DAV CENTENARY PUBLIC SCHOOL, PASCHIM ENCLAVE, NEW DELHI-87

BUSINESS STUDIES, CLASS XII

ORGANISING

Definitions

As said by Louis A. Allen, “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 Organising Process

1. Identification and division of work – Here the work is to be identified and divided into small and
manageable tasks.
2. Departmentalisation – In this step, the similar activities are grouped together and departments are
formed. Such grouping of activities on the basis of their similarity is called departmentalization. It helps in
ensuring specialization.
3. Assignment of duties – Once the departments are formed, each of them is placed under a separate
departmental head/incharge. Then, the work is assigned to the people working in the departments.
4. Establishing reporting relationships – Here, relationships among the people working in an organisation
are established. Such relationships show who is accountable to whom and who has to take orders from
whom.
The organizing process leads to creation of organizational structure, which is narrow at the top and broad
at the bottom.

Importance of Organising

The following points show the crucial role of organizing function in the business –

1. Benefits of specialization – Since the entire work is divided into activities and similar activities are
grouped under departments, so, the specific employees perform specific jobs repeatedly. This leads to
specialization and increase in efficiency.
2. Clarity in working relationships – The process of organizing leads to creation of organisation structure. In
that structure, the authority and responsibility allocated to each individual is specified. This clarifies who
is accountable to whom and who has to take orders from whom.
3. Optimum utilization of resources – In the process of organizing, the responsibilities are assigned to
various individuals. It helps in avoiding overlapping and duplication of work. So, there is no wastage of
resources and efforts and thus, optimum utilization of resources takes place.
4. Adaptation to change –The numerous changes take place in the business environment continuously. In
order to adapt to those changes, the organisation structure can be modified .
5. Effective administration – The process of organizing brings clarity in working relationships which helps in
proper execution of work. Thus, management and administration of the organisation becomes easy and
effective.
6. Development of personnel – The process of organizing involves delegation of authority and responsibility
to the subordinates. This helps the subordinates to exercise creativity and practice innovation.
 7. Expansion and growth – Organising helps in the expansion and growth of the business organisation. It
allows a business organisation to add more job positions, departments and divisions in order to diversify
its product lines.

Organisation Structure

The process of organizing leads to creation of organisation structure.

Meaning and definition – The organisation structure can be defined as the framework within which managerial
and operating tasks are performed. It specifies the relationships between people, work and resources. The
organisation structure is depicted in the organisation chart.

The shape of organisation structure is determined by ‘span of management’. The span of management refers to
the number of subordinates that a manager can effectively manage. The span of management determines the
levels of management in the organisation structure. Larger the span, lesser will be the number of levels and the
organisation structure will be flat. On the other hand, smaller the span, more will be the number of levels and the
organisation structure will be tall.

Functional Structure

• A functional structure is an organizational design which is formed by grouping the jobs on the basis of
their similarity.
• Here, each major function is organized as a separate department.
Organization chart of functional structure
Advantages

1. Specialisation - Since jobs are grouped on the basis of similarity, so, it leads to occupational specialization.
This is so because employees perform similar tasks repeatedly.
2. Coordination - Control and coordination within the departments is easy as similar activities are carried on
in each department.
3. Increase in efficiency - It helps in increasing managerial and operational efficiency which further leads to
increase in profits.
4. Reduction in costs - The functional structure helps in avoiding duplication of work which helps in reducing
costs.
5. Easy training - The training of employees becomes easy as the focus is on limited range of skills.
6. Proper attention - The functional structure ensures that different functions get due attention.

Limitations

1. Ignorance of organizational objectives - The departmental heads pay attention only to departmental
objectives and tend to ignore the organizational objectives.
2. Lack of coordination - Coordination among the departments is difficult as information has to be passed
through different departments.
3. Conflict of interests - Due to functional organizational structure, conflicts may arise among various
departments of the organization. Example - the marketing department may require a customer-friendly
product design which is difficult for the production department to produce.
4. Lack of flexibility/ No scope for managerial development - All the functional managers have knowledge
and training only in their respective areas. They cannot be promoted to top level managerial positions.
5. Difficult to fix responsibility* - It becomes difficult to hold a particular department responsible for any
problem. Example - if there is decrease in sales, it is not clear whether production or marketing
department is accountable.

Suitability

Functional structure is most suitable when -

• The size of organization is large.

• It has diversified activities.
• The operations of the organization require a high degree of specialization.
Divisional structure

• A divisional structure is the organizational design which is formed by grouping the jobs on the basis of
products manufactured.
• Here, each product line is organized as a separate division.
• Each division is headed by a divisional manager who has complete authority and responsibility of the
divisional matters.
• Each division is multi-functional.
• Each division works as a ‘profit center’ as divisional managers are responsible for profits or losses of their
divisions.
Organisational chart of divisional structure
Merits

1. Scope for managerial development - The product specialization helps in development of different skills in
the divisional heads. This prepares them for handling top level managerial positions.
2. Fixation of responsibility - Since each division is a profit center, the divisional manager is accountable for
profits or losses of the division.
3. Quick decision making – Here, each division is working independently. This helps in quicker decision
making.
4. Easy expansion - It is easy to expand the business as new divisions can be established for new product
lines, without disturbing the existing divisions.
5. Coordination - Coordination within the divisions is easy as all activities related to one product are carried
on in each division.

Limitations

1. Conflict of interests - There may be conflicts among divisions for allocation of funds. One division may try
to maximize its profits at the cost of other divisions.
2. Increase in costs - The entire set of functions - Production, Marketing, Finance, etc are performed
separately in each division. This leads to duplication of effort and increase in costs.
3. Ignorance of organizational objectives - The divisional managers are given authority for their respective
divisions. So, they may misuse their authority and may ignore organizational objectives.

Suitability

The divisional structure is most suitable -

• A large variety of products are manufactured.

• An organization grows and needs to appoint more employees, create new departments and new
levels of management.

Difference between Functional and Divisional structure

Basis of Functional structure Divisional structure

difference
 1. Formation It is formed by grouping the jobs on It is formed by grouping the jobs on the basis of
the basis of similarity. products manufactured.

2. Specialization It facilitates functional It facilitates product specialization.

specialization.

3. Responsibility It is difficult to fix responsibility on It is easy to fix responsibility as each division is

any department. working independently.

4. Managerial The managerial development is The managerial development is easier as -

development difficult as -
• Divisional managers perform multiple
• Each manager works in a functions.
limited field. • They are given authority to take
• Each manager has to decisions on their own.
report to top management.

5. Cost Cost involved is less as there is no Cost involved is more as there are similar
duplication of work. departments under each of the divisions.

6. Coordination Coordination is difficult for a multi- Coordination is easy as all functions related to
product company. one product are grouped as a separate division.

FORMAL AND INFORMAL ORGANISATION

Formal organization

Definitions

According to Louis A. Allen, “The formal organization is a system of well defined jobs, each bearing a definite
measure of authority, responsibility and accountability.”

The formal organization structure can be functional or divisional.

Features of Formal Organisation

1. Well defined structure of jobs - The formal organization consists of jobs having well defined jobs,
each having definite measure of authority, responsibility and accountability. It clarifies who has to
report to whom.
2. Means to achieve the objectives - The formal organization lays down rules and procedures which
serve as a means to achieve the organizational objectives.
3. Coordination and integration - The formal organization helps in coordination and integration of
efforts of different departments working in the organization.
 4. Deliberately designed by top management - The formal organization structure is deliberately
designed by top management to ensure smooth functioning of the organization.
5. Focus on work (responsibility) and structure - The formal organization focuses on roles and
responsibilities of different employees and not on their inter-personal relationships.

Merits

1. Easy to fix responsibility - It is easy to fix responsibility as the roles and responsibilities are made
clear by formal organization.
2. Role clarity - The roles and responsibilities of different job positions are made clear. So, there is no
confusion and it further helps in avoiding duplication of work.
3. Serves as chain of command - The formal organization structure serves as the chain of command
and chain of communication. It shows who has to report to whom.
4. Helps in achievement of organizational objectives - The formal organization specifies the roles to be
performed at various job positions. Also, it specifies the rules and procedures to be followed. This
helps in achievement of organizational objectives.
5. Stability - The formal organization structure provides stability to the organization. This is so because
it specifies the system of job positions, their inter-relationships and also the rules to guide the
behaviour of employees.

Limitations

1. Delay in decision making - The formal organization structure specifies the chain of command and
chain of communication. The following of such chain of command may lead to delay in decision
making.
2. No scope for creativity - The formal organization structure is rigid. It lays down the responsibilities,
rules and procedures to be followed. Thus, there is no scope for creativity and innovation by
employees.
3. Ignorance of inter-personal relationships - The formal organization structure focuses more on work,
responsibility and structure. Thus, the inter-personal relationships among the employees are
ignored.

Informal organization

Definitions

According to Chester Barnand, “An informal organization is an aggregate of interpersonal relationships

without any conscious purpose but which may contribute to joint results.”

Example - employees taking part in cricket matches on Sundays, employees meeting in cafeteria for coffee,
employees interested in dramatics etc.

Features

1. Origin - The informal organization is formed within the formal organization as a result of social
interaction among the employees.
 2. Standards of behaviour - The standards of behaviour evolve from group norms. There are no official
rules and regulations.
3. Communication - The informal communication is based on convenience. There is no specified
direction of flow of information.
4. Formation - It is formed spontaneously as a result of social interaction among the employees.
5. Structure - The informal organization consists of complex network of social relationships.

Merits

1. Faster communication - Since there are no prescribed channels of communication. So, the flow of
information is quicker in case of informal organization.
2. Sense of belongingness - The informal organization fulfills the social needs of employees. It instills in
them a feeling of belongingness, which increases job satisfaction.
3. Support to formal organization - The informal organization provides support to formal organization,
thereby helping in achievement of organizational objectives. Example - the employees’ reactions
towards plans and policies can be tested through the informal network.
4. Relief from monotony* - The informal organization provides opportunities to employees to have
social interaction which provides them relief from monotonous and routine jobs.
5. Solution of work problems* - The members of informal organization help each other in their work
problems. So, it provides solution to the work problems.
6. Protection from outside pressure* - The informal organization provides protection to the employees
from the stress and work pressure exerted by the formal organization.
7. Innovation and creativity* - The informal organization serves as the platform whereby the
employees can experiment with new ideas and practice creativity and innovation.

Limitations

1. Spread of rumours - The informal organization provides scope for spreading rumours. A rumour is
any information without any secure standard of evidence. Rumour is undesirable element of
informal communication.
2. Resistance to change - The informal organization may show resistance to changes which the
management wants to introduce in the organization. This creates problems for the growth of the
business.
3. Role conflicts - The employees may face role conflicts as they are members of both formal as well as
informal organizations.

Difference between Formal and Informal Organization.

Basis of Formal organization Informal organization

difference

1. Meaning Already done Already done

2. Origin Arises as a result of company rules Arises as a result of social interaction.

and policies.
 3. Authority Arises by virtue of position in Arises out of personal qualities.
management hierarchy.

4. Behaviour The behaviour of employees has to There is no set behaviour pattern, but
be in accordance with organizational group norms should be followed/
rules.

5. Communication Communication takes place through The informal communication is based on

scalar chain. convenience. It can take place in any
direction.

6. Nature It is rigid. It is flexible.

7. Leadership The managers are leaders. The leaders may or may not be
managers. The members may choose
their leader themselves.

8. Purpose To achieve organizational objectives. To satisfy social needs.

9. Formation Formed deliberately, by top Formed spontaneously, within the formal

management. organization.

10. Structure Well defined structure of jobs and Complex network of informal relations.
relationships.

11. Stability It is stable. It is not stable.

12. Adherence to The violation of rules leads to No penalties for non-compliance with
rules penalties. group norms, at the maximum social
disapproval.

13. Interdependence It exists independently of informal It exists within the framework of formal
organization. organization.

14. Organization It can be depicted on the It cannot be depicted on the organization

chart organization chart. chart.

15. Size It is generally large. It is generally small.

How to manage Informal Organisation?

Every organization has 2 aspects - Formal organization and informal organization. These cannot be separated
from each other. The management does not create informal organization, so, it cannot and should not
destroy it as well. In fact, both are required for the success of the organization. They are complementary to
each other. Both of them are required just as 2 blades are necessary to make a pair of scissors work.
The managers should adopt a positive attitude towards the informal organization. They should take the
support of informal organization for achievement of organizational objectives.

The managers can use the informal organization for the benefit of the organization in the following ways -

• The informal channels of communication can be used to pass on information quickly.

• The use of informal relations can be made for solving of work problems.
• The group-based approaches can be used for decision-making, conflict-handling etc.
• The leaders of informal groups can be taken into confidence for introducing changes in the
organization.

DELEGATION AND DECENTRALISATION

Definitions

According to Theo Haimman, “Delegation of authority merely means granting of authority to subordinates to
operate within prescribed limits.”

• Delegation does not mean abdication. The manager still remains accountable for the assigned tasks.

Elements of delegation

1. Authority -
Authority is the right to give orders and the power to extract obedience.”

Features

•
Origin - Authority originates from formal position of the individual.
•
Flow - It flows downward from superior to subordinate.
•
Delegation - It can be delegated.
•
Authority relationships - It determines the superior-subordinate relationships. One who has
more authority is superior and one who has less authority is subordinate.
• Scope - It is restricted by the rules and regulations of the organization.
• Significance - It helps to maintain order in the organization.
2. Responsibility -
Responsibility is an obligation of a subordinate to perform assigned duties

Features

• Origin - It originates from authority. In other words, it originates because of superior-

subordinate relationship. The superior delegates authority to the subordinate and the
subordinate then becomes responsible to superior.
• Flow - It flows upward from subordinate to superior.
• Delegation - It cannot be entirely delegated.
 •Parity of authority and responsibility - For effective delegation, there must be parity
between authority and responsibility. This is so because authority without responsibility may
lead to misuse of authority and responsibility without authority leads to ineffectiveness.
3. Accountability - It means answerability of a person for performance of the assigned task.
Features
• Origin - It originates from responsibility.
• Flow - It flows upward from subordinate to superior.
• Delegation - It cannot be delegated at all.
• Enforcement - It is enforced through regular feedback about performance of work.

Comparision of Authority, Responsibility and Accountability

Do from features. The bases are meaning, origin, flow and delegation.

Importance of delegation

Effective delegation leads to following benefits -

1. Effective management - The manager who delegates is more effective than the manager who does
not delegate. This is so because the delegating manager passes the routine work to his subordinates
and so, can concentrate on important matters.
2. Employee development - Delegation helps the subordinates in learning decision making. They learn
to handle managerial problems. So, they become prepared for taking up higher managerial positions.
3. Motivation of employees - Delegation involves grant of authority and responsibility to subordinates.
It builds their confidence and self-esteem. They feel motivated to improve their performance in
future.
4. Facilitation of growth - Delegation of authority facilitates the growth and expansion of the
organization by developing trained and experienced employees. Such employees can easily manage
the new branches and can take up new projects of the business.
5. Basis of management hierarchy - Delegation is the process by which superior-subordinate
relationship is created among the managers, which is the basis of management hierarchy. It further
helps in knowing who has to take orders from whom and who has to report to whom.
6. Better coordination - Delegation specifies authority, responsibility and accountability attached to
each job. So, there is no duplication of effort and overlapping of duties. Such clarity in working
relationships facilitate coordination among different departments.

Decentralization

Definitions

According to Louis A. Allen, “Decentralisation refers to systematic effort to delegate to the lowest level all
authority except that which can be exercised at central points.”

According to Henri Fayol, “Everything which goes to increase the importance of a subordinate’s role is
decentralization, everything that goes to reduce it is centralization.”
Points to be noted

• Complete centralization and complete decentralization is not possible

• Larger the size of the organization, greater will be the degree of decentralization.
• A balance should be maintained between centralization and decentralization.

Importance of Decentralisation

1. Develops initiative among subordinates – In a decentralized organization, the subordinates

independently take the managerial decisions. So, there is scope for them to take initiative, exercise
creativity and do experimentation.
2. Develops managerial talent for the future - In a decentralized organization, the managers get the
experience of taking decisions independently. It gives them chance to use and develop their
individual talent.
3. Quick decision making - In a decentralized organization, the decisions are taken nearest to the
points of action. The subordinates need not take approvals from their superiors as they have the
autonomy to take decisions. It results in quicker and effective decision making.
4. Relief to top management - Decentralisation involves grant of autonomy to subordinates. So, the
top management need not personally supervise the work done by them. The personal supervision is
replaced by other forms of control like return on investment etc.
5. Facilitates growth - Decentralisation involves grant of autonomy to the various divisions and
departments. So, the departments work independently and try to increase productivity. This leads
to growth and expansion of the organization.
6. Better control - Decentralisation makes it possible to evaluate performance at each level and take
corrective measures. The departments can be individually made answerable for their results.
Conclusion

Although decentralization helps the organization to expand and cope up with the environmental changes, but
it should be used with cautionas it may lead to organizational disintegration. So, there must be a balance
between centralization (major policy decisions) and decentralization (operational decisions).

Difference between Delegation and Decentralisation

Basis of Delegation Decentralization

difference

1. Meaning Already done Already done

2. Nature Delegation is a compulsory act because a Decentralization is optional. It is done at the

manager has to delegate in order to get discretion of the management.
the work done from others. He cannot
do all the work by himself.
3. Freedom of The control remains with the superior. The control is passed on to the subordinate.
action So, the subordinates do not have much The subordinates have the freedom of
freedom of decision making and action. decision making. He need not take
approvals from the superior.

4. Process It is a process followed to divide the It is the result of policy decision of the
work. management.

5. Scope Its scope is narrow as only 2 parties are Its scope is wide as it involves the entire
involved - superior and subordinate. organization. It is an extension of
delegation.

6. Purpose The purpose is to reduce the burden of The purpose is to increase the role of
the manager. subordinates in the organization by giving
them more autonomy.