UNIT III Nature and purpose – Formal and informal organization –

organization chart – organization structure – types – Line and

ORGANIZING staff authority – departmentalization – delegation of authority –

centralization and decentralization

“Organizing is the establishment of authority relationships with provisions for co-
ordination between them, both vertically and horizontally in the enterprise structure”. -
Koontz and O ‘Donnell

“Organizing is the process of identifying and grouping the work to be performed, defining
and
delegating the responsibility and authority and establishing a pattern of relationship for
the purpose of enabling people work most effectively to accomplish the objective”. –
Louis A. Allen.

According to Chester Barnard, “Organizing is a function by which the concern is able to

define the role positions, the jobs related and the co-ordination between authority and
responsibility. Hence, a manager always has to organize in order to get results.”
INTRODUCTION
Organizing is the function of management that involves developing an

organizational structure and allocating human resources to ensure the

accomplishment of objectives. The structure of the organization is the framework

within which effort is coordinated.

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.

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 IMPORTANCE OF ORGANIZING FUNCTION
1.Specialization - Organizational structure is a network of relationships in which the work is divided into units and
departments. This division of work is helping in bringing specialization in various activities of concern.
2.Well defined jobs - Organizational structure helps in putting right men on right job which can be done by selecting
people for various departments according to their qualifications, skill and experience. This is helping in defining the jobs
properly which clarifies the role of every person.
3.Clarifies authority - Organizational structure helps in clarifying the role positions to every manager (status quo). This can
be done by clarifying the powers to every manager and the way he has to exercise those powers should be clarified so that
misuse of powers do not take place. Well defined jobs and responsibilities attached helps in bringing efficiency into
managers working. This helps in increasing productivity.
4.Co-ordination - Organization is a means of creating co-ordination among different departments of the enterprise. It
creates clear cut relationships among positions and ensure mutual co-operation among individuals. Harmony of work is
brought by higher level managers exercising their authority over interconnected activities of lower level manager.
5.Effective administration - The organization structure is helpful in defining the jobs positions. The roles to be performed
by different managers are clarified. Specialization is achieved through division of work. This all leads to efficient and
effective administration.
6.Growth and diversification - A company’s growth is totally dependent on how efficiently and smoothly a concern
works. Efficiency can be brought about by clarifying the role positions to the managers, co-ordination between
authority and responsibility and concentrating on specialization. In addition to this, a company can diversify if its
potential grow. This is possible only when the organization structure is well- defined. This is possible through a set of
formal structure.
7. Sense of security - Organizational structure clarifies the job positions. The roles assigned to every manager is clear. Co-
ordination is possible. Therefore, clarity of powers helps automatically increasing mental satisfaction and thereby a sense
of security in a concern. This is very important for job- satisfaction.
8. Scope for new changes - Where the roles and activities to be performed are clear and every person gets independence
in his working, this provides enough space to a manager to develop his talents and flourish his knowledge. A manager
gets ready for taking independent decisions which can be a road or path to adoption of new techniques of production.
This scope for bringing new changes into the running of an enterprise is possible only through a set of organizational
 CLASSIFICATION OF ORGANIZATIONS

Organizations are basically classified on the basis of relationships. There are two types of organizations formed on

the basis of relationships in an organization

1.Formal Organization - This is one which refers to a structure of well defined jobs each bearing a measure of

authority and responsibility. It is a conscious determination by which people accomplish goals by adhering to

the norms laid down by the structure. This kind of organization is an arbitrary set up in which each person is

responsible for his performance. Formal organization has a formal set up to achieve pre- determined goals.

2.Informal Organization - It refers to a network of personal and social relationships which spontaneously originates

within the formal set up. Informal organizations develop relationships which are built on likes, dislikes, feelings

and emotions. Therefore, the network of social groups based on friendships can be called as informal

organizations. There is no conscious effort made to have informal organization. It emerges from the formal

organization and it is not based on any rules and regulations as in case of formal organization.
?
 ORGANIZATION CHART &
ORG STRUCTURE
An organizational chart is the visual representation of this vertical structure. It is therefore very important for an
organization to take utmost care while creating the organizational structure. The structure should clearly determine the
reporting relationships and the flow of authority as this will support good communication – resulting in efficient and
effective work process flow.
An organizational structure is a system that outlines how certain activities are directed in order to achieve the goals of
an organization. These activities can include rules, roles, and responsibilities.
The organizational structure also determines how information flows between levels within the company.
The key principle of an organizational structure is how authority is passed down and around the company.
Understanding what everyone's roles and responsibilities are helps to create accountability for individuals, teams and
departments.
DIFFERENCE BETWEEN OC &
OS
Type Focus Documentation Change
Frequency
Organizational Function-centric Purpose, Infrequent,
Structure accountabilities, changes with
KPIs strategy

Org Chart People-centric Titles, job Frequent,

descriptions, HR changes with
stuff people
ORGANIZATION STRUCTURE
ORGANIZATION CHART
 TYPES OF ORGANIZATIONAL STRUCTURE
Managements need to seriously consider how they wish to structure the organization. Some of the critical
factors that need to be considered are −
 The size of the organization

 Nature of the business

 The objectives and the business strategy to achieve them

 The organization environment

1. Functional Organization Structure

The functional structure is the most common model found in most organizations. Organizations with such a
structure are divided into smaller groups based on specialized functional areas, such as operations, finance,
marketing, Human Resources, IT, etc.
• The organization’s top management team consists of several functional heads (such as the VP
Operations, VP Sales/Marketing). Communication generally occurs within each functional department and
is communicated across departments through the department heads.
• This structure provides greater operational efficiency as employees are functionally grouped based on
expertise and shared functions performed. It allows increased specialization as each group of specialists
can operate independently.
• In spite of the above benefits there are some issues that arise with this structure. When different
functional areas turn into silos they focus only on their area of responsibility and do not support other
functional departments. Also expertise is limited to a single functional area allowing limited scope for
learning and growth.
2. Product Organizational Structure
This is another commonly used structure, where organizations are organized by a specific product type. Each
product category is considered a separate unit and falls within the reporting structure of an executive who
oversees everything related to that particular product line. For example, in a retail business the structure would
be grouped according to product lines.

Organization structured by product category facilitates autonomy by creating completely separate processes
from other product lines within the organization. It promotes depth of understanding within a particular
product area and also promotes innovation. It enables clear focus with accountability for program results. As
with every model, this model also has a few downsides like requirement of strong skills specializing in the
particular product. It could lead to functional duplication and potential loss of control; each product group
becomes a heterogeneous unit in itself.
3. Geographic Organizational Structure
Organizations that cover a span of geographic regions structure the company according to the geographic
regions they operate in. This is typically found in organizations that go beyond a city or state limit and may
have customers all across the country or across the world.

It brings together employees from different functional specialties and allows geographical division. The
organization responds more quickly and efficiently to market needs, and focuses efforts solely on the
objectives of each business unit, increasing results.
Though this structure increases efficiency within each business unit, it reduces the overall efficiency of the
organization, since geographical divisions duplicate both activities and infrastructure. Another main challenge
with this model is that it tends to be resource intensive as it is spread across and also leads to duplication of
4. Matrix Organizational Structure
A matrix structure is organized to manage multiple dimensions. It provides for reporting levels both horizontally as well as
vertically and uses cross-functional teams to contribute to functional expertise. As such employees may belong to a
particular functional group but may contribute to a team that supports another program.

This type of structure brings together employees and managers across departments to work toward accomplishing common
organizational objectives. It leads to efficient information exchange and flow as departments work closely together and
communicate with each other frequently to solve issues. This structure promotes motivation among employees and
encourages a democratic management style where inputs from team members are sought before managers make decisions.
However, the matrix structure often increases the internal complexity in organizations. As reporting is not limited to a single
supervisor, employees tend to get confused as to who their direct supervisor is and whose direction to follow. Such dual
authority and communication leads to communication gaps, and division among employees and managers.
 TYPES OF ORGANIZATIONAL
CHART
Organization charts can be divided into:
(i)Master charts and
(ii)Supplementary charts.
The master chart shows the whole formal organizational structure while supplementary chart shows details of
relationships, authority and duties within the prescribed area of a department.

There are three ways in which organization charts can be shown:

(iii)Vertical
(iv)Horizontal
(v)Circular
1. Vertical or Top to Bottom:
In this chart major functions are shown at the top and subordinate functions in successive lower positions. In this
chart scalar levels run horizontally and functions run vertically. The supreme authority is shown at the top while
lowest authority at the bottom. The chief executive controls various functional managers, who in turn have
downward staff as the requirement of respective departments.
2. Horizontal or Left to Right
In this chart highest positions are put on the left side and those with diminishing authority
move towards the right. The organizational levels are represented by vertical columns, the flow of
authority from higher to lower levels being represented by movement from left to right. In other
words it presents scalar levels in a vertical position and functions horizontally.
The same levels of authority as shown in vertical chart can be depicted in a left to right chart as follows:
In horizontal chart the supreme authority Le. Board of Directors is shown on the left and chief
executive and functional managers and other levels move towards right.
3.Circular
In circular chart the center of the circle represents the position of supreme authority and the
functions radiate in all directions from the center. The higher the positions of authority, the
nearer they are to the center and the lesser the positions of authority, more distant they
are from the center. The positions of relative equal importance are located at the same
distance from the center. The lines forming different blocks of functions or positions indicate
the channels of formal authority, the same as in other arrangements. The circular chart
depicts the actual condition of outward flow of formal authority from the Chief Executive in
many directions.
 LINE AUTHORITY
Line authority is the most oldest and simplest method of administrative organization. According to this type of
organization, the authority flows from top to bottom in a concern. The line of command is carried out from top to
bottom. This is the reason for calling this organization as scalar organization which means scalar chain of
command is a part and parcel of this type of administrative organization. In this type of organization, the line of
command flows on an even basis without any gaps in communication and co-ordination taking place.

Features of Line authority

1.It is the most simplest form of organization.
2.Line of authority flows from top to bottom.
3.Specialized and supportive services do not take place in these organization.
4.Unified control by the line officers can be maintained since they can independently take decisions in their areas
and spheres.
5.This kind of organization always helps in bringing efficiency in communication and bringing stability to a
 STAFF AUTHORITY

Staff authority is the provision of advice and other services to line managers. People in these staff positions are

empowered to assist the line functions (such as production and sales), but do not have any authority over them.

As an example of staff authority, the cost accountant advises the sales manager on which products have the

highest margins, and so are the most valuable products to sell.

 LINE AND STAFF AUTHORITY
MANAGINGDIRECTOR
Line and staff authority is a modification of line
authority and it is more complex than line
↓ ↓ ↓
authority. According to this administrative
organization, specialized and supportive activities Production Manager Marketing Manager Finance Manager

are attached to the line of command by appointing ↓ ↓ ↓

staff supervisors and staff specialists who are Plant Supervisor Market Supervisor Chief Assisstant
attached to the line authority. The power of
↓ ↓ ↓
command always remains with the line executives
Foreman Salesman Accountant
and staff supervisors guide, advice and council the
line executives. Personal Secretary to the
Managing Director is a staff official.
Features of Line and Staff Organization

1.There are two types of staff :

a.Staff Assistants- P.A. to Managing Director, Secretary to Marketing Manager.
b.Staff Supervisor- Operation Control Manager, Quality Controller, PRO
2.Line and Staff Organization is a compromise of line organization. It is more complex than line concern.
3.Division of work and specialization takes place in line and staff organization.
4.The whole organization is divided into different functional areas to which staff specialists are attached.
5.Efficiency can be achieved through the features of specialization.
6.There are two lines of authority which flow at one time in a concern :
a.Line Authority
b.Staff Authority
7. Power of command remains with the line executive and staff serves only as counselors.
 DEPARTMENTATION
Departmentation means the process by which similar activities of the business are grouped into units for
the purpose of facilitating smooth administration at all levels. It implies the division of total work of an
organization into individual functions and sub functions. It is the process of division of organization into
different parts known as departments.

According to L. A. Allen – “Departmentation is the means of dividing a large and monolithic functional
organization into smaller, flexible, administrative units.”

Departmentation can provide a necessary degree of specialization of executive activity for efficient
performance. It can simplify the tasks of management within a workable span. It also provides a basis on
which the top managers can co-ordinate and control the activities of the departmental units.
Departmentation is a part of the organization process. It involves the grouping of common activities under
a single person’s control. The activities are grouped on the basis of a function of the organization. This work
is done by a chief executive of the concerned organization.
 IMPORTANCE OF
DEPARMENTATION
1.Advantages of Specialization:
Departmentation enables an enterprise to avail of the benefits of specialization. When every department
looks after one major function, the enterprise is developed and efficiency of operations is increased.
2.Feeling of Autonomy:
Normally departments are created in the enterprise with certain degree of autonomy and freedom. The
manager in charge of a department can take independent decisions within the overall framework of the
organization. The feeling of autonomy provides job satisfaction and motivation which lead to higher
efficiency of operations.
3.Expansion:
One manager can supervise and direct only a few subordinates. Grouping of activities and personnel into
departmentation makes it possible for the enterprise to expand and grow.
4.Fixation of Responsibility:
Departmentation enables each person to know the specific role he is to play in the total organization. The responsibility for
results can be defined more clearly, precisely and accurately and an individual can be held accountable for the performance of
his responsibility.
5.Upliftment of Managerial Skill:
Departmentation helps in the development of managerial skill. Development is possible due to two factors. Firstly, the
managers focus their attention on some specific problems which provide them effective on-the-job training. Secondly,
managerial need for further training can be identified easily because the managers’ role is prescribed and training can provide
them opportunity to work better in their area of specialization.
6.Facility in Appraisal:
Appraisal of managerial performance becomes easier when specific tasks are assigned to departmental personnel. Managerial
performance can be measured when the areas of activities are specified and the standards of performance are fixed.
Departmentation provides help in both these areas.
When a broader function is divided into small segments and a particular segment is assigned to each manager, the area to be
appraised is clearly known; and the factors affecting the performance can be pointed out more easily. Similarly, the standards
for performance can be fixed easily because the factors influencing the work performance can be known clearly. Thus,
performance appraisal becomes more effective.
7.Administrative Control:
Departmentation is a means of dividing the large and complex organization into small administrative units. Grouping of
 TYPES OF
DEPARTMENTATION
There are several bases of Departmentation. The more commonly used bases are—function, product,
territory, process, customer, time etc.
1. Departmentation by Functions:
The enterprise may be divided into departments on the basis of functions like production, purchasing,
sales, financing, personnel etc. This is the most popular basis of departmentation. If necessary, a major
function may be divided into sub-functions. For example, the activities in the production department may be
classified into quality control, processing of materials, and repairs and maintenance.
Advantages:
(a)It is the most logical and natural form of departmentation.
(b)It ensures the performance of all activities necessary for achieving the organizational objectives.
(c)It provides occupational specialization which makes optimum utilization of man-power.
(d)It facilitates delegation of authority.
(e)It enables the top managers to exercise effective control over a limited number of functions.
(f)It eliminates duplication of activities.
(g)It simplifies training because the managers are to be experts only in a narrow range of skills.
Disadvantages:
(h)There may be conflicts between departments.
(i)The scope for management development is limited.
(j)There may be difficulties in coordinating the activities of different departments.
(k)There may be inflexibility and complexity of operations.
2. Departmentation by Products:
In product departmentation, every major product is organised as a separate department. Each department
looks after the production, sales and financing of one product. Product departmentation is useful when the
expansion, diversification, manufacturing and marketing characteristics of each product are primarily significant.
It is generally used when the production line is complex and diverse requiring specialized knowledge and huge
capital is required for plant, equipment and other facilities such as in automobile and electronic industries.
In fact, many large companies are diversifying in different fields and they prefer product departmentation. For
example, a big company with a diversified product line may have three product divisions, one each for plastics,
chemicals, and metals. Each division may be sub-divided into production, sales, financing, and personnel
activities.
Advantages:
(a)Product departmentation focuses individual attention to each product line which facilitates the expansion and
diversification of the products.
(b)It ensures full use of specialized production facilities. Personal skill and specialized knowledge of the production
managers can be fully utilized.
(c)The production managers can be held accountable for the profitability of each product.
(d)The performance of each product division and its contribution to total results can be easily evaluated.
(e)It is more flexible and adaptable to change.
Disadvantages:
(f)It creates the problem of effective control over the product divisions by the top managers.
(g)Each production manager asserts his autonomy disregarding the interests of the organization.
(h)The advantages of centralization of certain activities like financing, and accounting are not available.
(i)There is duplication of physical facilities and functions. Each product division maintains its own specialized
personnel due to which operating costs may be high.
(j)There may be under-utilisation of plant capacity when the demand for a particular product is not adequate.
3. Departmentation by Territory:
Territorial or geographical departmentation is specially useful to large-scale enterprises whose activities
are widely dispersed. Banks, insurance companies, transport companies, distribution agencies etc. are
some examples of such enterprises, where all the activities of a given area of operations are grouped
into zones, branches, divisions etc.
It is obviously not possible for one functional manager to manage efficiently such widely spread
activities. This makes it necessary to appoint regional managers for different regions.
Advantages:
(a)Every regional manager can specialize himself in the peculiar problems of his region.
(b)It facilitates the expansion of business to various regions.
(c)It helps in achieving the benefits of local operations. The local managers are more familiar with the local
customs, preferences, styles, fashion, etc. The enterprise can gain intimate knowledge of the conditions in the
local markets.
(d)It results in savings in freight, rents, and labour costs. It also saves time.
(e)There is better co-ordination of activities in a locality through setting up regional divisions.
(f)It provides adequate autonomy to each regional manager and opportunity to train him as he looks after the
entire operation of a unit.
Disadvantages:
(g)There is the problem of communication.
(h)It requires more managers with general managerial abilities. Such managers may not be always available.
(i)There may be conflict between the regional managers.
(j)Co-ordination and control of different branches from the head office become less effective.
(k)Owing to duplication of physical facilities, costs of operation are usually high.
(l)There is multiplication of personnel, accounting and other services at the regional level.
4. Departmentation by Customers:
In such method of departmentation, the activities are grouped according to the type of customers. For
example, a large cloth store may be divided into wholesale, retail, and export divisions. This type of
departmentation is useful for the enterprises which sell a product or service to a number of clearly
defined customer groups. For instance, a large readymade garment store may have a
separate department each for men, women, and children. A bank may have separate loan
departments for large- scale and small- scale businessmen.
Advantages:
(a)Special attention can be given to the particular tastes and preferences of each type of customer.
(b)Different types of customers can be satisfied, easily through specialized staff. Customers’ satisfaction
enhances the goodwill and sale of the enterprise.
(c)The benefits of specialization can be gained.
(d)The enterprise may acquire intimate knowledge of the needs of each category of customers.

Disadvantages:
(e)Co-ordination between sales and other functions becomes difficult because this method can be followed
only in marketing division.
(f)There may be under-utilisation of facilities and manpower in some departments, particularly during the
period of low demand.
(c)It may lead to duplication of activities and heavy overheads
(d)The managers of customer departments may put pressures for special benefits and facilities.
5. Departmentation by Process or Equipment:
In such type or departmentation the activities are grouped on the basis of production processes
involved or equipment used. This is generally used in manufacturing and distribution enterprises and at
lower levels of organization. For instance, a textile mill may be organised into ginning, spinning, weaving,
dyeing and finishing departments. Similarly, a printing press may have composing, proof reading,
printing and binding departments. Such departmentation may also be employed in engineering and oil
industries.
Advantages:
• The basic object of such departmentation is to achieve efficiency and economy of operations. The
processes are set in such a way that a series of operations is feasible making operations economic.
• Efficiency can be achieved if departments are created for each process as each one has its
peculiarities. It provides the advantages of specialization required at each level of the total processes.
The maintenance of plant can be done in better way and manpower can be utilized effectively.

Disadvantages:
• In such departmentation, there may be difficulty in coordinating the different process-departments,
because the work of each process depends fully on the preceding process.
• So, there are chances of conflicts among the managers looking after the different processes. It cannot
be used where manufacturing activity does not involve distinct processes.
6. Departmentation by Time and Numbers:
Under this method of departmentation the activities are grouped on the basis of the time of their
performance. For instance, a factory operating 24 hours may have three departments for three shifts—
one for the morning, the second for the day, and the third for the night.
In the case of departmentation by numbers, the activities are grouped on the basis of their
performance by a certain number of persons. For instance, in the army, the soldiers are grouped
into squads, companies, battalions, regiments and brigades on the basis of the number prescribed
for each unit.
Such type of departmentation is useful where the work is repetitive, manpower is an important factor,
group efforts are more significant than individual efforts, and group performance can be measured. It
is used at the lowest level of organization.
 DELEGATION OF AUTHORITY
Delegation is the assignment of authority to another person (normally from a manager to a subordinate)
to carry out specific activities. It is the process of distributing and entrusting work to another person.
Delegation is one of the core concepts of management leadership.
Delegation means devolution of authority on subordinates to make them to perform the assigned
duties or tasks. It is that part of the process of organization by which managers make it possible for
others to
share the work of accomplishing organizational objectives.
Elements of Delegation
1.Authority - Authority must be well- defined. All people who have the authority should know what is the
scope of their authority is and they shouldn’t misutilize it. Authority is the right to give commands, orders
and get the things done. The top level management has greatest authority. Authority always flows from
top to bottom. It explains how a superior gets work done from his subordinate by clearly explaining what
is expected of him and how he should go about it
2.Responsibility - is the duty of the person to complete the task assigned to him. A person who is given the
responsibility should ensure that he accomplishes the tasks assigned to him. If the tasks for which he
was held responsible are not completed, then he should not give explanations or excuses.
3.Accountability - means giving explanations for any variance in the actual performance from the expectations
set. Accountability cannot be delegated. For example, if ’A’ is given a task with sufficient authority, and ’A’
delegates this task to B and asks him to ensure that task is done well, responsibility rest with ’B’, but
accountability still rest with ’A’. The top level management is most accountable. Being accountable means
being innovative as the person will think beyond his scope of job. Accountability, in short, means being
answerable for the end result.
 CENTRALIZATION &
DECENTRALIZATION
Centralization allows on the one hand an unified decision “from the center” on the other hand, limits the autonomy
of organizational units and may reduce flexibility of the decision. Centralization may concern all decisions and
powers, or may be centralized only selected managerial functions.

When an organization follows a centralized management structure, it can focus on the fulfillment of its vision with
ease. There are clear lines of communication and the senior executive can communicate the organization's vision to
employees and guide them toward the achievement of the vision.

In a centralized organization, decisions are made by a small group of people and then communicated to the lower-
level managers. If lower-level managers are involved in the decision-making process, the process will take longer
and conflicts will arise.
 FACTORS DETERMINING CENTRALIZATION OF
AUTHORITY
Nature of Organization: When the organization is generally a sole
proprietorship or partnership entity with less number of employees to be
managed, it can have a centralized system.
Size of the Organization: The organization which are small in size and

operating on a small scale can be efficiently managed by the top

management hence following a centralized system.
Nature of Task: The organizations engaged in business operations which

does not require much expertise or specialization, can be managed

through centralization.
Delegation Ability: The capability of the management to delegate the

responsibilities to the subordinates while keeping the charge in their hand

is another factor determining the organizational structure.
Employee’s Efficiency: If the employees lack skills and efficiency to take up

the responsibility and accountability of the work to be performed, the

management will go for centralization of the organization.
 Cost Efficient: The management need not spend much on the

ADVANTAGES
office and administrative expenses in a centralized organization.
Even the cost of hiring experts and highly experienced personnel
at each level is saved due to the centralized decision-making
process.

Better Command: The management can hold a better command

over the subordinates and the subordinates also clearly know
whom to follow. There is proper control over the subordinate
actions, and the management is well aware of the strengths and
weaknesses of the subordinates.

Enhances Work Quality: The subordinates are answerable directly

to the top management, and therefore they continuously aim at
improving the work quality. It also leads to standardization of
the process and reduces the wastage.

Uniformity in Action: When the control lies in the hands of few, the
methods and techniques used are usually the same throughout
all the levels and departments, thus encouraging the
subordinates to perform uniformly.
Focus on Vision: The top management clearly defines and better
understand the organizational vision. Therefore, it aligns all the
resources, subordinates, activities and strategies towards the
achievement of the vision.

Proper Coordination: The top management frames a uniform

policy for subordinates at different levels, integrate their course
 DISADVANTAGES
Slows Down Operations: The top management directs the day to
day operations, and the subordinates have to report directly to the
senior management. At times when there is no managerial staff, the
subordinates are unable to take immediate decisions. Thus, resulting in
slowing down of business operations.

Delays Decision Making: In centralization, the decision-making process

slows down since all the decisions are to be taken by the top
management. It is not suitable for handling emergencies or
unexpected circumstances.
Reduces Scope for Specialization: A person cannot specialize in all the
activities alone. Therefore, in a centralized structure where all decisions
are taken by the top management, the organization lacks specialized
supervision and management.
Discourages Initiative: The subordinates are given instructions which
they need to follow without questioning the decisions of the top
management. In centralization, the subordinates are intimidated from
giving their input or suggestions.
o Lacks Adaptability to Change: The centralized organization runs in a conventional manner where the top
management is somewhat rigid with its policies, methods and techniques. Thus, it creates a barrier to
adopting modern and improved practices for organizational growth.
o Overburden on Top Management: All the planning and decision-making work is done at the topmost level
of management, they control even the day to day operations. Due to this reason, management
becomes overburdened and is unable to concentrate on business expansion and growth.
o Bureaucratic Leadership: Centralization can be seen as a dictatorship by some, where the top
management plans every course of action and the subordinates follow the instructions. Problem-
solving becomes quite difficult in such circumstances since the decision-maker, and the implementer is
two different individuals.
o Poor Upward Communication: The subordinates are supposed to follow instructions while the least
attention is paid towards their suggestions and feedback. All this hinders the upward communication in
the organization.
 DECENTRALIZATION
• Decentralization refers to a specific form of organizational structure where the top management delegates
decision-making responsibilities and daily operations to middle and lower subordinates. The top management
can thus concentrate on taking major decisions with greater time abundance. In a decentralized organization,
lower level managers are given decision-making authority and the power to run their own departments.
Decentralization include better, more timely decisions and increased motivation.
• Decentralization implies the dispersal of decision-making power at lower levels of management. When the
power to take decisions and formulate policies does not lie with one person at the top but is passed on to
different persons at various levels, it will be a case of decentralization.
• The following are the main objectives which a decentralized system of organization seeks to achieve: To relieve
the burden of work on the chief executive. To develop the managerial faculties. To motivate the

lower level of workers.

 IMPORTANCE OF DECENTRALIZATION
1.Rapid decision making – Most of the decisions are taken on the spot, and approval from the higher authority is not
required. The ability to make a prompt decision allows an organization to function its operation quickly and effectively.
2.Administrative development – The decentralization process questions the manager’s judgement and techniques, when
responsibility and challenges to develop solutions are given to them. This questioning method grows confidence,
encourages self-reliance, and make them a good decision-maker resulting in the development of the organization.
3.Development of executive skills – It allows the employee to perform task individually, giving them invaluable exposure.
This individual performance creates an environment where an individual can enhance their expertise, take ownership & more
significant responsibilities, and be suitable for promotion.
4.Promotes growth – Decentralization also allows the heads of the department to work independently. This independence
helps the department to grow, have a healthy competition between other departments. Ultimately, the competition will lead
to an improvement and enhancement in productivity.
5.Higher control – It also evaluates and reviews the performances of each department and gives them a comprehensive
perspective of their work. However, controlling is the biggest challenge of decentralization and stabilized management and
scorecard are being developed.
 Development of Managerial Personnel - Decentralization provides for self-learning of
the managers by facing the problem, finding the solutions themselves and taking the

OBJECTIVES
correct decisions. It adds on to the skills, experience and expertise of the managers in
their respective departments.

Effective Control and Supervision - The managers exercise better control over the
operations of the subordinates by taking disciplinary actions. They can make decisions
related to production schedules, promotions and leaves taken by the subordinates.

Flexibility - Decentralization leads to flexibility in business operations. It also provides

authority to the managers to handle unexpected situations independently. It allows them
to manage their respective departments in the way they want to.

Motivates and Boosts Morale - It creates self- dependant managers and drives them
to enhance their performance, take the initiative and develop a problem-solving attitude.
Decision making also boosts their morale and confidence.

Prompt Decision Making - There are times when the managers have to take immediate
and unplanned decisions at operational levels; it is only possible in decentralized
organizations. On the contrary, in a centralized organization, the decision-making process
is quite lengthy and complicated, which is ineffective for handling unforeseen operational
problems and issues.

Reduces the Burden of Top Management - The management has to take certain
crucial strategical decisions which require a lot of analysis and planning. Decentralization
releases the management from operational decision making, facilitating them to engage
Advantages of Decentralization
1.Reduces the burden on top executives
2.Facilitates diversification
3.Executive Development
4.It promotes motivation
5.Better control and supervision

Disadvantages of Decentralization
6.Uniform policies not Followed
7.Problem of Co-Ordination