors

Managers

Legal

Accounting

Marketing

Human Resources

Entry Level



Human: This skill demonstrates the ability to work well in cooperation with others. Human

skills emerge in the workplace as a spirit of trust, enthusiasm, and genuine involvement in

interpersonal relationships. A manager with good human skills has a high degree of

self‐awareness and a capacity to understand or empathize with the feelings of others. Some

managers are naturally born with great human skills, while others improve their skills through

classes or experience. No matter how human skills are acquired, they're critical for all managers

because of the highly interpersonal nature of managerial work.

Conceptual: This skill calls for the ability to think analytically. Analytical skills enable

managers to break down problems into smaller parts, to see the relations among the parts, and to

recognize the implications of any one problem for others. As managers assume ever‐higher

responsibilities in organizations, they must deal with more ambiguous problems that have

long‐term consequences. Again, managers may acquire these skills initially through formal

education and then further develop them by training and job experience. The higher the

management level, the more important conceptual skills become.

Although all three categories contain skills essential for managers, their relative importance

tends to vary by level of managerial responsibility.

Business and management educators are increasingly interested in helping people acquire

technical, human, and conceptual skills, and develop specific competencies, or specialized skills

that contribute to high performance in a management job.

Following are some of the skills and personal characteristics that the American Assembly of

Collegiate Schools of Business (AACSB) is urging business schools to help their students

develop.

Leadership — ability to influence others to perform tasks

Self‐objectivity — ability to evaluate yourself realistically

Analytic thinking — ability to interpret and explain patterns in information



Behavioral flexibility — ability to modify personal behavior to react objectively rather than

subjectively to accomplish organizational goals

Oral communication — ability to express ideas clearly in words

Written communication — ability to express ideas clearly in writing

Personal impact — ability to create a good impression and instill confidence

Resistance to stress — ability to perform under stressful conditions

Tolerance for uncertainty — ability to perform in ambiguous situations

Five Approaches to Organizational Design

Managers must make choices about how to group people together to perform their work. Five

common approaches;

a) Functional, b) divisional, c) matrix, d) team, and e) networking; help managers determine

departmental groupings (grouping of positions into departments). The five structures are basic

organizational structures, which are then adapted to an organization's needs. All five

approaches combine varying elements of mechanistic and organic structures.

For example, the organizational design trend today incorporates a minimum of bureaucratic

features and displays more features of the organic design with a decentralized authority structure,

fewer rules and procedures, and so on.



FUNCTIONAL STRUCTURE

The functional structure groups‘ positions into work units based on similar activities, skills,

expertise, and resources. Production, marketing, finance, and human resources are common

groupings within a functional structure.

As the simplest approach, a functional structure features well‐defined channels of

communication and authority/responsibility relationships. Not only can this structure improve

productivity by minimizing duplication of personnel and equipment, but it also makes employees

comfortable and simplifies training as well.

But the functional structure has many downsides that may make it inappropriate for some

organizations. Here are a few examples:

The functional structure can result in narrowed perspectives because of the separateness of

different department work groups. Managers may have a hard time relating to marketing, for

example, which is often in an entirely different grouping. As a result, anticipating or reacting to



changing consumer needs may be difficult. In addition, reduced cooperation and communication

may occur.

Decisions and communication are slow to take place because of the many layers of hierarchy.

Authority is more centralized.

The functional structure gives managers experience in only one fields of their own. Managers do

not have the opportunity to see how all the firm's departments work together and understand their

interrelationships and interdependence. In the long run, this specialization results in executives

with narrow backgrounds and little training handling top management duties.

DIVISIONAL STRUCTURE

Because managers in large companies may have difficulty keeping track of all their company's

products and activities, specialized departments may develop. These departments are divided

according to their organizational outputs. Examples include departments created to distinguish

among production, customer service, and geographical categories. This grouping of departments

is called divisional structure. These departments allow managers to better focus their resources

and results. Divisional structure also makes performance easier to monitor. As a result, this

structure is flexible and responsive to change.



The divisional structure – Disney in the early 1990s

However, divisional structure does have its drawbacks. Because managers are so specialized,

they may waste time duplicating each other's activities and resources. In addition, competition

among divisions may develop due to limited resources.

MATRIX STRUCTURE

The matrix structure combines functional specialization with the focus of divisional structure;

this structure uses permanent cross‐functional teams to integrate functional expertise with a

divisional focus.

Employees in a matrix structure belong to at least two formal groups at the same time a

functional group and a product, program, or project team. They also report to two bosses one

within the functional group and the other within the team.

This structure not only increases employee motivation, but it also allows technical and general

management training across functional areas as well. Potential advantages include

Better cooperation and problem solving.

Increased flexibility.

Better customer service.

Better performance accountability.

Improved strategic management.

Predictably, the matrix structure also has potential disadvantages. Here are a few of this

structure's drawbacks:

The two‐boss system is susceptible to power struggles, as functional supervisors and team

leaders vie with one another to exercise authority.



Members of the matrix may suffer task confusion when taking orders from more than one boss.

Teams may develop strong team loyalties that cause a loss of focus on larger organization goals.

Adding the team leaders, a crucial component, to a matrix structure can result in increased costs.

TEAM STRUCTURE

Team structure organizes separate functions into a group based on one overall objective. These

cross‐functional teams are composed of members from different departments who work

together as needed to solve problems and explore opportunities. The intent is to break down

functional barriers among departments and create a more effective relationship for solving

ongoing problems.

The team structure

The team structure has many potential advantages, including the following:

Intradepartmental barriers break down.

Decision‐making and response times speed up.

Employees are motivated.

Levels of managers are eliminated.

Administrative costs are lowered.

The disadvantages include:



Conflicting loyalties among team members.

Time‐management issues.

Increased time spent in meetings.

Managers must be aware that how well team members work together often depends on the

quality of interpersonal relations, group dynamics, and their team management abilities.

NETWORK STRUCTURE

The network structure relies on other organizations to perform critical functions on a contractual

basis. In other words, managers can contract out specific work to specialists.

This approach provides flexibility and reduces overhead because the size of staff and operations

can be reduced. On the other hand, the network structure may result in unpredictability of supply

and lack of control because managers are relying on contractual workers to perform important

work.



TOTAL QUALITY IN ORGANIZATIONS

A core definition of total quality in management (TQM) in any organization describes a

management approach to long-term success through customer satisfaction. In a TQM effort, all

members of an organization participate in improving processes, products, services, and the

culture in which they work. The methods for implementing this approach come from the

teachings of such quality leaders as Philip B. Crosby, W. Edwards Deming, Armand V.

Feigenbaum, Kaoru Ishikawa, and Joseph M. Juran.

When an organization adopts total quality management, they are really creating a new culture of

customer satisfaction and quality products and services utilizing the skills of highly qualified

employees and strong supplier relations to meet and exceed organizational goals. No one

approach to change works for every organization. Organizational culture, management processes

and systems that exist in the current organization need to be carefully analyzed to determine the

best way to go. Total Quality Management (TQM) emerged as a key competitive strategy for

business organizations in the global marketplace. TQM has become a new management

paradigm in all types of organizations.

In recent years, many organizations have demonstrated that significant improvements in business

can be achieved through TQM. Several research works, however, have raised some issues in the

implementation of TQM including the Malcolm Baldrige National Quality Award. Although the

Baldrige Award criteria have become recognized as the best set of TQM standards, there is no

evidence that the Baldrige criteria can be universally effective tools to measure TQM success for

all types of industries. A major reason for this is that each organization has a unique set of

ingredients for success.



This empirical study extensively investigated the factors affecting successful implementation of

TQM in three different industries;

1. Large manufacturing companies,

2. Small firms and

3. Service organizations.

Implementing TQM in an organization requires rigorous self-reflection. Managers tackle

important questions like:

What is the purpose of our organization?

What is our vision?

What is our mission statement?

What are our overall organizational objectives?

How closely linked to our mission are our objectives?

What values do we hold dear to us as an organization?

Total Quality Management (TQM) is considered an important catalyst in the development and

improvement of public and private firms. This is why the TQM concept has captured the

attention of all sides of commerce and industry, as well as that of politicians and academics.

During the past decade, quality improvement has become one of the most important

organizational strategies for achieving competitive advantage.

Improving the quality with which an organization can deliver its products and services is critical

for competing in an expanding global market. TQM begins with the primary assumption that

employees in organizations must cooperate with each other in order to achieve quality for the

needs of the customer. One can achieve quality by controlling manufacturing/service processes

to prevent defects.

TQM, however, does not only consist of quality tools and techniques. TQM processes also

depend on a certain set of values and beliefs shared by all organizational members.



The concept of quality has migrated from being considered as a non-price factor on which

imperfect competition in the markets is based, to being considered as a strategic resource of

firms. Total quality management (TQM) consists of organization-wide efforts to install and make

permanent a climate in which an organization continuously improves its ability to deliver high-

quality products and services to customers. While there is no widely agreed-upon approach,

TQM efforts typically draw heavily on the previously developed tools and techniques of quality

control. TQM enjoyed widespread attention during the late 1980s and early 1990s before being

overshadowed by ISO 9000, Lean manufacturing, and Six Sigma

PHILOSOPHIES AND FRAMEWORKS

Total Quality Management (TQM) is a management approach that originated in the 1950s and

has steadily become more popular since the early 1980s. Total quality philosophies and

Frameworks is a description of the culture, attitude and organization of a company that strives to

provide customers with products and services that satisfy their needs. The culture requires

quality in all aspects of the company‘s operations, with processes being done right the first time

and defects and waste eradicated from operations.

To be successful in management, an organization must concentrate on the eight key elements:

1. Ethics

2. Integrity

3. Trust

4. Training

5. Teamwork

6. Leadership

7. Recognition

8. Communication



Key Elements

TQM has been coined to describe a philosophy that makes quality the driving force behind

leadership, design, planning, and improvement initiatives. For this, TQM requires the help of

those eight key elements. These elements can be divided into four groups according to their

function. The groups are:

1. Foundation – It includes: Ethics, Integrity and Trust.

2. Building Bricks – It includes: Training, Teamwork and Leadership.

3. Binding Mortar – It includes: Communication.

4. Roof – It includes: Recognition.

I. Foundation

TQM is built on a foundation of ethics, integrity and trust. It fosters openness, fairness and

sincerity and allows involvement by everyone. This is the key to unlocking the ultimate potential

of TQM. These three elements move together, however, each element offers something different

to the TQM concept.

1. Ethics – Ethics is the discipline concerned with good and bad in any situation. It is a two-

faceted subject represented by organizational and individual ethics. Organizational ethics

establish a business code of ethics that outlines guidelines that all employees are to adhere to in

the performance of their work. Individual ethics include personal rights or wrongs.

2. Integrity – Integrity implies honesty, morals, values, fairness, and adherence to the facts and

sincerity. The characteristic is what customers (internal or external) expect and deserve to

receive. People see the opposite of integrity as duplicity. TQM will not work in an atmosphere of

duplicity.



3. Trust – Trust is a by-product of integrity and ethical conduct. Without trust, the framework of

TQM cannot be built. Trust fosters full participation of all members. It allows empowerment that

encourages pride ownership and it encourages commitment. It allows decision making at

appropriate levels in the organization, fosters individual risk-taking for continuous improvement

and helps to ensure that measurements focus on improvement of process and are not used to

contend people. Trust is essential to ensure customer satisfaction. So, trust builds the cooperative

environment essential for TQM.

II. Bricks

Basing on the strong foundation of trust, ethics and integrity, bricks are placed to reach the roof

of recognition. It includes:

4. Training – Training is very important for employees to be highly productive. Supervisors are

solely responsible for implementing TQM within their departments, and teaching their

employees the philosophies of TQM. Training that employees require are interpersonal skills, the

ability to function within teams, problem solving, decision making, job management

performance analysis and improvement, business economics and technical skills. During the

creation and formation of TQM, employees are trained so that they can become effective

employees for the company.

5. Teamwork – To become successful in business, teamwork is also a key element of TQM. With

the use of teams, the business will receive quicker and better solutions to problems. Teams also

provide more permanent improvements in processes and operations.

In teams, people feel more comfortable bringing up problems that may occur, and can get help

from other workers to find a solution and put into place.



There are mainly three types of teams that TQM organizations adopt:

i. Quality improvement teams or excellence teams (QITs) – These are temporary teams with the

purpose of dealing with specific problems that often recur. These teams are set up for period of

three to twelve months.

ii. Problem solving teams (PSTs) – These are temporary teams to solve certain problems and

also to identify and overcome causes of problems. They generally last from one week to three

months.

iii. Natural work teams (NWTs) – These teams consist of small groups of skilled workers who

share tasks and responsibilities. These teams use concepts such as employee involvement teams,

self-managing teams and quality circles. These teams generally work for one to two hours a

week.

6. Leadership – It is possibly the most important element in TQM. It appears everywhere in

organization. Leadership in TQM requires the manager to provide an inspiring vision, make

strategic directions that are understood by all and to instill values that guide subordinates. For

TQM to be successful in the business, the supervisor must be committed in leading his

employees. A supervisor must understand TQM, believe in it and then demonstrate their belief

and commitment through their daily practices of TQM. The supervisor makes sure that

strategies, philosophies, values and goals are transmitted down throughout the organization to

provide focus, clarity and direction. A key point is that TQM has to be introduced and led by top

management. Commitment and personal involvement is required from top management in

creating and deploying clear quality values and goals consistent with the objectives of the

company and in creating and deploying well defined systems, methods and performance

measures for achieving those goals.



III. Binding Mortar

7. Communication – It binds everything together. Starting from foundation to roof of the TQM

house, everything is bound by strong mortar of communication. It acts as a vital link between all

elements of TQM. Communication means a common understanding of ideas between the sender

and the receiver. The success of TQM demands communication with and among all the

organization members, suppliers and customers. Supervisors must keep open airways where

employees can send and receive information about the TQM process. Communication coupled

with the sharing of correct information is vital. For communication to be credible the message

must be clear and receiver must interpret in the way the sender intended.

There are different ways of communication such as;

a) Downward communication;– This is the dominant form of communication in an organization.

Presentations and discussions basically do it. By this the supervisors are able to make the

employees clear about TQM.

b) Upward communication;– By this the lower level of employees are able to provide

suggestions to upper management of the affects of TQM. As employees provide insight and

constructive criticism, supervisors must listen effectively to correct the situation that comes

about through the use of TQM. This forms a level of trust between supervisors and employees.

This is also similar to empowering communication, where supervisors keep open ears and listen

to others.

c) Sideways communication;– This type of communication is important because it breaks down

barriers between departments. It also allows dealing with customers and suppliers in a more

professional manner.



IV. Roof

8. Recognition;– Recognition is the last and final element in the entire system. It should be

provided for both suggestions and achievements for teams as well as individuals. Employees

strive to receive recognition for themselves and their teams. Detecting and recognizing

contributors is the most important job of a supervisor. As people are recognized, there can be

huge changes in self-esteem, productivity, quality and the amount of effort exhorted to the task at

hand. Recognition comes in its best form when it is immediately following an action that an

employee has performed.

Recognition comes in different ways, places and time such as,

Ways – It can be by way of personal letter from top management. Also by award banquets,

plaques, trophies etc.

Places – Good performers can be recognized in front of departments, on performance boards

and also in front of top management.

Time – Recognition can be given at any time like in staff meeting, annual award banquets, etc.

Conclusion

We can conclude that these eight elements are key in ensuring the success of quality in an

organization and that the supervisor is a huge part in developing these elements in the work

place. Without these elements, the business entities cannot be successful TQM implementers. It

is very clear from the above discussion that TQM without involving integrity, ethics and trust

would be a great remiss, in fact it would be incomplete.

Training is the key by which the organization creates a TQM environment. Leadership and

teamwork go hand in hand. Lack of communication between departments, supervisors and

employees create a burden on the whole TQM process. Hence, lead by example, train employees

to provide a quality product, create an environment where there is no fear to share knowledge,

and give credit where credit is due is the motto of a successful TQM organization.



COMMUNICATION CHANNELS

In an organization, information flows forward, backwards and sideways. This information flow

is referred to as communication. Communication channels refer to the way this information

flows within the organization and with other organizations.

For example, reports from lower level manager will flow upwards. A good manager has to

inspire, steer and organize his employees efficiently, and for all this, the tools in his possession

are spoken and written words. For the flow of information and for a manager to handle his

employees, it is important for an effectual communication channel to be in place.

Definition of a Communication Channel

A communication channel is a particular type of media through which a message is sent and

received. In other words, it's the method of communication used. The communication channels

can flow down from superiors to subordinates, up from subordinates to superiors, or across from

and to co-workers of the same hierarchical level of authority.

The Working of a Communication Channel

Through a modem of communication, be it face-to-face conversations or an inter-department

memo, information is transmitted from a manager to a subordinate or vice versa. An important

element of the communication process is the feedback mechanism between the management and

employees. In this mechanism, employees inform managers that they have understood the task at

hand while managers provide employees with comments and directions on employee's work.

Importance of a Communication Channel

A breakdown in the communication channel leads to an inefficient flow of information,

employees are unaware of what the company expects of them. They are uninformed of what is

going on in the company.



This will cause them to become suspicious of motives and any changes in the company. Also

without effective communication, employees become department minded rather than company

minded, and this affects their decision making and productivity in the workplace.

Eventually, this harms the overall organizational objectives as well. Hence, in order for an

organization to be run effectively, a good manager should be able to communicate to his/her

employees what is expected of them, make sure they are fully aware of company policies and

any upcoming changes. Therefore, an effective communication channel should be implemented

by managers to optimize worker productivity to ensure the smooth running of the organization.

Types of Communication Channels

The number of communication channels available to a manager has increased over the last 20

years. Video conferencing, mobile technology, electronic bulletin boards and fax machines are

some of the new possibilities. As organizations grow in size, managers cannot rely on face-to-

face communication alone to get their message across.

One challenge managers‘ face today is to determine what type of communication channel should

they opt for in order to carryout effective communication. In order to make a manager's task

easier, the types of communication channels are grouped into three main groups: formal,

informal and unofficial.

Formal Communication Channels

A formal communication channel transmits information such as the goals, policies and

procedures of an organization. Messages in this type of communication channel follow a chain of

command. This means information flows from a manager to his subordinates and they in turn

pass on the information to the next level of staff.



An example of a formal communication channel is a company's newsletter, which gives

employees as well as the clients a clear idea of a company's goals and vision. It also includes the

transfer of information with regard to memoranda, reports, directions, and scheduled meetings in

the chain of command.

A business plan, customer satisfaction survey, annual reports, employer's manual, review

meetings are all formal communication channels.

Informal Communication Channels

Within a formal working environment, there always exists an informal communication network.

The strict hierarchical web of communication cannot function efficiently on its own and hence

there exists a communication channel outside of this web. While this type of communication

channel may disrupt the chain of command, a good manager needs to find the fine balance

between the formal and informal communication channel.

An example of an informal communication channel is lunchtime at the organization's

cafeteria/canteen. Here, in a relaxed atmosphere, discussions among employees are encouraged.

Also managers walking around, adopting a hands-on approach to handling employee queries is

an example of an informal communication channel.

Quality circles, team work, different training programs are outside of the chain of command and

so, fall under the category of informal communication channels.

Unofficial Communication Channels

Good managers will recognize the fact that sometimes communication that takes place within an

organization is interpersonal. While minutes of a meeting may be a topic of discussion among

employees, sports, politics and TV shows also share the floor.

The unofficial communication channel in an organization is the organization's 'grapevine.' It is

through the grapevine that rumors circulate. Also those engaging in 'grapevine' discussions often

form groups, which translate into friendships outside of the organization.



While the grapevine may have positive implications, more often than not information circulating

in the grapevine is exaggerated and may cause unnecessary alarm to employees. A good manager

should be privy to information circulating in this unofficial communication channel and should

take positive measures to prevent the flow of false information.

An example of an unofficial communication channel is social gatherings among employees.

Conclusion

In any organization, three types of communication channels exist: formal, informal and

unofficial. While the ideal communication web is a formal structure in which informal

communication can take place, unofficial communication channels also exist in an organization.

Through these various channels, it is important for a manager to get his/her ideas across and then

listen, absorb, glean and further communicate to employees.

Communication is vital to any organization. In this lesson, you'll learn about communication

channels in an organization, what they are, and the various types.

EVOLUTION OF MANAGEMENT THOUGHT

The Industrial Revolution provided the impetus for developing various management theories and

principles. Pre-classical theorists like Robert Owen, Charles Babbage, Andrew Ure, Charles

Dupin, and Henry R. Towne made some initial contributions that eventually led to the

identification of management as an important field of inquiry. This led to the emergence of

approaches to management: classical, behavioral, quantitative and modern.

The classical management approach had three major branches:

1. Scientific management; Scientific management emphasized the scientific study of work

methods to improve worker efficiency.

2. Administrative theory; Bureaucratic management dealt with the characteristics of an ideal

organization, which operates on a rational basis.



3. Bureaucratic management; Administrative theory explored principles that could be used by

managers to coordinate the internal activities of organizations.

The behavioral approach emerged primarily as an outcome of the Hawthorne studies. Mary

Parker Follet, Elton Mayo and his associates, Abraham Maslow, Douglas McGregor and Chris

Argyris were the major contributors to this school

They emphasized the importance of the human element which was ignored by classical theorists

in the management of organizations. They formulated theories that centered on the behavior of

employees in organizations. These theories could easily be applied to the management of

organizations. The quantitative approach to management focuses on the use of mathematical

tools to support managerial decision-making. The systems theory looks at organizations as a set

of interrelated parts.

According to the contingency theory, managerial action depends on the particular parameters of

a given situation. One important emerging approach to management thought is Theory Z. This

approach combines the positive aspects of American and Japanese management styles. All these

views on management have contributed significantly to the development of management

thought.

CORPORATE LIFE-CYCLE

The organizational life cycle is the life cycle of an organization

from its creation to its termination. It also refers to the expected

sequence of advancements experienced by an organization, as

opposed to a randomized occurrence of events. The relevance

of a biological life cycle relating to the growth of an

organization was discovered by organizational researchers many years ago. This was apparent as

organizations had a distinct conception, periods of expansion and eventually, termination.



Stages of organization's life cycle

Generally, there are five stages to an organization's life cycle;

Stage 1: Existence: Commonly known as the birth or entrepreneurial stage, ―existence‖ signifies

the start of an organization‘s expansion. The main importance is centered around the

acknowledgement of having an adequate number of customers to keep the organization or

business active.

Stage 2: Survival: At this stage, organizations look to pursue growth, establish a framework and

develop their capabilities. There is a focus on regularly setting targets for the organization, with

the main aim being to generate sufficient revenue for survival and expansion. Some

organizations enjoy adequate growth to be able to enter the next stage, whilst others are

unsuccessful in achieving this and consequently fail to survive.

Stage 3: Maturity: This stage signifies the organization entering a more formal hierarchy of

management (hierarchical organization). A frequent problem encountered at this stage would be

those associated with ―Red Tape‖. Organizations look to safeguard their growth as opposed to

focusing on expansion. Top and middle level management specialize in different tasks, such as

planning and routine work respectively.

Stage 4: Renewal: Organizations experience a renewal in their structure of management, from a

hierarchical to a matrix style, which encourages creativity and flexibility.

Stage 5: Decline: This stage initiates the death of an organization. The decline is identified by

the focus on political agenda and authority within an organization, whereby individuals start to

become preoccupied with personal objectives, instead of focusing on the objectives of the

organization itself. This slowly destroys the functionality and feasibility of the entire

organization.



PHASES OF ORGANIZATION'S LIFE CYCLE GROWTH

According to L.Greiner, there are 5 phases of growth in an organization, each indicated by an

evolutionary and subsequently, a revolutionary phase.

An evolutionary phase refers to an extended duration of expansion enjoyed by the organization

with no significant disruptions. Similarly, a revolutionary phase refers to a period of considerable

disturbance within an organization.

Phase 1: Creative expansion → Leadership Crisis

Creative expansion (evolutionary phase) leads to a leadership crisis (revolutionary phase), the

organization enjoys expansion through the creativity and proactive nature of its founders.

However, this leads to a crisis of leadership, as a more structured form of management is

required. The founding members must either assume this role, or empower a com petent manager

to fulfill this if they are unable to.

Phase 2: Directional expansion → Autonomy Crisis

Directional expansion (evolutionary phase) leads to a crisis of autonomy (revolutionary phase).

As the organization experiences expansion through directive leadership, a more structured and

functional management system is adopted. However, this leads to a crisis of autonomy. Greater

delegation of authority to managers of lower levels is required, although at the reluctance of top

tier managers who do not wish to have their authority diluted.

Phase 3: Expansion through delegation → Control Crisis

Expansion through delegation (evolutionary phase) leads to a crisis of control (revolutionary

phase). As the organization expands from delegating more responsibilities to lower level

managers, top tier directors start to lessen their involvement in the routine operations, reducing

the communication between both levels.



This eventually leads to a crisis of control, as lower level managers become accustomed to

working without the intrusion of top-level directors. This leads to a conflict of interest with the

directors, who feel that they are losing control of the expanded organization.

Phase 4: Expansion through coordination → Red Tape crisis

Expansion through coordination (evolutionary phase) leads to a crisis of red tape (revolutionary

phase). As an organization expands from improving its coordination, such as through product

group formation and authorized planning systems, a bureaucratic system develops. This

eventually leads to a crisis of red tape, where many administrative obstacles reduce efficiency

and innovation.

Phase 5: Expansion through Collaboration

At this stage, the organization seeks to overcome the barrier of red tape through adopting a more

flexible and versatile matrix structure (matrix management). Educational courses are arranged

for managers, to equip them with the skills of solving team disputes and to foster greater

teamwork. Complex and formal systems are also made simpler, and there is an increased

emphasis on the communication between managers, to solve crucial problems. Although Greiner

identified expansion through collaboration as the evolutionary phase, he did not specifically

identify the succeeding crisis (revolutionary phase), as there was little evidence due to most of

the organizations still being in the collaboration phase. However, Greiner predicted that the crisis

might involve the exhaustion of members in an organization, due to a strong requirement for

innovation and teamwork.



IMPLICATIONS FOR GROWTH PHASES

There are certain implications for managers in organizations with regards to the phases of

growth:

1. Recognizing ones position in the course of expansion

Top tier managers should be alert as to which stage their organization is currently at, to be able

to execute relevant solutions to the type of crisis faced. Managers should also not be tempted to

surpass their current phase due to eagerness. This is because there may be vital experiences from

each phase to be learnt, that will be required to tackle future phases.

2. Recognizing the restricted variety of solutions

It becomes clear in each phase of revolution that there are only a specific number of solutions

that can be applied. Managers should avoid repeating solutions, as this will prevent the evolution

of a new phase of growth. It is also important to note that evolution is not a mechanical event,

and organizations must actively seek out new solutions to the current crisis that are also suitable

for the next stage of growth.

3. Recognizing that solutions result in crisis

Managers should realize that past actions are factors of future consequences. This would help

managers in formulating solutions to cope with the crisis that develops in the future.



ORGANIZATIONAL ROBLEMS (Normal & Abnormal)

Problems come with change, change comes with growth, and no company ever achieved peak

performance without growing. The struggle for success is a struggle with problems.

Abnormal problems are abnormal only in their timing. They're normal problems that break out

when they're not supposed to; If CEOs do not or cannot deal effectively with the problems that

confront a normally growing business, those problems will become chronic.

If leaders cannot handle a problem with the same energy they apply to other situations, that

problem is abnormal. If the same type of problem repeats itself despite the owners or managers

having tried to solve it, that problem is abnormal. If the manager needs outside professional help

to solve it, that problem is abnormal.

By contrast, normal problems are those that founders can resolve routinely or with the

application of their energy. If a CEO can increase sales; create new markets; control cash,

accounts receivable, and inventory; and design new products so that the company is able to make

a smooth ascent to prime the ideal stage of balanced creativity and discipline, then those

problems are normal.

Before you can judge whether a problem is occurring at a normal time, you must understand the

corporate life cycle. Once companies know where they are in relation to Prime, they can learn

what they need to do to get there, either for the first time or on a return trip.

For each defining stage there is a set of actions: the steps required for a young company to reach

Prime or for older companies to regain Prime, again and again, real companies have lived

through the process and validated the theory.

Corporate life cycles are defined by the interrelationship of flexibility and control. They are not

defined by a company's chronological age, sales or assets, or number of employees. The goal is

to reach and stay at Prime. (S O William 2013)



STAGES OF CORPORATE LIFE CYCLES

1. Courtship; Would-be founders focus on ideas and future possibilities, making and talking about

ambitious plans. Courtship ends and infancy begins when the founders assume risk.

2. Infancy; The founders' attention shifts from ideas and possibilities to results. The need to make

sales drives this action-oriented, opportunity-driven stage. Nobody pays much attention to

paperwork, controls, systems, or procedures. Founders work 16-hour days, six to seven days a

week, trying to do everything by themselves.

3. Go-Go; This is a rapid-growth stage. Sales are still king. The founders believe they can do no

wrong. Because they see everything as an opportunity, their arrogance leaves their businesses

vulnerable to flagrant mistakes. They organize their companies around people rather than

functions; capable employees can and do wear many hats, but to their staff's consternation, the

founders continue to make every decision.

4. Adolescence; During this stage, companies take a new form. The founder shire chief operating

officers but find it difficult to hand over the reins. An attitude of us (the old-timers) versus them

(the COO and his or her supporters) hampers operations. There are so many internal conflicts;

people have little time left to serve customers. Companies suffer a temporary loss of vision.

5. Prime; With a renewed clarity of vision, companies establish an even balance between control

and flexibility. Everything comes together. Disciplined yet innovative, companies consistently

meet their customers' needs. New businesses sprout up within the organization, and they are

decentralized to provide new life-cycle opportunities.

6. Stability; Companies are still strong, but without the eagerness of their earlier stages. They

welcome new ideas but with less excitement than they did during the growing stages. The

financial people begin to impose controls for short-term results in ways that curtail long-term

innovation. The emphasis on marketing and research and development wanes.



7. Aristocracy; Not making waves becomes a way of life. Outward signs of respectability dress,

office decor, and titles take on enormous importance. Companies acquire businesses rather than

incubate start-ups. Their culture emphasizes how things are done over what's being done and

why people are doing it. Company leaders rely on the past to carry them into the future.

8. Recrimination; In this stage of decay, companies conduct witch-hunts to find out who did

wrong rather than try to discover what went wrong and how to fix it. Cost reductions take

precedence over efforts that could increase revenues. Backstabbing and corporate infighting

rule. Executives fight to protect their turf, isolating themselves from their fellow executives.

Petty jealousies reign supreme.

9. Bureaucracy; If companies do not die in the previous stage--maybe they are in a regulated

environment where the critical factor for success is not how they satisfy customers but whether

they are politically an asset or a liability, they become bureaucratic. Procedure manuals thicken,

paperwork abounds, and rules and policies choke innovation and creativity. Even customers

forsaken and forgotten, find they need to devise elaborate strategies to get anybody's attention.

10. Death; This final stage may creep up over several years, or it may arrive suddenly, with one

massive blow. Companies crumble when they cannot generate the cash they need; the outflow

finally exhausts any inflow.



ORGANIZATIONAL DOWNSIZING

What Is Organizational Downsizing?

Hal Hudson owns a hot dog stand, known as Hal's Hot Dogs, which serves customers inside the

Pelican's Baseball Stadium in Palm Beach, Florida. So that Hal can serve the maximum number

of customers in the shortest amount of time, he structured his organization with a high level of

work specialization. Eleven employees work at the stand and each has a very specialized job.

For instance, there is one worker whose only job is to put onions on the hotdogs and a different

worker whose job it is to add relish. Hal's business was doing great when the season started, but

the Pelicans have been on a losing streak lately, and fewer customers are coming to the ballpark

and buying hot dogs.

Hal's hotdog stand has started losing money, and in order to continue operations, Hal will have

to make some difficult decisions regarding the structure of his organization.

What will Hal do?

Remember; Organizational structure defines how tasks are divided, grouped and coordinated

in organizations.

When the management of an organization determines that their organization is not operating at

peak efficiency, they typically look for ways to make the organization more productive. This is

frequently accomplished through organizational downsizing, which is a reduction in

organizational size and operating costs implemented by management in order to improve

organizational efficiency, productivity and/or the competitiveness of the organization.

Organizational downsizing affects the work processes of an organization since the end result of

the downsizing is typically fewer people performing the same workload that existed before the

downsizing took place. The act of downsizing results in two categories of people:

Victims; the people who involuntarily lose their jobs due to organizational downsizing.

Survivors, the employees who remain after organizational downsizing takes place.



Preparing for Downsizing

In order for an organizational downsizing to be most effective, management must communicate

openly and honestly with their employees regarding the reason for the downsizing and the

downsizing plan. Managers also need to listen to employees and provide comfort when necessary

in order to keep the morale high among the survivors of the downsizing.

When Hal's customers first began to decrease, he realized that he could no longer afford to pay

workers at his hot dog stand due to the declining profits. Before talking to his workers, Hal

developed a downsizing plan to eliminate the workers who had been with him for the least

amount of time.

Hal explained the situation to his workers and told them that due to decreasing sales, he was

going to have to let the three newest employees go. This downsizing resulted in changes to the

work process at the hot dog stand. Hal reduced the amount of work specialization and combined

tasks among the survivors so that each worker was now responsible for more than one task. For

example, the worker who used to put onions on the hot dogs was put in charge of onions, relish

and sauerkraut.

In order to successfully downsize an organization, it is also important that management take

steps to prepare the workforce in advance of the downsizing. Proper planning includes

outplacement strategies, which is the process of assisting former employees in finding new

employment and training and re-skilling the remaining workers into their new jobs. By treating

the victims of downsizing fairly and compassionately, the survivors of the downsizing are more

likely to remain loyal to their organization.

Hal's initial downsizing reduced the amount of money his hotdog stand was losing, and he

expected that lowering his labor cost would make him more profitable. Unfortunately, he kept

losing, and soon realized he would need further downsizing in order to bring his hotdog stand

back to profitability.



Before this second wave of downsizing, Hal was able to find jobs for four of his workers as

ushers at the baseball park. The act of out-placing his former workers showed the remaining

survivors that Hal cared about what happened to his former workers and helped increase the

organizational commitment of the survivors.

How to Mitigate Problems after Downsizing

Even the most successful organizational downsizing can result in problems among the surviving

employees. Some employees may feel overwhelmed by the additional workload, which can

cause irritability and reduce worker motivation and productivity. Survivors of organizational

downsizing sometimes experience survivor guilt, which is a feeling of despair felt by those who

survive an organizational downsizing due to the feelings of sympathy for the victims of the

downsizing and concern for their own well-being.

MERGERS AND ACQUISITIONS

Acquisition: is the purchase of some portion of one company (i.e. assets, definable segments, or

subsidiary) by another while; Merger: is the absorption of one company by another. The

company being acquired is called the ‗Target’ while, company acquiring the target is called the

‗Acquirer’. Mergers can be classified by the form of integration as below;

1. Statutory merger: one of the companies ceases to exist and becomes part of the purchasing

company

2. Subsidiary merger: the company being purchased becomes a subsidiary of the purchaser (often

happens when the target has strong brand name)

3. Consolidation: both companies terminate their previous legal existence and become part of a

newly formed company (when companies are of similar size)



Mergers can also be classified by the form of relatedness of the merging companies‘ business

activities: like;

1. Horizontal merger: one in which the merging companies are in the same kind of business,

usually as competitors (reasons: achieving economies of scale, and increasing market power)

2. Vertical merger: the acquirer buys another company in the same production chain such as

supplier or distributor (reasons: cost savings and greater control over supply chain)

o Backward integration: when acquirer purchases a target that is ahead of it in the value

chain (supplier)

o Forward integration: when acquirer purchases a company that is further down in the value

chain (distributor)

3. Conglomerate: when an acquirer purchases another company that is unrelated to its core

business (reasons: company-level diversification and reduction volatility in cash flows)

MOTIVES FOR MERGERS

There are many motivations behind mergers such as:

1. Synergy: it refers to the concept that the whole of the combined company will be worth more

than the sum of its parts. Cost synergies typically achieved through economies of scale and

revenue synergies are created through cross-selling of products, expanded market share, and

increasing prices because of lowering competition

2. Growth: Companies can grow either by making investments internally (i.e. organic growth) or

by buying the necessary resources externally (i.e. external growth, faster to be done and less

risky because of familiarity with business)

3. Increasing market power: when a company increases its market power through horizontal

mergers, it may have greater ability to influence market prices. Taken to an extreme, horizontal

integration results in a monopoly



4. Acquiring unique capabilities and resources: Many companies undertake a merger or an

acquisition either to pursue competitive advantages or to shore up lacking resources

5. Diversification: If diversified, the variability of the conglomerate cash flows is reduced (at least

to the extent that cash flows are uncorrelated). Although this may seem like a rational motive, it

has been challenged:

a) In a well-functioning markets, shareholders can diversify their own portfolios

b) The desire to diversify makes companies lose sight of their major competitive strengths

6. Bootstrapping earnings: when a company‘s earnings increases as a consequence of merger

transaction itself (rather than because of resulting economic benefits), it is referred to as

―bootstrap effect.‖ For this to happen, the acquirer‘s P/E must be higher than the target‘s P/E – I

will refer to an example in a while

7. Manager’s personal incentives: Managerialism theories posit that because executive

compensation is highly correlated with company size, corporate executives are motivated to

engage in mergers to maximize the size of their company rather than shareholder value. Also,

being the senior executive of a larger company conveys more power and prestige

8. Tax considerations: It is possible for a profitable acquirer to benefit from merging with a target

that has accumulated a large amount of tax losses

9. Unlocking hidden value: when a potential target is underperforming, an acquirer may believe it

can acquire the company cheaply and then unlock hidden values. It can actually acquire it for

less than breakup value (i.e. the value that can be achieved if company assets are sold separately)

10. Cross-border motivations: cross-border mergers can provide an efficient way of achieving

other international business goals: exploiting market imperfections, overcoming adverse

government policy, technology transfer, product differentiation, and following clients.



Mergers and industry life cycle:

The types of mergers generally very based on the industry life cycle:

Life Cycle Industry Description Motives for Merger Types of Merger

Pioneering

Development

High development costs

Low but increasing sales

Gaining Capital Conglomerate Horizontal

Rapid

Accelerating

Growth

High profit margins Growth may require larger

capital

Conglomerate Horizontal

Mature Growth Drop in the entry of new

competitors

Economies of scale Horizontal Vertical

Stabilization

and Market

Maturity

Increasing competition and

capacity constraints

Economies of scale Large

companies acquire small ones to

improve management

Horizontal

Declaration of

growth and

Decline

Overcapacity and eroding

profit margins

Horizontal will ensure survival

Vertical increase efficiency and

profit margins Companies in

related industries will merge to

exploit synergy

Conglomerate Horizontal

Vertical

Bootstrapping Effect – Example

Assume two companies are planning a merger, the following figures are given:

A T

Stock Price 100 50

EPS 4 2.5

P/E 25 20

Outstanding shares 100,000 50,000

Total earnings 400,000 125,000

MV 10,000,000 2,500,000

Steps:

In order to know the number of shares that need to be issued: 2,500,000/100 = 25,000

Total shares of both company = 100,000 + 25,000 = 125,000

Total earnings = 400,000 + 125,000 = 525,000

New EPS of post-merger = 525,000/125,000 = $4.2



If the market is efficient, the post-merger P/E should adjust to the weighted average of

EARNINGS contributions of both companies. This means:

New P/E = 400,000/525,000 * 25 + 125,000/525,000 * 20 = 23.8

Price = 23.8 * 4.2 = $100

If investors apply the pre-merger P/E of 25x, then price would increase to 4.2 * 25 = 105

M&A Transaction Characteristics

By form of acquisition:

Comparison Stock Purchase Asset Purchase

Payment Made to target company shareholders in

exchange for their shares

Made directly to the target company

Approval Majority approval required No approval needed unless base is

substantial

Corporate Taxes None Target company pays capital gain

taxes

Shareholder Taxes Shareholders pay capital gains taxes None

Liabilities Acquirer assumes liabilities of the target Acquirer usually avoids target

liabilities

Advantages of asset purchase over stock purchase:

1. More quickly and easily and

2. Focus on buying parts of the company.

Also, the use of target‘s accumulated tax losses is allowable in the US for stock purchases but

not for asset purchases

By method of payment:

Mixed offering: paying for cash and securities

Cash offering: payment is done solely by cash (either from existing assets or debt issue)

Securities offering: the target shareholder receives shares of the acquirer‘s common stock as

compensation

o Exchange ratio: number of shares that stockholders in the target company receive in

exchange for each of their shares in the target company



Factors that influence the decision:

1. The form of payment has an impact on the distribution of risk/reward when management is

highly confident about the merger value, they are more likely to go for cash offering

2. When an acquirer‘s shares are considered to be overvalued by the market relative to the target

company‘s shares, stock financing is more appropriate

3. The accompanying change in capital structure, borrowing to raise cash increases financial

leverage and issuance of new stocks can change capital structure as well

By mind-set of target management:

Friendly mergers: Before negotiations, each of the parties examine the others‘ books and

records in a process called due diligence. The purpose of due diligence is to protect the

companies‘ respective shareholders by attempting to confirm the accuracy of representations

made during negotiations. Once due diligence and negotiations have been completed, the

companies enter into a definitive merger agreement. The definitive merger agreement is a

contract written by both companies to details the transactions and terms. In cases where

shareholder approval is required, the material facts are provided to the appropriate shareholders

in a public document called a proxy statement which is given to shareholders in anticipation of

their vote.

Hostile mergers: when management opposes, the acquirer may submit directly to target. If bear

hug isn‘t successful, then the hopeful acquirer will attempt to appeal more directly to the target

company‘s shareholders in a tender offer. Because a cash tender offer may be completed in less

time than cash merger, some acquiring companies use this type of transaction to gain control of a

target company quickly. Another method of taking over a target company involves the use of a

proxy fight (when a company or individual seeks to take control of a company through a

shareholder vote)



Pre-offer Takeover Defense Mechanisms

There are generally two kinds: rights-based (i.e. poison pills and puts) and variety of other

defenses that are collectively referred to as shark repellents

1. Poison pill: legal device that makes it prohibitively costly for an acquirer to take control of a

target without prior approval from target‘s BoD; (1) flip-in pill: when a common shareholder of

the target company has the right to buy its shares at a discount and (2) flip-over pill: when the

target company‘s shareholders receive the right to purchase shares of the acquiring company at a

significant discount from the market price, which has the effect of causing dilution to all existing

acquiring company shareholders. ―dead-hand‖ provision: a provision that allows the board of the

target to redeem or cancel poison pill only by a vote of the continuing directors

2. Poison puts: allows bondholders to put the bonds to the company immediately – it means that an

acquirers should be prepared to refinance the entire debt which makes target less attractive

3. Incorporation in a state with restrictive takeover laws: companies that anticipate a hostile

attempt may find it attractive to reincorporate in a jurisdiction that has enacted strict anti-

takeover laws (i.e. Ohio and Pennsylvania)

4. Staggered BoD: the effect of staggered BoD is that it would take at least 2 years to elect enough

directors to take control of the board

5. Restricted voting rights: some target companies may adopt a mechanism that restricts

stockholders who have recently acquired large blocks of stocks from voting their shares

6. Supermajority voting provisions: many target companies change their charter and bylaws to

provide for a higher percentage of approval by shareholders for mergers than normally required

7. Fair price amendments: changes that disallow mergers for which offer is below the threshold



8. Golden parachutes: compensation agreements between the target company and its senior

managers – these contracts allow executives to receive lucrative payouts, usually several years‘

worth of salary, if they leave the target company following a change in corporate control.

Post-offer Takeover Defense Mechanisms

1. “Just Say No”: If the acquirers attempts a bear hug, then target management typically tries to

convince shareholders to decline and that the offer is inadequate and not in shareholders‘ best

interest

2. Litigation: A popular technique used by many target companies is to file a lawsuit against the

acquiring company based on alleged violations of securities or antitrust laws. This serves as a

delaying tactic to create additional time for target management to develop other responses to the

unwanted offer

3. Greenmail: An agreement allowing the target to repurchase its shares back from acquiring

company usually at a premium

4. Share repurchases: Target might use a share repurchase to acquire shares from any shareholder.

An effective repurchase can increase the potential cost for an acquirer by either increasing the

stock‘s price outright or by causing the acquirer to increase its bird to remain competitive with

the target company‘s tender offer for its own shares. Share repurchases also increase the leverage

of the company because borrowing is typically required to purchase the shares (additional debt

makes the target less attractive). In some cases, a target company buys all of its shares and

converts to a privately held company (LBO)

5. Leveraged recapitalization: the assumption of large amount of debt that is then used to finance

share repurchases (unlike LBO, some shares remain in public hands)

6. Crown Jewel defense: after a hostile takeover is announced, a target may decide to sell of an

important subsidiary to a third party.



7. Pac-Man defense: the target can defend itself by making a counteroffer to acquire the hostile

bidder (disadvantage: losing other possible defenses like litigation)

8. White Knight defense: seek a third party to purchase the company – the third party is the white

knight because it is coming to the aid of the target – the target usually initiates this technique by

seeking out another company that has a strategic fit with the target

o Winner’s Curse: the tendency for the winner in a certain competitive bidding to overpay

whether because of overestimation of intrinsic value, emotions, or information asymmetries

9. White squire defense: seeking friendly party to buy substantial minority in the target – enough

to block hostile takeover without selling entire company (carries high litigation risk and in some

countries require shareholders‘ approval).

Regulation – Antitrust Laws

Antitrust laws are designed to stop mergers and acquisitions that may hinder healthy

competition. The Herfindahl-Hirschman Index (HHI) replaced market share as the key measure

of market power for determining potential antitrust violations. The HHI is calculated as the sum

of the squared market shares for all firms within an industry:

The next table shows about HHI concentration level and the likelihood of antitrust action (it is an

important table to remember):

Post-merger HHI Industry

Concentration

Change between Pre-

merger HHI and

Post-merger HHI

Antitrust Action

Less than 1,000 Not concentrated Any amount No action

Between 1,000 and

1,800

Moderately

concentrated

100 or more Possible antitrust

challenge

Greater than 1,800 Highly concentrated 50 or more Antitrust challenge

virtually certain



METHODS OF MERGER ANALYSIS

Target Company Valuation

First: DFC (Discounted Cash Flow)

The discounted cash flow analysis is one way to value a merger by discounting the company‘s

expected future free cash flows in order to derive the value of the company. FCF estimation has

been covered in a detailed topic in the equity investments section. In summary, however, FCF

can be estimated as: When evaluating the target from a non-control perspective, we should use

the target‘s WACC. Finding the terminal value can be found in one of two ways: (1) constant

growth rate; and (2) applying a multiple at which the analyst expects the average company to sell

at the end of the first stage.

Advantages: Disadvantages:

1. Expected changes in the target‘s

company cash flows can be readily

modeled

2. Forecast fundamentals

3. Changes in assumptions can be easily

incorporated

1. It is difficult to apply when cash flows

don‘t align with profitability within the

first stage

2. Estimating cash flows is not an exact

science

3. Estimates of discount rate can change

over times

4. Terminal value is subject to degree of

estimate error

Second: Comparable Company Analysis

The analyst first defines a set of other companies that are similar to the target under review. The

next step is to calculate various relative value measures based on the current market prices. After

finding the mean/median of the multiples and apply it to the target company, we would be able to

find the stock price. Up to this point, we have determined the stock price. In order to calculate an

acquisition value, the analyst must also estimate a takeover premium which is the amount by

which the takeover price for each share must exceed the current stock price in order to entice

shareholders to relinquish control of the company to an acquirer.



Where PRM is the takeover premium (as percentage of stock price), DP is the deal price and SP

is the stock price.


1. This method provides a reasonable

approximation of a target company‘s

value relative to similar companies in

the market

2. Most of required data are readily

available

3. Estimates of value are derived directly

from the market

1. Method is sensitive to market mispricing

2. Using the approach yields a market-

estimated fair STOCK price

3. The analysis may be inaccurate and

incomplete

4. Data available for premiums may not be

accurate

The following example shows a very simplified illustration of the method. Assuming that the

ABC Company is trying to analyze the fair value of XYZ in order to determine the acquisition

price, using comparable company analysis, ABC has determined two comparable companies and

the following valuation variables:

Valuation Variable Company 1 Company 2

Current Stock Price 20 15

EPS 2 1.67

BVPS 8 5

We can find the following multiples

Multiple Company 1 Company 2 Mean

P/E 20/2 = 10 15/1.67 = 9 9.5

P/BV 20/8 = 2.5 15/5 = 3 2.75

If XYZ has EPS of 2.5 and BVPS of 7 then applying the mean multiples:

Variable Target Company Mean Multiple Estimated Stock

Price

EPS 2.5 9.5 2.5 * 9.5 =23.75

BVPS 7 2.75 7 * 2.75 = 19.25

The mean stock price is then 21.5; now, we need to add the takeover premium. We estimate it

from 3 transactions (recent takeovers) in companies in the same industry

Target Company Stock Price Before

Takeover

Takeover Price Takeover Premium

(%)

Target 1 20 25 25%

Target 2 15 20 33.33%

Target 3 30 36 20%

MEAN 26.11%

Therefore, the estimated takeover price for the target is 21.5 * 1.2611 = 27.11



Third: Comparable Transaction Analysis

Similar to comparable company analysis except that the analyst uses details from recent takeover

transactions for comparable companies to make direct estimates of the target company‘s takeover

value. For this approach, we compare multiples actually paid for similar companies in other

M&A deals. Therefore, there is no need to estimate the premium.


1. It is not necessary to separately estimate a

takeover premium

2. Takeover value estimates come directly from

values that were recently established

3. The use of prices established through other

recent transactions reduces litigation risk

1. Because the value estimates assume that M&A

market has properly determined intrinsic value

of target companies, there is a risk that the real

takeover values in past transactions were

inaccurate

2. No adequate numbers of transactions

3. The analysis may be inaccurate and incomplete

The following example shows a very simplified illustration of the method. Assuming that the

ABC Company is trying to analyze the fair value of XYZ in order to determine the acquisition

price, using comparable company analysis, ABC has determined two comparable acquired

companies and the following valuation variables:

Valuation Variable Acquired Company 1 Acquired Company 2

Acquisition Price 20 15

EPS 2 1.67

BVPS 8 5

We can find the following multiples

Multiple Acquired Company 1 Acquired Company 2 Mean

P/E 20/2 = 10 15/1.67 = 9 9.5

P/BV 20/8 = 2.5 15/5 = 3 2.75

If XYZ has EPS of 2.5 and BVPS of 7 then applying the mean multiples:

Variable Target Company Mean Multiple Estimated Stock

Price

EPS 2.5 9.5 2.5 * 9.5 =23.75

BVPS 7 2.75 7 * 2.75 = 19.25

If the analyst determines equal weighting for each multiple (50% for each) then the mean stock

price is then 21.5. If the analyst thinks that earnings are more important determinant of value, he

could assign a weight of 60% to it and 40% to book value and the estimate stock price will be 0.6

* 23.75 + 0.4 * 19.25 = 21.95



Bid Evaluation

Assessing the target‘s value is important but it is insufficient for an assessment of the deal. When

evaluating a bid, the pre-merger value of the target company is the minimum value that target

shareholders should expect. The maximum that acquirer‘s should pay on the other hand is pre-

merger value of target company plus expected synergies or else there will be reduction in value.

Illustration for Bid Evaluation Method:

Acquirer Target

Pre-merger stock price 15 10

Outstanding share (in millions) 75 30

Pre-merger market value (in millions) 1125 300

The expected synergy = 90 million

Option 1: Cash offer of $12 per share

PT = 12 * 30 = 360

Premium = PT – VT = 360 – 300 = 60 million

Acquirer‘s again = 90 – 60 = 30 million

Post-merger value = 1125 + 300 + 90 – 360 = 1155 million


Post-merger price = 1155/75 = 15.4

Option 2: Stock offer of 0.8 shares of A’s stock per share of T’s stock

Number of stocks = 0.8 * 30 = 24

Post-merger value = 1125 + 300 + 90 – 0 = 1515 million

Post-merger price = 1515/(75+24) = 15.3

Price paid = 15.3 * 24 = 367





Option 3: Mixed offer of $6 plus 0.4 shares of A’s stock per share of T’s stock

Number of stocks = 0.4 * 30 = 12

Post-merger value = 1125 + 300 + 90 – 6(30) = 1335 million

Post-merger price = 1335/(75+12) = 15.35

Price paid = 15.35 * 12 + 180 = 364



The choice of payment method depends on:

1. The confidence in the estimated synergies – if confident, cash is preferred

2. The confidence in the companies‘ relative values – if confident, cash is preferred

BENEFICIARIES FROM MERGERS

Short-term performance studies that look at stock returns before and after merger announcement

dates conclude that targets gain. Some believe that the high premiums received by target firms

are the result of acquiring firms suffering from a winner‘s curse, in which the competitive

bidding process is won by the firm who overpays the most.

Managers also may overestimate the synergies and expected benefits of the merger. This

tendency is called managerial hubris.

Longer term performance studies of post-merger company‘s show that acquirers tend to

underperform their peers

Characteristics of M&A deals that create value are:

1. Buyer is strong

2. Transaction premiums are relatively low

3. Number of bidders is low

4. Initial market reaction is favorable



CORPORATE RESTRUCTURING

Corporate restructuring: means for companies to get smaller

Divestitures: a company selling, liquidating, or spinning off a division or subsidiary.

Equity carve-outs: to create a new, independent company by giving equity interest in a

subsidiary to outside shareholders. Shares of the subsidiary are issued in a public offering of

stock, and the subsidiary becomes a new legal entity whose management team and operations are

separate from the parent company.

Spin-offs: like carve-outs in that they create a new independent company that is distinct from the

parent company. The primary difference is that shares are not issued to the public, but are instead

distributed proportionately to the parent company‘s shareholders. This means that the

shareholder base of the spin-off will be the same as that of the parent company, but the

management team and operations are completely separate. Since shares of the new company are

simply distributed to existing shareholders, the parent company does not receive any cash in the

transaction.

Split-offs: allows shareholders to receive new shares of a division of the parent company in

exchange for a portion of their shares in the parent company.

Liquidations: breaking up the firm and sell its asset piece by piece. Most liquidations are

associated with bankruptcy.



REVISION QUIZZES AND SUGGESTED ANSWERS

Q1. According to Jeffrey Peffer in his New Directions for Organization Theory,

organizational theory studies provide for "an interdisciplinary focus” list and describe

some interdisciplinary effects on this theory.

The effect of social organizations on the behavior and attitudes of individuals within them,

The effects of individual characteristics and action on organization,'

The performance, success, and survival of organizations,

The mutual effects of environments, including resource and task, political, and cultural

environments on organizations and vice versa, and

Concerns with both the epistemology and methodology that undergird research on each of these

topics."

Of the various organizational theories that have been studied in this realm, the open-systems

theory has emerged as perhaps the most widely known, but others have their proponents as well.

Indeed, some researchers into organizational theory propound a blending of various theories,

arguing that an enterprise will embrace different organizational strategies in reaction to

changes in its competitive circumstances, structural design, and experiences.

Q2. Using Max Weber (1864 - 1920) modern organization theory, give a summarized

account of Weber’s theory background

Weber's theories of organizations, like others of the period, reflected an impersonal attitude

toward the people in the organization. Indeed, the work force, with its personal frailties and

imperfections, was regarded as a potential detriment to the efficiency of any system. Although his

theories are now considered mechanistic and outdated, Weber's views on bureaucracy provided

important insight into the era's conceptions of process efficiency, division of labor, and

authority.



Modern organization theory is rooted in concepts developed during the beginnings of the

Industrial Revolution in the late 1800s and early 1900s. Of considerable import during that

period was the research done by of German sociologist Max Weber (1864 -1920). Weber

believed that bureaucracies, staffed by bureaucrats, represented the ideal organizational form.

Weber based his model bureaucracy on legal and absolute authority, logic, and order. In

Weber's idealized organizational structure, responsibilities for workers are clearly defined and

behavior is tightly controlled by rules, policies, and procedures.

Another important contributor to organization theory in the early 1900s was Henri Fayol. He is

credited with identifying strategic planning, staff recruitment, employee motivation, and

employee guidance (via policies and procedures) as important management functions in creating

and nourishing a successful organization.

Weber's and Fayol's theories found broad application in the early and mid-1900s, in part

because of the influence of Frederick W. Taylor (1856 - 1915). In a 1911 book entitled Principles

of Scientific Management, Taylor outlined his theories and eventually implemented them on

American factory floors. He is credited with helping to define the role of training, wage

incentives, employee selection, and work standards in organizational performance.

Researchers began to adopt a less mechanical view of organizations and to pay more attention

to human influences in the 1930s. This development was motivated by several studies that shed

light on the function of human fulfillment in organizations. The best known of these was probably

the so-called Hawthorn Studies. These studies, conducted primarily under the direction of

Harvard University researcher Elton Mayo, were conducted in the mid-1920s and 1930s at a

Western Electric Company plant known as the Hawthorn Works. The company wanted to

determine the degree to which working conditions affected output. Surprisingly, the studies failed

to show any significant positive correlation between workplace conditions and productivity.



Q3. Under Open-System Theory, traditional theories regarded organization as closed

systems that were autonomous and isolated from the outside world. State and explain four

influences that emanates from the geographic area in which the organization operates.

Traditional theories regarded organizations as closed systems that were autonomous and

isolated from the outside world. In the 1960s, however, more holistic and humanistic ideologies

emerged. Recognizing that traditional theory had failed to take into account many environmental

influences that impacted the efficiency of organizations, most theorists and researchers

embraced an open-systems view of organizations.

The term "open systems" reflected the newfound belief that all organizations are unique in part

because of the unique environment in which they operate and that they should be structured to

accommodate unique problems and opportunities. For example, research during the 1960s

indicated that traditional bureaucratic organizations generally failed to succeed in environments

where technologies or markets were rapidly changing. They also failed to realize the importance

of regional cultural influences in motivating workers.

Environmental influences that affect open systems can be described as either specific or general.

The specific environment refers to the network of suppliers, distributors, government agencies,

and competitors with which a business enterprise interacts.

The general environment encompasses four influences that emanate from the geographic area in

which the organization operates. These are:

Cultural values; which shape views about ethics and determine the relative importance of

various issues.

Economic conditions; which include economic upswings, recessions, regional unemployment,

and many other regional factors that affect a company's ability to grow and prosper. Economic

influences may also partially dictate an organization's role in the economy.



Legal or political environment; which effectively helps to allocate power within a society and to

enforce laws. The legal and political systems in which an open system operates can play a key

role in determining the long-term stability and security of the organization's future. These

systems are responsible for creating a fertile environment for the business community, but they

are also responsible for ensuring via regulations pertaining to operation and taxation that the

needs of the larger community are addressed.

Quality of education; which is an important factor in high technology and other industries that

require an educated work force. Businesses will be better able to fill such positions if they

operate in geographic regions that feature a strong education system.

The open-systems theory also assumes that all large organizations are comprised of multiple

subsystems, each of which receives inputs from other subsystems and turns them into outputs for

use by other subsystems. The subsystems are not necessarily represented by departments in an

organization, but might instead resemble patterns of activity.

An important distinction between open-systems theory and more traditional organization

theories is that the former assumes a subsystem hierarchy, meaning that not all of the subsystems

are equally essential. Furthermore, a failure in one subsystem will not necessarily thwart the

entire system. By contrast, traditional mechanistic theories implied that a malfunction in any

part of a system would have an equally debilitating impact.

Q4. Organizations differ greatly in size, function, and makeup. Nevertheless, the operations

of nearly all organizations from the multinational corporation to a newly opened

delicatessen. List and describe three basic organizational characteristics.

1. Division of labor

2. Decision-making structure

3. Rules and policies.



The degree of formality with which these aspects of business are approached vary tremendously

within the business world, but these characteristics are inherent in any business enterprise that

utilizes the talents of more than one person.

Organizations practice division of labor both vertically and horizontally. Vertical division

includes three basic levels top, middle, and bottom. The chief function of Top managers, or

executives, typically is to plan long-term strategy and oversee middle managers. Middle

managers generally guide the day-to-day activities of the organization and administer top-level

strategy. Low-level managers and laborers put strategy into action and perform the specific

tasks necessary to keep the organization operating.

Organizations also divide labor horizontally by defining task groups, or departments, and

assigning workers with applicable skills to those groups. Line units perform the basic functions

of the business, while staff units support line units with expertise and services. In general, line

units focus on supply, production, and distribution, while staff units deal mostly with internal

operations and controls or public relations efforts.

Decision-making structures, the second basic organizational characteristic, are used to organize

authority. These structures vary from operation to operation in their degree of centralization and

decentralization. Centralized decision structures are referred to as "tall" organizations because

important decisions usually emanate from a high level and are passed down through several

channels until they reach the lower end of the hierarchy. Conversely, flat organizations, which

have decentralized decision-making structures, employ only a few hierarchical levels. Such

organizations are typically guided by a management philosophy that is favorably disposed

toward some form of employee empowerment and individual autonomy.



Q5. List and explain eight primary elements of total quality management in any

organization

To be successful in management, an organization must concentrate on the eight key elements:

1. Ethics

2. Integrity

3. Trust

4. Training

5. Teamwork

6. Leadership

7. Recognition

8. Communication

Ethics – Ethics is the discipline concerned with good and bad in any situation. It is a two-faceted

subject represented by organizational and individual ethics. Organizational ethics establish a

business code of ethics that outlines guidelines that all employees are to adhere to in the

performance of their work. Individual ethics include personal rights or wrongs.

Integrity – Integrity implies honesty, morals, values, fairness, and adherence to the facts and

sincerity. The characteristic is what customers (internal or external) expect and deserve to

receive. People see the opposite of integrity as duplicity. TQM will not work in an atmosphere of

duplicity. Trust – Trust is a by-product of integrity and ethical conduct. Without trust, the

framework of TQM cannot be built. Trust fosters full participation of all members. It allows

empowerment that encourages pride ownership and it encourages commitment. It allows

decision making at appropriate levels in the organization, fosters individual risk-taking for

continuous improvement and helps to ensure that measurements focus on improvement of

process and are not used to contend people. Trust is essential to ensure customer satisfaction.

So, trust builds the cooperative environment essential for TQM.



Training – Training is very important for employees to be highly productive. Supervisors are

solely responsible for implementing TQM within their departments, and teaching their employees

the philosophies of TQM. Training that employees require are interpersonal skills, the ability to

function within teams, problem solving, decision making, job management performance analysis

and improvement, business economics and technical skills. During the creation and formation of

TQM, employees are trained so that they can become effective employees for the company.

Teamwork – To become successful in business, teamwork is also a key element of TQM. With the

use of teams, the business will receive quicker and better solutions to problems. Teams also

provide more permanent improvements in processes and operations. In teams, people feel more

comfortable bringing up problems that may occur, and can get help from other workers to find a

solution and put into place. There are mainly three types of teams that TQM organizations

adopt:

i. Quality improvement teams or excellence teams (QITs) – These are temporary teams with the

purpose of dealing with specific problems that often recur. These teams are set up for period of

three to twelve months.

ii. Problem solving teams (PSTs) – These are temporary teams to solve certain problems and

also to identify and overcome causes of problems. They generally last from one week to three

months.

iii. Natural work teams (NWTs) – These teams consist of small groups of skilled workers who

share tasks and responsibilities. These teams use concepts such as employee involvement teams,

self-managing teams and quality circles. These teams generally work for one to two hours a

week.

Leadership – It is possibly the most important element in TQM. It appears everywhere in

organization. Leadership in TQM requires the manager to provide an inspiring vision, make

strategic directions that are understood by all and to instill values that guide subordinates.



For TQM to be successful in the business, the supervisor must be committed in leading his

employees. A supervisor must understand TQM, believe in it and then demonstrate their belief

and commitment through their daily practices of TQM. The supervisor makes sure that

strategies, philosophies, values and goals are transmitted down throughout the organization to

provide focus, clarity and direction. A key point is that TQM has to be introduced and led by top

management. Commitment and personal involvement is required from top management in

creating and deploying clear quality values and goals consistent with the objectives of the

company and in creating and deploying well defined systems, methods and performance

measures for achieving those goals.

Communication – It binds everything together. Starting from foundation to roof of the TQM

house, everything is bound by strong mortar of communication. It acts as a vital link between all

elements of TQM. Communication means a common understanding of ideas between the sender

and the receiver. The success of TQM demands communication with and among all the

organization members, suppliers and customers. Supervisors must keep open airways where

employees can send and receive information about the TQM process. Communication coupled

with the sharing of correct information is vital. For communication to be credible the message

must be clear and receiver must interpret in the way the sender intended. There are different

ways of communication such as;

i. Downward communication – This is the dominant form of communication in an organization.

Presentations and discussions basically do it. By this the supervisors are able to make the

employees clear about TQM.

ii. Upward communication – By this the lower level of employees are able to provide suggestions

to upper management of the affects of TQM. As employees provide insight and constructive

criticism, supervisors must listen effectively to correct the situation that comes about through the

use of TQM.



This forms a level of trust between supervisors and employees. This is also similar to

empowering communication, where supervisors keep open ears and listen to others.

iii. Sideways communication – This type of communication is important because it breaks down

barriers between departments. It also allows dealing with customers and suppliers in a more

professional manner.

Recognition – Recognition is the last and final element in the entire system. It should be

provided for both suggestions and achievements for teams as well as individuals. Employees

strive to receive recognition for themselves and their teams. Detecting and recognizing

contributors is the most important job of a supervisor. As people are recognized, there can be

huge changes in self-esteem, productivity, quality and the amount of effort exhorted to the task at

hand. Recognition comes in its best form when it is immediately following an action that an

employee has performed. Recognition comes in different ways, places and time such as;

i. Ways – It can be by way of personal letter from top management. Also by award banquets,


ii. Places – Good performers can be recognized in front of departments, on performance boards


iii. Time – Recognition can be given at any time like in staff meeting, annual award banquets, etc.

Q5. According to functions of quality management elements, name and explain four (4)

cluster groups

The four cluster groups of Total Quality Management are as below;

I. FOUNDATION

II. BRICKS

III. BINDING MORTAR

IV. ROOF



I. Foundation

TQM is built on a foundation of ethics, integrity and trust. It fosters openness, fairness and

sincerity and allows involvement by everyone. This is the key to unlocking the ultimate potential

of TQM. These three elements move together, however, each element offers something different

to the TQM concept.

1. Ethics,

2. Integrity &

3. Trust

II. Bricks

Basing on the strong foundation of trust, ethics and integrity, bricks are placed to reach the roof

of recognition. It includes:

a) Training

b) Teamwork

c) Leadership

III. Binding Mortar

It binds everything together. Starting from foundation to roof of the TQM house, everything is

bound by strong mortar of communication. It acts as a vital link between all elements of TQM.

Communication means a common understanding of ideas between the sender and the receiver.

The success of TQM demands communication with and among all the organization members,

suppliers and customers. Supervisors must keep open airways where employees can send and

receive information about the TQM process. Communication coupled with the sharing of correct

information is vital. For communication to be credible the message must be clear and receiver

must interpret in the way the sender intended.

a) Downward communication b) Upward communication c) Sideways communication



IV. Roof

Recognition is the last and final element in the entire system. It should be provided for both

suggestions and achievements for teams as well as individuals. Employees strive to receive

recognition for themselves and their teams. Detecting and recognizing contributors is the most

important job of a supervisor. As people are recognized, there can be huge changes in self-

esteem, productivity, quality and the amount of effort exhorted to the task at hand. Recognition

comes in its best form when it is immediately following an action that an employee has

performed. Recognition comes in different ways, places and time such as,

a) Ways – It can be by way of personal letter from top management. Also by award banquets,


b) Places – Good performers can be recognized in front of departments, on performance boards


c) Time – Recognition can be given at any time like in staff meeting, annual award banquets, etc.

Q6. By use of a well labeled chart, draw and explain a conceptual framework detailing a

fully implemented TQM model house

To be successful in implementing TQM, an

organization must concentrate on the eight key

elements, detailed in a conceptual house model as

below:

- Ethics - Integrity

- Trust - Training

- Teamwork - Leadership

- Recognition - Communication



These elements can be divided into four groups according to their function. The groups are:

Foundation – It includes: Ethics, Integrity and Trust.

Building Bricks – It includes: Training, Teamwork and Leadership.

Binding Mortar – It includes: Communication.

Roof – It includes: Recognition.

Q7. Differentiate between Lean Management and Classical Management in Organizational

theories

A lean organization is where a few layers exist in the organization structure, and people at all

levels work together in teams. In such organizations, managers, often in teams, monitor

performance of the organization and plan for quality. They identify processes or problems that

need improvement, and organize and lead people to find solutions. More and more organizations

tend to delegate authority to make decisions to lower levels (empowered teams) lean

organization structure

A classical organization structure is hierarchic with many levels from top management to

workforce. In classical organizations, particularly in manufacturing industries, people are

grouped into departments based functions. Hence, we observe departments such as marketing,

design, manufacturing, and sales. Following the same reasoning, quality-related activities have

been focused in a "quality department". Such a department would be responsible for assuring the

quality of products through activities such as inspection, and statistical process control. In the

last two decades, a major trend in many organizations has been assigning quality management

tasks to all departments rather than the quality departments only.



Q8. Explain the four models of thinking in Organizational theories according to Ned

Herman in physiological and functional specialization of the human brain.

Ned Herrman explains physiological and functional specialization of the human brain by

dicothamizing it into four quadrants (models of thinking).

1. Analytical thinking;

Such skills include demonstration of the ability to apply logical thinking to gathering and

analyzing information, designing and testing solutions to problems, and formulating plans. In

1999, Richards J. Heuer Jr., explained that: ―Thinking analytically is a skill like carpentry or

driving a car.

2. Imaginative thinking

The ability to imagine things that are not real : the ability to form a picture in your mind of

something that you have not seen or experienced; The ability to think of new things; Something

that only exists or happens in your mind.

3. Sequential thinking;

Sequential thinking is the process in which thoughts are put into the order of priority concerning

the issue at hand and viewed individually as to their merits and demerits. This enables the

individual to take the right decision.

4. Interpersonal thinking;

Relating to the interactions between individuals: interpersonal skills existing or occurring

between individuals: interpersonal communication or conflict. Interpersonal skills are the life

skills we use every day to communicate and interact with other people, both individually and in

groups. People who have worked on developing strong interpersonal skills are usually more

successful in both their professional and personal lives. Employers often seek to hire staff with

'strong interpersonal skills' - they want people who will work well in a team and be able to

communicate effectively with colleagues, customers and clients.



7% of individuals have dominance in a single quadrant

60% of individuals have double-dominance

30% of individuals have triple-dominance

3% of individuals have quadruple-dominance (whole brain)

Even though individual team members may not have the whole brain (i.e. may have thinking

preferences in less than four quadrants), the chances that the team has access to whole brain

thinking is high. Individual differences due to human characteristics, race, culture and gender

may yield both positive & negative impacts on teamwork. Diversity in a team may help

establishment of synergy, and provides broader viewpoints in discussion of problems. However,

it may also be the source of misunderstandings, conflict and ethnocentricity. Knowing and

accepting individual differences help decreasing negative impacts of diversity on the team.

Q9. List and explain Henry Fayol’s 14 principles of Management

Henri Fayol (1841-1925) is the prominent advocate of administrative management. He spent his

entire working career with a mining company, where he rose from an apprentice to General

Manager. As a result of his long management career, Fayol developed fourteen management

principles:

Division of Work. Division of work, specialization, produces more and better work with the same

effort. It focuses effort while maximizing employee efforts. It is applicable to all work including

technical applications. There are limitations to specialization which are determined by its

application.

Authority and responsibility. Authority is the right to give orders and the power to exact

obedience. Distinction must be made between a manager's official authority deriving from office

and personal authority created through individual personality, intelligence and experience.

Authority creates responsibility.



Discipline. Obedience and respect between a firm and its employees based on clear and fair

agreements is absolutely essential to the functioning of any organization. Good discipline

requires managers to apply sanctions whenever violations become apparent.

Unity of command. An employee should receive orders from only one superior. Employees

cannot adapt to dual command.

Unity of direction. Organizational activities must have one central authority and one action

plan.

Subordination of Individual Interest to General Interest. The interests of one employee or group

of employees are subordinate to the interests and goals of the organization and cannot prevail

over it.

Remuneration of Personnel. Salaries are the price of services rendered by employees. It should

be fair and provide satisfaction both to the employee and employer. The rate of remuneration is

dependent on the value of the services rendered as determined by the employment market.

Centralization. The optimum degree of centralization varies according to the dynamics of each

organization. The objective of centralization is the best utilization of personnel.

Scalar chain. A chain of authority exists from the highest organizational authority to the lowest

ranks. While needless departure from the chain of command should be discouraged, using the

"gang plank" principle of direct communication between employees can be extremely expeditious

and increase the effectiveness of organizational communication.

Order. Organizational order for materials and personnel is essential. The right materials and

the right employees are necessary for each organizational function and activity.

Equity. In organizations equity is a combination of kindliness and justice. The desire for equity

and equality of treatment are aspirations to be taken into account in dealing with employees.

Stability of Tenure of Personnel. In order to attain the maximum productivity of personnel, it is

essential to maintain a stable work force. Management insecurity produces undesirable



consequences. Generally the managerial personnel of prosperous concerns is stable, that of

unsuccessful ones is unstable.

Initiative. Thinking out a plan and ensuring its success is an extremely strong motivator. At all

levels of the organizational ladder zeal and energy on t he part of employees are augmented by

initiative.

Esprit de Corps. Teamwork is fundamentally important to an organization. Creating work teams

and using extensive face-to-face verbal communication encourages this.

Q10. Differentiate between Bureaucratic & Scientific Management

Theoretical models try to define the structure and management of small and large businesses and

government organizations. The bureaucratic and scientific management models belong to the

early classical school. They aim to improve managerial effectiveness by providing tools and

suggesting organizational structures. Bureaucratic management is common in government

organizations, while scientific management is an aspect of manufacturing operations.

Basics

The basics of bureaucratic management include specialization, hierarchy and formal processes.

Specialization refers to groups of people working in specific functional areas, such as finance

and manufacturing. Hierarchy refers to management layers and formal processes refer to how

companies organize internally and interact externally with investors, suppliers and customers.

Scientific management emphasizes process improvements and efficiencies, and it makes

managers accountable for improving organizational productivity.

Characteristics

Bureaucratic management structures share certain characteristics, such as a defined hierarchy,

rules and regulations, and detailed recordkeeping and documentation. Each position in a

bureaucracy supervises another, thus providing direction and control throughout the



organization. A small business may have everybody in the organization reporting to the owner. A

large business may have layers of department managers and vice presidents reporting ultimately

to the chief executive, who reports to the board of directors, which is accountable to

shareholders.

Scientific management involves finding the best way to complete tasks, including providing

financial incentives to employees to improve their productivity. Additionally, scientific

management involves developing a management methodology, selecting and training employees,

and supervising them closely.

Significance

Companies all over the world have adopted bureaucratic management principles. Public sector

organizations--commonly known as bureaucracies--rely on formal processes and hierarchies to

achieve stable structures and consistent results. However, bureaucracies tend to be rigid and

slow to adapt to change, while small businesses need to be flexible and adaptable.

Scientific management has been responsible for steady improvements in business operations,

such as better job definitions, automated inventory tracking, just-in-time manufacturing and

compensation schemes that seek to link incentives to performance.

Q11. Explain the core functions of effective management

Effective management and leadership involve creative problem solving, motivating employees

and making sure the organization accomplishes objectives and goals. There are five functions of

management and leadership: planning, organizing, staffing, coordinating and controlling.

Functions of Managers

Managers just don't go out and haphazardly perform their responsibilities. Good managers

discover how to master five basic functions: planning, organizing, staffing, leading, and

controlling.



Planning: This step involves mapping out exactly how to achieve a particular goal. Say, for

example, that the organization's goal is to improve company sales. The manager first needs to

decide which steps are necessary to accomplish that goal. These steps may include increasing

advertising, inventory, and sales staff. These necessary steps are developed into a plan. When the

plan is in place, the manager can follow it to accomplish the goal of improving company sales.

Organizing: After a plan is in place, a manager needs to organize her team and materials

according to her plan. Assigning work and granting authority are two important elements of

organizing.

Staffing: After a manager discerns his area's needs, he may decide to beef up his staffing by

recruiting, selecting, training, and developing employees. A manager in a large organization

often works with the company's human resources department to accomplish this goal.

Leading: A manager needs to do more than just plan, organize, and staff her team to achieve a

goal. She must also lead. Leading involves motivating, communicating, guiding, and

encouraging. It requires the manager to coach, assist, and problem solve with employees.

Controlling: After the other elements are in place, a manager's job is not finished. He needs to

continuously check results against goals and take any corrective actions necessary to make sure

that his area's plans remain on track

Q12. In his classic book, The Nature of Managerial Work, Henry Mintzberg describes a set

of ten roles that a manager fills. Describe three categories under-which these roles fall:

a) Interpersonal: This role involves human interaction.

b) Informational: This role involves the sharing and analyzing of information.

c) Decisional: This role involves decision making.



Q13. Matrix structure of management combines both operations from functional and

product, explain the three functional levels of matrix structure.

The Matrix management groups employees by both function and product. This structure can

combine the best of both separate structures. A matrix organization frequently uses teams of

employees to accomplish work, in order to take advantage of the strengths, as well as make up

for the weaknesses, of functional and decentralized forms.

Weak/Functional Matrix: A project manager with only limited authority is assigned to oversee

the cross- functional aspects of the project. The functional managers maintain control over their

resources and project areas.

Balanced/Functional Matrix: A project manager is assigned to oversee the project. Power is

shared equally between the project manager and the Functional manager. It brings the best

aspects of functional and projectized organizations. However, this is the most difficult system to

maintain as the sharing of power is a delicate proposition.

Strong/Project Matrix: A Project manager is primarily responsible for the project. Functional

managers provide technical expertise and assign resources as needed. Matrix structure is only

one of the three major structures. The other two are Functional and Project structure. Matrix

management is more dynamic than functional management in that it is a combination of all the

other structures and allows team members to share information more readily across task

boundaries. It also allows for specialization that can increase depth of knowledge in a specific

sector or segment.



Q14. Not everyone can be a manager. Certain skills, or abilities to translate knowledge into

action that results in desired performance, are required to help other employees become

more productive. Explain three major skills requires by every manager in an organization.

These skills fall under the following categories:

Technical: This skill requires the ability to use a special proficiency or expertise to perform

particular tasks. Accountants, engineers, market researchers, and computer scientists, as

examples, possess technical skills. Managers acquire these skills initially through formal

education and then further develop them through training and job experience. Technical skills

are most important at lower levels of management.

Human: This skill demonstrates the ability to work well in cooperation with others. Human

skills emerge in the workplace as a spirit of trust, enthusiasm, and genuine involvement in

interpersonal relationships. A manager with good human skills has a high degree of

self‐awareness and a capacity to understand or empathize with the feelings of others. Some

managers are naturally born with great human skills, while others improve their skills through

classes or experience. No matter how human skills are acquired, they're critical for all managers

because of the highly interpersonal nature of managerial work.

Conceptual: This skill calls for the ability to think analytically. Analytical skills enable

managers to break down problems into smaller parts, to see the relations among the parts, and

to recognize the implications of any one problem for others. As managers assume ever‐higher

responsibilities in organizations, they must deal with more ambiguous problems that have

long‐term consequences. Again, managers may acquire these skills initially through formal

education and then further develop them by training and job experience. The higher the

management level, the more important conceptual skills become.

Although all three categories contain skills essential for managers, their relative importance

tends to vary by level of managerial responsibility.



Business and management educators are increasingly interested in helping people acquire

technical, human, and conceptual skills, and develop specific competencies, or specialized skills

that contribute to high performance in a management job.

Q15. With a well label chart List and explore five approaches required for an

organizational design

Managers must make choices about how to group people together to perform their work. Five

common approaches;

a) Functional, b) divisional, c) matrix, d) team, and e) networking; help managers determine

departmental groupings (grouping of positions into departments). The five structures are basic

organizational structures, which are then adapted to an organization's needs. All five

approaches combine varying elements of mechanistic and organic structures.

For example, the organizational design trend today incorporates a minimum of bureaucratic

features and displays more features of the organic design with a decentralized authority

structure, fewer rules and procedures, and so on.

Functional structure

The functional structure groups’ positions into work units based on similar activities, skills,

expertise, and resources.

Production, marketing,

finance, and human

resources are common

groupings within a

functional structure.



As the simplest approach, a functional structure features well‐defined channels of

communication and authority/responsibility relationships. Not only can this structure improve

productivity by minimizing duplication of personnel and equipment, but it also makes employees

comfortable and simplifies training as well. But the functional structure has many downsides that

may make it inappropriate for some organizations. Here are a few examples:

The functional structure can result in narrowed perspectives because of the separateness of

different department work groups. Managers may have a hard time relating to marketing, for

example, which is often in an entirely different grouping. As a result, anticipating or reacting to

changing consumer needs may be difficult. In addition, reduced cooperation and communication

may occur.

Decisions and communication are slow to take place because of the many layers of hierarchy.

Authority is more centralized.

The functional structure gives managers experience in only one fields of their own. Managers do

not have the opportunity to see how all the firm's departments work together and understand

their interrelationships and interdependence. In the long run, this specialization results in

executives with narrow backgrounds and little training handling top management duties.

Divisional structure

Because managers in large companies may have difficulty keeping track of all their company's

products and activities, specialized departments may develop. These departments are divided

according to their organizational outputs. Examples include departments created to distinguish

among production, customer service, and geographical categories. This grouping of departments

is called divisional structure. These departments allow managers to better focus their resources



and results. Divisional structure also makes performance easier to monitor. As a result, this

structure is flexible and responsive to change.

The divisional structure-Disney in the early 1990s

However, divisional

structure does have its

drawbacks. Because

managers are so

specialized, they may

waste time duplicating

each other's activities

and resources. In addition, competition among divisions may develop due to limited resources.

Matrix structure

The matrix structure combines functional specialization with the focus of divisional structure;

this structure uses permanent cross‐functional teams to integrate functional expertise with a

divisional focus.

Employees in a matrix structure belong to at least two formal groups at the same time a

functional group and a product, program, or project team. They also report to two bosses one

within the functional group and the other within the team.

This structure not only increases employee motivation, but it also allows technical and general

management training across functional areas as well. Potential advantages include

Better cooperation and problem solving.

Increased flexibility.



Better customer service.

Better performance accountability.

Improved strategic management.

Predictably, the matrix structure also has potential disadvantages. Here are a few of this

structure's drawbacks:

The two‐boss system is susceptible to power struggles, as functional supervisors and team

leaders vie with one another to exercise authority.

Members of the matrix may suffer task confusion when taking orders from more than one boss.

Teams may develop strong team loyalties that cause a loss of focus on larger organization goals.

Adding the team leaders, a crucial component, to a matrix structure can result in increased

costs.

Team structure

Team structure organizes separate functions into a group based on one overall objective. These

cross‐functional teams are composed of members from different departments who work together

as needed to solve problems and explore opportunities. The intent is to break down functional

barriers among departments and create a more effective relationship for solving ongoing

problems.

The team structure



The team structure has many potential advantages, including the following:

Intradepartmental barriers break down.

Decision‐making and response times speed up.

Employees are motivated.

Levels of managers are eliminated.

Administrative costs are lowered.

The disadvantages include:

Conflicting loyalties among team members.

Time‐management issues.

Increased time spent in meetings.

Managers must be aware that how well team members work together often depends on the

quality of interpersonal relations, group dynamics, and their team management abilities.

Network structure

The network structure relies on other organizations to perform critical functions on a

contractual basis. In other words, managers can contract out specific work to specialists.

The network structure

This approach provides flexibility and reduces overhead because the size of staff and operations

can be reduced. On the other hand, the network structure may result in unpredictability of supply

and lack of control because managers are relying on contractual workers to perform important

work.



BIBLIOGRAPHY

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USA, 1997.

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Pfeffer, Jeffrey. New Directions for Organization Theory: Problems and Prospects. Oxford

University Press, 1997.

Putnam, Linda L., and Fredrick M. Jablin. New Handbook of Organizational Communications:

Advances in Theory, Research, and Methods. Sage Publications Inc., December 2004.

Wagner-Tsukamoto, Sigmund. Human Nature and Organization Theory. Edward Elgar

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Adapted from The Pursuit of Prime, by Ichak Adizes. Copyright Â©1996 by Ichak Adizes.

Published by arrangement with Knowledge Exchange LLC ,U.S.A. All rights reserved.