1.2 Why do we need organisations?

Organisations can achieve results that cannot be produced by individuals on their own. This is because organisations enable people to:

§ share skills and knowledge

§ specialise and

§ pool resources.

As the organisation grows it will reach a size where goals, structures and control procedures need to be formalised to ensure that objectives are achieved.

These issues are discussed in further detail below.

Illustration 1 – The nature of organisations

When families set up and run restaurants, they usually do not have to consider formalising the organisation of their business until they have five restaurants. After this stage responsibilities have to be clarified and greater delegation is often required.

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There are many reasons why organisations exist:

§ They satisfy social needs, e.g. the companionship of people with similar tastes leads to the formation of clubs, societies and unions. People join organisations because they consider that they will be more secure, more successful, have more needs and wants satisfied and be better off.

§ Organisations exist primarily because they are more efficient at fulfilling needs than individuals who attempt to cater for all their requirements in isolation and without assistance from others. The main reason for this is the ability that organisations have of being able to employ the techniques of specialization and the division of labour. In particular:

§ They save time – a group can accomplish a task more quickly than lone individuals.

§ They pool knowledge – members of organisations can share knowledge and skills.

§ They are power centres – an individual rarely has the power to influence events on a large scale whereas most organisations can influence demand, win orders and create wealth.

Specialisation is perhaps the oldest organisational device. It occurs when organisations or individual workers concentrate on a limited type of activity. This allows them to build up a greater level of skill and knowledge than they would if they attempted to be good at everything.

The advantage of arranging work in this way lies in the fact that, by concentrating on one type or aspect of work, it is possible to become much more efficient. By concentrating its expertise into a limited range of activities, the organisation plans and arranges its output to achieve the most efficient use of its resources. A key aspect of specialisation involves the division of labour.

The specialisation of labour developed as industrialization advanced, and large organisations became more popular. It was first used in car production at Ford and is associated with the work of Taylor, which we will be discussing later. The car production process was broken down into many separate tasks and each worker was required to specialise in only one small aspect of the total process. This benefits the manufacturer in three ways:

§ Simple tasks encourage the use of highly specific equipment, e.g. power wrenches that speed up the manufacturing operation.

§ Semi-skilled labour can be employed rather than highly skilled operatives.

§ Workers are only responsible for one process and so are able to develop a high level of expertise and increase their output per period.

Modern industrialised economies make great use of specialisation and the division of labour, but for organisations to gain the full benefits of these techniques they also employ another organisational device known as hierarchy. We will be examining this further when we discuss the distribution of authority, responsibility and accountability within the organisation.

Test your understanding 2

Suppose you are organising a student ball. What advantages could be gained by forming a committee to manage the process and ultimate event?