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: info.ksfss@gmail.com ; info@ksfss.ac.ke
williamkasati@gmail.com
williamkasati@yahoo.com
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: williamkasati@gmail.com 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 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.
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 GrowthDrop 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
 Hatch, Mary Jo. Organization Theory: Modern, Symbolic, and Postmodern Perspectives. OUP-
USA, 1997.
 Nickelson, Jack A., and Todd R. Zenger. "Being Efficiently Fickle: A dynamic theory of
organizational choice." Organizational Science. September-October 2002.
 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
Publishing, 2003.
 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.

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