CBSE

Class 12 Business Studies

Revision Notes
CHAPTER – 5
ORGANISING

Meaning of Organizing

•nce the objectives and plans are laid down, management has to identify and establish
productive relationships between various activities and resources for implementing plans. In
general words organising refers to arranging everything in orderly form and making the
most efficient use of resources. The aim of organizing is to enable people to work together
for a common purpose.

‘Organizing is the process of identifying and grouping the work to be performed, defining
and delegating responsibility and authority and establishing relationships for the purpose of
enabling people to work most effectively together in accomplishing objectives.’

Steps Involved in the Process of Organizing

1. Identification & Division Of Work: -

The total work to be done should be divided into specific jobs as according to predetermined
plans. -
Job = a set of related tasks that can be performed by an individual. It should have specific
and definite tasks to be performed. As far as possible, it should define expected results along
with the job.
- Division of work → specialization of efforts and skills + avoids duplication of work.. -
Management must ensure that all the activities required to achieve organizational objectives
are identified.

2. Departmentalization:
- Grouping similar and related jobs into larger units called departments, divisions or sections
and placing them under a department head. It facilitates specialization.
- The departments are linked together and are interdependent.
- Aims at achieving co-ordination and facilitate unity of action. Departmentation can be done
on the basis of:

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•Functions: marketing, personnel, finance etc.
•Products: Textiles, chemical, power division etc.
•Territories: Western, northern, central, eastern etc.

3. Assignment Of Duties:
- Define the work of different job positions and allocate work accordingly.
- Once departments are formed, the dept is placed under the charge of an individual.
- Jobs are assigned to an individual best suited to perform it.
- Qualifications, experience, ability and aptitudes of people should be matched with duties.
- E.g. activities of finance should be assigned to persons having qualifications and experience
in finance e.g. C.A‘s.

4. Establishing Reporting Relationships:

- Granting requisite authority to enable employees to perform the job satisfactorily.
- Superior subordinate relations between different people and job positions created, so that
everybody knows from whom he is to take orders and to whom he can issue orders.
- Creates management hierarchy = a chain of command from the top manager to the
individual at the lowest level.
- This helps in coordination.

Importance of Organizing

1. Benefits of specialization: In organizing every individual is assigned apart of total work

and not the whole task. This division of work into smaller units and repetitive performance
leads to specialization. Thus organizing promotes specialization which in turn leads to
efficient & speedy performance of tasks.

2. Clarity in working relationship: It helps in creating well defined jobs and also clarifying
the limits of authority and responsibility of each job. The superior-subordinate relationship
is clearly defined in organizing.

3. Effective Administration: It provides a clear description of jobs and related duties which
helps to avoid confusion and duplication. Clarity in working relationships enables proper
execution of work which results ineffective administration.

4. Optimum utilization of resources: The proper assignment of jobs avoids

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overlapping/duplication of work. This helps in preventing confusion and minimizing the
wastage of resources and efforts.

5. Adoption to Change: A properly designed organizational structure is flexible which

facilitates adjustment to changes in workload caused by change in external environment
related to technology, products, resources and markets.

6. Development of Personnel: Sound organization encourages initiative and relative

thinking on part of the employees. When managers delegate their authority, it reduces their
workload so they can focus on more important issues related to growth & innovation. This
also develops the subordinates’ ability and helps him to realize his full potential.

7. Expansion and growth: It helps in growth & diversification of an enterprise by adding

more job positions, departments, products lines, new geographical territories etc.

Meaning of Organizational Structure

It seeks to establish relations among all the persons working in the organization. Under the
organizational structure, various posts are created to perform different activities for the
attainment of the objectives of the enterprise. Relations among persons working on different
posts are determined. The structure provides a basis or framework for managers and other
employers for performing their functions. The organization structure can be defined as the
frame work within which managerial and operating tasks are performed.

Relation between Span of Management and Organization structure:

Span of management refers to the number of subordinates that can be effectively managed
by a superior. The Span of management to a large extent gives shape to the organization
structure. This determines the levels of management in the structure. Arrow span of
management results in tall structure whereas wider span of management results in flat
structure.

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(A) Functional Structure: In functional structure activities are grouped and departments
are created on the basis of specific functions to be performed. For example, all the jobs
related to production are grouped under production department, sales departments etc.

Suitability

(1) Large organizations producing one line of product.

(2) Organizations which require high degree of functional specialization with diversified
activities.

Advantage

1. Specialization: Better decision of labour takes place which results in specialization of

functions and its consequent benefits.

2. Coordination is established: All the persons working within a departmental are

specialists of their respective jobs. It makes the co-ordination easier at departmental level.

3. Helps in increasing managerial efficiency: Managers of one department are performing

same type of function again and again which makes them specialized and improves their
efficiency.

4. Minimizes cost: It leads to minimum duplication of effort which results in economies of

scale and thus lowers cost.

Disadvantages

1. Ignorance of organizational objectives: Each departmental head works according to his

own wishes. They always give more weight to their departmental objectives. Hence overall
organizational objectives suffer.

2. Difficulty in Inter-departmental Coordination: All departmental heads work as per

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their own wishes which leads to coordination within the department easier but it makes
inter-departmental coordination difficult.

3. Hurdle in complete development – because each employee specializes only in a small part
of the whole job.

(B) DIVISIONAL ORGANIZATION STRUCTURE

Dividing the whole enterprise according to the major products to be manufactured (like
metal, plastic, cosmetics etc.) is known as divisional organization structure.

Suitability: This structure is suitable in organizations producing multi product or different

lines of products requiring product specialization. Also growing companies which intend to
add more lines of products in future adopt this structure.

Advantages

1. Quick decision-making: Divisional manager can take any decision regarding his division
independently which makes decisions quick and effective.

2. Divisional results can be assessed: Division results (profit/loss) can be assessed easily. On
this basis any unprofitable division can be closed.

3. Growth and Expansion: It facilitates growth and expansion as new divisions can be
added without disturbing existing departments.

Disadvantages

1. Conflicts among different divisions on allocation of resources.

2. Duplicity of Functions: Entire set of functions is required for all divisions. It gives rise to

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duplicity of efforts among divisions & increases cost.

3. Selfish Attitude: Every division tries to display better performance and sometimes even at
the cost of other divisions. This shows their selfish attitude.

FORMAL ORGANISATION

- Refers to the org. structure that is designed by the management to accomplish

organizational objectives..

- It specifies clearly the boundaries of authority & responsibility and there is a systematic
coordination among the various activities to achieve organizational goals.

- Louis Allen – System of well defined jobs, each bearing a definite measure of authority,
responsibility & accountability. .

Features

1. It is deliberately created by the top management.

2. It is based on rules and procedures which are in written form.

3. It is impersonal i.e. does not takes into consideration emotional aspect.

4. It clearly defines the authority and responsibility of every individual.

5. It is created to achieve organizational objectives.

Advantages

1. Easier to fix responsibility since mutual relationships are clearly defined.

2. No overlapping of work – because things move according to a definite plan.

3. Unity of command through an established chain of command.

4. Easy to achieve objectives - because coordination and optimum use of human and material
resources.

5. Stability in the organization – because behavior of employees can be fairly predicted since
there are specific rules to guide them.

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Disadvantages

1. The Work is based on rules which causes unnecessary delays.

2. Lack of initiative: The employees have to do what they are told to do and they have no
opportunity of thinking.

3. Limited in scope: It is difficult to understand all human relationships in an enterprise as

it places more emphasis on structure and work.

INFORMAL ORGANISATION

An informal organization is that organization which is not established deliberately but

comes into existence because of common interests, tastes and religious and communal
relations. The main purpose of this organization, structure is getting psychological
satisfaction. For example, employees with similar interest in sports, films, religion etc. may
form their own informal groups.

Features

1. It originates from within the formal organization as a result of personal interaction among
employees.

2. It has no written rules and procedures.

3. It does not have fixed lines of communication.

4. It is not deliberately created by the management.

5. It is personal means the feelings of individuals are kept in mind.

Advantages

1. Speed: Prescribed lines of communication are not followed which leads to faster spread of
information.

2. Fulfillment of social needs – enhances job satisfaction which gives them a sense of
belongingness in the organization.

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3. Quick solution of the problems – because the subordinates can speak without hesitation
before the officers, it helps the officers to understand the problems of their subordinates.

Disadvantages

1. It creates rumours: All the persons in an informal organization talk careless and
sometimes a wrong thing is conveyed to the other persons.

2. It resists change and lays stress on adopting the old techniques.

3. Priority to group interests: Pressurizes members to conform to group expectations.

Difference between Formal Informal Organisation

Basis Formal Organisation Informal Organisation

It refers to the structure of well It refers to the network of social

1. Meaning defined authority and relationships which develops
responsibility. automatically.

2. Nature Rigid and stable Flexible and unstable

Arises by virtues of positions in

3. Authority Arises out of personal qualities.
management.

4. Adherence to Violations of rules may lead to

No such penalities and punishments.
rules penalities and punishments.

5. Flow to Takes place through the scalar Not through a planned route, it can
Communication Chain. take plane in any direction.

To achieve planned To satisfy social and cultural needs

6. Purpose
organizational objectives. and fulfill common interests.

7. Formation/ Deliberately planned and created Emerges spontaneously as a result of

origin by management. social interaction among employees.

Well defined structure of tasks No clear cut structure because of

8. Structure
and relationships. complex network of relationships.

9. Flow of Authority flows from top to Authority flows vertically as well as

Authority bottom i.e. downwards. horizontally.

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 10.
Independent. Depends on formal structure.
Interdependence

Delegation of Authority

Meaning: It means the granting of authority to subordinates to operate within the prescribed
limits. The manager who delegates authority holds his subordinates responsible for proper
performance of the assigned tasks. To make sure that his subordinates perform all the works
effectively and efficiently in expected manner the manager creates accountability.

Process/Elements of Delegation

1. Authority: The power of taking decisions in order to guide the activities of others.
Authority is that power which influences the conduct of others.

2. Responsibility: It is the obligation of a subordinate to properly perform the assigned duty.

When a superior issues orders, it becomes the responsibility of the subordinate to carry it
out.

3. Accountability: When a superior assigns some work to a subordinate, he is answerable to

his superior for its success or failure.

Principle of Absoluteness of Accountability: Authority can be delegated but

responsibility/accountability cannot be delegated by a manager. The authority granted to a
subordinate can be taken back and re-delegated to another person. The manager cannot
escape from the responsibility for any default or mistake on the part of his subordinates. For
example, If the chief executive asks marketing manager to achieve a sales target of sale of
100 units/day. The marketing manager delegates this task to deputy sales manager, who fails
to achieve the target. Then marketing manager will be answerable for the work performance
of his subordinates. Thus, accountability is always of the person who delegates authority.

Process of Delegation of Authority

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Difference between Authority, Responsibility and Accountability

Basis Authority Responsibility Accountability

1. •bligation to perform Accountability for the
Right to command
Meaning an assigned task. outcome of the assigned task.
Arises from formal Arises from delegated
2. Origin Arises from responsibility.
position. authority.
Upward- from
Downward- from Upward- from subordinate to
3. Flow subordinate to
superior to subordinate. superior.
superior.
4. Can be withdrawn Cannot be withdrawn Cannot be withdrawn once
Withdrawl anytime by giving notice. once created. created.

Importance of the Delegation of Authority

1. Reduction of Executives’ work load: It reduces the work load of officers. They can thus
utilize their time in more important and creative works instead of works of daily routine.

2. Employee development: Employees get more opportunities to utilize their talent which
allows them to develop those skills which will enable them to perform complex tasks.

3. Quick and better decision are possible: The subordinate are granted sufficient authority
so they need not to go to their superiors for taking decisions concerning the routine matters.

4. High Morale of subordinates: Because of delegation of authority to the subordinates they

get an opportunity to display their efficiency and capacity.

5. Better coordination: The elements of delegation – authority, responsibility and

accountability help to define the powers, duties and answer ability related to various job
positions which results in developing and maintaining effective coordination.

Decentralization

• Decentralisation of authority means dispersal of authority to take decisions throughout the

organization, upto the lower levels.

• It implies reservation of some authority with the top level management and transferring

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rest of the authority to the lower levels of the organization. This empowers lower levels to
take decisions regarding problems faced by them without having to go to the upper levels.

According to Allen,‘ Decentralisation refers to systematic efforts to delegate to the lowest

level, all authority except the one which can be exercised at central points.‟

Centralization = authority retained at top level and Decentralization = Systematic

delegation of authority at all levels and in all departments of a firm. Firm needs to balance
the two.

• In case of a decentralized firm, Top level retains authority for:

o Policies and decisions w.r.t the whole firm

o Overall control and coordination

• Middle and lower levels have authority to take decisions w.r.t tasks allocated to them

Centralization and Decentralization: represents the pattern of authority among managers

at different levels. Centralization of authority means concentration of power of decision
making in a few hands. In such an organization very little authority is delegated to managers
at middle and lower levels. No organization can be completely centralized or decentralized.
They exist together and there is a need for a balance between the two. As the organization
grows in size, there is tendency to move towards decentralization. Thus, every organization
is characterized by both.

Importance of Decentralization

1. Develops initiative amongst subordinates: It helps to promote confidence because the

subordinates are given freedom to take their own decisions.

2. Quick and better decisions: The burden of managerial decisions does not lie in the hands
of few individuals but gets divided among various persons which helps them to take better
and quick decisions.

3. Relieves the top executives from excess workload: The daily managerial works are
assigned to the subordinates which leaves enough time with the superiors which they can
utilize in developing new strategies.

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4. Managerial Development: It means giving authority to the subordinates up to the lower
level to take decisions regarding their work. In this way the opportunity to take decisions
helps in the development of the organization.

5. Better Control: It makes it possible to evaluate performance at each level which results in
complete control over all the activities.

Difference between – Delegation and Decentralization

Basis Delegation Decentralization

1. Nature It is a compulsory act. It is an optional policy.
2.
Less freedom to take decisions due to More freedom of action due to less
Freedom
more control by the superiors. control by the top management.
of action
It is a process of sharing tasks and It is the result of policy decisions taken
3. Status
authority. by top management.
Wide- It includes extension of
Narrow- as it is confined to a superior
4. Scope delegation to all the levels of
and his immediate and subordinate.
management.
To increase the role and the autonomy
5. Purpose To reduce the burden of manager.
of lower level of management.

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