CHAPTER FOUR

THE ORGANIZING FUNCTION

4.1 Concept of organizing and organization

An overview of organizing
Grouping the work of organization and assigning workers to carry out the work with the provision of appropriate
authority are undertaken in the organizing function. In organizing, managers must match the work, the workers, and the
resources necessary to carry out the work. Organizing are boldly exploring new approaches to designing work, linking
jobs, and coordinating activities. And these approaches fundamentally changing the ways jobs, businesses &
relationship between businesses are structured.
No single organizational structure can be effective in all situations. A structure suitable to one organization may be
ineffective to another because two different organizations cannot have the same people, resources or objectives.
Organizations should continuously adapt the challenges of competition. Organizations those do not revise their
structures periodically with the ongoing global competition will face extinction/ death.
Organization is used in two different ways. One denotes the process of organization; and the other denotes the result of
the process called organizational structure. Therefore organization refers to the result of the organizing process.
As to the first sense organization is the process of defining and grouping activities and establishing the authority
relationship among them.
In performing organizing functions, the manager differentiates and integrates activities of an organization.
Differentiation means the process of departmentalization or segmentation of activities on the basis of some
homogeneity, or segmentation of the organizational system into subsystems. Whereas integration is the process of
achieving unity of effort among different departments, or various subsystems while achieving the stated goals.
Therefore, organizing consists of dividing work among groups/ individuals and providing coordination between
individual and group activities.
Definition of organizing
Organizing is the process of establishing orderly uses for all resources in the organization.
Organizing is the process of identification, classification and grouping of tasks that are necessary to achieve objectives
and assigning of work to individuals and designing hierarchy of decision making relationship.
Organizing is a managerial function; it leads to the creation of the formal organization and results in an organization
structure.
The main objectives of organizing are
 Determining what kind of activities should be performed to materialize objectives
 Classifying those activities and grouping them based on certain criteria
 Assigning the work to individuals and delegating authority
 Creating hierarchy of decision making

4.2 Formal and informal organization

Organizations can be classified into formal and informal types.
Formal organization
Formal organization is an organization that is deliberately and rationally designed and approved by management
through organizing process to achieve organizational goals/ objectives. It is planned structure of an organization which
is deliberately created to attain desired objectives. It is a system with well-defined jobs, definite authority,
responsibility, and accountability.
Common characteristics of formal organization are
1. Consciously designed
 Formal organization are purposefully designed and established to attain certain end results.
2. Based on delegated authority
 In a formal organization each employee has delimited authority; therefore there is superior-subordinate
relationship.

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3. Organizational chart is drawn
 Organizational chart shows jobs & departments, and it is the most tangible depiction/ picture of an organizational
structure.
4. Deliberately impersonal
 Positions in an organization are not personal properties. They are always open to someone who fit the position.
People who meet the requirements of the job can fulfill the position
Informal organization
Informal organization refers to people in-group associations, but these associations are not specified in the structure of
the formal organization. They are not included or established deliberately/ officially in the formal organization channel
but formed adjacent to the formal organization. They always exist in the formal organization; nothing can destroy them;
they can not be avoided. They are natural grouping of people in the work situation based on their behavioral patterns;
interests; beliefs; objectives; etc..
No conscious attempt is made to create it. Informal organization may affect formal organizations positively or
negatively. Managers should recognize that it exists in a formal organization; and should try to use it for the benefit of
the formal organization.
Reasons for the formation of informal organization are
1. Mutual benefit
 Members of an organization have their own personal interests that tied them to their colleagues so as to meet
these interests. Hence the communality of people’s interest in the formal organizations leads to the formation of
informal organization.
2. Friendship
 Members of an organization establish friendship among themselves due to different reasons. This friendship
among the members paves the way for the formation of informal organization.

3. The need to fulfill social needs

 A need to be the member of a society put the workers in the organization together. Therefore, one of the
mechanisms through which people in the organization meet their social needs is being the member of informal
organization.
4. Physical work condition
 People working in the same unit are closely related. Hence, working in proximity or together is one of the
reasons for the formation of informal organization.
5. Administrative practice
 Some managers encourage while others suppress the formation of informal organization. Thus the type of
management entertained by managers is the result for the establishment of informal organization.
Characteristics of informal organization
1. Group norms
This is the core behavior among the workers in the informal organization. There are agreements/ rules and
regulations which may not be written that govern the behavior of members. The members act accordingly with out
showing any deviation.
2. Group cohesiveness
Members of the informal organizations basically have strong relationships. The more the group sticks together the
more they will be successful in attaining the objectives.
3. Group leadership
Members in the informal organization select someone who is most active among the others as a leader, and such
people are conventional leaders.
4. Communication network
It is also called grapevine. It is the network outside the formal communication channel established by the
organization;.
5. Lifespan and purpose

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 Informal organizations have short life span in comparison with formal organization. Therefore they cease to exist
when the members meet their interests and re-established when another need arises.
6. Existence of a number of informal organizations in a formal organization
The divergent nature of people’s interest, their feeling, tradition, attitude, etc, lead to the formation of different
informal organizations in a big formal organization
7. Informal organizations gradually can develop into formal organization
Informal organizations gradually can be emerged as formal organization.
Advantages and disadvantages of informal organizations
Advantages
1. They are additional assets for the formal organization.
If informal organizations are properly associated to the formal organization, they are additional assets for the formal
organization because they may come up with innovative ideas to promote the work of the organizations.
2. They could be useful channels of communication.
In the informal organization, information can be easily and rapidly reach the members of the organization through their
informal ways of communication.
3. They provide satisfaction and stability in the organization
When workers are given opportunity to establish the informal organizations, they entertain their idea that leads them to
be satisfied and stable in the organization.
4. Their existence alerts managers to plan and act accordingly than otherwise.
A manager becomes watchful more than any other time when there are informal organizations to check whether they are
out of line or not. And if the activities seem against the interest of the formal organization, necessary measures are taken
to normalize or reverse the condition.
5. They inform managers sensitive issues that would be embarrassing if formally released.
Some information may destruct the normal organizational climate if formally released. In such cases, informal
organizations informally disseminate the information to the group’s endurance and then the manager also becomes
aware of the consequences if formally communicated.
Disadvantages
1. Resistance to change
There is often a tendency to resist changes.
2. Role conflict
Both types of organizations have their own objectives. These objectives will not be the same and this may
arise role conflict in the organization.
3. Rumor
Managers may not equally release information to the members of the organization. When there is too much
secrecy or ambiguous situations informal organizations disseminate distorted information.
4. Conformity
Some leaders of informal organizations may have hidden agenda or promote destructive actions, hence such
leaders may use the members as an instrumental to create challenge to the leaders of formal organization.

4.3. Organization chart

The organizing process leads to the creation of organization structure, which defines how tasks are divided and
resources deployed. Organization structure is defined as (1) the set of formal tasks assigned to individuals and
departments; (2) formal reporting relationships, including lines of authority, decision responsibility, number of
hierarchical levels, and span of managers’ control; and (3) the design of systems to ensure effective coordination of
employees across departments.
The set of formal tasks and formal reporting relationships provides a framework for vertical control of the organization.
The characteristics of vertical structure are portrayed in the organization chart, which is the visual representation of an
organization’s structure.

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Example: Organization chart for a soda Bottling Plant
President

Vice Director Vice Director

President Human President Marketing
Accounting Resources Production

Information Benefits Maintenance Mountain

Center Administrator supervisor Region Sales

Financial Industrial Quality Control Mid-state Sales

Analyst relations Manager
Manager

Chief Bottling Plant Western Sales

Accountant Super-
intendent

Accounts Bottling
Payable Supervisors

Payroll Clerk

4.4 Departmentalization: Meaning and Bases

Departmentalization is the process of grouping/ combining jobs into groups or manageable units. A manager must have
basis for combining jobs. The main bases for departmentalization are function; location or Geography; product;
customer and process.
Hence the types of departmentalization are
1. Functional departmentalization
2. Geographic departmentalization
3. Product departmentalization
4. Customer departmentalization
5. Process departmentalization and
6. Multiple departmentalization

Functional departmentalization
The common form where activities are grouped based on similarity in function or content. It is grouping jobs according
to the functions of an organization. It is common for business firms. Within each department individuals perform
specialized jobs.

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 General Manager

Marketing Production Finance Personnel R&D

Fig: Functional departmentalization for business firm

 Advantages
o It promotes specialization and organizational efficiency.
o Avoid overlap performing basic businesses
o It provides unity of direction. Among members of the department, there is job interrelation.
o It facilitates staffing and training. If there are highly qualified staffs in a department, other workers will be
initiated or encouraged to fill the position.
o It promotes communication within departments.
o Create strong team sprit among people working in one department.
 Disadvantages
o It has problems of horizontal coordination, i.e. Lack of understanding of interrelationship and dependency
between all functions
o The tendency of “empire building”. Unhealthy competition will occur between/ among departments.
o It frustrates the development of managerial talents from the organization as a whole to top managerial
position. There is a tendency for the manager who comes to the position of organization’s to favor the
workers in his department.
o focuses on departmental problems and objectives; and ignores organizational issues and objectives, i.e.
Narrows the understanding of employees about the organization at large
o Create communication barrier among people with different specialization
o Department managers can not develop general managerial skills to take up higher managerial position
o Lack of generalism and internal destructive competition among different departments reduces the success of
the entire organization
Geographic departmentalization
It is also called location departmentalization or departmentalization by territory. It is grouping of jobs on the bases of
geographic areas. It is established when a company has different branches that are geographically dispersed. The
operations are similar from region to region

General Manager

Region one Region two Region three

 Advantages
o It helps in exploiting local advantages.
o It provides a training ground for new managers, i.e. to place managers out of territory and then asses their
progress.
o It enables the firm to develop local market areas and adjust quickly to local customers’ needs
o It helps the company to reach close to raw materials.
o It saves a substantial amount of transport costs.
o It provides chance to local people employment opportunity.
o Create customers goodwill and awareness of local feeling and desire.

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 o Facilitate decision making
o It can provide a high level of service as employees know the local culture and language.
 Disadvantage
o Difficulties in maintaining consistent adherence to company policy and practices
o Duplication of effort
o The necessity of having a relatively large number of managers
o It poses serious problems of coordination and control.
o It may create gaps between head offices and branch offices.
o It is costly to host many geographically dispersed departments.
A company uses territory as basis for departmentalization often needs a large head quarter’s staffs to control dispersed
operation.
Product based departmentalization
It is grouping on the bases of products (goods/ services). Such kind of departmentalization is best to large and multiple
product organizations.

General Manager

Shoe Dep’t Clothing Dep’t Cosmetic Dep’t

 Advantages
o Allows workers to identify with a particular product and develop team spirit.
o It results in high product visibility.
o It facilitates innovation; and also enhances specialization of production.
o Stem from the need to create relatively independent division
o Each division has its appropriate personnel
 Disadvantages
o Employees’ insecurity during time of turmoil.
o Pressure for highly qualified managerial resources.
o It results in poor coordination across the product lines.
o Duplication of efforts among divisions
Customer based departmentalization
It is grouping of tasks based on the type of customers served. Customers are the key to the way activities are grouped.
Such forms of departmentalization are more common in banking, book publishing and food industry.

General Manager

Women shoe Men shoe Kids shoe

 Advantages
o Customers’ interest and priority is respected;
o Helps to meet customers’ special needs by setting up separate departments
o Indicate the willingness to understand the business of its clients
o Workers are identified with a particular group of customers that create team sprit
 Disadvantages

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 o It is almost impossible to consider all the customers, their interests, habits and customs.
o In the period of no or little demand for goods and services of an organization, some sections may not be
profitable.
o There is a problem of duplication of resources
o Creates difficulty in coordination between departments
o High competition among departments may deter the overall organizational performance
o Requires manager and staff specialists similar with the customers’ situation
o Differentiation among the various customer groups might be difficult
Departmentalization by process
It is appropriate when departmentalization by production is inflow. Under it activities are grouped on the basis of
various manufacturing process.

General Manager

Drilling Grinding Welding Assembling Finishing

Fig: departmentalization by process

Advantages
o It is appropriate for organizing certain types of work.
o It helps to group production facilities.
o It puts full responsibility of completing each stage of the job.
Disadvantages
o Failure in one of the process may adversely affect the whole job.
o Due to sub specialization a worker has, he can not be shifted to another department, i.e. it restricts
flexibility.
Multiple bases for departmentalization
It is the combination of two or more departments discussed above. It helps to divide work exhaustively. It is also a way
of combining jobs into departments. E.g. matrix organizations
Matrix organization
They are also called grid organizations or project/ product management. They are combining functional and project or
product patterns of departmentalization in the same organization. They are common in engineering and R& D, and also
in product-marketing organization.
Typical problems of matrix organizations are
 Conflict exists between functional and project managers due to competition for limited resources
 Role conflict, role ambiguity and role overload may result
 Imbalance of authority and power, and may result inefficiencies
 Managers protect themselves against blame by putting everything in writing which increases administration cost
because of potential conflicts
 Requires many time-consuming meetings
Guidelines to make matrix management effective are
1. Define the objectives of the task/ project clearly
2. Clarify the roles, responsibilities and authority of managers and team members
3. Ensure influence based on knowledge and information rather than rank
4. Balance the power of functional and project managers
5. Select experienced manager who can provide leadership
6. Undertake organization and team development
7. Install appropriate cost, time and quality control that report deviations from standards in timely manner
8. Reward project managers and team members fairly

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4.5 Span of management
Manager cannot supervise unlimited number of employees. There should be a limited capacity to control the work of
different subordinates.
The manager’s ability to supervise a large number of subordinates is constrained by knowledge, experience, tine,
energy, etc.. To overcome this limitation, every manager has to delegate work to subordinates.
Span of management/ control refers to the number of subordinates that single manager can effectively supervise or
should have to direct. There is no correct number for the span of control or there is no exact formula to determine the
span of control. It varies from one situation to another.
As a general rule
 The more complex a subordinate’s job, the fewer will be the manager’s number of subordinates.
 The more routine the work of subordinates, the grater will be the number of subordinates that can be effectively
directed and controlled.
Because of these general rule organizations have a narrow span of control at the top and wider span at the lower levels.
i.e. as one goes up the hierarchy, the fewer will be the number of subordinates. A well trained person/ subordinate
follows directions and routines; master tasks; requires less supervisory of time and energy.
Factors those influence spans of control of a manager are
1. The ability & the experience of a manager;
2. the complexity & variety of the subordinates’ work
3. the qualification of the manager and subordinates;
4. growth in competence and experience in personnel
5. The company’s philosophy towards centralization or centralization in decision making.
If the manager has
 Too many people to supervise, the subordinates will be frustrated by their ability to get immediate assistance
from their boss; time & other resources could be wasted; plans, decisions& actions be delayed or made without
proper control or safeguard.
 Too few people to supervise, the subordinates could become overloaded or over supervised; and frustrated &
dissatisfied.
 The more capable & experienced the subordinates, the more that can be effectively supervised by one
competent manager; the less time is needed to train & acclimate; the more there is to devote to producing
output.

4.6. Authority and power

Authority
All managers in an organization have authority. They have different authorities based on the management position they
occupy. Authority is described as institutional power. It is the right to act, or to give order/ command, or deploy
resources in an organization. It is the power derived from the rights that comes with position. Authority represents
legitimate exercise of power in the organization structure. Without authority a manager cannot perform tasks with
confidence and show results.
Essential features of authority
 It is the relationship between two individuals - one superior and the other subordinate.
 It is the right to act.
 It is the power to make decisions and seeing that they are carried out.
 It is used to achieve organizational goals.
Power
Power is the ability to affect the behavior of others or power is the ability to exert influence on others, or the ability to
do something.
Authority versus Power
Authority Power
1. It is positional – it will be there 1. It is personal-it exists because
when the incumbent leaves. of the person.
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2. Narrower – it is one type of power 2. Broader
3. It changes with changes in position. 3. Some types of power do not change
(Expert, referent) but some change legitimate,reward, coercive.
4. Authority is delegated to an individual 4. Not all power types can be delegated
by superiors. (Expert and referent).

Source of power
In an organizational setting, there are different sources of power. Some of them are
1. Legitimate power
Legitimate power is Power granted through organizational hierarchy. i.e. power due to position. All managers
have legitimate power over their subordinates. A manager can assign subordinates tasks, and subordinate who
refuses to do them can be reprimanded or even fired. Such outcomes stem from the manager’s legitimate power as
defined and vested in her or him by the organization. Legitimate power then is authority. All managers have
legitimate power over their subordinates. The mere possession of legitimate power, however, does not by itself
make someone a leader. Some subordinates only follow orders that are strictly within the letter of organizational
rules and policies. If asked to do something not in their job description, they refuse or do a poor job. So, the
manager of such employees is exercising authority but not leadership.
2. Reward power
Reward power is the Power to give /withhold rewards. Rewards that a manager may control include salary
increases, bonuses, praise, recognition, and interesting job assignments. In general, the greater the number of
rewards a manager controls and the more important the rewards are to subordinates, the greater is the manager’s
reward power. If the subordinate sees as valuable only the formally organizational rewards provided by the
manager, then the manager is not a leader. But if the subordinate wants and appreciates the manager’s informal
rewards, then the manager is exercising leadership
3. Coercive Power
Coercive Power is a Power to force compliance via psychological, emotional or physical threat. In the past physical
coercion in organizations was relatively common. In most organizations today, however, coercion is limited to verbal
reprimands, written reprimands, disciplinary layoffs, demotion and termination. The more punitive the elements under
a manager’s control and the more important they are to subordinates, the more coercive power the manager possesses.
On the other hand, the more a manager uses coercive power, the more likely he is to provoke resentment and hostility
and the less likely he is to be seen as a leader.
4. Reference power
Reference power is the power based on identification, imitation or charisma i.e. followers may react favorably
because they identify in some way with a leader, who may be like them in personality, background, or attitudes. In
other situations, followers might choose to imitate a leader with referent power by wearing the same clothes, working
the same hours, or espousing the same management philosophy. Thus, a manager might have referent power, but it is
more likely to be associated with leadership.
5. Expert power
Expert power is the power derived from information & expertise. It is the power resulting from a leader’s special
knowledge or skill regarding the tasks performed by followers. When the leader is a true expert, subordinates go along
with recommendations because of his/her superior knowledge. Leaders at supervisory levels often have experience in
the production process that gains them promotion. At top management levels, however, leaders may lack expert
power because subordinates know more about technical details than they do.
The relationship between power and authority
Authority is the power that has been legitimized by the organization. Where as power is ability to exert influence on
others, or the ability to do something. Like authority, power is institutionalized and impersonal.
In organizations, it is necessary to keep a balance between power and authority. In some cases a manager may have the
authority (the right to do something), but may lack the power (ability to do something) and vice versa. Failure to
associate power and authority at all organization levels may lead to disastrous consequence.
‘Power without authority may be abused and authority without power is totally meaningless.’

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4.7. Line and staff authority
The process of accomplishing organizational objectives through people entails the establishment of relationship among
the members of the organization and different hierarchies of the management. This results the presence of the two
distinct types of authority in business organization.
Line authority
Line authority is the relationship between superior and subordinates. It is directed supervisory relationship. It enables
the manager to tell subordinates what to do. It is represented by the chain of command. It flows downward in an
organization. A manager supervising employees or other managers has line authority.
Staff authority
Staff authority is the right to give advice. It is advisory in nature. Thus the people in the staff position assist and advise
the line manager. People in theses positions have the authority to offer advice and recommendations. e.g. legal service;
public Relation service. It is an advisory authority for manager. Advisory authority doesn’t provide any basis for direct
control over subordinates or activities of other departments.

4.8. Delegation, centralization and decentralization

Delegation
Every manager must delegate duties to subordinates since management means getting work done through others.
Effective managers normally delegate as many operation tasks as possible to subordinates and concentrate their efforts
on core managerial tasks.
Delegation is authorizing subordinates to act in a certain manner independently. It is a concept describing the passing of
formal authority to another person or passing authority downward to subordinates. It helps to facilitate work being
accomplished. It is delivering to another the right to act; to make decision; to requisition resources; and to perform other
tasks in order to fulfill jobs responsibility. Delegation is a two side relationship, i.e. the assigner and assignee. It is an
act of trust; an expression of confidence; requires necessary skills & strength, and requisite application and dedication to
duties.
Delegation occurs for two purposes
1. When managers are absent from their jobs - Subordinates act on behalf and exercise authority.
2. To develop subordinates and facilitate decision making process
Process of delegation
Steps for delegation are
1. Assignments of tasks - Kinds of tasks to be performed by subordinate are identified and assigned to the
subordinate
2. Delegation of authority - A subordinate to carry out the activity, the necessary authority should be given by the
manager. A guideline for authority is that “no more no less”. i.e. It has to be adequate to complete the task.
3. Acceptance of responsibility - When subordinates are assigned with duties and delegated authority, then they
will be responsible or obliged to perform the tasks to the maximum ability they can perform.
4. Creation of accountability - When subordinates are assigned for certain tasks and are delegated a certain
authority, and then they will be accountable for the actions taken.
Accountability
Accountability is just having an answer to somebody; answer for the actions taken with regard to the tasks assigned and
authority delegated. Accountability means taking the consequence - either credit or blame. If one accepts assignments
and authority, s/he is answerable for the actions taken. A manager is accountable for the use of his/her authority and
performance, and the performances and actions of subordinates.
The process of delegation produces clear understanding on the part of manager and of the subordinates.
 The manager should take time to think thoroughly what is being assigned and to confer authority necessary to
achieve results.
 The subordinate accepting the assignment, obliged (responsible) to perform and is accountable for the results.
To delegate a manager must be able to consider the following issues.
1. Analyze how the manager spends his/ her time.
 This enables to list out the duties that the manager undertakes.

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 2. Determine the tasks that can be assigned.
 All duties of the manager cannot be delegated. The manager should identify which of the duties should be
delegated while doing so, and the manager should consider the ability of the subordinates.
3. Decide which task can be handled by whom among the subordinates.
4. Delegate the authority and create the responsibility.
5. Control whether the delegated subordinates are performing the tasks to the expected standard or not.
In delegation, managers are required to think the principle of parity that states “authority and responsibility must
coincide”; i.e. responsibility created should be equivalent to the authority granted.
 If employees are assigned tasks without authority, they can not perform tasks as expected because the
necessary authority is not granted for them. Therefore, this creates frustration and anxiety.
 If employees are delegated more authority than the expected responsibility they discharge, they will
interfere on the job of others and hinder others job.
Both centralization and decentralization refers to the nature of authority within an organization structure. Centralization
and decentralization are merely the results of circumstances. Absolute centralization or absolute decentralization is
impossible in practice; it is a matter of the degree along a con
Centralization
Centralization is a systematic and consistent reservation of authority at central point within the organization. It is the
concentration of authority for decision making within the hands of one or few.
In centralization
 There is little delegation of authority
 Rules, power & discretion are concentrated at the top level
 Control & decision making reside at the top level of management
The more highly centralized the organization, the more control and decision making will be exercised at the top.
Centralization is essential in case of small organizations to survive in a highly competitive world. The larger the size of
the organization, the more consent is the need for decentralization.
Special circumstances forcing managers to reserve/ keep authority and centralize decision making power are
1. To facilitate personal leadership
Centralization generally works well in the early stages of organizational growth. Dynamic and talented leader can derive
advantages in a small firm in the form of quick decisions, enterprising & imaginative action, and highly flexible.
2. To provide for integration
Under centralization the organization moves as a unit. It keeps all parts of the organization moving together
harmoniously toward a common goal. It assures uniformity of standards and policies among organizational units. The
manager acts like a unifying force and provides direction to the activities. Duplication of effort and activity are also
avoided.
3. To handle emergencies
Centralization is highly suitable in the time of emergency because it helps to mobilize resources and information
quickly. Centralization of decision making ensures prompt action necessary to meet the emergencies.
Centralization makes
 difficult for managers to process the bundles of data in time and take decision in an appropriate manner
 the manager burdened with a great amount of detailed & exhaustive work
 managers to work painfully long hours
 forces top management to possess a broad view they may have beyond their capacity
 the vast amount of power given to a few people may be abused
 the organization is highly vulnerable to what happens to its dynamic and talented top management people
Centralization floods communication lines to a few individuals at the top of the organization. As a result the speed of
communication upward and decision processes are slow. Centralization kills the initiative; self reliance and judgment of
lower level personnel.
Decentralization
Decentralization is a systematic effort to delegate all authority to the lowest levels except that which can be exercised at
central point. It is pushing down of authority and power of decision making to the lower levels of organization. The

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essence of decentralization is the transfer of authority from a higher level to the lower level. Nowadays decentralization
has become to be the fundamental principle of democratic management.
Some guidelines to identify the degree of decentralization in a company
1. The greater the number of decisions made at the lower level of management, the more the company is
decentralized.
2. The more important decisions are made at the lower level, the greater is the decentralization.
3. The more flexible the interpretation of the company policy at the lower levels, the greater the degree of
decentralization.
4. The more widely dispersed the operations of the company geographically, the greater the degree of
decentralization.
5. The less the subordinate has to refer to his/her manager prior to decision, the greater the decentralization.
Advantages and disadvantages of decentralization
Decentralization is extremely beneficial but also dangerous unless it is carefully constructed and constantly monitored.
Advantages
 It reduces the work load on overburdened manager.
 It brings the decision making process closer to the scene of the action.
 It facilitates product diversification. i.e. treats each product lines as separate and important.
 It gives individuals an opportunity to learn by doing.
 It facilitates effective control. i.e. often results in improved controls & performance measurements.
 It ensures participative management.

Disadvantages
 Conflict
o Decentralization puts increased pressure on each heads to realize profit at any cost. To meet this each deviate or
veer away from corporate objective. i.e. leads to competition that may ultimately result in bitter individual
rivalries.
 Cost or duplication
o Decentralization results in duplication of staff effort. To be independent each division should have access to
purchasing, personnel, etc. hence each carry a large group of specialists at numerous cost.

Groups and committees

Group is any numbers of people who (1) interact with one another, (2) are psychologically aware of one another, and
(3) perceive themselves to be a group.
Kinds of groups in organization
Groups that exist in organizations typically are divided into two basic types: Formal and informal.
Formal group is a group that exists in an organization by virtue of management decree to perform tasks that enhance
the attainment of organizational objectives. Organizations actually are made up of a number of formal groups that exist
at various organizational levels.
Formal groups commonly are divided in to command groups and task groups.
Command groups are formal groups that are outlined on the chain of command on an organization chart. They
typically handle the more routine organizational activities.
Task groups are formal groups of organization members who interact with one another to accomplish most of the
organization’s non routine tasks. Although task groups commonly are considered to be made up of members on the
same organizational level, they can consist of people from different levels of the organizational hierarchy.
Committees
A committee is a group of individuals that has been charged with performing some type of activity.. Committees are a
more traditional formal group that can be established in organizations. It usually is classified as a task group. From
managerial viewpoint, the major reasons for establishing committees are (1) to allow organization members to exchange
ideas, (2) to generate suggestions and recommendations that can be offered to other organizational units, (3) to develop
new ideas for solving existing organizational problems, and (4) to assist in the development of organizational policies.

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Committees typically exist within all organizations and at all organizational levels. However, the larger the
organization, the greater the probability that committees will be used within that organization on a regular basis.
 Informal groups
Informal groups, the second major kind of group that can exist within an organization, are groups that develop naturally
as people interact. An informal is defined as a collection of individuals whose common work experiences result in the
development of a system of interpersonal relations that extend beyond those established by management.
Informal groups generally are divided into two types: interest groups and friendship groups.
Interest groups are informal groups that gain and maintain membership primarily because of a special concern each
member possesses about a specific issue. An example is a group of workers pressing management for better pay or
working conditions. Once the interest or concern that causes an informal group to form has been eliminated, the group
needs to disband.
As its name implies, friendship groups are informal groups that form in organizations because of the personal
affiliation members have with one another. Personal factors such as personal interests, race, gender, and religion serve
as foundations for friendship groups. As with interest groups, the membership of friendship groups tends to change over
time. Here, however, group membership changes as friendships dissolve or new friendships are made.

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