What Is the Meaning of Business Organization - Assignment Example

Business Organisation Part1: Distinguish between the formal and the informal organisation and explain the importance of the latter In a formal organisation there exist written rules that are usually observed by its workers, this rules are usually executed by those in authority or the owners of the organisation. In this type of organisation it is very easy to manipulate directly unlike the informal organisation, this means that the person who has authority sets the way forward for the organisation without any opposition. Therefore a formal organisation is governed by explicit rules and people's behaviour in the organisation is governed by these rules, therefore the organisation is orderly and predictable in terms of behaviour. Informal organisations rules are based on implicit understanding and therefore the rules do not exist in written documents, rules are not necessarily executed by those with authority. In this type of organisation it is not easy to manipulate directly and decision are made through political processes, the development of an informal organisation is based on the day to day interactions and they change when people find new easier and time saving ways of doing things.(Dickson 1939) The informal organisation has an advantage over the formal sector in that it is flexible and will respond quickly to changing circumstances, this type of organisation encourage cooperation through the existing norms and obligations. (Dore 1983). We can therefore differentiate the formal and informal organisation by the way rules are set, the existence of a written document containing the rules, their flexibility to change and the execution of the rules. In the informal organisation there are high levels of human interactions and communication is based on informal relationships within the organisation, this is in contrast with the formal organisation where communication is formal. Another difference between the two is that hierarchy in the informal organisation is not observed whereas in the formal the hierarchy of offices have to be observed. Managers objectives in this type of organisation is to influence the operation of an organisation in order to coordinate tasks, achieve high levels of cooperation and increase the response to changing market conditions. The formal sector has the advantage that the rules are set by those with authority and these rules are executed with minimum opposition, they also have the responsibility of making decisions in the organisation. In the informal sector rules are made from the day to day interactions and this influences their flexibility, this organisations will change quickly in case of any change in market conditions and if they find new ways of doing things. Decisions are made through a political process and therefore this organisation has a very low risk of making wrong decisions that would lead to great losses. Part2: Assume that a firm is managed according to classical principles: According to Fayol 1916 he argued that there has to be a set of principles in the organisation for it to run properly, he analysed 14 principles that will ensure that the organisations is run in an effective way, they include: Specialisation and division of labour- Specialisation is the case where work is broken down in a clear division of labour and people are trained in particular specialised tasks, this is because specialisation is the most efficient way of production. Authority with corresponding responsibility- every position in organisation has well defined roles and duties. Discipline- this means that an organisation has to have discipline whereby all the people working with the organisation adhere to the set rules and values. Unit of command- this is having one person who is the head and plans for whole organisation. Subordination of individual interest to that of the whole organisation- this means that an individual's interest should not prevail. Remuneration of staff- this means that compensation in the organisation should be fair. Centralisation- the mode of control in the organisation should be centralised. Line of authority- there should be a well defined hierarchy of individuals with specific roles attached. Stability of tenure- stability of tenure will promote loyalty to the organisation. (Fayol (1916)) 2.1- How would you argue that the informal organisation is essential to the long-term success of the firm Classical economists include Adam smith and David Ricardo who argued that division of labour and specialisation will lead to increased productivity of an organisation, if an informal organisation adopted division of labour and specialisation in accordance to the classical principles then it will experience increased productivity and efficiency. According to the classical principles an organisation will have the following characteristics, specialisation in all positions in the organisation such that every position is assigned to a specific person who is qualified to work in that position, example there will be the manager, assistant manager, accountant, sales persons and supervisors. This is also referred to as division of labour. Specialisation and division of labour increases the quality and quantity of products produced, this will ensure that the organisation reduces its production cost and therefore will sell its products at low prices. Increased quality of products will increase demand for the products it produces, therefore this will ensure that the organisation remains in business in the future and also increase its profits through increased demand for its products. There is a major advantage associated with specialisation and division of labour, there is the increase in skills by workers and therefore the production process is made faster and higher quality. 2.2 - In what ways could the informal organisation actually work against the interests of the formal Due to the fact that the informal organisation is very difficult to manipulate these posses' great challenges to the managers unlike the formal organisation, the formal sector can be directly manipulated, therefore for the informal organisation will work against the formal organisation in that it is cannot be directly manipulated. The political nature of decision making of the informal sector may trigger dysfunction in that it may influence authority decision and this will alter performance standards, the changes caused by the informal organisation may cause consistent change that will eventually divert from the firms objective, this in contrast to the formal organisation where the organisation has boundaries and discreet choices. (Tushman and Romanelli (1985) The informal organisation is characterised by severe social attachments that influence communication flow in the organisation and this eventually dampens coordination, the social attachment will also cause biased decision making in the organisation. Informal organisation creates hierarchical failure due to the following reasons, Social attachment- these attachments can influence allocation of resources within an organisation, decision makers may over fund projects as an act of reciprocating to friends. Social comparison process- compensation may be difficult where the equity norm prevail; they will try and distort the distribution process of such rewards due to social comparison. (Adams, 1965) Influence activity- influence activity tend to influence the allocation of rent within the organisation, hierarchies cannot be formed in an environment where individuals engage in lobbying in the allocation of resources. (Milgrom and Roberts (1990)) References: Adams J. S. (1965) Inequity in social exchange, Advances in Experimental Social Psychology, Academic Press, New York Dore R. (1983) Goodwill and the spirit of market capitalism, The British Journal of Sociology, 34, 459-482. March J. G. and Simon, H. (1958) Organizations, John Wiley & Sons, New York Milgrom P. and Roberts J. (1990) Bargaining costs, influence costs, and the organization of economic activity, Perspectives on positive political economy Cambridge University Press, Cambridge Miller D. and Friesen P. H. 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