Mohd Sufian bin Abdul Karim
CEPB 323 Project Management & Construction
Lecture Notes
Organization & Organization Structure
1. Objectives
After studying this topic, students are expected to understand and explain:
 The need for an organization to have an appropriate organization structure.
 The various organizational structures that can be adopted.
2. Organization
 An Organization
An organization is a set of interdependent elements and parts that process inputs into
outputs (refer to Figure 1).
Business organizations have specific objectives, for example:
 Make profits for its owners.
 Provide customers with goods and services.
 Provide income for its employees.
3. Organization Structure
An organization chart represents the organization structure of an organization. Examples of
organization charts are shown in Figures 2 to 5.
Organizations are structured based on two fundamental concepts: differentiation and
integration.
 Differentiation
 Differentiation means that the organization is comprised of many different
organizational units that work on different kinds of tasks, using different skills
and work methods and procedures.
 Differentiation is created by job specialization and the division of labour:
Specialization
o A process in which different individuals in the organizational units
perform specific tasks that has been subdivided from bigger into
smaller tasks.
Division of Labour
o The assignment of different tasks to different individuals or groups of
people in the organization.
 Integration
 Since all specialized and different tasks and parts in an organization cannot be
performed completely independently, therefore there must be some kind of
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Mohd Sufian bin Abdul Karim
CEPB 323 Project Management & Construction
Lecture Notes
communication and cooperation among them. Integration is the degree to which
differentiated units in an organization work together and coordinate their efforts.
 The need for integration would be greater for a more highly differentiated
organization.
4. The Vertical Dimension of Organization Structure
 Authority
 It is the legitimate right to make decisions and to tell other people what to do.
Authority resides in positions rather than in people. A person at a higher position
has a relatively higher authority.
 Organizations have hierarchy levels (refer back to the organizational pyramid
discussed earlier) that indicates the authority levels of personnel.

The board of directors
 Stockholders are the owners of corporations. Stockholders elect a board of
directors to oversee the organization.
 Board of directors can be top executives from within the organization as well as
people from outside the organization.

The Chief Executive Officer
 The Chief Executive Officer (CEO) occupies the top of the organizational
pyramid and is personally accountable to the board of directors for the
organization’s performance.
 He has the authority officially vested in the board of directors & usually will
also be the Chairman of the board of directors.

The top management team
 The top management team would usually comprise of the CEO, President,
COO, Chief Financial Officer and other key executives in the organization.
 Span of Control
 Span of control refers to the number of subordinates who report directly to an
executive or supervisor.
 Narrow span of control builds a tall organization that has many reporting levels.
 Wide span of control builds a flat organization with fewer reporting levels.
 The optimal span of control would maximize effectiveness because:
o It is narrow enough to allow managers to maintain good control over
subordinates.
o It is not too narrow such that it leads to over-control with an excessive
number of managers overseeing a small number of subordinates.
 The decision on what is the optimal span of control would depends on the
following factors:
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Mohd Sufian bin Abdul Karim
CEPB 323 Project Management & Construction
Lecture Notes
o The work is clearly defined and unambiguous?
o Subordinates are highly trained and have access to information?
o The manager is highly capable and supportive?
o Jobs are similar and performance measures are comparable?
o Subordinates prefer autonomy to close supervisory control?
 Delegation
 Delegation is the assignment of new or additional responsibilities to a subordinate
at a lower level.
 Delegation is perhaps the most fundamental feature of management, because it
entails getting work done through others.
 When delegating work, the following things must also be given to the subordinates:
o Responsibility means that a person who is assigned a task that he or she is
supposed to carry out must perform that task.
o Authority means that the person has the power and the right to make
decisions, give orders, draw upon resources, and do whatever else is
necessary to satisfy the responsibility.
o Accountability means that the subordinate’s manager has the right to expect
the subordinate to perform the job, and the right to take corrective action in
the event the subordinate fails to do so.
 Delegating work offers important advantages:
o The manager would have more time for more important managerial functions
and higher-level activities like planning, setting objectives and monitoring
performance.
o Subordinates get the opportunity to develop new skills and demonstrate their
potential for additional and higher responsibilities.
 The steps in effective delegation:
1. Define the goal succinctly.
2. Select the person for the task.
3. Solicit the subordinate’s views about suggested approaches.
4. Give the subordinate the authority, time and resources to successfully
perform the assignment.
5. Schedule checkpoints for reviewing progress.
6. Follow through by discussing progress at appropriate intervals.
 Centralized Organization vs Decentralized Organization
 A centralized organization is an organization in which high level executives make
most decisions and pass them down to lower levels for implementation.
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Mohd Sufian bin Abdul Karim
CEPB 323 Project Management & Construction
Lecture Notes
 A decentralized organization is an organization in which lower level managers
make important decisions and not wait for decisions from higher level managers.
 The advantage of decentralization is that the affected managers who have the most
relevant information could deal directly with the problems and opportunities and
can best foresee the consequences of decisions.
5. The Horizontal Dimension of Organization Structure
 Line departments
 These departments are units in the organization that deal directly with the
organization’s principal activities producing the primary goods and services.
Examples: Design Department, Manufacturing Department, Distribution
Department, etc.
 Staff departments
 These departments are units in the organization that support line departments.
Examples: Accounting Department, Public Relation Department, Human Resource
Department, etc.
 Departmentalization
 Departmentalization refers to the subdividing of an organization into smaller
subunits.
 The three basic approaches to departmentalization:
o Functional.
o Divisional.
o Matrix.
5.1 The Functional Organization

An example of a functional organization is shown in Figure 2.

Functional organization has departmentalization around specialized activities, such
as production, marketing, human resources, etc.

Some of the potential advantages of functional organization:
 Employees have greater opportunity for specialized training and in-depth skill
development.
 Technical specialists are relatively free from administrative work and can
focus on their expertise.

The potential disadvantage of functional organization:
 Managers may not acquire knowledge of other areas of the business.
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Mohd Sufian bin Abdul Karim
CEPB 323 Project Management & Construction
Lecture Notes
5.2 The Divisional Organization

Examples of a divisional organization are shown in Figures 3 and 4.

Divisional organization has departmentalization that groups units around products,
customers, or geographic regions.
 Product Division

Refer to Figure 3.

The potential advantages of product organization:
 Information needs are managed more easily because personnel work on
one product and need not worry about other products.
 People have a full-time commitment to a particular product line.
 People receive broader training because they need a wide variety of skills
to produce the particular products
 Task responsibilities are clear compared to functional organization.

The potential disadvantage of product organization:
 Duplication of activities across many products is expensive.
 Customer and Geographical Division

Refer to Figure 4.

The potential advantages of customer and geographical organization:
 Able to focus to customer needs and provide faster and better service.

The potential disadvantage of customer and geographical organization:
 Duplication of activities across many customer groups and geographic
areas is expensive.

Table 1 lists some examples of how the same tasks would be organized differently
under functional and product organizational structures.
5.3 The Matrix Organization

An example of a matrix organization is shown in Figure 5.

A matrix organization is a hybrid of functional and divisional organization. It is
composed of a dual reporting relationship in which some manager report to two
superiors - a functional manager and a product / project manager.

The matrix form violates the unity-of-command principle that may cause a lot of
problems.
 Unity-of-command: A structure in which each worker reports to one superior
who in turn reports to another superior.
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Mohd Sufian bin Abdul Karim

CEPB 323 Project Management & Construction
Lecture Notes
Advantages of the matrix organization:
 Key resources are shared across several important programs or products at the
same time that leads to efficient resource utilization.
 Higher management levels are not overloaded with operational decisions.
 Decision making is decentralized to a level where information is processed
properly and relevant knowledge is applied.
 Dual career development is elaborated as more career options become
available on both sides of the organization.

Disadvantages of the matrix organization:
 Confusion can arise because employees do not have a single superior to whom
they feel they are responsible to.
 The design encourages managers who share subordinates to jockey for power.






Raw materials
Human resources
Energy
Financial resources
Information
Equipment
Inputs
Organization
Transformation
Processes
Outputs
Goods &
Services
Figure 1: A simplified perspective on an Organization
Figure 2: An example of a functional organization
Source: Bateman, T.S. and Snell, S.A., Management. Building Competitive Advantage,
McGraw-Hill, 3rd Edition, 1999.
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Mohd Sufian bin Abdul Karim
CEPB 323 Project Management & Construction
Lecture Notes
Figure 3: An example of a divisional organization based on product
Source: Bateman, T.S. and Snell, S.A., Management. Building Competitive Advantage,
McGraw-Hill, 3rd Edition, 1999.
Figure 4: An example of a divisional organization based on geography
Source: Bateman, T.S. and Snell, S.A., Management. Building Competitive Advantage,
McGraw-Hill, 3rd Edition, 1999.
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Mohd Sufian bin Abdul Karim
CEPB 323 Project Management & Construction
Lecture Notes
Table 1: Examples of how the same tasks would be organized differently under
functional and product organizational structures
Functional Organization
Product Organization
A typist pool i.e. the services of a group of
typist are shared by more than one executive.
Each typist is assigned to one superior.
A central purchasing department that do all
purchasing tasks for the organization.
Each product division has its own purchasing
unit or department.
Individual and separate departments for
marketing, production, design and engineering
in the company.
Each product group has personnel and experts
in marketing, design, production and
engineering.
Lecturers in a university statistics department
teach statistics for all relevant students in the
university.
Each relevant department has its own lecturers
who teach statistics only to its own students.
Adapted from Bateman, T.S. and Snell, S.A., Management. Building Competitive Advantage,
McGraw-Hill, 3rd Edition, 1999.
Figure 5: An example of a matrix organization
Source: Bateman, T.S. and Snell, S.A., Management. Building Competitive Advantage,
McGraw-Hill, 3rd Edition, 1999.
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Mohd Sufian bin Abdul Karim
CEPB 323 Project Management & Construction
Lecture Notes
REFERENCES
1. Bateman, T.S. and Snell, S.A., Management. Building Competitive Advantage,
McGraw-Hill, 3rd Edition, 1999.
2. Stoner, J.A.F., Freeman, R.E., Management, Prentice Hall, 5th Edition, 1992.
3. Holt, D.H., Management. Principles and Practices, Prentice Hall, 3rd Edition, 1993.
Latest update: 14th July, 2010.
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