UDIT WADHWA CLASSES

Chapter-5 ORGANISING
Organising:- is the process of defining and grouping the activities of the enterprise
and establishing authority relationships among them.
Or
Organising 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 in the process of Organising

Identification
of Work

Departmentalisation

Assignment of
Duties

Establishing
Reporting
Relationship

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1. Identification and division of work:- The first step in organizing is to follow a plan
and identify the work to be done. Thereafter the work must be divided into smaller
and manageable activities.

2. Departmentalisation:- means selecting the activities which are similar in nature and
grouping them together. The grouping of activities facilitates specialization.

3. Assignment of Duties:- Once the work is divided and departmentalized then follow
the allocation of responsibility. People are employed in each department and work is
allocated depending on the competencies and skills of each employee.

4. Establishing Reporting Relationships:-If there is too many people working in a group

it is essential for group members to know from whom they have to take orders and to
whom they are accountable. The clearly defined relationships helps to create a
hierarchal structure and facilitates coordination amongst different departments.

Importance of Organising
1. Benefits of specialization:- Organising leads to specialization, as the assigned work is
performed regularly by the concerned person. When a specific worker performs a
specific task repeatedly, he/she gains experience and eventually achieves
specialization.
2. Clarity in Working Relationships:- The reporting relationships get clarified after proper
organizing. With a pre-defined hierarchical order and established authority and
responsibility, there is no possibility of miscommunication. Each employee knows from
whom to receive instructions and whom to report.

3. Optimum Utilisation of Resources:- The division of work into smaller tasks and
allocation of work in accordance to skills and competencies of employees facilitate
optimum utilization of all physical and human resources. There is reduction in
duplication of efforts and overlapping of activities after proper organizing.

4. Adapting to change:- While implementing plans, the process of organizing tries to

incorporate the changes in the business environment by modifying the organizational
structure and revising the inter-relationships at managerial levels.
5. Effective Administration:- The clear description of task to be performed and related
responsibilities prevents confusions and duplication of work. The effective and efficient
execution of work brings in effective administration.
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6. Development of Personnel:- Division of work and specialization not only increases

productivity but also provides growth opportunities to employees. The lesser burden
of work stimulates creativity among workers. They not only complete task effectively
but also try to find alternative and more effective ways of performing jobs.
7. Expansion and Growth:- Organising helps in growth and diversification of an
enterprise by enabling it to deviate from existing norms and taking up new
challenges.
Organisational Structure
The organizational Structure is defined as the Structure which:-
 Provides the framework within which managerial and operating task are performed.
 Specifies the relationship between people, work and resources.
 Facilitates correlation and coordination among human, physical and financial
resources with sole aim to accomplish desired goals for a business enterprise.
 The shape of organization structure largely depends on the span of management. The
span of management determines the level of management in the organizational
structure.
 Span Of Management:- It is the number of subordinates a superior manages or can
effectively manage.

TYPES OF ORGANISATIONAL STRUCTURE

The type of organizational structure depends on the nature and types of activities
performed by an organization. The organizational structure can be classified as:-
 Functional Structure
 Divisional Structure
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.
Suitability
Large organizations producing one line of product.
Organizations which require high degree of functional specialization with diversified
activities.

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Managing Director

Production Dept. Finance Dept. Marketing Dept. Human Resource Dept.

Advantages of Functional Structure

1. Functional Specialisation:- Better decision of labour takes place which results in
specialisation

2. Coordination is established:- All the persons working within a department 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 perform
same type of function again and again which makes them specialized and improves
their efficiency.
4. Minimizes cost: It leads to minimum duplication of efforts which results in economies
of scale and thus lowers cost.

5. Proper Attention:- Individuals having to perform similar and smaller tasks enables
them to focus better on the activities they are responsible for.

Disadvantages of Functional Structure

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
their own wishes which leads to coordination within the department easier but it makes
inter-departmental coordination difficult.
3. Limited Growth Opportunities:- The employee working in the department are
assigned similar tasks, as a result they do not get the opportunity to gather experience
in diverse area leading to limited opportunities for growth and development.

Divisional Structure
Divisional structure is a type of organization structure where enterprises work as units
or divisions. Dividing the whole enterprise according to the major products to be
manufactured (like metal, plastic, cosmetics etc.) is known as divisional organization
structure. The basic characteristics of divisional structure are:-
 The enterprise is divided into separate units and divisions.

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 Within each division, functional structure is adopted. Therefore, each division is

multifunctional.
 Each unit has its own expertise to manage all functions related to a product line.
 The divisional manager has authority to run the unit or division and is responsible for
its performance.

Suitability
 For the enterprises where large varieties of products are manufactured using different
productive resources. (Multi-product) Example- Tata, Reliance.
 When an organisation grows and needs to add more employees, more departments or
introduce new level of management.

Advantages of divisional Structure

1. Product Specialisation:- Divisional head is responsible for the functioning of a division.
While managing all the functions he gains skills, experience and specialization of a
particular product.
2. Growth Opportunities:- While managing various functions within a division, the
divisional head develops specialized skills which prepare him/her for higher positions.
3. Quick decision-making:- Divisional manager can take any decision regarding his
division independently which makes decisions quick and effective.

4. Divisional results can be assessed:- Divisional results (profit/loss) can be assessed

easily. On this basis any unprofitable division can be closed.

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

Disadvantages of Divisional Structure

1. Conflicts among divisions:- Each division may work to perform the best and earn
maximum profits. To achieve their objective, they may try to get more funds or
transfer costs to other departments. This may result in conflicts between different
divisions.
2. Increased Operation Cost:- Since each division performs all functions, it requires
separate set of staff and other resources to perform function resulting in duplication
of work and increased expenditure for similar functions performed in different
divisions.

Difference Between Functional and Divisional Structure

Basis Functional Structure Divisional Structure
Formation Structure is based on functions Structure is based on product lines
and supported by functions.
Specialisation Functional Specialisation. Product Specialisation.
Managerial No Possibility of development as Divisional head performs different
Development functional manager perform specific types of functions and thus gains
functions. experience in different areas.
Flexibility Not much Flexibility as decision making Division head has authority to take
authority is with top management. decisions leading to flexibility in
decision making.
Cost Economical in cost as it prevents Increased operating cost due to
duplication of work. duplication of work.
Coordination Coordination difficult as different Easy to coordinate as all functions
departments perform different related to a particular product are
functions for the same product. It is performed within a division.
not advisable for multi-product
companies.
Suitability Suitable for companies in single Suitable for companies dealing in
product. multi-product manufacturing.

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Types of Organisation

Formal Organisation Informal Organisation

Formal Organisation
Formal organization refers to the organisation of well-defined jobs, each bearing a
definite measure of authority, responsibility and accountability. It is consciously
designed and officially designed by the management to ensure smooth functioning of
the organization.

Features of Formal Organisation

1. Deliberately designed:-A formal organization is consciously designed and officially
stated by the management to ensure smooth functioning of the organization.
2. Means to achieve objectives:- Formal organization provides rules and procedures
related to specific task to be performed so that organization objectives are achieved
effectively.
3. Well-defined Authority-Responsibility:- In a formal organization structure there is a
well-defined line of authority and responsibility.
4. Rigid:- Formal organization is rigid in nature. There is a fixed role assigned to every
position. The chain of communication, operating procedures, mode of communication
are pre-defined and fixed.

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5. Emphasis on Work process:- Formal organization emphasizes on work to be

performed rather than interpersonal relationships among employees.
Advantages of Formal Organisation
1. Easy to fix Responsibility:- the clearly defined mutual relationships make it easier to
fix responsibilities.
2. No confusion in instructions:- it assigns specific responsibilities or duties to each
member. This minimizes confusion and avoid duplication of efforts.
3. Maintains unity of command:- The well-established relationships through chain of
command enable to maintain unity of direction.
4. Focuses on Organisational Goals:- Pre-defined framework for the operations ensures
that each member works towards achievement of organizational goals effectively.
5. Provides Stability:- Behaviour of each employee is guided by the rules and
regulations, this provides stability to the organization.

Limitations of Formal Organisation

1. Procedural Delay:- the decision making in formal organization need to follow the
chain of command which may take longer time to decide leading to delays.
2. No recognition for Creativity:- The employees are required to follow the pre-
determined rules and procedures without any deviations. This makes employees just
‘doers’ and restrict them for using their creativity.
3. No understanding of Human Relationships:-Formal organization fails to understand
human relations as its main focus is on work processes as compared to interpersonal
relationships.
Informal Organisation
Informal Organisation refers to a structure where employees interact beyond their officially
defined roles. Informal organization can be defined as a ‘network of social relationships among
employee’.

Features of Informal Organisation

1. Originates within the formal Organisation:- Informal organization is the result of
frequent contacts or interactions among employees who are part of formal
organization.

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2. No official standards of behavior:- Informal organization involves formation of groups

among employees on the basis of personal interaction. There are no officially laid
rules and regulations for informal organization.
3. Independent Channels of Communication:- Informal organization is not defined by
rules or lines of communication. The information flows among the group members
without any specified direction or line of communication.
4. No formal Structure:- Informal organization does not follow any organizational
structure. It is self- created by a group of people, which emerges spontaneously. It is a
complex network of social relationship among members, thus organization has no role
to play in its formation.

Advantages of Informal Organisation

1. Quick Communication and Faster Feedback:- In the absence of formal or pre-defined
lines of communication the information is transferred faster with instant feedback as
well.
2. Fulfills Social Needs:- Informal organization allows like-minded people to form groups
and discuss their problems or issues of common interest. It satisfies their social needs,
creates bonding with other employees, develop sense of belongingness and eventually
enhances job satisfaction.
3. Makes up for inadequacies of formal organization:- The informal organization helps
management to overcome the inadequacies of formal organization, helps them to
receive feedback on policies and procedures through informal network and bring in
necessary changes to achieve organizational objectives more effectively.

Limitations of Informal Organisation

1. Disrupts the formal setups:- The informal organization may spread rumours or leak
confidential information. This may spoil company image, create suspicion among
employees and work against the interest of the formal organization.
2. Resistance to Change:- If the informal organization is strong and united, they may
oppose the changes proposed by formal organization.

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3. Group Interest over organizational interest:- The group formation may pressurize
members to follow the norms of the group. If the group interest are not in line with
the organizational interest it may harm the organizational performance.

Difference Between Formal and Informal Organisation

Basis Formal Organisation Informal Organisation

Meaning Formal organization refers to the Informal organization refers to
system in which the organization the system in which the
follows the well-defined rules and employees with similar interest
procedures related to work processes forms groups and interact outside
and authority-responsibility the officially defined roles.
relationship.
Origin Formal organization is a result of rules Informal organization is a result
and procedure defined by the top of social interaction between
management. employees of similar interest.
Authority Authority arises by virtue of position in Authority arises out of personal
management. qualities of members in a group.
Behaviour/ The standard of behavior are directed There is no defined standard for
Code of by rules. behaviour, it is directed by norms
conduct of the group.
Flow of Flow of communication follows scalar There is no fixed direction for
Communication chain and chain of command. flow of communication. It can
take any direction
Nature It is rigid in nature. Every employee It is flexible as there are no
has to follow the rules and procedure organizational rules or
as laid by the organization. procedures to be followed. It is
the norm of the group.
Leadership The manager appointed by top There is no formally appointed
management lead the organizational leader. Group may choose any of
structure. its members as its leader who
may not be a manager.
Objective Formal organization aims to achieve Informal groups are formed to
organizational goals in a planned satisfy social and personal needs
manner. and pursue common interest.

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DELEGATION
Delegation refers to the downward transfer of authority from Superior to Subordinate. In other
words delegation of authority merely means the granting of authority to subordinates to operate
within prescribed limits.
 Delegation helps a manager to use his time on high priority activities.
 It also satisfies the subordinate’s needs for recognition and provides them opportunities to develop
and take initiative.
Elements Of Delegation

Authority Responsibility Accountability

“Authority is delegated, Responsibility is assumed, Accountability is imposed”

1. Authority:- refers to the right of an individual to command his subordinates and to take action within
the scope of his position.
 Authority determines the superior subordinate relationship wherein the superior communicates his
decision to the subordinate and subordinates executes the decision as per the guidelines of the
superior.
2. Responsibility:- is the obligation of a subordinate to properly perform the assigned duty.
 Responsibility flows upward i.e., a subordinate will always responsible to his superior.
 Subordinate is bound to perform the duty assigned to him by his superior.
 It arises due to superior- subordinate relationship.
3. Accountability:- implies being answerable for the final outcome.
 Accountability is the obligation to carry out responsibility and exercise authority in terms of
performance standards established.
 A subordinate will be accountable to a superior for satisfactory performance of work.
 All superiors are answerable to the higher authorities for the acts and performances of their
subordinates.
 Accountability always flows upwards and increases with the level of management.

Importance Of Delegation

Effective delegation leads to the following benefits:-

1. Development of subordinates:- when authority is delegated to the subordinates, they are

encouraged to do their job with greater responsibility. They also develop the ability to handle
complex and difficult tasks. It enables them to hold senior positions, when prompted.

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2. Fundamental to organization/ Basis of management hierarchy:- No organization structure can exist

without delegation of authority. Delegation of authority establishes superior- subordinate
relationships, which is the basis of organizational hierarchy.
3. Motivating the subordinates:- delegation improves the self-esteem and confidence of the
employees. A superior will delegate only that part of his job which he thinks somebody is capable
and worthy of carrying out. By such assignment a subordinate feel motivated and further tries to
improve his performance.
4. Faster decision making:- when authority is delegated to the subordinates, they are granted freedom
for taking decisions by themselves. They do not run to their seniors for seeking their advice and for
getting decision made. It takes less time and avoids delay in taking decision.
5. Facilitation of growth:-delegation helps in the expansion of an organization by providing a ready
workforce to take up leading position in new ventures and projects.
6. Assistance to senior executive/ effective management:- through delegation senior executives can
free themselves from the burden of routine work. They can concentrate on more important tasks.
7. Better coordination:- delegation of authority helps to define powers, duties and answerability
related to various position in an organization. This helps to avoid overlapping of duties and
duplication of efforts.

Decentralisation

Decentralisation means distribution of decision making authority at various levels in the

organisation. Decentralization refers to the systematic effort to delegate to the lowest level all
authority except that which can be excercised at the central point”

Centralisation and Decentralisation

Centralization and decentralization are relative term.

 Centralisation:- An organisation is centralised when decision making authority is retained by the

higher management levels.
 Decentalisation:- An organisation is decentralised when decision making authority is distributed at
various levels in the organisation.
 In a large size organisation, it is difficult to even imagine a situation of total centralisation where
workers are waiting for every petty thing for the decision of top management, while, a case of total
decentralization would mean that every unit is operating on its own as a separate entity.
 An organization can never be completely centralized or decentralized.
 As it grows in size and complexity, there is a tendency to move towards decentralised decision
making.

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 The greater the amount of authority delegated throughout the organization structure, the more
decentralised an organization is and vice versa.
 Centralization and decentralization are relative terms linked with the extent of delegation. Thus, it
can be said that “the concept of centralization and decentralization are related to the concept of
delegation.

Delegation Of Authority Vs Decentralisation

Basis Delegation of Authority Decentralisation

1.Nature Delegation is compulsory act because no Decentralisation is an optional policy

individual can perform all tasks on his own. decision.
2.Scope It has narrow scope as it is limited to It has wider scope as it is an extension of
superior and his immediate subordinate. delegation to the lowest level in the
organization.
3.Purpose To lessen the burden of the manager. To increase the role of the subordinates
in the organization by passing operational
control at all levels.
3.Responsibility The ultimate responsibility lies with the Departmental heads are responsible for
superiors and they cannot escape it by the the results.
process of delegation.
4.Status It is an act or process to share the task. It is the result of the policy decision of top
management.
5.Relationship/ It indicates relationship between superiors It indicates relationship between top
Parties Involved and their subordinates. management and various other
departments and sub departments in the
organization
6.Freedom of Superior exercise control over the Executives have greater freedom to act
Action performance of his subordinates, hence less and are not closely supervised by their
freedom to take own decisions. superiors.

7.Withdrawal The delegated authority can be withdrawn It is the general policy adopted by top
of Authority by the delegator. management and is applicable to all
departments.
Importance Of Decentralisation
The importance of decentralization to an organization is as follows:-

1.Facilitates Distribution of the work load:- Large numbers of activities- routine as

well as strategic are required to be performed , to run an organization. But the time
available at one’s disposal is limited. Decentralization helps in distribution of the work
according to the level at which one operates.
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2.Quick and Better Decision-Making:-In decentralized organization decisions are

taken even at the lower levels. There is no requirement for approval from many levels
and it facilitates faster decision making.

3.Promotes Initiative and Creativity:- decentralization provides opportunity to the

workers to take initiative and handle the issues more creatively.

4.Better Control:-It also helps in exercising better control over the different
departments, levels as it becomes easy to assess their performance and contribution
towards organizational goals.

5.Improves Team Work:- In decentralized organization , special efforts are put by

managers to involve more and more subordinates operating at different levels in
decision making. Its results in constant and open communication among them which
helps in building team- spirit among the workers.

6.Executive Development:- In decentralized organization , workers learn to take

independent decisions, especially at the lower level. It is a systematic way of training
and developing workers to assume future responsibilities.

7.Enhances Motivation Level:- The feeling of being independent decision making

authority provides higher motivation to the workers , particularly at the lower level. It
also enhances their self confidence and feeling of recognition and participation.

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