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MGT502 GDB 2 Solution Feb 2015

Scenario: Mr Shahzad intends to launch a new marketing agency here in Pakistan. As the start of the business, he needs to establish a proper structure for the organization clarifying all the staff and jobs required to be performed and also how these jobs and individuals would be connected with each other. This step differs from organization to organization, depending upon the type of business or industry in which a business intends to operate. These things may differ in application but certain concepts are universal and found in every organization in either one way or other. These include Span of Control, centralization or decentralization and degree of formalization.  

Question: Discuss how Span of Control, centralization or decentralization and degree of formalization would be applied in a newly established marketing agency/firm? Support your answer with logical arguments.

Solution:  Span of Control:The number of subordinates that a manager or supervisor can directly control. This number varies with the type of work: complex, variable work reduces it to six, whereas routine, fixed work increases it to twenty or more.
Centralization: Centralized organizations can be extremely efficient regarding business decisions. Business owners typically develop the company’s mission and vision, and set objectives for managers and employees to follow when achieving these goals.

Decentralization:Decentralized organizations utilize individuals with a variety of expertise and knowledge for running various business operations. A broad-based management team helps to ensure the company has knowledgeable directors or managers to handle various types of business situations.

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  • Qasim Butt

    Organization – Span of Control

    In a business of more than one person, unless the business has equal partners, then there are managers and subordinates. Subordinates are workers controlled by the manager.

    A hierarchy describes the structure of the management of the business, from the top of the company – the managing director, through to the shop floor worker, who reports to their foreman, in a manufacturing business.

    The hierarchy of a business is usually best understood by drawing an organization chart showing which levels of management and employees report to whom.

    An example of a hierarchy is shown in the diagram below

    A span of control is the number of people who report to one manager in a hierarchy. The more people under the control of one manager – the wider the span of control. Less means a narrower span of control.

    An example of a narrow span of control is shown in the diagram below:

    The advantages of a narrow span of control are:

    A narrow span of control allows a manager to communicate quickly with the employees under them and control them more easily

    Feedback of ideas from the workers will be more effective

    It requires a higher level of management skill to control a greater number of employees, so there is less management skill required

    An example of a wide span of control is shown in the diagram below:

    The advantages of wide span of control are:

    There are less layers of management to pass a message through, so the message reaches more employees faster

    It costs less money to run a wider span of control because a business does not need to employ as many managers

    The width of the span of control depends on:

    The type of product being made – products which are easy to make or deliver will need less supervision and so can have a wider span of control

    Skills of managers and workers – a more skilful workforce can operate with a wider span of control because they will need less supervision. A more skilful manager can control a greater number of staff

    A tall organisation has a larger number of managers with a narrow span of control whilst a flat organisation has few managers with a wide span of control.

    A tall organisation can suffer from having too many managers (a huge expense) and decisions can take a long time to reach the bottom of the hierarchy

    BUT, a tall organisation can provide good opportunities for promotion and the manager does not have to spend so much time managing the staff

    Chain of command is the line on which orders and decisions are passed down from top to bottom of the hierarchy. In a hierarchy the chain of command means that a production manager may be higher up the hierarchy, but will not be able to tell a marketing person what to do.

    The advantages of hierarchies are:

    Helps create a clear communication line between the top and bottom of the business – this improves co-ordination and motivation since employees know what is expected of them and when.

    Hierarchies create departments and departments form teams. There are motivational advantages of working in teams.

    The disadvantages of hierarchies are:

    The formation of departments can mean that:

    – Departments work for themselves and not the greater good of the business.

    – Departments do not see the whole picture in making decisions.

    Hierarchies can be inflexible and difficult to adjust, especially when businesses need to adapt to changing markets – remember employees do not tend to react well to change

    centralization is said to be a process where the concentration of decision making is in a few hands. All the important decision and actions at the lower level, all subjects and actions at the lower level are subject to the approval of top management. According to Allen, “Centralization” is the systematic and consistent reservation of authority at central points in the organization. The implication of centralization can be :-

    Reservation of decision making power at top level.

    Reservation of operating authority with the middle level managers.

    Reservation of operation at lower level at the directions of the top level.

    Under centralization, the important and key decisions are taken by the top management and the other levels are into implementations as per the directions of top level. For example, in a business concern, the father & son being the owners decide about the important matters and all the rest of functionslike product, finance, marketing, personnel, are carried out by the department heads and they have to act as per instruction and orders of the two people. Therefore in this case, decision making power remain in the hands of father & son.entralization is said to be a process where the concentration of decision making is in a few hands. All the important decision and actions at the lower level, all subjects and actions at the lower level are subject to the approval of top management. According to Allen, “Centralization” is the systematic and consistent reservation of authority at central points in the organization. The implication of centralization can be :-

    Reservation of decision making power at top level.

    Reservation of operating authority with the middle level managers.

    Reservation of operation at lower level at the directions of the top level.

    Under centralization, the important and key decisions are taken by the top management and the other levels are into implementations as per the directions of top level. For example, in a business concern, the father & son being the owners decide about the important matters and all the rest of functionslike product, finance, marketing, personnel, are carried out by the department heads and they have to act as per instruction and orders of the two people. Therefore in this case, decision making power remain in the hands of father & son.

    Decentralization is a systematic delegation of authority at all levels of management and in all of the organization. In a decentralization concern, authority in retained by the top management for taking major decisions and framing policies concerning the whole concern. Rest of the authority may be delegated to the middle level and lower level of management.

    The degree of centralization and decentralization will depend upon the amount of authority delegated to the lowest level. According to Allen, “Decentralization refers to the systematic effort to delegate to the lowest level of authority except that which can be controlled and exercised at central points.

    Decentralization is not the same as delegation. In fact, decentralization is all extension of delegation. Decentralization pattern is wider is scope and the authorities are diffused to the lowest most level of management. Delegation of authority is a complete process and takes place from one person to another. While decentralization is complete only when fullest possible delegation has taken place. For example, the general manager of a company is responsible for receiving the leave application for the whole of the concern. The general manager delegates this work to the personnel manager who is now responsible for receiving the leave applicants. In this situation delegation of authority has taken place. On the other hand, on the request of the personnel manager, if the general manager delegates this power to all the departmental heads at all level, in this situation decentralization has taken place. There is a saying that “Everything that increasing the role of subordinates is decentralization and that decreases the role is centralization”. Decentralization is wider in scope and the subordinate’s responsibility increase in this case. On the other hand, in delegation the managers remain answerable even for the acts of subordinates to their superiors.

    Implications of Decentralization

    There is less burden on the Chief Executive as in the case of centralization.

    In decentralization, the subordinates get a chance to decide and act independently which develops skills and capabilities. This way the organization is able to process reserve of talents in it.

    In decentralization, diversification and horizontal can be easily implanted.

    In decentralization, concern diversification of activities can place effectively since there is more scope for creating new departments. Therefore, diversification growth is of a degree.

    In decentralization structure, operations can be coordinated at divisional level which is not possible in the centralization set up.

    In the case of decentralization structure, there is greater motivation and morale of the employees since they get more independence to act and decide.

    In a decentralization structure, co-ordination to some extent is difficult to maintain as there are lot many department divisions and authority is delegated to maximum possible extent, i.e., to the bottom most level delegation reaches. Centralization and decentralization are the categories by which the pattern of authority relationships became clear. The degree of centralization and de-centralization can be affected by many factors like nature of operation, volume of profits, number of departments, size of a concern, etc. The larger the size of a concern, a decentralization set up is suitable in it

    The formalized organizational structure focuses on roles and positions rather than the people in the positions. Formalization is the process of creating a formalized structure and includes the maintenance of that formal structure over time. Formalization of an organizational structure is commonly initiated in an attempt to rationalize the decision-making process. The formalized organization is critical for the organization in which issues are known and changes are implemented slowly and purposefully.