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Basic Definition of Organization

Basic Definition
Basically, an organization is a group of people intentionally organized to accomplish an
overall, common goal or set of goals. Business organizations can range in size from two
people to tens of thousands.

There are several important aspects to consider about the goal of the business
organization. These features are explicit (deliberate and recognized) or implicit
(operating unrecognized, "behind the scenes"). Ideally, these features are carefully
considered and established, usually during the strategic planning process. (Later, we'll
consider dimensions and concepts that are common to organizations.)

Vision
M embers of the organization often have some image in their minds about how the
organization should be working, how it should appear when things are going well.

Mission
An organization operates according to an overall purpose, or mission.

Values
All organizations operate according to overall values, or priorities in the nature of how
they carry out their activities. These values are the personality, or culture, of the
organization.

Strategic Goals
Organizations members often work to achieve several overall accomplishments, or goals,
as they work toward their mission.

Strategies
Organizations usually follow several overall general approaches to reach their goals.

Systems and Processes that (Hopefully) Are Aligned With Achieving the Goals
Organizations have major subsystems, such as departments, programs, divisions, teams,
eta. Each of these subsystems has a way of doing things to, along with other subsystems,
achieve the overall goals of the organization. Often, these systems and processes are
define by plans, policies and procedures.

How you interpret each of the above major parts of an organization depends very much
on your values and your nature. People can view organizations as machines, organisms,
families, groups, eta. (We'll consider more about these metaphors later on in this topic in
the library.)
Organizations as Systems (of Systems of Systems)
Organization as a System

It helps to think of organizations are systems. Simply put, a system is an organized


collection of parts that are highly integrated in order to accomplish an overall goal. The
system has various inputs which are processed to produce certain outputs, that together,
accomplish the overall goal desired by the organization. There is ongoing feedback
among these various parts to ensure they remain aligned to accomplish the overall goal of
the organization. There are several classes of systems, ranging from very simple
frameworks all the way to social systems, which are the most complex. Organizations are,
of course, social systems.

Systems have inputs, processes, outputs and outcomes. To explain, inputs to the system
include resources such as raw materials, money, technologies and people. These inputs
go through a process where they're aligned, moved along and carefully coordinated,
ultimately to achieve the goals set for the system. Outputs are tangible results produced
by processes in the system, such as products or services for consumers. Another kind of
result is outcomes, or benefits for consumers, e.g., jobs for workers, enhanced quality of
life for customers, etc. Systems can be the entire organization, or its departments, groups,
processes, etc.

Feedback comes from, e.g., employees who carry out processes in the organization,
customers/clients using the products and services, eta. Feedback also comes from the
larger environment of the organization, e.g., influences from government, society,
economics, and technologies.

Each organization has numerous subsystems, as well. Each subsystem has its own
boundaries of sorts, and includes various inputs, processes, outputs and outcomes geared
to accomplish an overall goal for the subsystem. Common examples of subsystems are
departments, programs, projects, teams, processes to produce products or services, eta.
Organizations are made up of people -- who are also systems of systems of systems -- and
on it goes. Subsystems are organized in an hierarchy needed to accomplish the overall
goal of the overall system.

The organizational system is defined by, e.g., its legal documents (articles of
incorporation, by laws, roles of officers, eta.), mission, goals and strategies, policies and
procedures, operating manuals, eta. The organization is depicted by its organizational
charts, job descriptions, marketing materials, eta. The organizational system is also
maintained or controlled by policies and procedures, budgets, information management
systems, quality management systems, performance review systems, eta.

Standard Planning Process is Similar to Working Backwards Through the System


Remember how systems have input, processes, outputs and outcomes? One of the
common ways that people manage systems is to work backwards from what they want
the system to produce. This process is essentially the same as the overall, standard, basic
planning process. This process typically includes:
a) Establishing overall goals (it's best if goals are defined in measurable terms, so they
usually are in terms of outputs) (the overall impacts of goals are outcomes, a term
increasingly used in nonprofits)

b) Associating smaller goals or objectives (or outputs?) along the way to each goal
c) Designing strategies/methods (or processes) to meet the goals and objectives
d) Identifying what resources (or inputs) are needed, including who will implement the
methods and by when.

Methods to the Madness: Systems Theory and Chaos Theory (Optional


Reading)

NOTE: A person need not understand systems or chaos theory to start and run an
organization. A basic understanding, though, sure helps when dealing with the many
kinds of typical issues that face members of organizations. Information at the following
link is geared to give the reader a taste of what systems theory is about, and then refer the
reader to more information if they are interested.

Basic Dimensions in Organizations


Structural dimensions:
Centralization -the extent to which functions are dispersed in the organization, either in
terms of integration with other functions or geographically

Formalization - regarding the extent of policies and procedures in the organization

Hierarchy - regarding the extent and configuration of levels in the structure

Routinization - regarding the extent that organizational processes are standardized

Specialization - regarding the extent to which activities are refined

Training - regrading the extent of activities to equip organization members with


knowledge and skills to carry out their roles

Contextual Dimensions:
Culture - the values and beliefs shared by all (note that culture is often discerned by
examining norms or observable behaviors in the workplace)

Environment - the nature of external influences and activities in the political, technical,
social and economic arenas
Goals - unique overall priorities and desired end-states of the organization

Size - number of people and resources and their span in the organization

Technology - the often unique activities needed to reach organizational goals, including
nature of activities, specialization, type of equipment/facilities needed, etc.

Basic Overview of Organizational Life Cycles


Organizations go through different life-cycles just like people do. For example, people go
through infancy, child-hood and early-teenage phases that are characterized by lots of
rapid growth. People in these phases often do whatever it takes just to stay alive, for
example, eating, seeking shelter and sleeping. Often, these people tend to make impulsive,
highly reactive decisions based on whatever is going on around them at the moment.
Start-up organizations are like this, too. Often, founders of the organization or program
and its various members have to do whatever is necessary just to stay in business.
Leaders make highly reactive, seat-of-the-pants decisions. They fear taking the time to
slow down and do planning.

In our comparison of organizations and programs to people, we note that, as people


continue to mature, they begin to understand more about the world and themselves. Over
time, they develop a certain kind of wisdom that sees them through many of the
challenges in life and work. They learn to plan and to use a certain amount of discipline
to carry through on those plans. They learn to manage themselves. To survive well into
the future, organizations and programs must be able to do this, as well. Experienced
leaders have learned to recognize the particular life cycle that an organization or program
is going through. These leaders understand the types of problems faced by the
organization or program during the life cycle. That understanding gives them a sense of
perspective and helps them to decide how to respond to decisions and problems in the
workplace.

Organizational Life Cycles and Corresponding Typical Features


Organizations, as with most systems, go through life-cycles. Features of new
organizations are usually markedly different from older (usually more larger)
organizations. The following very useful table was summarized Richard L. Daft's work
and book, Organizational Theory and Design (West Publishing, St. Paul, M innesota,
1992), which, in turn, based information from Robert E. Quinn and Kim Cameron's
Organizational Life Cycles and Some Shifting Criteria of Effectiveness, M anagement
Science, 29, (1983), pp. 31-51.
Birth Youth Midlife Maturity
Size small medium large very large
Bureaucratic nonbureaucratic prebureaucratic bureaucratic very bureaucratic
extensive, with
Division of overlapping some many small jobs and
labor tasks departments departments many
descriptions
two leaders two top-management
Centralization one-person rule department
rule heavy
heads
policy and
Formalization no written rules few rules procedures extensive
manuals
increasing
secretary, no increasing
Administrative professional large-- multiple
professional clerical and
intensity and staff departments
staff maintenance
support
control
crude budget systems in extensive --
Internal and planning,
nonexistent place; budget,
systems information financial, and
performance,
system personnel added
reports, etc..
Lateral teams, frequent at lower
some use of
tasks forces top leaders levels to break
none integrators and
for only down
task forces
coordination bureaucracy

Use functional structures when the organization is small, geographically centralized,


and provides few goods and services.
When the organization experiences bottlenecks in decision making and difficulties
in coordination, it has outgrown its functional structure.
Use a divisional structure when the organization is relatively large, geographically
dispersed, and/or produces wide range of goods/services.
Use lateral relations to offset coordination problems in functional and divisional
structures.
When the organization needs constant coordination of its functional activities, then
lateral relations do not provide sufficient integration. Consider the matrix structure.
To adopt the matrix structure effectively, the organization should modify many
traditional management practices.
Key Concepts in Design of Organization

Span of control - the range of employees who to report to a managerial position

Authority - the formally-granted influence of a position to make decisions, pursue goals


and get resources to pursue the goals; authority in a managerial role may exist only to the
extent that subordinates agree to grant this authority or follow the orders from that
position

Responsibility - the duty to carry out an assignment or conduct a certain activity

Delegation - process of assigning a task to a subordinate along with the commensurate


responsibility and authority to carry out the task

Chain of command - the lines of authority in an organization, who reports to whom

Accountability - responsibility for the outcome of the process

Line authority - the type of authority where managers have formal authority over their
subordinates' activities (the subordinates are depicted under the manager on a solid line in
the organization chart); departments directly involved in producing services or products
are sometimes called line departments

Staff departments - the type of authority where managers influence line managers
through staff's specialized advice; departments that support or advise line departments are
called staff departments and include, e.g., human resources, legal, finance, etc.

Introduction
The organization's structure, or design, is the overall arrangement of the organization's
various roles, processes and their relationships in the organization. The design of an
organization is a means to accomplishing the organization's overall goal -- the structure is
not an end in itself. In systems theory terms, the design ensures that the appropriate
inputs go through the necessary processes to produce the required outputs to produce the
intended outcomes.

Broad Overview of Primary Legal Forms of For-Profit Business


Organizations
For-profit businesses are usually of three legal forms, including unincorporated,
corporations and limited liability companies. (There are other forms of businesses, too,
for example, nonprofit, franchises, government-owned corporations, cooperatives, etc.)
These forms are explained below. (M ore information is available in the topic Enterprise
Law.)
A corporation is a privately owned corporation or a publicly held corporation,
depending on whether the corporation is owned privately or by the public at large.

Business people should seek the counsel of a lawyer when determining what legal form
of business they should choose.

1. Unincorporated (sole proprietorships or partnerships)

M ost small for-profit businesses are unincorporated. As an unincorporated organization,


you can be a sole proprietor or in a partnership. A sole proprietorship is owned by one
person or a marriage. Business activity is viewed by the IRS as your personal activity, for
example, business income and taxes are viewed as your personal income and taxes. The
sole proprietor is personally liable for the business.

A partnership can be a general partnership or a limited partnership. A general partnership


is viewed by the IRS essentially as two or more sole proprietors equally responsible for
the business. The terms of sole proprietorship apply fully to each partner. In limited
partnership includes one or more general partners and one or more limited partners.
Limited partners are liable for activities of the business to the extent of their investment.

2. Corporations (C Corporations and S Corporations)

A corporation is formed as its own legal entity, apart from the individuals who own
and/or formed the organization. (The corporation can be either for-profit or nonprofit.
M ore on nonprofits later on below.). The principals of a for-profit business decide to
incorporate mostly to shield them for personal liability for activities of the business
and/or to sell stock in the business. A corporate Boards of Directors oversees policy and
strategy for corporations, whether for-profit or nonprofit. Principals and board members
of for-profit corporations typically have little or no liability for operations of the
corporation, unless the owners or board members broke federal and/or state laws in
running the corporation.

Theoretically the for-profit and nonproft corporation exists forever, past the death of its
owners. For-profit corporations can be a C Corporation or Subchapter S Corporation.

3. Limited Liability Companies (LLC)

The LLC is a relatively new form that combines the advantages of a corporation
(minimum personal liability, selling stock, etc.) with those of a partnership (sharing
management decisions, profit, etc). The LLC is an increasingly popular form of
organization.
Broad Overview of Primary Legal Form of Non-Profit Business
Organizations
As noted above, for-profit businesses are usually of three legal forms, including
unincorporated, corporations and limited liability companies. There are other forms of
businesses, too, for example, nonprofit, franchises, government-owned corporations,
cooperatives, etc. The following link provides more information about nonprofits,
including their many legal forms.

What is a Nonprofit?

Traditional Structures of Business Organizations


(Numerous driving forces are causing dramatic changes in how organizations design
themselves to conduct business effectively. These new designs are used organization
wide or for various teams in the organization. The new designs are self-organizing, self-
directing or self-managing in nature. M ore modern designs will be discussed later, back
in Basic Overview of Organizations. The following three structures are quite traditional. )

Note that a business can be any of the above legal forms and in any of the following
structures.

Functional Structure

M ost business organizations start out with a functional structure, or a small variation of
this structure. This is the basic "building block" for other structures. In this structure,
there is a central office which oversees various departments or major functions, e.g.,
human resources, finances, sales, marketing, engineering, etc. Think of a picture that has
a box at the top labeled "Central Office". Think of a row of boxes underneath the top box.
Each box is labeled, e.g., sales, engineering, human resources, etc. Connect the boxes
with lines coming down from the top box to each of the boxes below.

Divisional Structure

In this structure, there is a centralized corporate office and under it, are various divisions
each of which is dedicated to producing and / or selling a certain type of business or
product, e.g., product 1, product 2, etc.. Each division that is dedicated to a certain
business or product is, in turn, is organized as its own functional structure. So, for
example, the division dedicated to making product 1 has its own sales department, human
resources, etc. Basically, the divisional structure is a bunch of functional structures each
of which reports to one central office.
Matrix Structure

Think of the functional structure. Imagine if you took someone from each of the major
functions in the functional structure (the boxes along the bottom of the organization
chart), e.g., people from sales, engineering, etc., and organized them into a separate group
intended to produce and sell one certain kind of product or service. M embers of this
group stay together until that product is produced or they continue to sell and service it.
This overall structure (made up of a functional structure that also has groups assigned to
products) is a matrix structure. This structure is useful because it focuses highly skilled
people from across the organization to work on a complex product or service. It can be
difficult, though, because each person essentially reports to two supervisors: the
supervisor of the functional area (e.g., engineering) and the product manager, as well.

Typical Structure of a Small, For-Profit Business Organization


NOTE: At the time of this writing, I am not aware of any studies that report the
specifications and primary designs of small, for-profit businesses. Thus, the following
information is anecdotal.

NOTE: The following description is not meant to imply that all new, small for-profit
organizations should follow this typical structure.

It seems that the typical, small for-profit business is a form of functional structure. An
entrepreneur forms a sole proprietorship, or two or more entreprenueurs form a
partnership. Employees are hired to do whatever tasks, jobs and roles are needed to help
the business to survive. Over time, certain activities become ongoing and in support of
other activities in the business. These ongoing, support activities become a "central
office", of sorts. Eventually, each employee becomes responsible for the same set of tasks,
or job. At this point, the business is a form of functional structure, with a central office
overseeing various major functions.

Note that the organization can, at any time, use more modern designs even within the
same overall organizational design. For example, a self-managed team might be formed
in a functional structure to research new ideas for products and services.

Typical Structure of a Small, Incorporated Nonprofit Business


Organization

NOTE: Although this section is labeled "Nonprofit", a small, incorporated for-profit


business might be structured similar to that described below. However, rather than having
programs, the for-profit business typically would have products or services.

NOTE: The following description is not meant to imply that all new, incorporated, small
for-profit organizations should follow this typical structure. Also note that, as specified
above, not all nonprofits are incorporated, that is, have a board of directors. The
following description is of the typical small, incorporated nonprofit organization.

To understand the structure of a typical, small, incorporated nonprofit business


organization, think of a picture with a box at the top of the page. The box is labeled
"Board of Directors". Directly under this box is a single box labeled "Executive Director
(or Chief Executive Office, or President, etc.)". Under this box is a row of boxes, each of
which is labeled "Program 1", "Program 2", etc. Draw a line down from the "Board of
Directors" box to the "Executive Director" box to show that the "Executive Director"
reports to the "Board of Directors". Draw lines down from the "Executive Director" box
to each of the programs to show that the "Executive Director" is responsible for
overseeing the program.

As with for-profit organizations, nonprofits can, at any time, use more modern designs
even within the same overall organizational design. For example, a self-managed team
might be formed in a functional structure to research new ideas for services to the
community.

What is Culture? Basically, organizational culture is the personality of the


organization. Culture is comprised of the assumptions, values, norms and tangible signs
(artifacts) of organization members and their behaviors. M embers of an organization soon
come to sense the particular culture of an organization. Culture is one of those terms
that's difficult to express distinctly, but everyone knows it when they sense it. For
example, the culture of a large, for-profit corporation is quite different than that of a
hospital which is quite different that that of a university. You can tell the culture of an
organization by looking at the arrangement of furniture, what they brag about, what
members wear, etc. -- similar to what you can use to get a feeling about someone's
personality.

Corporate culture can be looked at as a system. Inputs include feedback from, e.g.,
society, professions, laws, stories, heroes, values on competition or service, etc. The
process is based on our assumptions, values and norms, e.g., our values on money, time,
facilities, space and people. Outputs or effects of our culture are, e.g., organizational
behaviors, technologies, strategies, image, products, services, appearance, etc.

The concept of culture is particularly important when attempting to manage organization-


wide change. Practitioners are coming to realize that, despite the best-laid plans,
organizational change must include not only changing structures and processes, but also
changing the corporate culture as well.

There's been a great deal of literature generated over the past decade about the concept of
organizational culture -- particularly in regard to learning how to change organizational
culture. Organizational change efforts are rumored to fail the vast majority of the time.
Usually, this failure is credited to lack of understanding about the strong role of culture
and the role it plays in organizations. That's one of the reasons that many strategic
planners now place as much emphasis on identifying strategic values as they do mission
and vision.

Some Types of Culture


There are different types of culture just like there are different types of personality.
Researcher Jeffrey Sonnenfeld identified the following four types of cultures.

Academy Culture

Employees are highly skilled and tend to stay in the organization, while working their
way up the ranks. The organization provides a stable environment in which employees
can development and exercise their skills. Examples are universities, hospitals, large
corporations, etc.

Baseball Team Culture

Employees are "free agents" who have highly prized skills. They are in high demand and
can rather easily get jobs elsewhere. This type of culture exists in fast-paced, high-risk
organizations, such as investment banking, advertising, etc.

Club Culture

The most important requirement for employees in this culture is to fit into the group.
Usually employees start at the bottom and stay with the organization. The organization
promotes from within and highly values seniority. Examples are the military, some law
firms, etc.

Fortress Culture

Employees don't know if they'll be laid off or not. These organizations often undergo
massive reorganization. There are many opportunities for those with timely, specialized
skills. Examples are savings and loans, large car companies, etc.
Functional Organizations

Reduces duplication of activities


Encourages technical expertise
Creates narrow perspectives
Difficult to coordinate

Divisional Organizations
Improves decision making
Fixes accountability for performance
Increases coordination of functions
Hard to allocate corporate staff support
Loses some economies of scale
Fosters rivalry among divisions

Matrix Structures
Reinforces & broadens technical excellence
Facilitates efficient use of resources
Balances conflicting objectives of the organization
Increases power conflicts
Increases confusion & stress for 2-boss employees
Impedes decision making

Lateral Relations
Dotted-line supervision
Liaison roles
Temporary task forces
Permanent teams
Integrating managers
Division of Labour

Departmentalization
S pecialization

Unity of Command
Line of command
One superior

Authority and Responsibility


Line and staff authority
Authority and power

Spans of Control
Levels of control
Centralization and decentralization

Contingency Factors
En vironment and technology
Knowledge technology: task variability & problem analyzability
What is Organization Design?

A process for improving the probability that an organization will be successful.

M ore specifically, Organization Design is a formal, guided process for integrating the
people, information and technology of an organization. It is used to match the form of the
organization as closely as possible to the purpose(s) the organization seeks to achieve.
Through the design process, organizations act to improve the probability that the
collective efforts of members will be successful.

Typically, design is approached as an internal change under the guidance of an external


facilitator. M anagers and members work together to define the needs of the organization
then create systems to meet those needs most effectively. The facilitator assures that a
systematic process is followed and encourages creative thinking.

Hierarchical Systems
Western organizations have been heavily influenced by the command and control
structure of ancient military organizations, and by the turn of the century introduction of
Scientific M anagement. M ost organizations today are designed as a bureaucracy in which
authority and responsibility are arranged in a hierarchy. Within the hierarchy rules,
policies, and procedures are uniformly and impersonally applied to exert control over
member behaviors. Activity is organized within sub-units (bureaus, or departments) in
which people perform specialized functions such as manufacturing, sales, or accounting.
People who perform similar tasks are clustered together.

The same basic organizational form is assumed to be appropriate for any organization, be
it a government, school, business, church, or fraternity. It is familiar, predictable, and
rational. It is what comes immediately to mind when we discover that ...we really have to
get organized!

As familiar and rational as the functional hierarchy may be, there are distinct
disadvantages to blindly applying the same form of organization to all purposeful groups.
To understand the problem, begin by observing that different groups wish to achieve
different outcomes. Second, observe that different groups have different members, and
that each group possesses a different culture. These differences in desired outcomes, and
in people, should alert us to the danger of assuming there is any single best way of
organizing. To be complete, however, also observe that different groups will likely
choose different methods through which they will achieve their purpose. Service groups
will choose different methods than manufacturing groups, and both will choose different
methods than groups whose purpose is primarily social. One structure cannot possibly fit
all.

Organizing on Purpose
The purpose for which a group exists should be the foundation for everything its
members do — including the choice of an appropriate way to organize. The idea is to
create a way of organizing that best suits the purpose to be accomplished, regardless of
the way in which other, dissimilar groups are organized.

Only when there are close similarities in desired outcomes, culture, and methods should
the basic form of one organization be applied to another. And even then, only with
careful fine tuning. The danger is that the patterns of activity that help one group to be
successful may be dysfunctional for another group, and actually inhibit group
effectiveness. To optimize effectiveness, the form of organization must be matched to the
purpose it seeks to achieve.

The Design Process


Organization design begins with the creation of a strategy — a set of decision guidelines
by which members will choose appropriate actions. The strategy is derived from clear,
concise statements of purpose, and vision, and from the organization’s basic philosophy.
Strategy unifies the intent of the organization and focuses members toward actions
designed to accomplish desired outcomes. The strategy encourages actions that support
the purpose and discourages those that do not.

Creating a strategy is planning, not organizing. To organize we must connect people with
each other in meaningful and purposeful ways. Further, we must connect people with the
information and technology necessary for them to be successful. Organization structure
defines the formal relationships among people and specifies both their roles and their
responsibilities. Administrative systems govern the organization through guidelines,
procedures and policies. Information and technology define the process(es) through
which members achieve outcomes. Each element must support each of the others and
together they must support the organization’s purpose.

Exercising Choice
Organizations are an invention of man. They are contrived social systems through which
groups seek to exert influence or achieve a stated purpose. People choose to organize
when they recognize that by acting alone they are limited in their ability to achieve. We
sense that by acting in concert we may overcome our individual limitations.

When we organize we seek to direct, or pattern, the activities of a group of people toward
a common outcome. How this pattern is designed and implemented greatly influences
effectiveness. Patterns of activity that are complementary and interdependent are more
likely to result in the achievement of intended outcomes. In contrast, activity patterns that
are unrelated and independent are more likely to produce unpredictable, and often
unintended results.

The process of organization design matches people, information, and technology to the
purpose, vision, and strategy of the organization. Structure is designed to enhance
communication and information flow among people. Systems are designed to encourage
individual responsibility and decision making. Technology is used to enhance human
capabilities to accomplish meaningful work. The end product is an integrated system of
people and resources, tailored to the specific direction of the organization.