BBA 202: ORGANIZATION THEORY

TOPIC I: NATURE OF ORGANIZATIONAL THEORY

 Theory is asset of interrelated concepts, definition and propositions that present systematic view of a
phenomena. Theory specifies the relationship among variables with purpose of explaining and
predicting the phenomena.
 Organization is a group of people who are working together under a common authority to achieve
certain predetermined goals
 Organization can also be defined as social unit composed of two or more people that work towards a
common purpose.
 Organizational Theory(OT) refers to the study of phenomenon of organizational functioning and
performance and the behaviour of groups and individuals working within an organization.
 Organization theory (OT) can also be defined as astudy of design and structure of organizations. OT
emphasizes two concepts that is the structure and process. A structure depicts relationship among
jobs or a network of horizontal and vertical authority relationships designed to accomplish common
objectives. Structure provides mechanism within which people work together in order to accomplish
specified objectives.It is a process, a function of management which identifies and groups work to
be performed, defining and delegating authority and establishing relationships for the purpose of
enabling people to work most effectively.
Organization comprises;
 Individual- individual is the central feature of organization behaviour whether acting in isolation or
part of a group to provide a working environment which permits satisfaction of individual needs.
 Groups- group is made of individuals. Groups exist in all organizations which they form essential
part. Groups can be formal or informal.
 Organization-Individual groups interact within a structure of formal organization. An organization
provides a plat form where individuals from different backgrounds come together and work as a
collective unit to achieve certain objectives.
 Organization is also seen as an entity which is a collection of people to achieve common objectives.
As an entity, organization is identifiable with human beings, consciously formed and has coordinated
activities.
 Environment- organization function as part of broader external environment of which is part.
Environment influences organization through technology , scientific, economic activity ,social and
cultural ,legal activities.

Organization Theory and Organizational Behaviour

Organization Behaviour can also be defined as the study and understanding of individual and group
behaviour, patterns of structure in order to help improve organizational performance and effectiveness .
Organization theory is a macro analysis of the organization, that is, how the organization structure is
designed to integrate people with organization. Organization behaviour, on other hand, deals with micro
aspect of the organization that is individual and group behaviour in the organization.Organization theory is
descriptive and predictive about a particular state of affair in the organization; organization behaviour
provides ways for influencing human behavior in certain direction on the basis of such description and
prediction. Organizational theory looks at an organization as a whole - its objectives, goals, structure and
context. Organizational behavior looks at the micro elements of the organization, the individual worker.

Management Theory and Organization Theory

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Management theory is an explanation of management practice. Management theory explains how
managers behave. Management behaviour consist of the things a manager does in carrying out her
responsibility. Managers are paid to make decisions and influence others.
Organization theory on the other hand helps in understanding what organizations are and how they behave
in a given environment. Components of organization theory which are also concern for managers are:
Boundary and environment, information processing and choices, adaptation and change, goals,work,
organization design, size and complexity, technology, culture, power and stability.
 Boundary and Environment- every organization consists within an environment. Organization
environment refers to all groups, norms and conditions with which an organization must deal with.
Environment includes the political,cultural,economic,competitive , technological, skill mix,consumer
groups and other systems that affect organization and are affected by it.
 An organization must carefully define and maintain a means of gathering inputs for effective decision
making and implementation and for distributing organizational outputs. Within boundary networks it
is necessary to establish sensors to monitor change and trends. There should be control points that
can tell a management group what is happening in the environment.
 Information processing- organization must obtain relevant information about their environments in
order to properly interact with it. Environment must be scanned and important issues and trends
examined. Choices are made with respect to what the organization should not do in dealing with the
environment.
 Adaptation and change- Organization exist in a turbulent environment characterized by what has
been termed as discontinuous change. If it is to survive and prosper , the organization must be
capable of adjusting all its components parts to accommodate the change. Management must be
aware of this need and must build flexibility into every facet of the organization. It must adopt a
philosophy and strategy to support the process of adaptation and change.
 Goals- Every organization is formed to accomplish certain goals. A goal is an unrealized state or
condition that members feel is desirable. Management of any organization should know how to
balance and achieve the most important goals.
 Work- work must be done to accomplish established goals. Work can be primary (line) or
secondary(staff). A sound theory of organization must enable managers an d students to understand
the relationships and how they fit the goal structure if they are to be successful in predicting and
controlling behaviour.
 Organization design- Design comprises structure and process. Structure provides patterns of work,
divisions and the hierarchicalarrangements. The patterns of work should be used as the primary guide
for making decisions about selecting and grouping other components of structure. Structure aids
guidesmanagers towards achievement of of organizational goals.
 Size and complexity- As an organization grows and develops it becomes more complex and
formalized. There should be written procedures and policies to replace unwritten procedures. As it
grows, there should be sharing of duties and delegation and authority.
 Technology- art of science employed in production employed in production and distribution of
goods. Management needs to change management depending on the needs of customers.
 Culture- culture are common values,beliefs and behaviour of organizational members.Culture is
symbolic and expressed in terms of myths, company logo, rituals, heroes, ceremonies, office
furnishings, buildings. Culture reflects how goals are formulated, how work is performed and the
nature and strength of relationships.
 Power and authority- power is the ability to influence others regardless of its source. Power enables
one to exercise his /her will over other. The role of power and authority should be appreciated in
organizations.

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Features of an Organization
1. Common objectives- organizations have objectives to achieve
2. There is division of work- An organization comes into existence only when to work is divided into
activities and functions. Division of work also comes as a result of specialization.
3. Existence of a group of people – An organization consists of agroup of people working together for
the achievement of common goals.
4. Coordination and communication- Different departments in an organization must coordinate both
vertically and horizontally.Different functions must be properly integrated into common whole.
5. Chain of command- There is a central authority from which chain of command relationships
stretches throughout the organization.
6. Organizations are dynamic- Given conditions of work and group members within an
organization,changes are likely to occur within organizations
Importance of organization
1 Stimulates initiative and creativity- A well designed organization demands creative, effort, encourages
innovation andpermits decentralization. A sound organization helps in continuity of firm by providing
training and development of executives
2 Optimum use of resources- Avoids duplication of work and overlapping of efforts. Optimum use of
technological improvements can be made through a sound structure maned with efficient employees.
3 Facilitates administration- Good organization enables smooth operation of the enterprise by providing a
framework within which management can perform the functions of management.
4 Encourages good hum an relations – in a sound organization,every individual is assigned ajob for which
he is best suited. The assignment of rights jobs to right persons improves job satisfaction.

Organizational Goals
Definition
Organization goals: Those ends that an organization seeks to achieve by its existence and operation.
Goals are predetermined and describe future results toward which present efforts are directed.

Types of Goals
Official goals are the general aims of an organization as expressed in the corporate charter, annual reports,
public statements and mission statements. Their purpose is to give the organization a favourable public
image, provide legitimacy, and justify its activities.
Operative goals reflect the actual intention of an organization. They describe the concrete steps to be taken
to achieve the organization's purpose. They often don't correspond with official goals.
For example: Many organizations mention environmentally friendly behaviour as a goal of the organization.
However in a study of organizations actually including environmental friendly behaviour as an
organizational goal, very few had corresponding operative goals, i.e. very few delineated how such
behaviour would be implemented in the different departments of the organization.
Additional examples: Most prisons have rehabilitation of prisoners, preparing them for re-integrations into
society as their official goal, however in practice, most of their operative procedures involve aspects of
custodial care. For many voluntary organizations, especially in these days of funding cutbacks, the
community service which is their official mandate or goal takes secondary precedence to the fundraising
activities which will ensure their survival.

Reasons for differences between official and operative goals

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1. Participants disagree on the organizations actual goals. Pfeffer and Salancik (1989) interviewed the
officers of several organizations and asked the simple question: what is the main goal of your
organization. They found very little agreement. Each officer viewed the goal of the organization
through the lens of his/her own department/division. From the results of this study, Pfeffer and
Salancik came to the conclusion that there is really only one clear and clearly shared goal in any
organization, and that is survival.
2. Even if there is agreement as to what the organization's official goals are, perceptions about how to
accomplish official goals may differ.
3. Official goals are often financially or politically unrealistic
4. Operative goals are the result of internal negotiations among groups and coalitions who want to make
sure their interests are represented and therefore they often deviate from the official goals.
Some organizations never state official goals, not to attract potential competition or opposition.
One can determine organizations true goals not by reading their charter but by examining resource allocation
process.
Benefits of organizational goals
1. Goals serve as guidelines for action, directing and channelling employee efforts. They provide
parameters for strategic planning, allocating resources and identifying development opportunities.
2. Goals provide constraints in the organization. Choosing certain goals reduces discretion in
pursuing other goals. Eg. The goal of maximising stockholder dividends immediately reduces
financial resources available for expense accounts.
3. Goals act as a source of legitimacy by justifying an organization's activities and existence. For new
organizations the struggle for legitimacy is great. Maintaining legitimacy is easier but still, some
organizations do lose legitimacy. For example imagine a hospital whose goal was to increase
occupancy by performing as much surgery as possible. Such a goal would surely reduce its
legitimacy.
4. Goals define standards of performance. To the extent that goals are clearly stated, they set
standards for evaluation.
5. Goals provide a source of motivation . By presenting a challenge and how to achieve it,
organizational goals act as behavioural incentives. For example: the path-goal theory of leadership.

Key areas of organizational goals

Drucker, an organizational guru, has identified 8 key areas in which organizations should establish result
oriented goals:
1. Market share
2. Innovation. Tom Peters found that excellent companies are obsessed by innovation. Eg. Minnesota
Mining and Manufacturing (3M) has generated 25% of its sales from products less than 5 yrs old.
3. Productivity. This is probably the most oft cited goal of all, to produce greater outcomes with fewer
inputs. This provides organizations with a competitive edge. For example, GE estimates that a one
percent increase in productivity at their plants translates into $300 million dollars of increased
revenues. As productivity increases market share goals can be pursued by dropping prices.
4. Physical and financial resources. Renovating and maintaining equipment is important in the long run
for an organization. Increasing cash flow is often important for new ventures.
5. Profitability. This is usually expressed as a percentage and should always be stated.
6. Management performance and development. Management training is important because management
is key to organization success. For example, GE has a special course in Crotonville for up and
coming young managers, and IBM spends 15 days per year training management in better
management practices. This is often a neglected aspect in many organizations.

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7. Employees performance and attitude goals. Employees are the most important asset in any
organization, although many organizations don't act as if they believe this.
8. Social responsibility. More and more organizations see this as somewhat important to gain legitimacy
on the public's eye. These days one is witness to organizations providing matching funds for
fundraising efforts and giving their employees a certain number of paid hours time off to volunteer in
community activities.

Individual vs organization goals

Organizations don't make goals; individuals do. Therefore, goals will reflect the interests of the individual.
The greater the overlap between an individual's goals and organizational goals, the better for the
organization. Unfortunately often this is not the case. For example, it may be in the best interests of an
organization to amalgamate certain departments or to out-source some kinds of tasks, but this may infringe
on the power of certain departments and their leaders, so these goals will not be supported.
Goals are set in an organization by creating coalitions of non-competing groups. There is constant bargaining
among the different organizational leaders to find the right direction of the organization. Organizational
groups with greater power will have more control over the direction of the organization. This is not always in
the best interests of the organization.

Why study organization theory?

Knowledge of organizational theory is relevant to all managers .Different people in organization will need
organization theory as follows;
 Finance- To improve value of a company you need to know how to organize to achieve
organizational goals by structuring activities and designing organizational processes.
 Marketing- For marketers to create a successful corporate brand, they need to get theorganization
behind the delivery of the promise. Understanding theorganization may help marketers align an
organization and its brand strategy.
 Information technology- Knowing organization theory can help information technology specialists
to identify, understand and serve the organization’s informational needs as they design and promote
the use of information systems.
 Human resources- almost everything done by human resource specialists has organizational
ramifications. Organizational development and change are important elements for employee training
and development.
 Communication- In order to design communication systems that are effective,specialists must
understand organizational processes and how organization interacts with the environment.
 Operations-operations managers need to interconnect their organizational processes with those of
suppliers,distributors and customers. Organization theorysupports the technical aspects of operations
and explains socio cultural aspects.

TOPIC 2: EVOLUTION OF MANAGEMENT THOUGHT

Pre-Classical Period
Organization theory did not emerge as a field of study until 1960s and those whose scholarship contributed
to its prehistory were only connected to the field in retrospect.
Theorists who are considered to have founded organization theory were a mix of academic scholars and
management practitioners.

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Two major sources of thought that formed the prehistory of organization theory, one sociological and the
other managerial. The sociological source was Karl Max and Adam Smith. Adam Smith(1723-1790) was
the first to articulate a theory to explain efficient production in systematically organized work practices. In
1776 , Smith published an inquiry into the nature of causes of wealth of nations in which he explains how
division of labour can produce economic efficiency at work. Karl Max is regarded as the founder to field of
sociology. He developed a theory of social conflict by criticizing capitalism. According to Max, survival
needs create an economic order of humans , in trying to cope with danger and sustenance issues, he
discovered the efficiencies of collective labour. There are three groups of theories explaining existence of
organizations
 Classical theories
 Neo classical
 Modern theories.

Classical Theories
These are traditional way of organizational views. It had the following characteristics;
 Stability of employees- minimizing turnover
 Designing of jobs
 Neatness and control
 Special emphasis on detection of error and their correction
Classical was based four pillars namely- Division of labour, Scalar and functional processes,proper
organizational structure and span of control.
Division of labour is when work is divided to obtain clear cut specialization with view of improving
performance.
Scalar and functional processes rest upon the assumption that there is proper chain of command
throughout the organization. There should be central authority of power with clear indications of
coordination by hierarchy, unity of command, delegation of authority and line and staff relationships.
Structure which provides framework of the formal relationships among various tasks,activities and people in
the organization

Classical theory is divided into scientific management, administrative and bureaucratic management.

Key points of scientific management

Chief exponent of Scientific management is Fredrick Taylor(1856-1915).

His contibutions include

1. Scientific Job Analysis – observation, data gathering, and careful measurement determine “the one
best way” to perform each job
2. Selection of Personnel – scientifically select and then train, teach, and develop workers
3. Management Cooperation – managers should cooperate with workers to ensure that all work is done
in accordance with the principles of the science that developed the plan
4. Functional Supervising – managers assume planning, organizing, and decision-making activities, and
workers perform jobs
5. Standardization in respect of instruments and tools ,period of work ,work condition and cost of
production.

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Administrative Management Theory

Chief Exponent is HENRI FAYOL(1841-1925)

 Engineer and French industrialist.
 In France worked as a managing director in coal-mining organization
 Recognizes to the management principles rather than personal traits
 While others shared this belief, Fayol was the first to identify management as a continuous
process of evaluation.
Fundamental roles performed by all managers according to fayol:
 Planning
 Organizing
 Commanding
 Coordinating
 Controlling
Additionally Fayol recognizes fourteen principles that should guide the management of
organizations.
1. Division of Work —improves efficiency through a reduction of waste, increased output, and
simplification of job training
2. Authority and Responsibility—authority: the right to give orders and the power to extract obedience
– responsibility: the obligation to carry out assigned duties
3. Discipline—respect for the rules that govern the organization
4. Unity of Command—an employee should receive orders from one superior only
5. Unity of Direction—grouping of similar activities that are directed to a single goal under one
manager
6. Subordination of Individual Interests to the General Interest—interests of individuals and groups
should not take precedence over the interests of the organization as a whole.
7. Remuneration of Personnel—payment should be fair and satisfactory for employees and the
organization
8. Centralization—managers retain final responsibility – subordinates maintain enough responsibility
to accomplish their tasks
9. Scalar Chain (Line of Authority)—the chain of command from the ultimate authority to the lowest
10. Order—people and supplies should be in the right place at the right time
11. Equity—managers should treat employees fairly and equally
12. Stability of Tenure of Personnel—managerial practices that encourage long-term commitment from
employees create a stable workforce and therefore a successful organization
13. Initiative—employees should be encouraged to develop and carry out improvement plans
14. Esprit de Corps—managers should foster and maintain teamwork, team spirit, and a sense of unity
among employees

Luther Halsey Gulick (1892-1992)

• A specialist in municipal finance and administration
• Gulick worked with the Institute of Public Administration, professor of municipal science and
administration at Columbia, and served on Franklin D. Roosevelt’s Committee of Government
Administration
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Expanded Fayol’s five management functions into seven functions:

• Planning - developing an outline of the things that must be accomplished and the methods for
accomplishing them
• Organizing - establishes the formal structure of authority through which work subdivisions are
arranged, defined, and coordinated to implement the plan
• Staffing - selecting, training, and developing the staff and maintaining favorable working
conditions
• Directing - the continuous task of making decisions, communicating and implementing
decisions, and evaluating subordinates properly
• Coordinating - all activities and efforts needed to bind together the organization in order to
achieve a common goal
• Reporting - verifies progress through records, research, and inspection; ensures that things
happen according to plan; takes any corrective action when necessary; and keeps those to
whom the chief executive is responsible informed
• Budgeting - all activities that accompany budgeting, including fiscal planning, accounting, and
control
Bureaucratic Theory
Chief exponent was MAX WEBER (1864-1920)
• German sociologist
• Weber first describes the concept of bureaucracy – an ideal form of organizational structure
• He defines bureaucratic administration as the exercise of control on the basis of knowledge
Weber states, “Power is principally exemplified within organizations by the process of control.
Weber uses and defines the terms authority and power as:
• Power: any relationship within which one person could impose his will, regardless of any resistance
from the other.
Authority: existed when there was a belief in the legitimacy of that power
Weber classifies organizations according to the legitimacy of their power and uses three basic
classifications:
• Charismatic Authority: based on the sacred or outstanding characteristic of the individual.
• Traditional Authority: essentially a respect for customs.
• Rational Legal Authority: based on a code or set of rules.
Weber recognizes that rational legal authority is used in the most efficient form of organization
because:
• A legal code can be established which can claim obedience from members of the organization
• The law is a system of abstract rules which are applied to particular cases; and administration
looks after the interests of the organization within the limits of that law.
• The manager or the authority additionally follows the impersonal order
• Membership is key to law obedience
• Obedience is derived not from the person administering the law, but rather to the impersonal
order that installed the person’s authority
Weber outlined his ideal bureaucracy as defined by the following parameters:
• A continuous system of authorized jobs maintained by regulations
• Specialization: encompasses a defined “sphere of competence,” based on its divisions of labor
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• A stated chain of command of offices: a consistent organization of supervision based on
distinctive levels of authority
• Rules: an all-encompassing system of directives which govern behavior: rules may require
training to comprehend and manage
• Impersonality: no partiality, either for or against, clients, workers, or administrators
• Free selection of appointed officials: equal opportunity based on education and professional
qualification
• Full-time paid officials: only or major employment; paid on the basis of position
• Career officials: promotion based on seniority and merit; designated by supervisors
• Private/Public split: separates business and private life
• The finances and interests of the two should be kept firmly apart: the resources of the
organization are quite distinct from those of the members as private individuals.
a) A tendency to a leveling of social classes by allowing a wide range of recruits with technical
competence to be taken by any organization
b) Elite status because of the time required to achieve the necessary technical training
c) Greater degree of social equality due to the dominance of the spirit of impersonality or
objectivity
Common Criticisms of Classical Organizational Theory
Classical principles of formal organization may lead to a work environment in which:
• Employees have minimal power over their jobs and working conditions
• Subordination, passivity and dependence are expected
• work to a short term perspective
• Employees are lead to mediocrity
• Working conditions produce to psychological failure as a result of the belief that they are lower
class employees performing menial tasks

Neo Classical Theories

Neoclassical theorists recognized the importance of individual or group behaviour and emphasized human
relations. Based on the Hawthorne experiments, the neoclassical approach emphasized social or human
relationships among the operators, researchers and supervisors (Roethlisberger and Dickson, 1943).
It was argued that these considerations were more consequential in determining productivity than mere
changes in working conditions. Productivity increases were achieved as a result of high morale, which was
influenced by the amount of individual, personal and intimate attention workers received.

Principles of the neoclassical approach

The classical approach stressed the formal organization. It was mechanistic and ignored major aspects of
human nature. In contrast, the neoclassical approach introduced an informal organization structure and
emphasized the following principles:
· The individual -An individual is not a mechanical tool but a distinct social being, with aspirations beyond
mere fulfilment of a few economic and security works. Individuals differ from each other in pursuing these
desires. Thus, an individual should be recognized as interacting with social and economic factors.
· The work group-The neoclassical approach highlighted the social facets of work groups or informal
organizations that operate within a formal organization. The concept of 'group' and its synergistic benefits
were considered important.
· Participative management Participative management or decision making permits workers to participate in
the decision making process. This was a new form of management to ensure increases in productivity.

Modern Theories
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Modern theories tend to be based on the concept that the organization is a system which has to adapt to
changes in its environment. In modern theory, an organization is defined as a designed and structured
process in which individuals interact for objectives (Hicks and Gullet, 1975). The contemporary approach to
the organization is multidisciplinary, as many scientists from different fields have contributed to its
development, emphasizing the dynamic nature of communication and importance of integration of individual
and organizational interests. These were subsequently re-emphasized by Bernard (1938) who gave the first
modern and comprehensive view of management. Subsequently, conclusions on systems control gave insight
into application of cybernetics. The operation research approach was suggested in 1940. It utilized the
contributions of several disciplines in problem solving. Von Bertalanffy (1951) made a significant
contribution by suggesting a component of general systems theory which is accepted as a basic premise of
modern theory. Some of the notable characteristics of the modern approaches to the organization are:
• A Systems Viewpoint,
• A Dynamic Process Of Interaction
• Multilevelled And Multidimensional
• Multimotivated
• Probabilistic
• Multidisciplinary
• Descriptive
• Multivariable
• Adaptive
Modern understandings of the organization can be broadly classified into:
• the systems approach,
• socio-technical theory,
• a contingency or situational approach.
The systems approach
The systems approach views organization as a system composed of interconnected - and thus mutually
dependent - sub-systems. These sub-systems can have their own sub-sub-systems. A system can be perceived
as composed of some components, functions and processes (Albrecht, 1983). Thus, the organization consists
of the following three basic elements (Bakke, 1959):
(i) Components
There are five basic, interdependent parts of the organizing system, namely:
• The individual,
• the formal and informal organization,
• patterns of behaviour emerging from role demands of the organization,
• role comprehension of the individual, and
• the physical environment in which individuals work.
(ii) Linking processes
The different components of an organization are required to operate in an organized and correlated
manner. The interaction between them is contingent upon the linking processes, which consist of
communication, balance and decision making.
• Communication is a means for eliciting action, exerting control and effecting coordination to link
decision centres in the system in a composite form.
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• Balance is the equilibrium between different parts of the system so that they keep a harmoniously
structured relationship with one another.
• Decision analysis is also considered to be a linking process in the systems approach. Decisions may
be to produce or participate in the system. Decision to produce depends upon the attitude of the
individual and the demands of the organization. Decision to participate refers to the individual's
decisions to engross themselves in the organization process. That depends on what they get and what
they are expected to do in participative decision making.

(iii) Goals of organization.The goals of an organization may be growth, stability and interaction.
Interaction implies how best the members of an organization can interact with one another to their
mutual advantage.
Socio-technical approach
It is not just job enlargement and enrichment which is important, but also transforming technology into a
meaningful tool in the hands of the users. The socio-technical systems approach is based on the premise that
every organization consists of the people, the technical system and the environment (Pasmore, 1988). People
(the social system) use tools, techniques and knowledge (the technical system) to produce goods or services
valued by consumers or users (who are part of the organization's external environment). Therefore, an
equilibrium among the social system, the technical system and the environment is necessary to make the
organization more effective.

The contingency or situational approach

The situational approach (Selznick, 1949; Burns and Stalker, 1961; Woodward, 1965; Lawrence and Lorsch,
1967) is based on the belief that there cannot be universal guidelines which are suitable for all situations.
Organizational systems are inter-related with the environment. The contingency approach (Hellriegel and
Slocum, 1973) suggests that different environments require different organizational relationships for
optimum effectiveness, taking into consideration various social, legal, political, technical and economic
factors

TOPIC3: MANAGERIAL FUNCTIONS

Koontz and O'Donnell divide these functions into planning organizing, staffing, directing and controlling.
For our purpose, we shall designate the following six as the functions of a manager: planning, organizing,
staffing, directing, coordinating and controlling.
1. Planning:
Planning is the most fundamental and the most pervasive of all management functions. If people working in
groups have to perform effectively, they should know in advance what is to be done, what activities they
have to perform in order to do hat is to be done, and when it is to be done. Planning is concerned with 'what',
'how, and 'when' of performance. Itis deciding in the present about the future objectives and the courses of
action for their achievement.
It thus involves:
(a) determination of long and short-range objectives;
(b) development of strategies and courses of actions to be followed for the achievement of the set objectives;
and
(c) formulation of policies, procedures, and rules, etc., for the implementation of strategies, and plans.

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The organizational objectives are set by top management in the context of its basic purpose and mission,
environmental factors, business forecasts, and available and potential resources. These objectives are both
long as well as short term. They are divided into divisional, departmental, sectional and individual objectives
or goals. This is followed by the development of strategies and courses of action to be followed at various
levels of management and in various segments of the organization. Policies, procedures and rules provide the
framework of decision making, and the method and order for the making and implementation of these
decisions.
Every manager performs all these planning functions, or contributes to their performance. In some
organizations, particularly those which are traditionally managed and the small ones, planning are often not
done deliberately and systematically but it is still done. The plans may be in the minds of their managers
rather than explicitly and precisely spelt out: they may be fuzzy rather than clear but they are always there.
Planning is thus the most basic function of management. It is performed in all kinds of organizations by all
managers at all levels of hierarchy.
2. Organizing: It is bringing together all the resources and creating relationship amongst them for the
achievement of organizational goals.
Organizing involves identification of activities required for the achievement of enterprise objectives and
implementation of plans. It involves identification of activities to be done, classification of activities,
assignment of duties, delegation of authority, creation of responsibility, coordinating of authority and
responsibility.
3 Staffing
Staffing ensures that right people are selected for right job in the organization. Staffing involves : planning
for human resource, recruitment and selection, placement, induction and orientation training and
development, remuneration, performance management and staff movement activities
4 Directing
Directing is the function of leading the employees to perform efficiently to the achievement of
organizational objectives. Jobs assigned to subordinates have to be explained and clarified, they have to be
provided guidance in job performance and they are to be motivated to contribute their optimum performance
with zeal and enthusiasm. Directing function has the following elements: communication, motivation ,
supervision and leadership.
Directing involves motivating to perform essential tasks that will lead to achievement of organizational goals
5 Coordinating.
Coordinating is the function of establishing such relationships among various parts of the organization that
they all together pull in the direction of organizational objectives
Coordination, as a management function, involves the following sub-functions :
(a) Clear definition of authority-responsibility relationships
(b) Unity of direction
(c) Unity of command
(d) Effective communication
(e) Effective leadership
6 Controlling
Control is the measurement of accomplishment against standards set and the corrective action taken when
there are deviations. Main purpose of controlling is to ensure that that everything in an organization goes on
as planned or conforms to standards set. A good control system can predict deviations before they occur.
It involves four main elements :-
1. Establishing standards of performance
2. Measuring current performance
3. Comparing this performance to the established standards.
4. Taking correction actions if deviations are detected.

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TOPIC 4: GROUP DYNAMICS

Groups and Group Behavior
Groups and teams are a major feature of organizational life. The work organization and its sub-units are
made of groups of people. Most activities of the organization require at least some degree of co-ordination
through the operation of groups and teamwork. An understanding of the nature of groups is vital if the
manager is to influence the behavior of people in the work situation. Groups are an essential feature of the
work pattern of any organization. Members of a group co-operate in order for work to be carried out and
managers themselves work within the groups. People in groups influence each other in many ways and may
develop their own hierarchy and leaders. Group pressures can have a major influence over the behavior of
individual members and their work performance. The activities of the group are associated with the process
of leadership. The style of leadership adopted by the manager has an important influence on the behavior of
members of the group.

Introduction
The essential feature of a group is that its members regard themselves as belonging to the group. A group is
defined as any number of people who:
• interact with one another;
• are psychologically aware of one another; and
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• perceive themselves to be a group.
A work group is a collection of people who share most, if not all, of the following characteristics:
• a definable membership;
• groups consciousness;
• a sense of shared purposes;
• interdependence; and
• ability to act in a unitary manner.
Formation of Groups
Tuckman (1965) devised a model of group formation which consists of the following five stages as shown
below: Group Formation.
Stage 1 – Forming
This refers to initial formation of the group where tasks have to be understood, resources and information
acquired, individuals have to get to know one another and there is considerable reliance on the leader.
Stage 2 – Storming
It represents the period when problems begin to be faced more openly than in the earlier stage. Individuals
begin to question or challenge the task and have to confront emotional issues between and among
themselves.
Stage 3 – Norming
This period of relative upheaval moves into a more considered stage where conflicts are settled, new
standards are developed and owned by the members. Cooperation really takes off.
Stage 4 – Performing
This stage opens the way for the most productive moment when the group is working effectively both in
terms of goals and its internal relationships. Teamwork develops and solutions are found.
Stage 5 – Adjourning
This stage underlines the fact that a group’s life will eventually come to an end as people move on elsewhere
in the organization or as original purpose is attained and the job is completed.

The above analysis demonstrates that the group/team development can only take place over time. To begin
with, the group is more like a collection of individuals with little or no idea about what they are there for and
who depends heavily on the leader for guidance and support. At this stage, they have no sense of team -
spirit, no knowledge of each other’s strengths and weaknesses and no mutual norms of behavior, apart from
those laid down at the outset by the leader. Over time, the group will gradually develop a sense of itself, its
purpose and prime tasks, the purpose and prime tasks, the capabilities of its members, the roles they might be
able to play and will develop norms of behavior capable of carrying it through the foreseeable future. The
role in the development of a group from a state of immaturity to one of maturity is that the leader, has the
task of shaping the individuals into a cohesive team that is able to perform with competence.

Formal and Informal Groups

Work groups are divided into two namely, formal and informal groups.

Formal groups
These are the units that are established by management as part of an organizational structure. They are
defined in terms of their purpose and roles. They are official in the sense that they have appropriate authority
and they are provided with financial and physical resources. The groups are to:
• further the aims and objectives of the organization as laid down in mission statements, policies
and routine procedures;
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• think of organizations being mainly composed of such formal groups.

Informal Groups
These are employee centered groups whose aims and intentions may counter those of the official
organization. The characteristics of the informal group are that: -
• they draw their norms (rules) of behavior from amongst themselves;
• their first loyalty tends to be towards their fellow group members rather than to the
organization as a whole.
• their goals are decided more by what they feel is right for them rather than by what is laid down
for them by the management;
• their behavior is derived more from interpersonal relationships than by any role allocated by the
management.
• their behavior may or may not be in line with what their organization expects;
• they generally meet social and security needs before other needs;
• group leadership is exercised on a charismatic basis rather than by legitimate authority;
• they are less permanent than formal groups

Key Issues in Group Behavior

In examining the behavior of people in groups, whether formal or informal, there are a number of key
issues that have to be considered and these are: -
1. Group size -The size of a group is one factor that can determine its likely behavior. Large groups:-
• require a higher degree of formalization than smaller;
• require clearer lines of communication;
• tend to pay less attention to the needs of individuals than smaller groups.
• concentrate more on task requirements than personal issues;
• are more susceptible to the development of such - groups than smaller groups which are
likely;
2. Purpose of group
Work - groups are assigned definite purpose within the organizational structure.
Work - groups are often asked to focus their efforts on specific problems, usually of a short-term
nature.
Some groups are especially set up for this very purpose, such as task- forces, working parties and
project groups. Short-term tasks are usually allocated some explicit time limit.
3. Nature of task
The nature of the task is broadly decided in terms of the group’s purpose and objectives. A fairly specific
task and outcome will demand different quantities from the group compared with, say a generally-stated
problem requiring further questions to be asked. Some types of the tasks can be:-
• Ongoing or routine;
• Implementing new process or procedures;
• Creating new ideas;
• Solving specific problems or issues;
• Important negotiations with customers or competitors.
Group Leadership
In a formal group, a leader is formally appointed by management to take charge of the role. It is the leader
who has the responsibility of keeping the group together when difficulties arise. Thus, there will always be a
requirement for an effective leader. An autocratic leader will always take the decisions for the group, but a
democratic leader will discuss possible decisions with the group before making a choice and may even let
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another group member take charge temporarily. The main role of the format leader is to use the resources of
the group members to the full, gain their commitment to the task and achieve the result set by management.

Nature and Motivation of Group Members

There is need for any group to have an appropriate mix of skills; knowledge and talents, for these represent
its main resources. Groups with specific purpose or under pressure will need sufficient common values
among members, otherwise they will fall apart and be unable to complete their objectives. A substantial
degree of commitment to the group’s tasks is needed if the tasks are to be achieved successfully. Part of the
individual motivation has to be the thought that the others are relying on him/her and that the team’s
performance is just as crucial as individual performance. Team-spirit is an aspect of group cohesiveness.

Group Cohesiveness
A cohesive group has strong bonds that bind the members in loyalty to and support for each other. A
cohesive group develops clear standards of behavior (norms) which are accepted by the members.
Sometimes this can be a positive thing, where true team-spirit and collaboration are the order of the day. It
can also not negatively affect the group’s standards to a point of oppressing individual members, especially
those seeking changes in the group’s behavior (Janis, 1982). Cohesiveness develops over time. New groups
usually lack this quality precisely because they are a new assembly of people who know very little about
their task and each other. An important aspect of the group leader’s task is to achieve a measure of
cohesiveness. Other factors that influence the degree of cohesiveness are as follows: -
• Similarity of task in achieving group goals;
• Interdependent operations;
• Leadership capabilities of the appointed leader;
• Extent to which group goals are shared by group members;
• Extent to which members want to work together;
• Prospect of rewards for group achievements; and
• Prospect of threats from external sources etc.
Groups which are very cohesive are insulated - against external forces, and change is unlikely to be accepted
if imposed from outside. In such groups, change must come from within. Thus, cohesive groups, both formal
and informal, can represent a threat to management’s corporate aims and authority. In such circumstances it
is easy to understand why weak managements often prevent bonding in groups, adopting “a divide and rule
tactic” in order to retain control. On the contrary, actively stimulate team-spirit in work-groups, but do so in
the context of a carefully- tended organizational culture.

Group Norms
Norms are the standards adopted by a group. Most of these standards will be contained in written policies
and operating manuals. They will also be emphasized by the personal behavior of managers and supervisors.
The role of the managers is to insist on adherence to official norms. Part of the function of the organizational
culture is to encourage adherence to organization-wide norms e.g. attention to quality. In a new group where
new standards have been introduced, there is a period when the norms come to be challenged by individuals
and the group. Unofficial norms are those norms which arise from amongst the group members. However
management cannot stop unofficial norms from developing but what they can do is to: -
• recognize them when they arise;
• encourage them if they are in line with organizational interests;
• aim to transform them if they appear to be working against the organization's interests.
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Ultimately management has the power to disband and reform groups, if they appear to be getting too far out
of line.
Roles within Groups
Roles are parts that individual members of a group play. The parts are determined partly by the expectation
of the management through job descriptions and partly by the expectations of the others in the group. In
formal groups, parts are mostly allocated in conjunction with job functions. In informal groups, roles are
likely to spring from: -
• the relevant knowledge or skills possessed by individuals.
• personal qualities that have a stronger influence on informal groups where for example, a natural
leader may emerge.
Group Operation Context
The context in which group operates can be described from the perspective of:
• the physical environment;
• the social context.
Most of the issues described earlier refer to the group’s internal environment - its organization, personnel,
role requirements etc. However, the group life that springs from that internal environment influences, is also
influenced by what goes on in the external environment.

Physical Environment
If a team is working in close proximity, there will be ample opportunity to develop an understanding of each
other’s and experience collaboration. If problems arise, they can be dealt with quickly and everyone can be
consulted. Where a team is a scattered then it is more difficult to build up team spirit, assess each other’s
strengths and weaknesses and confront problems speedily. Hence pressure is on team managers to call for
regular team-meetings and to maintain close contact by telephone, fax etc. Regular information bulletins are
sometimes used by sales managers to help keep everyone in the team aware of what is happening elsewhere
in the company. Occasionally, a managing director gathers all key staff at a suitable off-site location in order
to spend a day or two reviewing strategy or dealing with difficult problems.

Social Context
Social context is extremely important in the life of a group. The organizational environment is a reflection of
people and their needs and intentions. Outsiders, such as customers can make an impact on the social
environment by insisting on certain standards of employee behavior or particular arrangements for
structuring relationships between themselves and the employees they have to deal with.

TOPIC 5: ORGANIZATIONAL COMMUNICATION.

Communication is derived from Latin word “communis” which means common. Communication stands for
strictly sharing information in common. It is transmission of message, ideas, methods, skills and thoughts
between two or more persons. Organizational communication is a process through which organizations are
created and inturn create and shape events. Communication is a mutual exchange of facts, thoughts,
opinions or emotions by use of symbols, words, pictures, figures, graphs and so on. It is a chain of
understanding which permeates an organization from top to bottom ,from bottom to top and from side to
side, and which moves the organization ahead towards its objectives. It is a cohesive force which holds a
group together.

Why study Organizational Communication?

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• Organizational communication provides the basis for understanding virtually every human process
that occurs in organizations.
• To be aware of communication skills that you as a college graduate should possess in order to meet
organizational expectation.
• May start you down the path to a career as a communication professional in an organization or as an
academic scholar in the field.
Organizational Communication Structure
The most central idea in functionalist perspective of organizational communication.
Definition:System of pathways through which messages flow. Patterns of interaction among people who
comprise the organization (who communicates with whom?)
Types of Org Comunication Structure
 Formal
 Informal
Formal Communication Structure
Definition: Communication through officially designated channels of message flow between organization
positions. Usually found in organizational charts, policy manuals, or hierarchical structures.

Types of Formal Communication

Downward Communication- Communication that flows from upper to lower (such as manager to employer
or superior to subordinate).
Types of messages: job instructions, job rationales, procedures and practices information, feedback, and
indoctrination.
Upward Communication
Transmission of messages from lower to higher levels of the organization (such as communication initiated
by subordinates with their superiors).
Types of messages: performance on the job, job related problems, fellow employees and their problems,
subordinates perceptions of organizational policies and practices, tasks and procedures.
Horizontal Communication: Flow of messages across functional areas at a given level of an organization
(this permits people at the same level to communicate directly).
Type of messages: facilitates problem solving, info sharing across different work groups, task coordination
between departments and project teams.
Informal Communication: Episodes of interaction that do not reflect officially designated channels of
communication. The ‘grapevine’ emerges from social and personal interests of the employees rather than
formal requirements of the organization. Informal communication is inherent and evens a necessary aspect of
organization life.

Verbal vz Non Verbal Communication

Verbal Communication

Oral Communication: It occurs through the spoken word. A great deal of information is
communicated orally . It occurs in a face-to-face meeting of two people or in a
manager’spresentations to a large audience, it can be formal or informal, and it can be planned or
accidental.
Examples :conversations, telephone talks, interviews, presentations and meetings etc. Can be
effectively communicated by oral communication .

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Written Communication:It is often resorted to by the management for messages that are lengthy
and have to be made permanent.Examples ;policy matters, service conditions, secret
orders,instructions etc. Can be effectively communicated by written communication

Non Verbal Communication

Facial Expression: Facial expressions usually communicate emotions. The expressions tell the
attitudes of the communicator.
Facial areas reveal our emotional state better than others. For example, the eyes tend to reveal
happiness or sadness,and even surprise. The lower face also can reveal happiness or surprise;For
example, the smile can communicate friendliness and cooperation. The lower face, brows, and
forehead can alsoreveal anger.
Eye Contact: Eye contact is a direct and powerful form of non-verbalcommunication. The superior
in the organization generally maintains eye contact longer than the subordinate. Thedirect stare of the
sender of the message conveys candorand openness. It elicits a feeling of trust. Downward glancesare
generally associated with modesty. Eyes rolled upwardare associated with fatigue.

Gestures
One of the most frequently observed, but least understood,cues is a hand movement. Most people use
hand movements regularly when talking. While some gestures (e.g., aclenched fist) have universal
meanings, most of the othersare individually learned and idiosyncratic

Importance of Communication
Information- Management can keep the employees well ninformed about company’s plans and
programmes. Effective communication is required to convey information to the employees. By
sharing information , management can develop loyalty in the employees.
Management-Labour Relations: Effective communication is required to build good management –
labour relations .Communication is required to solve disputes and misunderstanding between
management and labour.
Team Work: Communication is vital in developing team work in the organization . The managers
can develop a good team, managers should respect subordinates, invite suggestions and create a good
environment where workers feel and comfortable with their work and organization.
Motivation: Communication is a basic tool to motivate and improve morale of the employees.
Management can understand the motives of the employees and accordingly frame incentive plans.
The incentive plans can be effectively communicated to the employees
Higher Efficiency: Effective communication is required toachieve higher efficiency in the
organization . Managers atall level need to communicate well, so that employeesachieve higher
returns at the lower cost.
Training and Development: Communication is vital in training and development of the personnel.
Trainers shouldbe effective communicators. Good communication on thepart of the trainers helps the
trainees to understand easilythe concepts and the other matter.
Clarifications: Through effective communication,management can clarify certain matters or issues
with the employees. At times employees may raise queries on plans and policies of the firms. The
management can answer t osuch queries through effective communication. The management can also
sort out clarifications with outsiders such as customers, suppliers, etc
Better Performance: Effective communication facilitatesclear information to the employees. Thus ,
the employeesunderstand their job better and feel more involve in them. This encourages better
performance and job satisfaction.

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Social Interaction: Communication is a primary source of social interactions. It helps people to
express their feelings and emotions. Communication of moods and emotions help to understand
organizational members and thus the goals of the group and organization can be achieved
effectively .Others:
• Communication encourages innovation.
• Effective communication enhances corporate image.
• Communication results in reduction of absenteeism and employee turnover.
• Effective communication ensures optimum utilization of resources.
The Purpose of Communication
Communication is essential for the internal functioning of enterprises because it integrates the
managerial functions.Especially, communication is needed
1)To establish & disseminate the goals of an enterprise
2)To develop plans for their achievement.
3)To organize human & other resources in the most effective &efficient way.
4) To select, develop, &appraise members of the organization.
5)To lead, direct, motivate, & create a climate in which people want to contribute.
6)To control performance.

Figure graphically shows not only that communication facilities the managerial functions but also
that communication relates an enterprise to its external environment. It is through communication
that any organization becomes an open system interacting with its environment.

2)To develop plans for their achievement.3)To organize human & other resources in the most
effective &efficient way.
4) To select, develop, & appraise members of the organization.5)To lead, direct, motivate, & create a
climate in which people want to contribute.6)To control performance.
Figure graphically shows not only that communication facilities the managerial functions but also
that communication relates an enterprise to its external environment. It is through communication
that any organization becomes an open system interacting with its environment.
The Communication Process
Communication process includes the following steps:
1)The sender formulates the message which he wants to convey to other
.2)The sender will translate the message into words, symbols, or some other form that would be well-
understood by the receiver. This is known as encoding of message.
3)The encoded message is transmitted to the receiver with the help of medium. The sender may use
spoken or written words for this purpose.
4)The message is received by the receiver.
5)The receiver of message decodes the message & draws meanings from the message.
6)The receiver will take the necessary action & will send his response to the sender of the message.
This is known as feedback. When the feedback is received, the communication process is said to be
completed.

Barriers to communication

Barriers to Effective Communication

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A. Filtering
1. Filter refers to a sender’s purposely manipulating information so it will be seen as more favorable by
the receiver. For example, telling the boss what she wants to hear.
2. The more levels in an organization’s structure, the more opportunities there are for filtering. Being
reluctant to give bad news, or trying to please one’s boss distort upward communications.
B. Selective Perception
1. Receivers in their communication process selectively see and hear based on their needs, motivations,
experience, background, and other personal characteristics.
2. Receivers project their interests and expectations into communications as they decode them.
C. Information Overload
1. When the information we have to work with exceeds our processing capacity, the result is
information overload.
2. The result is they tend to select out, ignore, pass over, or forget information. Or they may put it
aside until the overload situation is over. The result is lost information and less effective
communication.
D. Emotions
1. How a receiver feels at the time a message is received will influence how her or she interprets it.
Extreme emotions are likely to hinder effective communication.
During those times we are most likely to disregard objective thinking and substitute emotions for
judgments.

E. Language
1. Words mean different things to different people. English—our common language—is far from
uniform in usage.
2. Individuals interpret word meanings different ways. For example, incentives and quotas are often
perceived as implying manipulation causing resentment among lower levels of the organization.
F. Communication Apprehension
An estimated five-to-twenty percent of the population suffer from communication apprehension. They
experience undue tension or anxiety in oral and/or written communication. They may find it difficult to
talk with others face to face or on the telephone.

1. Studies show those affected with communication apprehension avoid jobs where communication is a
dominant requirement.
2. Managers need to be aware there is a group of people who severely limit their communications with
others and rationalize the behavior telling themselves it is not necessary for them to do their jobs
effectively.

Guidelines for Improving Communication

The following guidelines can help overcome the barriers tocommunication:1.
 Clarify the Purpose of Message

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One of first steps incommunicating is to clarify the purpose of the message and tomake a plan to achieve
the intended end..
 Use Intelligible Encoding
Effective communication requires that encoding and decoding is done with symbols that are similar to
both the sender and the receiver of the message. Thus, themanager (and especially the staff specialist)
should avoid unnecessary technical jargon, which is intelligible only to experts in their particular field.3.
 Consult Others Views
The planning of the communicationshould not be done in a vacuum. Instead, other people should
beconsulted be encouraged to participate: to collect the facts,analyze the message, and to select the
appropriate message.
 Consider Receiver’s Needs
It is important to consider theneeds of the receivers of the information. Whenever appropriate,one should
communicate something that is of value to them, inthe short run as well as in the more distant future. At
times,unpopular actions that effect employees in the short run may be more easily accepted if they are
beneficial to them in the longrun.5.
 Use Appropriate Tone and Language and Ensure Credibility
There is a saying that the tone makes the music.Similarly in the communication, the tone of voice, the
choice of language and the congruency between what is said and how it issaid influence the reaction of
the receiver of the message.6.
 Get Feedback -
Communication is complete only when the message is understood by the receiver. And the sender never
knows whether or not the message is understood unless he or she gets feedback.
 Consider Receivers Emotions and Motivations -
The function of communication is more than transmitting information .It also deals with emotions ,which
are very important in interpersonal relationships between superiors ,subordinates ,and colleagues in an
organization. Furthermore, communication is vital for creating an environment in which people are
motivated to work toward the goals of the enterprise while they achieve their personal aims.
 Listen -Effective communicating is the responsibility not only of the sender but also of the receiver
of the information. Thus, listening is an aspect that needs additional comment

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TOPIC 6: ORGANIZATION STRUCTURES

Organizational structure is a system used to define a hierarchy within an organization. It identifies each
job, its function and where it reports to within the organization.
Organizational structure – the formal framework by which job tasks are divided, grouped and coordinated
This structure is developed to establish how an organization operates and assists an organization in
obtaining its goals to allow for future growth
Organizational design – the process of developing or changing an organization’s structure
Organizational design involves key elements
1. Work specialization
2. Departmentalization
3. Chain of command
4. Span of control
5. Centralization/decentralization
6. Formalization
Departmentalization is a way of grouping jobs to together. It could be on the basis of
1. Functional – groups jobs by functions performed
2. Product – groups jobs by the product line
3. Geographical – groups jobs on the basis of territory or geography
4. Process – groups jobs on the basis of product or customer flow
5. Customer – groups jobs on the basis of common customers
Span of control refers to the number of subordinates who report directly to an executive or supervisor. The
differences in the span of control have direct implications on the shape of the organization
Organizations in which high-level executives make most decisions and pass them down to lower levels for
implementation are known as Centralized organizations
Decentralized organizations allow lower-level managers to make important decisions

Types of Organizational Structures: Their Advantages and Disadvantages

All managers must bear that there are two organization’s they must deal with-one formal and the other
informal. The formal organisation in usually delineated by an organizational chart and job descriptions. The
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official reporting relationships are clearly known to every manager.Alongside the formal organisation exists
are informal organisation which is a set of evolving relationships and patterns of human interaction within an
organisation that are not officially prescribed.
Formal organisational structures are categorised as:

1. Line Organisational Structure:

A line organisation has only direct, vertical relationships between different levels in the firm. There are only
line departments-departments directly involved in accomplishing the primary goal of the organisation. For
example, in a typical firm, line departments include production and marketing. In a line organisation
authority follows the chain of command.
Diagram below illustrates single line organisational structure.

Features:
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Has only direct vertical relationships between different levels in the firm.
Advantages:
1. Tends to simplify and clarify authority, responsibility and accountability relationships
2. Promotes fast decision making
3. Simple to understand.
Disadvantages:
1. Neglects specialists in planning
2. Overloads key persons.

2. Staff or Functional Authority Organisational Structure

The jobs or positions in an organization can be categorized as:
(i) Line position:
A position in the direct chain of command that is responsible for the achievement of an organisation’s goals
(as shown above)
(ii) Staff position:
A position intended to provide expertise, advice and support for the line positions. The line officers or
managers have the direct authority (known as line authority) to be exercised by them to achieve the
organizational goals. The staff officers or managers have staff authority (i.e., authority to advice the line)
over the line. This is also known as functional authority. An organization where staff departments have
authority over line personnel in narrow areas of specialization is known as functional authority organization.
The diagram below illustrates a staff or functional authority organizational structure.

In the line organization, the line managers cannot be experts in all the functions they are required to perform.
But in the functional authority organization, staff personnel who are specialists in some fields are given
functional authority (The right of staff specialists to issue orders in their own names in designated areas).
The principle of unity of command is violated when functional authority exists i.e., a worker or a group of
workers may have to receive instructions or orders from the line supervisor as well as the staff specialist
which may result in confusion and the conflicting orders from multiple sources may lead to increased
ineffectiveness. Some staff specialists may exert direct authority over the line personnel, rather than exert

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advice authority (for example, quality control inspector may direct the worker as well as advise in matters
related to quality). While this type of organisational structure overcomes the disadvantages of a pure line
organisaional structure, it has some major disadvantages:
They are: (i) the potential conflicts resulting from violation of principle of unity of command and (ii) the
tendency to keep authority centralized at higher levels in the organisation.
3. Line and Staff Organisational Structure:
Most large organizations belong to this type of organizational structure. These organizations have direct,
vertical relationships between different levels and also specialists responsible for advising and assisting line
managers. Such organizations have both line and staff departments. Staff departments provide line people
with advice and assistance in specialized areas (for example, quality control advising production
department).

This illustrates the line and staff organizational chart. The line functions are production and marketing
whereas the staff functions include personnel, quality control, research and development, finance, accounting
etc. The staff authority of functional authority organisational structure is replaced by staff responsibility so
that the principle of unity of command is not violated.
Three types of specialized staffs can be identified:
(i) Advising,
(ii) Service and
(iii) Control.
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Some staffs perform only one of these functions but some may perform two or all the three functions. The
primary advantage is the use of expertise of staff specialists by the line personnel. The span of control of line
managers can be increased because they are relieved of many functions which the staff people perform to
assist the line.
Some advantages are:
(i) Even through a line and staff structure allows higher flexibility and specialization it may create
conflict between line and staff personnel.
(ii) Line managers may not like staff personnel telling them what to do and how to do it even though
they recognize the specialists’ knowledge and expertise.
(iii) Some staff people have difficulty adjusting to the role, especially when line managers are
reluctant to accept advice.
(iv) Staff people may resent their lack of authority and this may cause line and staff conflict.
Features:
1. Line and staff have direct vertical relationship between different levels.
2. Staff specialists are responsible for advising and assisting line managers/officers in specialized areas.
3. These types of specialized staff are (a) Advisory, (b) Service, (c) Control e.g.,
(a) Advisory:
Management information system, Operation Research and Quantitative Techniques, Industrial
Engineering, Planning etc
(b) Service:
Maintenance, Purchase, Stores, Finance, Marketing.
(c) Control:
Quality control, Cost control, Auditing etc.
Advantages’
(i) Use of expertise of staff specialists.
(ii) Span of control can be increased
(iii) Relieves line authorities of routine and specialized decisions.
(iv) No need for all round executives.
Disadvantages:
(i) Conflict between line and staff may still arise.
(ii) Staff officers may resent their lack of authority.
(iii) Co-ordination between line and staff may become difficult.
3 Committee Organisational Structure
Structure Features:
(a) Formed for managing certain problems/situations
(b) Are temporary decisions.
Advantages:
1. Committee decisions are better than individual decisions
2. Better interaction between committee members leads to better co-ordination of activities
3. Committee members can be motivated to participate in group decision making.
4. Group discussion may lead to creative thinking.
Disadvantages:
1. Committees may delay decisions, consume more time and hence more expensive.
2. Group action may lead to compromise and indecision.
3. ‘Buck passing’ may result.

4. Divisional Organisational Structure:

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In this type of structure, the organisation can have different basis on which departments are formed.
They are:
(i) Function,
(ii) Product,
(iii) Geographic territory,
(iv) Project and
(iv) Combination approach.
Diagram illustrates organisational structures formed based on the above basis of departmentation.

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5. Project Organisational Structure:

The line, line and staff and functional authority organisational structures facilitate establishment and
distribution of authority for vertical coordination and control rather than horizontal relationships. In
some projects (complex activity consisting of a number of interdependent and independent activities)
work process may flow horizontally, diagonally, upwards and downwards. The direction of work
flow depends on the distribution of talents and abilities in the organisation and the need to apply them

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to the problem that exists. The cope up with such situations, project organisations and matrix
organisations have emerged.
A project organisation is a temporary organisation designed to achieve specific results by using teams
of specialists from different functional areas in the organisation. The project team focuses all its
energies, resources and results on the assigned project. Once the project has been completed, the team
members from various cross functional departments may go back to their previous positions or may
be assigned to a new project. Some of the examples of projects are: research and development
projects, product development, construction of a new plant, housing complex, shopping complex,
bridge etc.
A project organisational structure.

Feature:
Temporary organisation designed to achieve specific results by using teams of specialists from
different functional areas in the organisation.
Importance of Project Organisational Structure:
Project organisational structure is most valuable when:
(i) Work is defined by a specific goal and target date for completion.
(ii) Work is unique and unfamiliar to the organisation.
(iii) Work is complex having independent activities and specialized skills are necessary for
accomplishment.
(iv) Work is critical in terms of possible gains or losses.
(v) Work is not repetitive in nature.
Characteristics of project organisation:
1. Personnel are assigned to a project from the existing permanent organisation and are under the
direction and control of the project manager.
2. The project manager specifies what effort is needed and when work will be performed whereas the
concerned department manager executes the work using his resources.
3. The project manager gets the needed support from production, quality control, engineering etc. for
completion of the project.
4. The authority over the project team members is shared by project manager and the respective
functional managers in the permanent organisation.

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5. The services of the specialists (project team members) are temporarily loaned to the project
manager till the completion of the project.
6. There may be conflict between the project manager and the departmental manager on the issue of
exercising authority over team members.
7. Since authority relationships are overlapping with possibilities of conflicts, informal relationships
between project manager and departmental managers (functional managers) become more important
than formal prescription of authority.
8. Full and free communication is essential among those working on the project.
6. Matrix Organisational Structure:
It is a permanent organisation designed to achieve specific results by using teams of specialists from
different functional areas in the organization.
Feature:
Superimposes a horizontal set of divisions and reporting relationships onto a hierarchical functional
structure
Advantages:
1. Decentralised decision making.
2. Strong product/project co-ordination.
3. Improved environmental monitoring.
4. Fast response to change.
5. Flexible use of resources.
6. Efficient use of support systems.
A matrix structure

Disadvantages:
1. High administration cost.
2. Potential confusion over authority and responsibility.
3. High prospects of conflict.
4. Overemphasis on group decision making.
5. Excessive focus on internal relations.
This type of organisation is often used when the firm has to be highly responsive to a rapidly
changing external environment.
In matrix structures, there are functional managers and product (or project or business group)
managers. Functional manager are in charge of specialized resources such as production, quality
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control, inventories, scheduling and marketing. Product or business group managers are incharge of
one or more products and are authorized to prepare product strategies or business group strategies and
call on the various functional managers for the necessary resources.
The problem with this structure is the negative effects of dual authority similar to that of project
organisation. The functional managers may lose some of their authority because product managers
are given the budgets to purchase internal resources. In a matrix organisation, the product or business
group managers and functional managers have somewhat equal power. There is possibility of conflict
and frustration but the opportunity for prompt and efficient accomplishment is quite high.
7. Hybrid Organisational Structure:
A hybrid organisational structure.

A combination structure

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Advantages:
1. Alignment of corporate and divisional goals.
2. Functional expertise and efficiency.
3. Adaptability and flexibility in divisions.
Disadvantages:
1. Conflicts between corporate departments and units.
2. Excessive administration overhead.
3. Slow response to exceptional situations.

Uses:
Used in organisations that face considerable environmental uncertainty that can be met through a
divisional structure and that also required functional expertise or efficiency
This type of structure is used by multinational companies operating in the global environment, for
example, International Business Machines USA. This kind of structure depends on factors such as
degree of international orientation and commitment. Multinational corporations may have their
corporate offices in the country of origin and their international divisions established in various
countries reporting to the CEO or president at the headquarters. The international divisions or foreign
subsidiaries may be grouped into regions such as North America, Asia, Europe etc. and again each
region may be subdivided into countries within each region.
While the focus is on international geographic structures, companies may also choose functional or
process or product departmentation in addition to geographic pattern while at the head quarter’s the
departmentation may be based on function.

The Informal Organisation:

An informal organisation is the set of evolving relationships and patterns of human interaction within
an organisation which are not officially presented. Alongside the formal organisation, an informal
organisation structure exists which consists of informal relationships created not by officially
designated managers but by organisational members at every level. Since managers cannot avoid
these informal relationships, they must be trained to cope with it
The informal organisation has the following characteristics
(i) Its members are joined together to satisfy their personal needs (needs for affiliation, friendship
etc.)
(ii) It is continuously changing:
The informal organisation is dynamic.
(iii) It involves members from various organisational levels.
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(iv) It is affected by relationship outside the firm.
(v) It has a pecking order: certain people are assigned greater importance than others by the informal
group.
Even though an informal organisational structure does not have its own formal organisational chart, it
has its own chain of command:
Benefits of Informal Organisation:
(i) Assists in accomplishing the work faster.
(ii) Helps to remove weakness in the formal structure.
(iii) Lengthens the effective span of control.
(iv) Compensation for violations of formal organisational principles.
(v) Provides an additional channel of communication.
(vi) Provides emotional support for employees.
(vii) Encourages better management.
Disadvantages of informal organisation:
(i) May work against the purpose of formal organisation.
(ii) Reduces the degree of predictability and control.
(iii) Reduces the number of practical alternatives.
(iv) Increases the time required to complete activities

TOPIC 7: ORGANIZATIONAL CHANGE

Introduction

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Organizational change refers to planned, managed systematic process aimed at altering cultural systems,
attitudes, beliefs, values and modifying behaviour within an organization and inducing change in structural
and policy system in order to improve effectiveness.
Domely 1994 define organization change and development as a specific set of change of interventions, skills,
activities and tools or techniques that are used to help people and organization to become more effective.
Change is unavoidable due to change in technology which in turn affects production methods and nature of
jobs.

Importance of Change
1. Increased customer service and effective source to clients from confident and knowledgeable
employees.
2. Change management provides a way to anticipate challenges and respond to change effectively.
3. Change management helps to contain costs associated with the change.
4. Creates an opportunity for development of good practices like in leadership and team development.
5. Helps align organizational resources within organization.
6. Provides a way to anticipate challenges and respond to them effectively.
7. Enables organization to respond faster to customer need.

Types of change.
Organizationalchange can be strategic which is aimed at improving functions of the organization,leadership
or cultural change which focus on human aspects in organizations.
Technological change: requires that organizations learn how to manage the innovation process.
Technological capabilities provide new products, change existing ones, and create a core competence.
Strategic: Sometimes in the course of normal business operation it is necessary for management to adjust
the firm's strategy to achieve the goals of the company, or even to change the mission statement of the
organization in response to demands of the external environments

People-centered: This type of change alters the attitudes, behaviors, skills, or performance of employees in
the company. Changing people-centered processes involves communicating, motivating, leading, and
interacting within groups. Changes include: investment in training, socializing employees, changing norms to
motivate a diverse workforce, monitoring promotion and reward systems, and changing top management.
This focus may entail changing how problems are solved, the way employees learn new skills, and even the
very nature of how employees perceive themselves, their jobs, and the organization.

Forces for Change in an Organization

Forces of change are classified into two:
- External
- Internal

External Forces – forces outside the organization that have effect on organization
1. Uncertain economic conditions – changes in land, labour, capital, raw materials, energy can affect
business. Any change in the resources would definitely affect an organization.
2. Technological development – the introduction of new technologies in production systems by use of
computers will automatically affect a business. Communication technology poses challenge to
organizations which use old technology
3. Customer demands – increased demand for quality and high level of customer service and
satisfaction.

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4. Increased competition – increased competition has a profound effect on organization. Firms need to
be competitive enough in order to survive the market.
5. Political changes like changes in labour, laws, taxation.
6. Flexibility in the structure of work organizational and patterns of management.
7. Globalization and fierce world competition.

Internal Forces
1. Conflicts between organization components (departments, people)
2. Employees desire for involvement.
3. Planned change in strategy as a result of revised missions and goals.
4. Efficiency- loss of material resources.
5. Change in organizational culture and social environment.

Internal forces for change are within control of management and can be managed through careful planning.

Human Response to Change

When there is a change, both the manager and employee will need to do it. Attitudes of people play
significant role in deciding human response to change. Attitudes affect perception of individuals.

There are three possible alternatives to change (according to Prasard)

1. Resistance when people wish to eliminate the change. In most cases first reaction is resistance.
2. Indifference – people fail to interpret the outcome of change on theneed satisfaction or feel that they
have nothing to do with it. They may also feel that they have nothing to do about the change.
3. Acceptance – when people perceive that change will affect them favourably they will accept it. The
people will accept change and adopt it, as a way of life or anticipate change and plan for it.

Resistance to Change

Individual Factors for Resistance to change

- Individuals can resist change based on actual factors or may be due to emotional factors.

Reasons for resisting change are;

1. Economic reasons – individuals resist change when they feel that it is likely to affect their economic
needs such as:
- Fear of technological unemployment
- Fear of reduced work hours leading to reduced benefits.
- Fear of demotion leading to reduced pay.
- Fear of speed up and reduced pay.
2. Problem of adjustment – people tend to respond to situations in an established and accustomed
manner. Proposed changes to habits which are well established by individual will result into
resistance.
3. Inconvenience or loss of freedom. If change is seen as likely part to inconvenient, make life more
difficult reduces freedom of action or result in increased control, there will be resistance.
4. Fear of unknown – there is uncertainty about the future, what change may bring is not clear to
people.
5. Selective perception – people’s interpretation of change can be biased on certain aspects and this can
lead to resistance.

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Reasons for Organizational Resistance to change
1. Organizational culture – culture develops over time and may not be easy change. An effective
culture may result in lack of flexibility for or acceptance of change.
2. Threat to power or influence – change may be seen as threat to power on influence of certain
groups within the organizations such as their control within the organization, such groups will resist
change.
3. Investment in resources or resource constraints. When an organization has committed its
resources, it might find it difficult to change as it still requires resources. Sometimes an organization
may not have enough resources for change especially the technological changes.
4. Maintaining stability and predictability organizations are conceived with maintaining stability
and predictability. The more mechanistic or bureaucratic the structure, the less likely it is that the
organization will be responsive to change.
5. Past contacts and agreements – contacts with suppliers and customers may limit changes as firms
have to stick to constraints.

Overcoming Resistance to Change

1. Effective communication and education of people including use of success to help people understand
the need for change.
2. Use change agents- change agents are those who will promote, support, sponsor, initiate, implement
or help deliver change within an organization. They could be internal workers or consultants.
3. Adoption of organization strategies that will impart organizations adaptiveness e.g. adoption of
network structure as opposed to bureaucratic structure which dwell on employee stability.
4. Creation of change management team to monitor the change status and progress, ensure specific
implementations are done within specific timelines, they will also check any misinformation that may
arise during the process guidelines and work as interface between management and workers.
5. Negotiation , agreement and rewards- when necessary management can offer concrete incentives for
cooperation with changes such as enriching their jobs affording rewards, wages and salaries,
recognition and job assignment can be examined and perhaps be structured to reinforce direction of
change.
6. Participation and involvement – people affected by change should be involved in the change design
and implementations that management can adopt and use their advice. This may lead to consideration
of important issues previously overlooked and the people involved in the change decision fully
understand them and are more committed to them.
7. Identify and deliver education – Education can be top-down fashion focusing on conceptual and
strategic aspects of change. Education can focus on skill acquisition.
8. Modify appropriate subsystems – organizational subsystems such as information subsystem, job
design, human resource policies may be modified to support the planned organizational change.

Change Models
Kurt- Lewin’s Change Model
According to Lewin (1964), change should happen at three levels namely ; individual level, systems of the
organization and organizational climate. Assumptions of Lewin is that;
 Change involves learning
 Change will not occur unless there is motivation
 Any change in organization will involve workers
 Resistance to change will occur when goals are highly desirable
 Effective change requires reinforcing of behaviour,attitudes and organizational processes.
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Step 1- Unfreezing
It is changing individual habits, attitudes and positions. May also involve promotions or even letting go. The
focus should be redesign of the organization. The process is to ensure that there is discomfort with the
prevailing conditions.
Techniques form unfreezing
 Inspire individuals to achieve remarkable things
 Present evidence which are facts,difficult to ignore
 Move people out of their comfort zone
 Use by management by objectives (MBO),tell people what to do and how to do it.
 Redesign the organization to force behavior change
 Set goals to give individuals a formal objective
Step 2- Transition
It where actual changes are made, it involves providing new information, nerw behavior and new way of
doing things.
Transition may take time and support may be needed. Techniques for facilitating may include:
 Use psychological support.
 Tell employees what to do
 Teach them ,one step at atime
 Use a facilitator to guide team meetings
 Make it easy to perform steps and get going
 Give individuals important role to play
 Provide opportunity to talk about their concerns
 Train for acquisition of new skills
 Redesign organization to force behavior change
 Get everyone involved in planning
Refreezing- It is to do something to the organization so that the change becomes a permanent part of its
operations. New behaviors’ should become new norms or standards for the organization. Techniques for
refreezing
 Burn bridges, ensure there is no way back
 Show individuals that the change is real
 Put rewards in their future
 Build change into organization’s formal systems and structures
 Lead individuals to look toward the future
 Align rewards with desired behavior
 Use formal rituals to confirm change
 Build the change into the social fabric of the organization.

Robbert Lussier’s change model

He developed five step model
1. Define change- Clearly state what will change
2. Identify possible resistance to change. Determine the intensity , source and focus for resistance.
3. Plan to change – determine how the change will be implemented
4. Implement the change- give facts,involve employees and provide support.

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5. Control the change

TOPIC 8: ORGANIZATIONAL DEVELOPMENT AND CORPORATE RESTRUCTURING

Organizational Development
The term Organizational Development (OD) refers to a broad range of behavioral science based strategies
used to diagnose the need for change in organizations and to implement changes when necessary. OD can be
defined as a technique for bringing change in the entire organization, rather man focusing attention on
individuals to bring change easily in the entire organization.
Nature of OD

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OD is a general strategy or approach to organizational change mat is employed to analyze and diagnose the
sources of organizational problems and to develop and implement action plans for their solution. According
to Bennis, OD has the following characteristics;
 It is an educational strategy for bringing planned change.
 It relates to real problems of an organization.
 Laboratory training methods based on experienced behavior are primarily used to bring change.
 Change agent applying OD technique for change is external to the forms of consultants.
 There is a close working relationship between change agents and the people who are being changed.
The relationships involve mutual trust, joint goals, means, and mutual influence.
 The change agents share social philosophy about human value. They are humanists seeking to get a
humanistic philosophy in organization.
OD Interventions
OD interventions refer to various activities which consultant and client organization perform for improving
organizational functioning by enabling organization members to better manage their team and organization
cultures. French and Well have defined OD interventions as "sets of structured activities in which selected
organizational units (target groups or individuals) engage with a task or a sequence of tasks where the task
goals are related directly or indirectly to organizational improvement. Interventions constitute the action
thrust of organization development; they make things happen and are what is happening.”
Intervention Techniques
 Sensitivity Training
 Process Consultation
 Team Development
 Grid Organization Development
Sensitivity Training: Sensitivity training is a small-group interaction under stress in an unstructured
encounter group, which requires people to become sensitive to one another's feelings in order to develop
reasonable group activity. In sensitivity training, the actual technique employed is T-group. T-group has
several characteristic features:
 The T-group is generally small, from ten to twenty members
 The group begins its activity with no formal agenda
 The primary role of trainer is to call attention of members from time to time lo the ongoing process
within the group
 The procedure lends to develop introspection and self-examination, with emotional levels of
involvement and behavior.

The objectives of such training are increased openness with others, more concern for others,
increased tolerance for individual differences, less ethnic prejudice, understanding of a group process,
enhanced listening skills and increased trust and support.
Process Consultation: Process Consultation (P-C) represents a method of intervening in an ongoing system.
The basic content of P-C is that the consultant works with individuals and groups to help them learn about
human and social processes and learn to solve problems that stem from process events. P-C consists of many
interventions and activities which affect the various organizational processes such as. communication, roles
and functions of group members, group problem-solving and decision-making, group norms, authority and
leadership and inter-group cooperation and conflicts.
Team Development: The underlying aim of team development is to increase trust among team members
because people work better together when there is open and honest sharing about the problems and
difficulties that they have with one another. As such, at the initial level, the attempt should be to develop
such an environment where such trust can be developed among the team members

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Grid Organization Development: Grid organization development, developed by Blake and Mounton, is a
comprehensive and systematic OD Program. The Program aims at individuals, groups and the organization
as a whole. It utilizes a considerable number of instruments, enabling individuals and groups to assess their
own strength and weaknesses. It also focuses on skills, knowledge and processes necessary for effectiveness
at the individual, group and inter-group and total organization levels.
In addition to these people focused interventions, there may be other types of interventions too. e.g.
structural and job interventions such as job enlargement, job enrichment, management by objectives, rules,
procedures and authority structure.
OD offers some very attractive methodologies and philosophies to practicing managers and academicians.
William Halal is right when he says "OD in future includes any method for modifying the behavior in the
organization, hereby, encompassing the entire spectrum of applied behavioral science". There also have been
experiences of failure in OD but these are being recorded and collected to be reviewed. In general, OD
shows a promising future, since there are no rigid sets of procedures in OD work and different strategies
have to be evolved for different types of organizations.
Corporate Restructuring

Corporate Restructuring is a process by which an organisation drastically alters its capital structure, asset
mix and organisation for increasing the firm’s value and performance.
(Capital structure: A mix of a company's long-term debt, specific short-term debt, common equity and
preferred equity. The capital structure is how a firm finances its overall operations and growth by using
different sources of funds. Debt comes in the form of bond issues or long-term notes payable, while equity is
classified as common stock, preferred stock or retained earnings. Short-term debt such as working capital
requirements is also considered to be part of the capital structure.)

Reasons for Capital Restructuring

 Globalisation is the process of international integration arising from the interchange of world views,
products, ideas, and other aspects of culture Put in simple terms, globalization refers to processes that
increase world-wide exchanges of national and cultural resources. Advances in transportation and
telecommunications infrastructure, including the rise of the telegraph and its posterity the Internet,
are major factors in globalization, generating further interdependence of economic and cultural
activities.
 Liberalisation refers to a relaxation of previous government restrictions, usually in such areas of
social and economic policy. The removal of or reduction in the trade practices that thwart free flow of
goods and services from one nation to another. It includes dismantling of tariff (such as duties,
surcharges, and export subsidies) as well as nontariff barriers (such as licensing regulations, quotas,
and arbitrary standards).

 Development in IT
 Core Competence: The main strengths or strategic advantages of a business. Core competencies are
the combination of pooled knowledge and technical capacities that allow a business to be competitive
in the marketplace. Theoretically, a core competency should allow a company to expand into new end
markets as well as provide a significant benefit to customers. It should also be hard for competitors to
replicate.
 Rationalisation
 Economy of Scale: The cost advantage that arises with increased output of a product. Economies of
scale arise because of the inverse relationship between the quantity produced and per-unit fixed costs;
i.e. the greater the quantity of a good produced, the lower the per-unit fixed cost because these costs

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are shared over a larger number of goods. Economies of scale may also reduce variable costs per unit
because of operational efficiencies and synergies. Economies of scale can be classified into two main
types: Internal – arising from within the company; and External – arising from extraneous factors
such as industry size.
 Diversification the act or practice of manufacturing a variety of products, investing in a variety of
securities, selling a variety of merchandise, etc., so that a failure in or an economic slump affecting
one of them will not be disastrous. A portfolio strategy designed to reduce exposure to risk by
combining a variety of investments, such as stocks, bonds, and real estate, which are unlikely to all
move in the same direction. The goal of diversification is to reduce the risk in a portfolio. Volatility is
limited by the fact that not all asset classes or industries or individual companies move up and down
in value at the same time or at the same rate. Diversification reduces both the upside and downside
potential and allows for more consistent performance under a wide range of economic conditions.

 Takeover of Sick Companies

 Strategic Tax Planning
 Reduction of Cost of Capital
 Competition
 Supply Chain Management

Restructuring Strategies/Approaches

Merger/Amalgamation: It is a process by which one firm acquires assets and liabilities of another firm in
such a way that the latter firm ceases to exist e.g. HDFC Bank & Centurion Bank of Punjab in 2008 It is
cheaper and less time consuming and procedure ridden than buying individual assets It must be approved by
either 2/3 majority or ¾ majority

Consolidation: It is a business combination by which both the acquiring firm and acquired firm lose their
identities and create a new firm E.g. Centurion Bank and Bank of Punjab creating Centurion Bank of Punjab
in 2007

Acquisition: It is a process by which one firm purchases substantial percentage of shares of another firm
from the open market or directly from the shareholders through a tender offer The target company or its
promoters or its managers do not come into the picture. No formalities need be fulfilled by the target
company It is between the Acquiring Firm and the shareholders of the Target Company

Take-over: It is a process by which control of a corporate is transferred from one group of promoters to
another group Cash or securities may be paid for the transfer A newly elected Board of Directors E.g. ADAG
(Anil Dhirubhai Ambani Group) taking over Adlabs in 2007 from the promoter Manmohan Shetty

Joint Venture: It is a form of business combination in which two different firms contribute financial,
production, organisation/marketing skills to form a new company or to carry out a particular economic
activity E.g: Bharti Televenture has a JV with Nokia for its network maintenance, another JV with Nokia for
marketing the handsets of Nokia, and another JV with RIM for marketing Blue Berry Mobiles

Rationale/ Motive for JV

 Entry into New Markets
 Sharing Technology
 Complementary Products or Services

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 Distribution Network
 Meeting Competition
 Carrying Out a Specific task
 Reaching Global Markets
 Organising Skills
 Brand Equity
 Sharing Research Facilities
 Sharing a License

TOPIC 9: INTERNATIONAL LIFECYCLE STRATEGIES

Organizational life cycle (OLC) is a model that proposes that businesses, over time, progress through a fairly
predictable sequence of developmental stages. This model is linked to the study of organizational growth
and development. It is based on a biological metaphor of living organisms, which have a regular pattern of
development: birth, growth, maturity, decline, and death. Likewise, the OLC of businesses has been
conceived of as generally having four or five stages of development: start-up, growth, maturity, and decline,
with diversification sometimes considered to be an additional stage coming between maturity and decline.
During the start-up stage, companies accumulate capital, hire workers, and start developing their products or
services. Toward the end of this stage, companies often experience explosive growth and begin to hire new
employees rapidly, because business opportunities exceed infrastructure and resources.

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This expansion continues into the growth stage where companies increase their resources and workforces
dramatically. The financial situation of companies usually improves during this stage, as company revenues
grow and as companies establish strong customer bases. Despite their expansion, companies may still need
additional funds to exploit all the available growth opportunities, so many go public at this point, too. The
maturity stage is marked by security and by a slight slowdown. By this stage, companies have amassed assets
and solid profits, by becoming established in the market. The primary area of business has become a cash
cow because it controls a sizable market share and continues to yield profits, but experiences slow or
stagnant growth. In order to avoid the decline stage, mature companies often take a variety of actions to
renew their growth, such as acquiring other companies and expanding product lines. Some business theorists
consider the foray into new markets a separate stage, namely, the diversification stage.

If companies fail to implement measures to improve growth, they will most likely enter the fourth and final
stage of the OLC: decline. In this stage, not only company hiring drops, but also company sales and profits.
Furthermore, demand for a company's products or services decreases. To compensate for the decline,
companies launch downsizing or reengineering campaigns during this stage. If these efforts do not succeed,
however, companies look for a buyer or shut down. As companies progress through the organizational life
cycle the criteria for their effectiveness change. Companies tend to change their management styles, reward
systems, organization structures, communication and decision-making processes, and corporate strategies.
As companies mature, they usually strive to become more innovative or they diversify by making
acquisitions.

Despite the usefulness of this model, business scholars point out that companies do not always develop
linearly as the OLC model suggests. Instead, companies may experience little growth initially and then
experience decreasing sales, before moving into a stage of growth. Or they may undergo spurts of growth
and decline, which makes it difficult to place them in any particular stage. Nevertheless, the model represents
general patterns companies experience while developing.

The Development of the OLC Model

While a number of business and management theorists alluded to developmental stages in the early to mid-
1900s, Mason Haire, editor of the 1959 volume Modem Organization Theory, is generally recognized as one
of the first theorists to use a biological model for organizational growth and to argue that organizational
growth and development follows a regular sequence. A. Chandler, author of the 1962 book Strategy and
Structure, influenced later OLC research with his argument, based on a study of four large U.S. firms, that as
a firm's strategy changed over time, there must be associated changes in the firm's structure. Since the early
1970s the number of life cycle stages proposed by business scholars has ranged from three to ten, but most
OLC models have four or five stages.
OLC is an important model because of its premise and its prescription. The model's premise is that
requirements, opportunities, and threats both inside and outside the business firm will vary depending on the
stage of development in which the firm finds itself. For example, threats in the start-up stage differ from
those in the maturity stage. As the firm moves through the developmental stages, changes in the nature and
number of requirements, opportunities, and threats exert pressure for change on the business firm. L. Baird
and I. Meshoulam argued in an article in Academy of Management Review that organizations move from
one stage to another because the fit between the organization and its environment is so inadequate that either
the organization's efficiency and/or effectiveness is seriously impaired or the organization's survival is
threatened. The OLC model's prescription is that a company's managers must change its business goals,
strategies, and strategy implementation devices to fit the internal and external characteristics of each stage.
Thus, different stages of the company's life cycle require alterations in the firm's objectives, strategies,

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 BBA 202: ORGANIZATION THEORY
managerial processes (planning, organizing, staffing, directing, controlling), technology, culture, and
decision making.

Reasons for Business Change

A variety of factors contribute to the passage of companies through the OLC. To begin with, companies
usually follow the development stages of the industries in which they operate. Hence, most companies in a
mature industry are also mature, and so such companies must launch new products or services or more
competitive marketing strategies.

Changes in customer preferences may cause both companies and their respective industries to move into
another development stage. For example, consumers may choose alternative products that have superior
technology, have more features, or are easier to use.
A closely related factor, therefore, is change in products or services. Consumer needs and wants can cause
products and services to change and innovative products and services can cause consumer needs and wants
to change. Industries that depend on technology, research, and innovation are the most susceptible to
maturing and declining as a result of product changes. Furthermore, products and services have their own life
cycles, which involve the passage through the same stages: start-up, growth, maturity, and decline. In
addition, if there are significant barriers to entry in an industry, it will tend to be more stable than industries
without such barriers.

Promoting New Growth

To avoid declining, companies can take a variety of corrective actions during the maturity or declining stages
in order to start a new development cycle or at least to stave off going out of business. Beginning in the
maturity stage companies can bypass decline by focusing on product or service positions and implementing
new methods of attracting and retaining customers. To promote new growth, companies also must attempt to
introduce innovations and hence company management must emphasize creativity at this point, according to
LeRoy Thompson Jr, As a company matures, it must focus more and more on external factors that can lead
to decline. If a company fails to take the initiative during the maturity stage, it may face an even more
formidable task of trying to reverse its descent later on. Furthermore, if companies anticipate maturation and
implement policies that will help them become more innovative during this stage, they can reduce the effects
of the maturity stage and more easily spark a new start-up or growth stage (e.g., through intrapreneurship).
Maturity and decline tend to result from companies becoming habituated to doing business a certain way
during the start-up and growth stages and being unable to break these business habits when they cease to be
fruitful. If a business strategy has been successful, companies tend not to make changes until it is too late,
until they start to decline. To avoid losing ground, Thompson recommends that companies maintain a
marketing attitude, which entails determining customer needs and wants and striving to meet them.

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