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Book Excerpt|McKinsey Quarterly

Organization: Helping people pull together

In even the largest and best-managed companies, hundreds of organizational muddles take place every day. Throughout the economy, they add up to a staggering waste of our national resources.

June 2003 | byMarvin Bower

Editor’s note: The following article comes from the fifth chapter of Marvin Bower’s 1966 book, The Will to Manage. Bower, who passed away on January 22 at age 99, was a legendary business figure who served as McKinsey & Company’s managing director from 1950 to 1967 and as its guiding influence for more than 60 years. This excerpt features his insights on the principles of effective corporate organization.

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Organization: Helping people pull together

One summer afternoon a friend telephoned me about a golf game. He had a twosome and was looking for two more people. I accepted, and we spent a minute discussing whom we might get as the fourth. But we did not settle on anyone. Nor did we decide which of us was to get the fourth.

The next day I met another member of the club. He agreed to join us, and I immediately called my friend with the news. But in the meantime he too had invited a guest, so we had one too many. I called back the member I had invited and told him of our plight. He was most understanding and readily agreed to withdraw. So no harm was done.

Even so, the incident was embarrassing to me, and it could easily have been avoided. All we had needed to do in our first telephone conversation was to follow one of the most fundamental principles of organization: decide who does what. In more technical terms, we should have fixed on one of us the responsibility for getting the fourth player and delegated the authority to do so.

The importance of good organization

Unfortunately, hundreds of organizational muddles of much greater consequence take place every day in even the largest and best-managed companies. The causes are a failure to define who does what, who has what authority, and who reports to whom. The consequences of the resulting mix-ups and conflicts are duplication, wasted effort, delay, frustration, angry words, or relaxing and letting the other fellow do it. And countless mix-ups and conflicts throughout a company combine to bring about ineffective performance, needlessly high costs, a loss of competitive position, low morale, reduced profits, and lost opportunities to develop executives. Such results throughout the economy add up to a staggering waste of our national resources.

From close observation of the destructive consequences of inadequate and unsound organization, I am convinced that the will to manage must include the will to organize. Organizing, then, is a managing process that must be part of any effective system of management.

What organization really is

Organizing is a fundamental managing process as old as human history itself. Organizing is a planning process. In simple terms, organizational planning consists of these decision steps:

  1. The work or activity to be performed in order to carry out plans is determined. The things to be done or tasks to be performed become duties.

  2. Then these activities are grouped into positions so they can be assigned to an individual, thus becoming responsibilities.

  3. Next, authority is assigned to each position, conferring on the person holding the position the right to carry out the responsibilities himself or to order others to carry them out. It is useful to recognize the distinction between authority and power. Power is the ability to get things done—by doing them personally or by commanding or influencing others to do them, with or without authority. A person may have power because he is liked or feared or because he is respected for his knowledge, judgment, skill, force of personality, seniority, age, or past accomplishments. Authority, which confers the right to command, helps to build power—to legitimize it. But if a person with authority is not respected, his authority may give him little power.

  4. The next step in organizational planning is to determine the authority relationships among positions—that is, to decide who reports to whom and what kind of authority, if any, the holder of each position may exercise. This will ensure that every person knows who his boss is, who his subordinates are, and what type and extent of authority he is subject to and can exercise.

  5. Finally, the personal qualifications required for superior performance in each position should be decided.

Thus, organizational planning is concerned—in management jargon—with the duties, responsibilities, authority, relationships, and personal requirements of positions. This kind of planning harnesses and legitimizes power. It also helps to contain illegitimate power.

To be sure, an organizational plan is restrictive. In fact, all managing processes are restrictive, for their purpose is to guide people’s efforts toward effectively attaining the objectives of the group, and in a sense all guidance is restrictive. If people are to pull together rather than work at cross-purposes, some harness is needed—and better a planned harness than a tangled one. With a soundly developed system of management and good leadership, high-caliber people will work productively and with zest despite the restrictions of the organizational plan and the other system components.

How organizational structure affects performance

In business as in government or any other field, able people just don’t want jobs with inadequate or unclear authority. It is my conviction, based on my observation of executives at work and on hundreds of confidential interviews with executives at all levels, that any high-caliber man’s effectiveness, job satisfaction, and zest for work—from the time he takes his first job until he retires—are all vitally affected by the structure of the organization in which he works. And there is a structure whether it is a haphazard tangle or the product of a formal plan.

The results of organizational planning are pictured in organizational charts, with their boxes and lines of authority. But organizational planning really deals with the actions, ambitions, emotions, and personal effectiveness of people. Whether or not the actions of individuals are effectively harnessed to achieve the purposes of the business depends largely, I believe, on how well the plan of organization is fashioned and how resolutely managers at all levels follow it themselves and require others to do so. The boxes and lines on charts are merely symbols of plans that, as part of the management system, help to require and inspire purposeful, productive decisions and actions.

Even a perfect organizational plan won’t control all the imperfections of human nature. But a defective plan can be counted on to bring out the worst in people and to raise costly havoc in the organization. Business executives, like generals and educators, often engage in infighting, and businesses, like all other organizations, have their political camps and cliques. These reflections of the mean side of human nature frequently originate from a defective organizational structure. At the very least, such a structure stimulates and facilitates infighting and politics.

Organizational guidelines

Since this is not a technical book, I do not want to go too deeply into the techniques of organizational planning. But I do want to illustrate a few basic principles or guidelines. This will show how simple the process really is, and I hope it will help any executive with the will to manage to detect and correct organizational deficiencies more easily and so to gain the many profit-building benefits of good organization.

The so-called principles of organization have nothing like the proven validity of natural laws, so I feel that they are better termed "guidelines"—guidelines that have emerged from observation and analysis of how people really act in groups. These guidelines, deeply rooted in both human nature and common sense, spring directly from the nature of the organizational-planning process itself. Consequently, I find it most useful to group them according to the basic steps involved in organizational planning. A brief discussion of the guidelines for taking each of these steps will show how to go about the task of establishing an effective organizational structure.

Setting up positions

"A square peg in a round hole" is the cliché often used to describe a man who has failed to perform well in a job. Classic examples are the star salesman who fails as a district sales manager and the outstanding worker who makes a poor foreman. The business losses and the personal heartbreaks that flow from such failures constitute a great waste to the nation. Often the failures are not the fault of the man but of poor organizational decisions by management. And often they can be avoided if senior executives understand and follow the elementary guidelines for setting up positions.

The organizing process is basically one of assigning work to people. Consequently, organizational planning starts with deciding what activities are necessary and then grouping the work—by type and amount—so that the position or job constitutes an assignment that can be performed effectively by an individual.

There are guidelines for making a position "doable." Basically, the different types of work (activities) assigned to any position should not be so numerous that it will be hard to fill; the work should be homogeneous enough so that there will generally be enough candidates to fill and refill the position without much difficulty. Since most people do not have a wide range of abilities, a position calling for an unusual spread of abilities should ordinarily be avoided. Even if an unusual person is currently available to fill a poorly set-up position, replacements will be difficult to develop, and unnecessary reorganization and upset are likely to result.

Even at lower levels, positions can usually combine two or more basic types of work. The higher the position, the more varied can be the types of work assigned to it, because fewer people will be needed to fill these positions. A highly creative person will usually dislike routine, and rare skills will be wasted; a man who is good at operational activities will not necessarily be a good analyst, administrator, or leader. Thus, a position entailing several different types of work is less likely to be filled effectively by a given individual. Also, the number of qualified candidates decreases as the range of work assigned to a position increases.

The guidelines for determining how much work to assign to a position are inherently less specific. If the proper types of work are assigned to a position, the person filling it will be able to turn out more work. The amount of work to assign to a properly set-up position can best be determined from observation by line managers, assisted by specialists such as organizational analysts and industrial engineers. Also, by experimentally varying the number of similar positions, the right balance between output and cost can be achieved.

Granting authority

No position can be soundly set up unless its holder has the authority necessary to carry out his duties or responsibilities. This requirement can be most easily met if one well-established organizational principle (or guideline) is followed throughout the business: responsibility and authority should go hand in hand. This, of course, simply means that when responsibilities are assigned to a position, everyone understands that the holder of the position has the authority necessary to carry them out. This concept is a powerful instrument for making the will to manage effective.

Many companies, both large and small, go well beyond that broad way of granting authority. Most commonly, they incorporate in written job descriptions various specific grants of authority: approving capital investment, granting salary increases, hiring people at various levels of salary, signing contracts, retaining lawyers and consultants, and so forth.

There are two types of authority: line and functional. In building a system of management, both should be understood and used. Let me get a little technical for just a few pages; there is a big payoff from using these two types of authority properly.

Line authority, the most common and best understood type of authority, gives an executive the right to command or give direct orders to subordinates. The line executive controls his subordinates chiefly through discipline (approval or disapproval) and through decisions or recommendations on compensation or promotion. His ultimate form of control, of course, is the right to hire and fire.

The line executive is concerned with determining the need, time, and place for action and with issuing direct orders to line subordinates to get things done. Line authority extends directly from the chief executive of a business, through the various levels of authority, to the lowest level of operating or sales supervisor who directs any subordinates. In the US military establishment, the president as commander in chief has a direct line of authority down to every squad leader or crew chief of every US military unit anywhere in the world.

That is all pretty clear and not very technical. But let us turn now to functional authority. The concept of functional authority is more subtle than that of line authority. It is also less widely understood and used. Yet the proper understanding and use of this concept can be of great value in a company of any size. And as companies become larger, more complex, and more subject to the impact of rapid change, the concept’s usefulness grows.

Functional authority, sometimes called technical authority, is simply the right of a unit with functional or technical power in a certain business area to see to it that all other units carry on any activities in that area in accordance with the functional unit’s requirements. Functional authority has its origin in the greater technical or specialized knowledge of the executive, department, or unit that exercises it. If line authority is a grant of power, functional authority is the authority of knowledge. Just as the holder of line authority says, "do it," and "do it now," the holder of functional authority says, "if and when you do it, do it this way—or in accordance with this policy or standard."

Line executives help enforce functional authority by putting their line authority behind it. The chief executive, in effect, orders all line executives to follow and enforce the policies, procedures, and standards of the functional departments. Thus, the functional departments are not merely advisory; they have their own authority, which is backed by line authority. Nor are functional departments the same as staff departments.

Functional departments should approach the job of enforcing their policies, standards, and procedures in a spirit of exercising authority, not just offering advice. Their work will then be more useful and more responsible, and the resulting guidelines are more likely to be followed. That does not mean, of course, that functional departments should be arrogant in exercising authority. Indeed, the most effective functional departments seldom need to resort to a show of authority. Their policies, standards, and procedures should be so useful, so sensible, and so persuasively presented that the line departments will be glad to follow and enforce them.

If a line department disagrees with a policy, standard, or procedure established by a functional department and the difference of opinion cannot be resolved, it is referred to the next-highest common line superior of the executives who differ. For example, a plant manager may disagree with the plant controller, who reports to him but is required to enforce the procedures established in the company controller’s department. The plant manager first tries to persuade the plant controller. If that fails, they refer the issue to their respective line and functional superiors, who seek to resolve the issue through discussion. The final decision is made by the highest common line superior to whom the issue can be appealed—perhaps even the chief executive.

This system of checks and balances is of great value in bringing about the best compromise between getting things done quickly and getting them done right—that is, in accordance with company policies, standards, and philosophy. An overzealous functional executive cannot long hold up important operations that may conflict with a functional policy, standard, or procedure. The reason is that line executives always have the opportunity to convince functional executives or line superiors that a functional guideline is wrong and should be changed or that an exception should be made in a particular instance. Thus, the balance between line and functional authority is an important means for developing and requiring adherence to a system of management that makes the will to manage effective.

Parenthetically, a company philosophy that includes an objective, factual approach to resolving issues permits the best use of the checks and balances between line and functional authority. Under such a philosophy, people will try to determine what is right, not who is right. Persuasion based on facts is more effective. In the light of new facts, people can change their positions with less damage to their pride; issues can be resolved in a factual atmosphere with fewer injured feelings, less "showing the other guy," and fewer I-told-you-so’s.

Most functional executives also have line authority. For example, the controller and the top purchasing, personnel administration, and public-relations executives all have line authority over the personnel in their own departments.

In many industries, competition is so keen that only ideas and effective management can provide a competitive edge. We have seen how functional authority can help increase the effectiveness of management. It can help generate ideas too. A strong functional department helps to attract men of ideas, and with functional authority behind their ideas, they can get these ideas—in the form of distinctive and highly relevant policies—right into the company’s bloodstream.

I have discussed functional authority at this length because I believe that the concept offers a real competitive advantage to all companies that make the effort and take the time to build it into their system of management. Let us turn now to a brief discussion of staff work and clinch this understanding of the concept of functional authority.

Staff activity, properly understood, consists simply of fact-finding, analysis, and the development of advice and recommendations. Unlike a functional department, a staff unit—market research, engineering, legal—has no authority; it is purely advisory. A staff unit cannot enforce its recommendations, however valuable they may be. Staff people can only advise and persuade; line or functional departments receiving this advice may act on it or ignore it, as they choose.

The term "staff" is commonly used to cover all activities that are not clearly line work, thus blurring or obliterating the concept of functional authority. This fuzziness is unfortunate because it forecloses an opportunity for competitive advantage. The persuasiveness of a staff unit’s personnel is therefore an important factor in its success. However, if a fact-founded philosophy is adhered to,1 facts will carry more weight and less of a burden will fall on personal persuasion. Moreover, when the higher-level executives in a well-managed company accept staff advice, they let it be known that others should do so too.

The difference between a staff and a functional unit is inherent in the kind of work they do. Some types of activity require technical authority and cannot depend solely on advice and recommendations. Whether a particular unit has functional authority is determined by the chief executive. With written job descriptions, that determination can be made easily.

Many companies do put off "getting organized." But successful companies recognize organizational planning as a specialized activity that can contribute importantly to success. Organizational planning, neglected though it often is, provides another "secret weapon" that any company can put into its arsenal for success.

Notes

This article is adapted from Marvin Bower, The Will to Manage: Corporate Success Through Programmed Management, published by McGraw-Hill. Copyright © 1966 the Marvin Bower Trust. All rights reserved. Used by permission.

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