IntroductiontoEngineeringManagement

Lecture 4: Organizing

Dr. Mohamed Mourad

Organizing

• Is the process of assigning tasks, allocating resources, and coordinating the activities of individuals and groups to implement plans.

• Through organizing, managers turn plans into actions by defining jobs, assigning personnel, and supporting them with technology and other resources.

2

PART ONE: INTRODUCTION

Meaning of Organization

Process of Organization

Principles of Organization

2

DEFINITION OF ORGANIZING

3

Activities:

Identification of

activities

Grouping of Activities

Assignment of jobs to

formal groups

Establishing a network

of authority and

responsibility

Providing framework for

measurement, evaluati

on and control

Resources:

Determining the

specific need of

resources

Allocation of

resources into

specific groups

Evaluation and

control of use of

the resources

ORGANIZING

5

Organizing

arranging

is the process of

allocatingand

work, authority, and resources

among

members

an organization’s

so that they can

achieve organizational goal.Stoner, Freeman and Gilbert

PROCESS OF ORGANIZING

6

Division of Work

Grouping of Work

Delegation of Authority

Coordination of Work

process OF ORGANIZING SIMPLIFIED

7

Organizing to Produce Goods and Services

• Essential functions:

1. Marketing – generates demand

2. Production/operations – creates the product

3. Finance/accounting – tracks how well the organization is doing, pays bills, collects the money

Organizational Charts

Operations

Teller Scheduling

Check Clearing

Collection

Transaction processing

Facilities design/layout

Vault operations

Maintenance

Security

Finance

Investments

Security

Real estate

Accounting

Auditing

Marketing

Loans

Commercial

Industrial

Financial

Personal

Mortgage

Trust Department

Commercial Bank

Organizational Charts

Operations

Ground supportequipment

Maintenance

Ground Operations

Facilitymaintenance

Catering

Flight Operations

Crew schedulingFlyingCommunicationsDispatching

Management science

Finance/ accounting

Accounting

PayablesReceivablesGeneral Ledger

Finance

Cash controlInternational

exchange

Airline

Marketing

Traffic administration

ReservationsSchedulesTariffs (pricing)

Sales

Advertising

MarketingSales

promotion

Advertising

Sales

Market research

Organizational Charts

OperationsFacilities

Construction; maintenance

Production and inventory controlScheduling; materials control

Quality assurance and control

Supply-chain management

ManufacturingTooling; fabrication; assembly

DesignProduct development and designDetailed product specifications

Industrial engineeringEfficient use of machines, space,

and personnel

Process analysisDevelopment and installation of

production tools and equipment

Finance/ accountingDisbursements/

credits

ReceivablesPayablesGeneral ledger

Funds Management

Money marketInternational

exchange

Capital requirements

Stock issueBond issue

and recall

Manufacturing

PRINCIPLES OF ORGANIZING

12

1. Unity of Objective

2. Specialization

3. Coordination

4. Authority and

Responsibility

5. Unity of Command

6. Scalar Chain

7. Span of Control

8. Exception

9. Efficiency

10.Balance

11.Homogeneity

12.Continuity

13.Simplicity

Managerial Skills

• A skill is the ability to translate knowledge into action that results in desired performance.

• Essential managerial skills:

– Technical skill is the ability to use a special proficiency or expertise to perform particular tasks.

– Human skill is the ability to work well in cooperation with other persons.

– Conceptual skill is the ability to think critically and analytically to solve problems.

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Levels of Managers

• Top managers

• Middle managers

• Team leaders or supervisors

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Top Managers

• They are responsible for the performance of an organization as a whole or for one of its larger parts.

• They work at the highest levels of organizations

• Examples:

– Chief Executive Officer (CEO)

– President

– Vice President

• They deal with long-term problems and opportunities.

15

Middle Managers• They are in charge of relatively large departments or

divisions consisting of several smaller work units.

• Examples:

– Clinic directors in hospitals

– Deans in universities

– Plant managers in businesses

• They work with top managers and coordinate with peers to develop and implement action plans to accomplish organizational objectives.

• They must be team oriented and able to work well with people from all parts of an organization.

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Team Leaders / Supervisors

• They report to middle managers and directly supervise non-managerial workers.

• Examples:

– Department head

– Group leader

– Unit manager

• Also called first line managers.

• They ensure that their work teams or units meet performance objectives that are consistent with higher-level organizational goals.

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Types of Managers• Line managers – line responsibilities

– are responsible for work activities that make a direct contribution to the organization’s output

• Staff managers – staff responsibilities– use special technical expertise to advise and

support the efforts of line workers• Functional managers

– have responsibility for a single area of activity such as finance, marketing, production, personnel, accounting, or sales

• General managers– are responsible for more complex units that include

many functional areas18

Organizational Structure

• Is the formal system of task and authority relationships that control how people coordinate their actions and use resources to achieve organizational goals.

• It defines how job tasks are formally divided, grouped and coordinated.

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Key Design Questions and Answers for Designing the Proper Organizational Structure

The Key Question The Answer Is Provided By

1. To what degree are activities subdivided into separate jobs?

Work specialization

2. On what basis will jobs be grouped together? Departmentalization

3. To whom do individuals and groups report? Chain of command

4. How many individuals can a manager efficiently and effectively direct?

Span of control

5. Where does decision-making authority lie? Centralization and decentralization

6. To what degree will there be rules and regulations to direct employees and managers?

Formalization

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Organizational Structure: Six Key Elements

• Work specialization: the degree to which activities in an organization subdivided into separate jobs.

• Departmentalization: the basis by which jobs in an organization are grouped together.

• Chain of command: is an unbroken line of authority that extends from the top of the organization to the lowest echelon and clarifies who reports to whom.

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Organizational Structure: Six Key Elements

• Span of control: the number of subordinates a manager efficiently and effectively direct.

• Centralization and decentralization: the degree to which decision making is concentrated at a single point in the organization.

• Formalization: the degree to which jobs within the organization are standardized.

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Common Organizational Designs• The simple structure: a structure characterized by a low

degree of departmentalization, wide spans of control, authority centralized in a single person, and little formalization.

• The bureaucracy: a structure with highly routine operating tasks achieved through specialization, very formalized rules and regulations, tasks that are grouped into functional departments, centralized authority, narrow spans of control, and decision making that follows the chain of command.

• The matrix structure: a structure that creates dual lines of authority and combines functional and product departmentalization.

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New Design Options

• The virtual organization: a small, core organization that outsources major business functions.

• The boundaryless organization: an organization that seeks to eliminate the chain of command, have limitless spans of control, and replace departments with empowered teams.

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Why Do Structures Differ?• Strategy

– Organizational structure is a means to help management achieve its objectives.

– Objectives are derived from the organization’s overall strategy.

– Logically, strategy and structure should be closely linked.

• Organization size– An organization’s size significantly affects its

structure.– The structure of a small organization that employs

10 people differs from a large organization that employs 2,000 people.

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Why Do Structures Differ?• Technology

– The term technology refers to how an organization transfers its inputs into outputs.

– Every organization has at least one technology for converting financial, human, and physical resources into products or services.

– Organizational structures adapt to their technology (e.g. assembly line).

• Environment– An organization’s environment is composed of institutions or

forces outside the organization that potentially affect the organization’s performance through uncertainty (e.g. suppliers, customers, competitors, government).

– To reduce environmental uncertainty, management adjust the structure.

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PART TWO: ORGANIZATIONAL ARCHITECTURE

27

Vertical differentiation

Tall versus Flat Structure

Horizontal differentiation

Functional Structure

Multidivisional Structure

Geographic Structure

Matrix Structure

TALL VERSUS FLAT ORGANIZATIONSPresident

President

Tall Organization

Flat Organization

6–9

ORGANIZATIONAL ARCHITECTURE -

VERTICAL INTEGRATION

10

Flat organization:

This type of

organizational

architecture

has few layers

and wide span

of control.

Tall Organization:

This type of

organizational

architecture has

many layers and

narrow span of

control.

ESTABLISHING REPORTING RELATIONSHIPS:

TALL VERSUS FLAT ORGANIZATIONS

Flat Organizations

Lead to higher levels of

employee morale and

productivity.

Create more administrative responsibility for the relatively few managers.

Create more supervisory responsibility for managers due to wider spans of control.

Tall Organizations

Are more expensive

because of the number

of managers involved.

Foster more

communication

problems because of

the number of people

through whom

information must pass.

1. FUNCTIONAL STRUCTURE:

31

Structure is created based on the

various functions of an organization.

ORGANIZATIONAL ARCHITECTURE – HORIZONTAL

DIFFERENTIATION

General Manager

Production Dept.

Finance Dept.

Marketing Dept.

HR Dept.

2. MULTI-DIVISION STRUCTURE

32

Multiple divisions are created in a

related industry.

ORGANIZATIONAL ARCHITECTURE – HORIZONTAL

DIFFERENTIATION

General Manager

Division IDivision

IIDivision

III

Divisional or M-form (Multidivisional) Design

An organizational arrangement based on multiple

businesses in related areas operating within a larger

organizational framework; following a strategy of related

diversification.

Activities are decentralized down to the divisional

level; others are centralized at the corporate level.

The largest advantages of the M-form design are the

opportunities for coordination and sharing of resources.

ORGANIZATIONAL ARCHITECTURE – HORIZONTAL

DIFFERENTIATION

Early Expansion of Industry

• Companies like DuPont, General Motors, and General Electric experimented with different organizational forms

• Eventually adopted the M form (multidivisional)

AT&T

• 1980s AT&T

– slow moving regulated environment

– Adopted huge formal bureaucracy

– Important decision made from top down

• 1990s new AT&T

– Deregulation, increased competition, technological change

– Adopted large number of profit centers

– Run autonomously

– Pay-for-performance plans tied to units

Eastman Kodak

• Prior to 1980s

– monopoly in film production

– Centralized, top down bureaucracy

• 1980s

– Increased competition from Fuji and generics

– Technological explosion: communications, design, robotics

– Kodak lost market share and stock market value

Unilever• One of world’s oldest multinational corporations

• Organized on a decentralized basis

• Annual conferences on company strategy and executive education sessions, establish connections between managers

• Duplication of facilities and high cost structure a problem in new competitive environment

• 1996: introduced structure based on regional business groups

• “Lever Europe” established to consolidate the company’s detergent operation in order to reduce costs and speed up new product information

3. GEOGRAPHIC STRUCTURE:

Departments are

created based on

geographic regions.

All the activities in one

geographic region is

categorized into one

unit.

15

ORGANIZATIONAL ARCHITECTURE – HORIZONTAL

DIFFERENTIATION

General Manager

Eastern Region

Central Region

Western Region

6–16

4. MATRIX ORGANIZATION

Employees

CEO

Project manager B

Project manager C

Vice president,engineering

Vice president,production

Vice president,finance

Vice president,marketing

Project managerA

ORGANIZATIONAL ARCHITECTURE – HORIZONTAL

DIFFERENTIATION

MATRIX STRUCTURE:

17

Advantages: Disadvantages:

Enhances organizational

flexibility.

Team members have the

opportunity to learn new

skills.

Provides an efficient way for

the organization to use its

human resources.

Team members serve as

bridges to their departments

for the team.

Employees are uncertain

about reporting

relationships.

The dynamics of group

behavior may lead to

slower decision

making, one-person

domination, compromise

decisions, or a loss of

focus.

More time may be required

for coordinating task-

related activities.

PART THREE: RESPONSIBILITY

41

Meaning of Responsibility

Establishing Task and Reporting

Relationships

Creating Accountability

RESPONSIBILITY:

42

Responsibility is the

obligation to perform

or

duty to carryout certain

activities

ESTABLISHING TASK AND REPORTINGRELATIONSHIP:

20

Task Relationship:

How activities related to each other in an

organization.

How the basic units of an organization are

formed.

Establishment of job description and job

specification

Job Specification: Prerequisitesof job. Various skills and

experiences needed to perform certain job.

Job Description:The activities that have to be carried out at

certain position in a job. It describes the job.

ESTABLISHING TASK AND

REPORTING RELATIONSHIP:

44

Establishing Reporting Relationship:

It is finding out

Chain of command

Span of control or span of management

1.Who reports to whom?

2.How many subordinates will a supervisor have?

(Relate it to tall vs flat organizational architecture.)

CREATING ACCOUNTABILITY

45

Accountability:

Requirement to report —reports back on accepted responsibility

Employees are accountable to perform their best to:Each otherBossesCustomers Investors

PERSONAL ACCOUNTABILITY

• Each employee must take personal responsibility for his or her performance

– Be on time

– Do not take sick leave when well

– Do what is expected

– During work hours, work

• Not being accountable to your coworkers leads to poor workplace relationships

PART FOUR: AUTHORITY

47

Line and Staff Authority

Delegation of Authority

AUTHORITY:

Right to take decisions that arises due to positionin organizational structure.

Authority is the right to perform or command. Itallows its holder to act in certain designatedways and to directly influence the actions ofothers through orders.

Types of Authority: Line Authority

Staff Authority 24

LINE AUTHORITY

The chain of command in the

organizational structure that flows major

decision making power.

The officially

authorized ability to issue orders t o

subordinate employees within an

organization.

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STAFF AUTHORITYStaff authority consists of the right to

advise or assist those who possess

line authority as well as other staff

personnel.

The Advisory or Counseling Role :

The Service Role

The Control Role26

DELEGATION OF AUTHORITY

51

Assigning work to subordinates

and giving them necessary

authority to do the assigned work

effectively.

Simple terms,GRANTING AUTHORITY TO SUBORDINATES

FEATURES OF DELEGATION OFAUTHORITY:

No delegation of total authority

Delegation of only that authority a

manager has

Representation of the superior

Delegation for organizational purpose

Restoration of delegated authority

Balance of authority and responsibility

No delegation of responsibility

52

CONFLICT BETWEEN LINE – STAFF EMPLOYEES

Assume Line Authority

Do not give Sound Advice

Steal Credit for Success

Fail to Keep line personnel

informed of their activities

Do not see the whole picture.

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PART FIVE:

CENTRALIZATION AND DECENTRALIZATION

54

Meaning : Centralization and Decentralization

Reasons: In which case which is needed

Advantages and Disadvantages: of both

Productivity Challenge

Productivity is the ratio of outputs (goods and services) divided by the inputs (resources such

as labor and capital)

The objective is to improve productivity!

Important Note!Production is a measure of output

only and not a measure of efficiency

EMERGING ISSUES IN ORGANIZATION DESIGN

Feedback loop

Outputs

Goods and

services

Transformation

The U.S. economic system transforms inputs to outputs at

about an annual 2.5% increase in productivity per year. The

productivity increase is the result of a mix of capital (38% of 2.5%),

labor (10% of 2.5%), and management (52% of 2.5%).

The Economic System

Inputs

Labor,capital,

management

Improving Productivity at Starbucks

A team of 10 analysts continually look for ways to shave time. Some improvements:

Stop requiring signatures on credit card purchases under $25

Saved 8 seconds per transaction

Change the size of the ice scoop

Saved 14 seconds per drink

New espresso machines Saved 12 seconds per shot

Improving Productivity at Starbucks

A team of 10 analysts continually look for ways to shave time. Some improvements:

Stop requiring signatures on credit card purchases under $25

Saved 8 seconds per transaction

Change the size of the ice scoop

Saved 14 seconds per drink

New espresso machines Saved 12 seconds per shot

Operations improvements have helped Starbucks increase yearly revenue per outlet by $200,000 to $940,000 in six years.

Productivity has improved by 27%, or about 4.5% per year.

Measure of process improvement

Represents output relative to input

Only through productivity increases can our standard of living improve

Productivity

Productivity =Units produced

Input used

Productivity Calculations

Productivity =Units produced

Labor-hours used

= = 4 units/labor-hour1,000

250

Labor Productivity

One resource input single-factor productivity

Multi-Factor Productivity

Output

Labor + Material + Energy + Capital + Miscellaneous

Productivity =

Also known as total factor productivity

Output and inputs are often expressed in dollars

Multiple resource inputs multi-factor productivity

Example

• Collins Title Company has a staff of 4, each working 8 hours per day (for a payroll cost of $640/day) and overhead expenses of $400 per day. Collins processes and closes on 8 titles each day. The company recently purchased a computerized title-search system that will allow the processing of 14 titles per day. Although the staff, their work hours, and pay are the same, the overhead expenses are now $800 per day.

Collins Title Productivity

Staff of 4 works 8 hrs/day 8 titles/day

Payroll cost = $640/day Overhead = $400/day

Old System:

=Old labor

productivity8 titles/day

32 labor-hrs

Collins Title Productivity

Staff of 4 works 8 hrs/day 8 titles/day

Payroll cost = $640/day Overhead = $400/day

Old System:

8 titles/day

32 labor-hrs=

Old labor productivity = .25 titles/labor-hr

Collins Title Productivity

Staff of 4 works 8 hrs/day 8 titles/day

Payroll cost = $640/day Overhead = $400/day

Old System:

14 titles/day Overhead = $800/day

New System:

8 titles/day

32 labor-hrs=

Old labor productivity

=New labor

productivity

= .25 titles/labor-hr

14 titles/day

32 labor-hrs

Collins Title Productivity

Staff of 4 works 8 hrs/day 8 titles/day

Payroll cost = $640/day Overhead = $400/day

Old System:

14 titles/day Overhead = $800/day

New System:

8 titles/day

32 labor-hrs=

Old labor productivity = .25 titles/labor-hr

14 titles/day

32 labor-hrs=

New labor productivity = .4375 titles/labor-hr

75% increase

Collins Title Productivity

Staff of 4 works 8 hrs/day 8 titles/day

Payroll cost = $640/day Overhead = $400/day

Old System:

14 titles/day Overhead = $800/day

New System:

=Old multifactor

productivity8 titles/day

$640 + 400

Collins Title Productivity

Staff of 4 works 8 hrs/day 8 titles/day

Payroll cost = $640/day Overhead = $400/day

Old System:

14 titles/day Overhead = $800/day

New System:

8 titles/day

$640 + 400=

Old multifactor productivity = .0077 titles/dollar

Collins Title Productivity

Staff of 4 works 8 hrs/day 8 titles/day

Payroll cost = $640/day Overhead = $400/day

Old System:

14 titles/day Overhead = $800/day

New System:

8 titles/day

$640 + 400=

Old multifactor productivity

=New multifactor

productivity

= .0077 titles/dollar

14 titles/day

$640 + 800

Collins Title Productivity

Staff of 4 works 8 hrs/day 8 titles/day

Payroll cost = $640/day Overhead = $400/day

Old System:

14 titles/day Overhead = $800/day

New System:

8 titles/day

$640 + 400

14 titles/day

$640 + 800

=Old multifactor

productivity

=New multifactor

productivity

= .0077 titles/dollar

= .0097 titles/dollar

26% increase

Measurement Problems

1. Quality may change while the quantity of inputs and outputs remains constant

2. External elements may cause an increase or decrease in productivity

Precise units of measure may be lacking

Productivity Variables

1. Labor - contributes about 10% of the annual increase

2. Capital - contributes about 38% of the annual increase

3. Management -contributes about 52% of the annual increase

Key Variables for Improved Labor Productivity

1. Basic education appropriate for the labor force

2. Diet of the labor force

3. Social overhead that makes labor available

Challenge is in maintaining and enhancing skills in the midst of rapidly changing technology and knowledge

Exercise

• Company X manufactures automobile jacks,

hubcaps, and a variety of fittings. These

products are sold as replacement parts

through the chain auto-supply stores. The

business of the company is growing, with

production facilities located in rented buildings

over various parts of the city. The production

staff is expanding constantly. Now the

president of the company wants to expand into

the brass-fitting business.

Exercise (cont.)

• However, the president realizes that, after this

newest expansion is accomplished, the company

should consolidate to make its production

operations more efficient.

• Which organizational structure should the

company adopt now, so that it can best

accommodate its current needs of business

expansion and also lay the foundation for

anticipated consolidation thereafter?

Exercise (cont.)

• What information is needed to set forth such

an organizational structure?

• What are the crucial variables that should be

considered in the design of such an

organization?

References

• John R. Schermerhorn, “Management”, 8th Edition,Wiley.

• Stephen P. Robbims and Timothy A. Judge,“Organizational Behaviour”, 13th Edition, Pearson.

• Gareth R. Jones, “Organizational Theory, Design,and Change”, 7th Edition, 2013, Pearson.

• Jay Heizer and Barry Render, “Operations Management”, 12th Edition, Pearson.

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Course Info

Books• C. M. Chang, “Engineering Management: Challenges in the New

Millennium”, Prentice Hall.

• L.C. Morse, and D. L. Babcock, “Managing Engineering and Technology’, Pearson.

• Contact :mmourad@aast.edu

• Website : https://cloudecampus.org/

Thank You!