IMEE Ch1.3 Industrial Organization

JIMMA UNIVERSITY
JIMMA INISTUTE OF TECHNOLOGY

SCHOOL OF MECHANICAL ENGINEERING
INDUSTRIAL MANAGEMENT AND ENGINEERING ECONOMY
Chapter 1.3:- Industrial Organization
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CHAPTER 1.3: -
Industrial Organization
3
Chapter Outlines
 Introduction
 Definitions Of Organization
 System Approach Applied To Organization
 Necessity Of Organization
 Essential Elements Of Good Organization
 The Process Of Organization
 Principles Of Organization
 Organizational Structure
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3. INDUSTRIAL ORGANIZATION
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3.1 INTRODUCTION
 Every business needs to be organized for effective
and efficient performance.
 Once the objectives, strategies and necessary plans
to carry out are formulated, the next phase in

management process is that of organization.
 Organization is thus a function of management
which basically deals with the establishment of

organizational structure.
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3. INDUSTRIAL ORGANIZATION…
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 Organization is a backbone of management which

establishes relationship between people, work and
resources.
 Organization involves division of work among
people whose efforts must be coordinated to
achieve specific objectives and to implement
predetermined strategies.
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3.2 DEFINITIONS OF ORGANIZATION

 A process of
 Identifying and grouping the work to be performed,
 Defining and delegating the responsibility and
authority, and
 Establishing the relationships for the purpose of
enabling people work efficiently together in
accomplishing objectives.
 The form of every human association for the
attainment of a common purpose.
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3.2 DEFINITIONS OF ORGANIZATION…

 A system of cooperative activities of two or more
persons.
 A process of defining and grouping the activities of
an enterprise and establishing the authority
relationship among them.
 The grouping of activities necessary to accomplish
goals and plans, and assignment these activities to
appropriate departments and positions for
authority delegation and coordination.
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3.2 DEFINITIONS OF ORGANIZATION…

 The process of combining the work which individuals or
groups have to perform with facilities necessary for its
execution, that the duties so performed are the best
channels for efficient, systematic, positive and coordinated
application of available effort.
 The rational coordination of the activities or roles of a
number of people for the achievement and some common
explicit purpose or goal, through division and labour of
function, and through a hierarchy of authority and
responsibility.
 Consists of people who carry out differentiated tasks which
are coordinated to contribute to the organization’s goals.
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3.3 SYSTEM APPROACH APPLIED TO ORGANIZATION

 A business organization can be looked up on as an
open system as it influences and is influenced by its
environment continuously.
 It receives input from the society in the form of men,
materials, machinery, information, thoughts, energy
and finance. By utilizing the efforts and skills of the
persons, the raw material is converted in to output
of goals and services required by the customers.
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 The working of one part of the system is dependent

on the working of other parts of the system.
 The changes in the environment affect the
performance of the system process.
 Environment of organization consists of economic,
social, cultural, political, legal, technological, etc.
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 The feedback of information and results is utilized

for corrective action. The feedback may be in the
form of orders, customer complaints, sales, etc. This
information is fed at the control points and
conversion processes.
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Environment
Conversion
Input Output
Process
Feedback
Fig. 3.1 System Approach Applied to Organization
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3.4 NECESSITY OF ORGANIZATION

A good organization is necessary for the following
reasons:
 Complexity of industry-increasing size, introduction of
modern machines, labour problems, ...
 Growing competition-tough competition existing in
market,
 Optimum utilization of resources-men, materials,
machines, can be used efficiently if there is
organization.
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3.4 NECESSITY OF ORGANIZATION…

 Fixation of responsibility and authority- individuals will be
provided with responsibility and authority with defined duties,
 Reduced labour problems-good employer-employee relations if
there is good organization,
 Coordination and directing efforts- a good organization makes it
possible to direct and coordinate the efforts of individuals,
departments, etc,
 Facilitates administration-management and operation of the
company will be facilitated,
 Stimulates creativity-sound organization stimulates independent
creative thinking and initiative by providing well-defined areas of
work with broad latitude of the development of new and improved
methods of doing work.
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3.5 ESSENTIAL ELEMENTS OF GOOD ORGANIZATION

The essential elements of good organization are:
 It must be helpful in achieving objectives,
 There must be a harmonious grouping of activities,
 The activities of the organization must be

coordinated properly,
 An organization must be complete in all respects,
should include all the essential activities, there

should not be repetition of activities,
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3.5 ESSENTIAL ELEMENTS OF GOOD ORGANIZATION…

 An organization should have an effective system
of communication,
 The span of control should be reasonable
 Clear and well defined policies and procedures
 Employees’ satisfaction is essential
 Proper division of authority and responsibility
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3.6 THE PROCESS OF ORGANIZATION

The logical steps involved in the process of organization
are:
 Determination of objectives, strategies, plans and policies
 Determination of activities
 Separation and grouping of activities
 Delegation of authority and responsibility
 Establishing inter-relationships
 Providing physical facilities and proper environment
 Preparation of organization chart
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3.7 PRINCIPLES OF ORGANIZATION

Some of the important principles to be followed for
developing sound and efficient organization structure
are:
 Consideration of unity of objectives
The objectives must be clearly defined for the entire
enterprise, for each department and even for each
position in the organization structure. There must be
unity of objectives so that all efforts can be
concentrated on achieving the set goals at minimum
cost.
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 Principle of specialization
The organization structure should be formulated in such a way
that the activities of the enterprise are divided according to
functions. Work should be distributed among the persons
very carefully on the basis of their skill, experience and
ability to do that work.
 Principle of authority
Lines of authority should be clearly established in the structure of
organization in order to avoid overlapping, omission of facts,
etc.
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 Principle of coordination.
Coordination (between departments, sections...) is
necessary for unity of action.
 Principle of unity of command.
Each subordinate should have only one superior and

dual subordination should be avoided.
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 Principle of span of control.

A single executive should not have more people
looking for him for controlling and guidance than he
can reasonably manage because the executive will
have limited time and energy/capacity.
The number of persons which can be effectively
supervised by a single executive or department
head should be limited to six in average firm;
however when the activities are routine and closely
related the span can be as large up to twenty
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 Principle of exception.
Only exceptionally complex matters should be
referred to executives for their decision and matters
of routine nature should be decided by
subordinates themselves.
 Principle of flexibility.
The organization structure should be flexible enough

to permit slight alterations and expansions
whenever needed, due to changes in circumstances
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 Principle of simplicity
The organization structure should be simple with
minimum number of levels. If the organization has a
large number of levels, the problem of effective
coordination and communication may arise.
 Principle of responsibility
The superior should be held responsible for the acts of

his subordinates to whom he has delegated
authority.
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 Principle of balance
There should be balance between activities and sizes
of various departments, authority and responsibility,
standardization of procedures and flexibility,
centralization and decentralization, etc.
 Principle of continuity
The organizational structure should be set in such a

way that it enables to continue its useful existence
for a longer period. This is possible if it is dynamic
and capable of adopting itself to the needs of
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changing circumstances.
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 Principle of scalar chain. Organization is a vertical

hierarchy specifying various chains of command
from top to bottom level. The links of chain should
be continuous from top to bottom. The authority
originating from the top should flow below without
interruption.
 Principle of parity between authority and
responsibility. Authority means the ability of the
superior to command. Conversely responsibility
means the obligation of the subordinates to a
superior to perform the assigned work.
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 Principle of efficiency. The organization structure

should enable the enterprise to attain objectives
with minimum cost and effort. It should allow the
optimum utilization of its scarce resources.
 Principle of communication. A good
communication subsystem is essential for smooth flow
of information. For better results it should have free
two-way communication. Not only executive should
pass down information to the subordinates, there
should be feedback
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3.8 ORGANIZATIONAL STRUCTURE

 Organizational structure is a skeleton or framework
that divides the total activities in to related groups,
develops superior and subordinate relationships
among the persons by prescribing the authorities.
 Thus it indicates the hierarchy, authority structure
and reporting relationships.
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There are three main types of organizational

structure:
i. Functional structure,
ii. Divisional structure and
iii. Matrix structure.
Each structure has its own strong and weak points.
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i. Functional Structure
 The employee will work in departments based on what
they are doing.
 It enhances the experience of each function.
 It saves us money because of the economies of scale.
 It makes the coordination between different
departments more difficult than other structures.
 It also does not allow for flexibility because of the
centralization.
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Fig. 3.2 Functional Organizational Structure
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Functional Organization
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Functional Organizations
When to Use
 Organizations with high relative stability of work flow
and limited product diversity - certain manufacturing
operations, process industries
 Startup companies
 Organizations with narrow product ranges, simple
marketing pattern and few production sites
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Functional Organizations
(Pros and Cons)
 Permits hierarchy of Encourages excessive
skills centralization
Delays decision making
 Facilitates
Compounds
specialization
communication line loss
 Simplifies coordination
Restricts development of
 Permits use of current managerial skills
technologies and Limits personal growth
equipment
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ii. Divisional Structure

 Divisional structure divides the employees based on the
product/customer segment/geographical location.
 This structure is a decentralized structure and thus
allows for flexibility and quick response to
environmental changes.
 It also enhances innovation and differentiation
strategies.
 On the other hand, this structure results in duplication of
resources.
 It does not support the exchange of knowledge
between people working in the same profession.
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Fig. 3.3 Divisional Organizational Structure

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3. INDUSTRIAL ORGANIZATION
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Product Organization
(Pros and Cons)
 Focuses on end products  High costs due to layers,
or geographical regions autonomy or duplicated
facilities
 Facilitates coordination
 Requires management
 Encourages
talents
management
 Technical obsolescence
development
of specialists
 Provides for
 Changes take time to
decentralization
effect 13-May-22
 Promotes growth
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iii. Matrix Structure

 Matrix structure combines both structures.
 Some employees will have two managers:
functional manager and product manager.
 This type of structure tries to get the benefits of
functional structure and also of divisional structure;
however, it is not easy to implement because of
the dual authority.
 This structure is very useful for multinational
companies.
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Fig. 3.4 Matrix Organizational Structure

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Matrix Organization
(Pros and Cons)
 Dual reporting
 Project manager focus
 Severe conflicts among
on schedule and cost,
managers
functional managers on
 Delicate balance of
quality/expertise
power (people versus
 Work load balance
money/time)
 Excellent for individuals
 Communications
(to achieve exposure
problems
and interactions)
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Productivity
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 Productivity may be defined as the ratio

between output and input.
 Output means the amount produced or the
number of items produced and inputs are the

various resources employed, e.g, land, building,
equipment and machinery, materials, labours,
etc.
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Factors Affecting Productivity
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 Factors affecting Productivity in

Manufacturing and Services Sectors
–Product and System Design
–Machinery and Equipment
–Skill and Effectiveness of the Worker
–Production Volume
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Measurement of Productivity
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 The most common way is to express both outputs

and the inputs in monetary terms.
–Aggregate output = Gross sales= G(say); and
–Aggregate input= Cost= C (say)
 Thus total Aggregate Productivity =

Gross Sales/ Cost
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Leadership
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 Getting things done through others.

 It is the process of influencing and directing
people towards the accomplishment of a goal or
objective.
 We all practice leadership of some kind daily if
not hourly. When take the initiative and organize
a group of friends or coworkers for a fund rising
drive to help the needy or for a weekend
together, you have shown leadership.
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Leadership traits
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 sense mission, Integrity,

 High character, Loyalty,
 Job competence, Commitment,
 Good judgment, Energy,
 Decisiveness and selflessness.
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Functions of a Leader
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 Determines the goals of the organization.

 Educates the personnel and Works as
expert.
 Set the example for the others to follow.
 Provides counseling and guidance.
 Ensures work is done properly.
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 Enforces policies and regulations

 Acts as a spokesperson for workers
 Motivates the workers towards the goals.
 Facilitates open communication and

establishes performance standards.
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Types of Leadership
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 Autocratic leadership style: A leader who makes

decisions without consulting others.
 Democratic leadership style: This leader includes
the subordinates in decision making.
 Free - rein leadership style: Minimal supervision,
most decision left to the subordinates.
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JIMMA UNIVERSITY

JIMMA INISTUTE OF TECHNOLOGY

Chapter 1.3:- Industrial Organization

to carry out are formulated, the next phase in

which basically deals with the establishment of

 Organization is a backbone of management which

3.2 DEFINITIONS OF ORGANIZATION

3.2 DEFINITIONS OF ORGANIZATION…

3.2 DEFINITIONS OF ORGANIZATION…

3.3 SYSTEM APPROACH APPLIED TO ORGANIZATION

 The working of one part of the system is dependent

 The feedback of information and results is utilized

3.4 NECESSITY OF ORGANIZATION

3.4 NECESSITY OF ORGANIZATION…

3.5 ESSENTIAL ELEMENTS OF GOOD ORGANIZATION

 There must be a harmonious grouping of activities,

 The activities of the organization must be

should include all the essential activities, there

3.5 ESSENTIAL ELEMENTS OF GOOD ORGANIZATION…

3.6 THE PROCESS OF ORGANIZATION

 Separation and grouping of activities

 Delegation of authority and responsibility

 Providing physical facilities and proper environment

 Preparation of organization chart

3.7 PRINCIPLES OF ORGANIZATION

Each subordinate should have only one superior and

 Principle of span of control.

The organization structure should be flexible enough

The superior should be held responsible for the acts of

The organizational structure should be set in such a

 Principle of scalar chain. Organization is a vertical

 Principle of efficiency. The organization structure

3.8 ORGANIZATIONAL STRUCTURE

There are three main types of organizational

Fig. 3.2 Functional Organizational Structure

ii. Divisional Structure

Fig. 3.3 Divisional Organizational Structure

iii. Matrix Structure

Fig. 3.4 Matrix Organizational Structure

 Productivity may be defined as the ratio

number of items produced and inputs are the

 Factors affecting Productivity in

 The most common way is to express both outputs

 Thus total Aggregate Productivity =

 Getting things done through others.

 sense mission, Integrity,

 Determines the goals of the organization.

 Provides counseling and guidance.

 Ensures work is done properly.

 Enforces policies and regulations

 Motivates the workers towards the goals.

 Facilitates open communication and

 Autocratic leadership style: A leader who makes

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