Revision Notes for Class 12 Business Studies

Chapter 5 Organising

Organising

Organising refers to the process of the identification, classification and coordination of work
to be performed by establishing reporting relationships between the people and setting up
their responsibilities and authorities to collectively integrate human efforts for the
achievement of organisational objectives.

Hence, Organising is responsible for:

● Implementation of plans into action.

● It decides by whom, how and where a particular task will be performed.

Steps in The Process of Organising

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 1. Identification and division of work: Identifying and dividing work to be done into
smaller and manageable tasks.
2. Departmentalisation: Grouping of activities similar in nature to the department.
3. Assignment of duties: Allocating work according to the skills and abilities of
employees.
4. Establishing reporting relationship: Defines the authority, responsibility, and
relationship clearly stating for each employee from whom they have to take orders
and to whom they are accountable.

Importance of Organising

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 ● Benefits of specialisation: Work is divided into smaller tasks and each task is
performed by those employees who possess the required skills. Performing similar
tasks leads to specialisation.
● Clarity in working relationships: It removes ambiguity and miscommunication as
working relationships are clearly stated.
● Optimum utilisation of resources: It avoids duplication and overlapping of work
which leads to minimum wastage of resources.
● Adaptation to change: It tries to incorporate the changes in the business environment
by modifying organisational structures and revising interrelationships at managerial
levels as and when required.
● Effective administration: Clarity in working relationships and proper execution of
work bring effective administration.
● Development of personnel: Proper delegation reduces the employer’s burden,
stimulates creativity and motivates them to complete tasks efficiently.
● Expansion and growth: It helps in growth and expansion by incorporating changes
in the business environment.

Organisational Structure

● Organisational structure refers to the structure or framework within which various

operational and managerial tasks are performed.
● It aids in the proper coordination of human, physical and financial resources in the
organisation to successfully achieve the organisational objectives.
● It is an indispensable means without which an organisation cannot work.
● The organisational chart shows the organisational structure of an enterprise.
● Span of management is the number of subordinates that a superior can manage.
● The organisational structure ensures a smooth and efficient flow of operations within
an enterprise.

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Types of Organisational Structure

These are divided into two types:

1. Functional structure:

The organisational structure where business is managed in the form of a separate department
created based on the function each department performs.

Suitability

Functional structure is suitable for large-scale businesses providing specialised services or

performing diversified activities.

Advantages

● Specialisation: Employees perform similar tasks within a department and can

improve performance which leads to occupational specialisation.
● Coordination: Similarity in the task being performed remote control and
coordination.
● Operational efficiency: The managerial and operational efficiency reduces cost and
results in higher profits. Division of work into smaller tasks leads to minimal
duplication and lowers cost.
● Makes training easier: The range of skills is focused which makes training of
employees easier.
● Higher Focus: Individuals performing similar and smaller tasks can focus better on
the activities they are responsible for.

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Disadvantages

● Deviation in interests: Department interest may be pursued at the cost of

organisational interest to create a functional empire.
● Conflicts: Departmental interests may lead to conflicts of interest among departments
and hinder interaction between them.
● Lack of Coordination: Conflicts of interest among departments may lead to
problems in coordination.
● Rigidity: Employees performing similar tasks may not be open to ideas or newer
methods resulting in a lack of flexibility.

2. Divisional Structure:

● Divisional structure is a type of organisational structure which works as separate units

or divisions.
● Many units and divisions deal with various products.
● Each division is accountable for its job and must consider its profit and loss.
● Each division has its divisional manager who oversees and has power over the entire
unit.

Suitability

Divisional structure is suitable for organisations producing a variety of products for

performing diversified activities.

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Advantages:

● Product Specialisation: Product specialisation contributes to the development of

diverse abilities in a divisional head, preparing him for higher roles. This is because
he obtains experience in all functions relating to a specific product.
● Accountability: Divisional heads are held accountable for profits since revenues and
costs associated with various departments are identifiable and attributed to them. This
gives a solid foundation for measuring performance. It also aids in the assignment of
blame in times of poor division performance, allowing appropriate corrective action to
be performed.
● Flexibility: It encourages flexibility and initiative because each division operates as
an autonomous unit, resulting in faster decision-making.
● Expansion: It allows for expansion and growth by allowing for the addition of new
divisions without disrupting present operations by simply adding another divisional
head and personnel for the new product line.
● Prepare for future positions: Experience in a variety of operations prepares
managers for higher positions.
● Better Initiatives: The dependent and independent functioning of divisions
encourages managers to take the initiative to find better means and ways to perform
the best.

Disadvantages

● Conflicts: Conflicts may emerge between different divisions on the allocation of

cash, and a specific division may aim to maximise its profits at the expense of other
divisions.
● Duplication of efforts: It may result in cost increases due to duplication of efforts
across products. Providing each division with its own set of equivalent functions
raises costs.
● Misuse of power: It gives managers the authority to oversee all activities relating to a
specific division. Over time, such a manager may develop influence and, in an attempt
to establish his independence, may disregard organisational interests.

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Difference between Functional Structure and Divisional Structure:

Basis of Difference Functional Structure Divisional Structure

Creation These are created based on These are built based on
functions. product lines as well as
functions.
Cost It is cost-effective because It is expensive because there
duplication of effort is is a higher rate of
avoided. duplication of work and
resources between
departments.
Duplication of work Work overlapping is Because each product
reduced as a result of department performs the
functional specialisation. same functions, work
overlapping is increased.
Suitability More appropriate for More appropriate for
businesses that focus on multiproduct companies
'operational specialisation.' with a focus on
'differentiated products.'
Functional Hierarchy The departments are divided When departments are
into horizontal functional created based on
hierarchies based on key product-line categories, a
operations. vertical functional hierarchy
is formed.
Decision making Decisions for various Decisions are decentralised
departments are made by the because each division of the
coordinating head, which product line has its
centralises decision-making. decision-making authority.
Management Management is difficult Management is simplified
because each task must because each product has its
report to a coordinating head department.
at the highest level of
management.

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Formal and Informal Organisations

a. Formal organisations:

● A formal organisation lays down job descriptions, rules and procedures for each task
to be performed in an organisation.
● It coordinates, interlinks and integrates the efforts of various departments and
different activities to achieve organisational goals.
● It specifies the formal relationships between the employees, who have to report
whom, the nature and extent of their relationship etc,
● It prioritises work over interpersonal and informal relationships.

Advantages

● Easy to fix responsibility.

● No ambiguity in instructions.
● Maintains unity of command.
● Focus on organisational goals.
● Provide stability.

Disadvantages

● Procedural delays due to long formal chains of communication.

● No recognition for creativity, as everyone has to follow a certain specified structure.
● No understanding of human relationships.

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b. Informal organisation

● An informal organisation is a structure formed as a result of a network of social

relationships among employees.
● It allows employees to interact beyond officially defined roles.
● It originates within the formal organisation as frequent interaction among employees
in a formal organisation creates an informal organisation.

Advantages

● Quick communication and faster feedback due to informal communications.

● Fulfills social needs of friendship and affinity.
● Makes up for the inadequacies of formal organisation.

Disadvantages

● Disrupts the formal setups.

● Resistance to change.
● Group interest may supersede organisational interest.
● Differences in opinion of people in an informal group may lead to conflicts and
clashes.

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 Difference between Formal and Informal Organisation

Basis Formal Organisation Informal Organisation

Meaning A formal organisation lays An informal organisation is
down job descriptions, rules, a structure formed due to a
and procedures for each task network of social
that is performed. relationships among
employees.
Relationships Formal Informal
Flexibility No, Rigid. Flexible in nature
Authority Originates through formal Originates through
structure interpersonal relationships
Communication In the form of a Scalar No formal route followed. It
chain, a formal route is can flow in any direction.
followed.

Delegation

Delegation refers to the downward transfer of authority from a superior to a subordinate to

enable subordinates to perform their responsibilities effectively and efficiently.

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Elements of Delegation

Delegation means assigning responsibility and authority to subordinates and creating

accountability for work.

● Authority: It refers to the right of an individual to command his or her subordinate

and take action within the scope of his or her position. Authority flows in a downward
direction, that is top to bottom, as the superior has authority over his subordinate.
Also, the level of authority increases as one moves higher in the management
hierarchy.
● Responsibility: Responsibility is the obligation of a subordinate to properly perform
the duties assigned by the superior. It always flows in an upward direction, as the
subordinate is responsible for his superior.
● Accountability: Accountability means being answerable for the outcome of the
assigned work. It flows from bottom to top, that is in an upward direction, as a
subordinate is accountable for his work and performance to his superior.

Difference between Authority, Responsibility and Accountability

BASIS AUTHORITY RESPONSIBILITY ACCOUNTABILITY

Concept It is the right to It is an obligation to It is the answerability for

command. perform assigned the performance.
work.
Delegation It can be delegated. It cannot be delegated. It arises from
responsibility.
Origin It originates from It arises from authority It arises from the
formal positions. delegated. responsibility.
Flow Downward flow, Upward flow, from Upward flow, from
from superior to subordinate to subordinate to superior.
subordinate. superior.

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Importance of Delegation

● Effective management: Sharing responsibilities with subordinates allows managers

to concentrate on important matters.
● Employee development: Provides opportunities for employees to develop their skills
to handle complex tasks and to improve their career prospects.
● Motivation of employees: Receiving responsibilities and authority from superiors
builds confidence and motivates subordinates to perform well.
● Facilitation of growth: Receiving responsibilities from superiors trains and prepares
the subordinates for new projects or ventures.
● Basis of management hierarchy: The degree and flow of authority and
responsibility provide the basis for management hierarchy.
● Better Coordination: Predetermined authority, responsibility and accountability of
each position bring clarity and avoid duplication which leads to coordination.

Centralisation

● All powers and authority of decision-making are retained by the top-level

management in this concept.
● All the decisions are taken by the higher level management in a centralised firm.
● An organisation cannot be completely centralised, as it may disrupt production
efficiency as well as discourage departments and employees from performing to the
best of their abilities. Hence for this, a balance between centralisation and
decentralisation is needed.

Decentralisation

The power and decision-making authority are delegated or shared among all the levels of
management and all departments.

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Importance

● Initiative: Develop initiative among subordinates as they feel motivated to make

decisions on their own. It gives lower management levels a sense of autonomy by
allowing them to make their own decisions. Furthermore, it fosters a sense of
self-confidence and self-reliance in them. When power is given to lower-level
managers, they learn to face new difficulties and solve problems on their own.
● Managerial Competence: Decentralisation allows them to demonstrate their abilities
and prepare for higher-level positions, and develops managerial talent for the future,
as the subordinates focus on developing their skills, and making decisions based on
their knowledge. This helps in shaping their professional careers.
● Quick decision making: It facilitates quick decision making as no formal structure or
long formal chains of approval need to be followed while making decisions.
● Control: Decentralisation aids in better evaluating the organisation's effectiveness.
Decentralisation aids in the analysis and evaluation of each department's performance
separately. As a result, the level of achievement of each department, as well as their
contribution to the general objectives of the organisation, can be analysed.
● Growth: Decentralisation helps to increase managerial efficiency to a considerable
extent. Lower-level managers gain more authority as a result of decentralisation. It
encourages healthy competition among managers from various departments. In a
contest to exceed one another, they give it their all, increasing overall productivity
and efficiency. The organisation benefits from improved overall performance and so
grows.
● Reduced Workload of Top Managers: Delegation of authority gives top-level
managers more latitude. It assists them in delegating work to subordinates and allows
them to focus on more critical and higher-priority tasks, such as policy decisions.
Furthermore, direct monitoring by top-level management is reduced as subordinates
are given the authority to make their judgments.

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Difference between Delegation and Decentralisation

Basis Delegation Decentralisation

Nature Delegation is a must as an It is the top management’s option
individual can't perform all the or discretion to share the powers
work. of decision-making with
lower-level management.
Freedom of action Less freedom for the Greater freedom to make
subordinates to make their own decisions.
decisions.
Status Aims to share the burden of Aims to share the burden of
superiors superiors
Aims to involve lower-level
management in decision-making.
Scope Narrow scope, limited to Wide scope, an extension of
superior and to his/her decision-making authority from
immediate subordinate. top to lower level management.
Purpose To allow superiors to focus on To increase the role of
high priority. subordinates in decision-making.

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Difference between Centralisation and Decentralisation

Basis of Difference Centralisation Decentralisation

Authority At the highest levels of Lower levels of
management, authority is management are given
still concentrated in a few authority.
hands.
Creativity Middle and lower-level Encourages creativity and
managers' creativity is innovation at all levels.
hampered.
Workload Increased workload for The workload is reduced as
top-level executives. authority and responsibility
are shared.
Scope of delegation Delegation has a limited Delegation has a broader
scope because power is scope now that authority can
concentrated in a few hands. be transferred.
Subordinate initiative Limits the scope of Encourages subordinates to
subordinate initiatives come forward and take
because workers must initiative by providing them
follow a predetermined path. with the necessary working
freedom.
Decision making Decision-making is slowed Because the authority is
because power is close to the action, decisions
concentrated only in the are made quickly.
hands of the top
management. Before any
action can be taken, the
problem must pass through
several levels.

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