Chapter 5

ORGANISING

Once the objectives and plans are laid down, management has to identify and establish productive
relationships between various activities and resources for implementing plans.
In general words, organizing refers to arranging everything in orderly form and making the
most efficient use of resources. The aim of organizing is to enable people to work together for a
common purpose.

Definition
Organizing is the process of identifying and grouping various activities, bringing together
physical , financial and other resources and establishing authority relationships among job
positions.
According to Louis Allen,“ 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.”
The term organization is used in two distinct meanings in management – as a process and a
Structure.

IMPORTANCE OF ORGANISING
1. Benefits Of Specialization:
The work is divided into different parts or Jobs and competent persons are appointed to
handle all the sub works . Repetitive performance enables a worker to gain experience in that
area and this leads to specialization.Maximum work performance in the minimum time due
to specialization.
2. Clarity in working relationship
Clearly established working relationships clarifies lines of communication and specifies who is to
report to whom. This removes inexactness in transfer of information and instructions .The
hierarchical order thus created enables the fixation of responsibility and specification of the extent of
authority to be exercised by an individual.
3. Optimum utilization of resources
Proper assignment of job avoids overlapping of work & duplication of work. This helps in preventing
confusion and minimizing wastage of resources and efforts and leads to proper usage of material,
financial and human resources.
4. Adaptation to change
The process of organizing allows a business enterprise to adapt itself according to the changes in the
business environment, where organization structure can be modified to suit changing conditions in the
environment..Therefore movement of people in and out of jobs does not affect the work being done
and the capacity of business to undertake more activities in order to grow and diversify.
5. Effective Administration
Organizing provides a clear description of jobs and working relationships.It helps to avoid confusion
and duplication. Clarity in working relationships enables proper execution of work. Thus managing
the enterprise becomes easy & this brings effectiveness in administration.
6. Development of personnel
Under the process of organizing, delegation of authority is practiced.By delegating routine jobs to
their subordinates, managers can concentrate in developing new technologies and methods of ways of
performing jobs .This becomes a good training ground for subordinates, because they get to handle
responsibilities themselves.
7. Expansion and growth
A sound organization structure allows a business enterprise to add more job positions, departments
and even diversify their product lines.
New geographical territories can be used to increase the customer base, sales and profit.

Process of Organizing (Steps)

1. Identification & Division Of Work:

The total work to be done should be divided into specific jobs as according to predetermined plans.
Job is a set of related tasks that can be performed by an individual. It should have specific and
definite tasks to be performed. As far as possible, it should define expected results. Division of work
leads to specialization of efforts and skills and avoids duplication of work..
Management must ensure that all the activities required to achieve organizational objectives
are identified.
2. Departmentalization:
Grouping similar and related jobs into larger units called departments, divisions or sections
and placing them under a department head. It facilitates specialization. The process of
grouping is called Departmentalization.
The departments are linked together and are interdependent..Departments aim at achieving
coordination and facilitate unity of action. Departmentation can be done on the basis of:
•Functions: marketing, personnel, finance etc.
•Products: Textiles, chemical, power division etc.
•Territories: Western, northern, central, eastern
3. Assignment of duties:
Once departments are formed, the department is placed under the charge of an individual. Jobs are
assigned to an individual best suited to perform it. Qualifications, experience, ability and aptitudes of
 people are matched with duties.
E.g. Activities of finance should be assigned to persons having qualifications and experience in
finance e.g. C.A.

4. Establishing Reporting Relationships:

Granting requisite authority to enable employees to perform the job satisfactorily.Superior
subordinate relations between different people and job positions are created, so that everybody
knows from whom he is to take orders and to whom he can issue orders.
This creates a management hierarchy, a chain of command from the top manager to the
individual at the lowest level and helps in coordination.

Organization Structure

Organisation structure can be defined as the framework within which managerial & operating
tasks are performed. It specifies relationships between people, work and resources.
It may be vertical (authority- responsibility relationships.) or horizontal (coordinating
relationships) Ensures smooth flow of communication and better control over the operations.
The need for an organization structure is felt when an organization grows, coordination becomes
difficult due to the emergence of new functions or number of products manufactured.
Span of management refers to the number of subordinates that can be effectively managed by a
superior. This determines the levels of management in the organization structure.

Organisational Structure can be classified in two categories:

1 Functional Structure
2 Divisional Structure

Functional Structure
Activities are grouped according to the specific functions to be performed and organizing these
functions as separate departments. All departments report to a coordinating head. For example, in a
manufacturing concern, division of work into key functions will create different departments such as
the HR department, Marketing department, Research & Development etc.

Suitability
1) Organizations which require a high degree of functional specialization with diversified
activities.
2) Large organizations producing one line of product.
 Advantages of Functional Structure:

1. Benefits of specialization
Activities are divided into depts. on the basis of major functions so leads to occupational
specialization. This results in more and better work being accomplished in much less time.
Promotes efficiency in utilization of manpower as employees perform similar tasks within a
department & are able to improve performance.
2. Facilitates coordination and control within the department:
There is similarity in the tasks performed. Also, all employees within the department know what is
expected out of them & that leads to effective control over their activities.
3. Increases managerial & operational efficiency:
Similarity in the tasks being performed leads to specialization and improved operational efficiency.
Specialists in functional areas supervise the operations as a result managerial efficiency improves.
4. No Duplication of efforts leading to economy of operations:
In this type of organisation, unnecessary duplication of effort is eliminated.Human & other resources
are utilized more effectively and economically and this leads to economies of scale and results in
lower cost.
5. Ease in training of employees:
As employees need to be trained in limited types of skills.
E.g. employees of the production department are given training of production techniques only.
6. Ensures that all Functional areas get due attention.

Limitations of Functional Structure:

1. Less Emphasis on overall Firm’s objective

Each department head gives more emphasis to their departmental objectives. Overall organisational
objectives suffer. Functional empires are created wherein the importance of a particular function
may be overemphasized. Pursuing department interests at the cost of. organisational interests can
also hinder interaction between 2 or more departments.
2. Problems in Coordination:
This structure facilitates coordination within the department but makes
interdepartmental coordination difficult,as information has to be exchanged across
functionally differentiated departments.
If dept. heads work according to their own wishes, sharing of information and
interdepartmental coordination becomes difficult.
3. Inter departmental conflicts
Managers try to build their own functional empires & undermine the role of other depts.,
leading to interdepartmental rivalry and conflicts.
E.g.: Sales dept. insists on a customer friendly design which may cause production
difficulties. Inter-departmental conflicts can also arise in the absence of clear separation of
responsibility
4. Inflexibility :
As people with the same skills & knowledge base may develop a narrow perspective and
thus, have difficulty in appreciating any other point of view.Functional heads do not get
training for top management positions because they are unable to gather experience in
diverse areas.
Divisional Structure

Activities are grouped into separate units or divisions. Each unit has a divisional manager who is
responsible for performance and who has authority over the unit. Generally , manpower is grouped
on the basis of different products manufactured.
Each division is multifunctional because within each division functions like production,
marketing ,finance are performed to accomplish a common goal. For example a large company
may have divisions like cosmetics, garments ,footwear etc.

Suitability
a) This structure is suitable in organizations producing multi product or different lines of
products requiring product specialization.
b) Growing companies which intend to add more lines of products in future adopt this structure.
Advantages of Divisional Structure
1. Product Specialization
Product specialization helps in development of varied skills in a divisional head &
prepares him for higher positions. This is because he gains experience in all the
functions related to a particular product.
2. Greater Accountability
All the activities of each div. are carried out independently. Hence the divisional results
profit or loss can be assessed easily. On this basis unprofitable divisions can be
closed.Hence, in cases of poor performance of the division, appropriate remedial action
can be taken.
3. Flexibility & initiative
As every division. is independent, the divisional manager can take any decision
regarding his division independently without consulting other divisional managers.
Thus, division functions as an autonomous unit which leads to faster decision making.
4. Facilitates Expansion And Growth.
For every product a separate division is opened and if a company wants to introduce a
new product, it can be introduced easily without disturbing the existing divisions by
merely adding divisional heads.
 Limitations of Divisional Structure:
1. Conflicts Among Division:
Conflicts arise with respect to allocation of funds and between divisional heads.Every
division tries to display better performance, sometimes even at the cost of other divisions.
Consequently it hits the interest of the concern as a whole.
2. Costly :
It may lead to increase in cost because of duplication of resources in several
departments since each division has a separate set of similar functions.
3. Ignoring organizational interests :
Divisional heads gain full autonomy. They supervise all activities related to their
respective divisions. So they may gain power and ignore organizational interests.

Differences between functional and divisional structure

Basis Functional structure Divisional structure

1. Specialization Functional specialization. Product specialization

2. Basis of Formation is based on functions Formation is based on product lines and is
Formation/ supported by functions
organizational Units
3.Responsibility (for profits) Cannot be fixed on one Can be fixed on separate products
department
4.Managerial Development/ Difficult, as each functional Easier, autonomy as well as the chance to
development of general manager has to report to the perform multiple functions helps in
managers top management. managerial development

5. Cost Functions are not duplicated Duplication of resources in various

hence economical departments, hence costly.

6. Coordination Difficult for a multi-product Easy, because all functions related to a

company. particular product are integrated in one
department.

7.Autonomy of Less because various More because each unit is autonomous

operations functions are interdependent and independent
and interrelated

8.Control Simple as authority is Difficult because of decentralization of

concentrated at the top level. authority at divisional level.
FORMAL ORGANIZATION
Refers to the organisational structure that is designed by the management to accomplish
organizational objectives..
It specifies clearly the boundaries of authority & responsibility and there is a systematic
coordination among the various activities to achieve organizational goals.

Louis Allen defines , “Formal organization is a system of well defined jobs, each bearing
a definite measure of authority, responsibility & accountability.”

Features
1. Clarifies Authority Relationships:
Clearly explains the inter-relationship between jobs and thus, everybody knows his authority
and responsibility. This clarifies who has to report to whom.
2. Means to achieve organizational objectives
It is a means to achieve the objectives specified in the plans. It lays down the rules &
procedures essential for their achievement.
3. Coordinate efforts of various departments:
Efforts of various departments are coordinated, interlinked & integrated through the formal
organisation.
4. Deliberately designed by top management
The top management deliberately creates this organisation for successful achievement of
objectives of the organisation.
5. Emphasis on work:
It places more emphasis on work to be performed than interpersonal relationships
among the employees.

Advantages
1. Easy to fix responsibilities: Since mutual relationships are clearly defined.
2. Avoids duplication of effort: In Formal Organization, work is systematically divided among
various departments and employees. Therefore no chance of overlapping of work.
3. Maintains chain of command : Formal Organization clearly defines superior
subordinate relationships, i.e. who reports to whom.
4. Effective achievement of goals:Leads to effective accomplishment of goals by
providing a framework for operations to be performed and ensuring that each
employee knows the role he has to play.
5. Stability in the Organisation:The behavior of employees can be fairly predicted since
there are specific rules to guide them. Formal Organization brings stability in the
organisation through policies, procedures & rules. Working continues in spite of old
employees leaving and new employees joining.

Limitations Of Formal Organization

1. Procedural Delays:Formal communication may lead to procedural delays as the established
chain of command has to be followed which increases the time taken for decision-making.
Work is bound by rules & while following the scalar chain of command, decisions &
actions get delayed.
2. Curbs Creativity:In this organisation, the employees have to do what they are told to do &
have no opportunity of thinking. Thus, their initiative gets slackened.
Poor organisational practices may not provide adequate recognition to creative talent,
since it does not allow any deviations from rigidly laid down policies. Does not allow
 deviations from set policies.
3. Difficult to understand human relationships:Give importance to work only. It ignores
human relationships, creativity & talent.Does not give a complete picture of how an
organisation works as it does not incorporate the human element.

INFORMAL ORGANIZATION
While working in the Formal Organization structure, individuals interact with each other &
develop some social & friendly relationships in the organization. This network of social &
friendly groups forms another structure in the organisation called informal organisation
structure.
This may be based on common language, tastes, likes etc. & its main purpose is psychological
satisfaction.
Informal organization has no written rules, is fluid in form and scope and does not have fixed
lines of communication.Depends upon Formal Organization structure & if there is no Formal
Organization structure, there will be no jobs & people & thus, no Informal organization .

Features
1. Arises within the formal setup as a result of personal interactions between
members:Informal organization emerges to meet the social and psychological needs of the
people.
2. Group norms for standards of behavior:No written rules & procedures to govern inter
relationships. But there are group norms to be observed.
E.g.: employees working in an org. and belonging to a particular community form a
separate group in an informal way and gradually some norms emerge and all the
members are bound to observe them.
3. Independent channels of communication:Information flows in all directions and it is very
difficult to trace the source of information.
4. Emerges spontaneously:An Informal organization is not deliberately created by
management but comes into existence on the basis of personal interaction, relationships,
common interest, tastes, languages, likes etc.
5. No definite structure or form:It is a complex network of social relationships and it
cannot be defined because an employee at the lowest level can have relationships at the
top level.
Advantages
1. Faster spread of communication and quick feedback:Informal organization cuts
across formal channels of communication. May not follow a scalar chain of
command and spreads faster.Through Informal organization,the managers can get to
know the real feedback on various policies and plans.
2. Fulfillment of social needs:Members of an informal organization share their tensions, joys
& frustrations with one another. They have an outlet to release all their emotions and feelings
and provide relief from the monotony created by formal organization.
It helps to fulfill the social needs of the members and allows them to find like-minded
people.This enhances their job satisfaction since it gives them a sense of belongingness in the
organisation.
3. Compensates for inadequacies in the formal structure:It contributes towards fulfillment of
organizational objectives in formal structure by compensating for inadequacies in the formal
organization. Employees' reactions can be tested through informal networks.
 Limitations of Informal Organization.

1. Spreads Rumors : An outbreak of rumor can cause serious harm to the enterprise and its
management by carrying incorrect information throughout the organization.This may work
against the interest of the formal organization.
2. Resistance to change: Informal organization generally prefers status quo & the existing
work routine. Changes are regarded as a threat to its beliefs & values. Thus, management has
to face resistance to new work methods. This may delay or restrict growth.
3. Priority to conform to group norms.:An informal organization evolves its own
norms.
These norms may be harmful if norms set by groups are against firms’ interests. In
such a case it becomes very difficult to achieve the goals of the formal organisation

Difference between Formal and Informal Organisation

Basis Formal Organization Informal Organization

1. Meaning Structure of authority Network of social relationships arising out of
relationships created by the top interaction among employees
management.

2. Origin Arises as a result of company rules and Arises as a result of social interaction .
policies
3. Authority Arises by virtue of position in Arises out of personal qualities
management
4. Behavior It is directed by rules There is no set behavior pattern

5. Flow of Communication takes place Flow of communication is not through a planned

Communication through the scalar chain route. It can take place in any direction

6. Nature Rigid Flexible

7. Leadership Managers are leaders. Leaders may or may not be managers.
The group chooses the leaders.

DELEGATION
Theo Haimman defines Delegation as,“Delegation of authority merely means granting of
authority to subordinates to operate within prescribed limits’’
Delegation refers to downward transfer of authority from superior to subordinate.

Delegation does not mean abdication (disowning).The manager, who assigns the job to the
subordinates, shall still remain accountable for the performance of the assigned tasks. It means that
accountability is absolute. It can never be passed or delegated. After delegating authority to
subordinates, the superior still continues to remain accountable.
Importance of Delegation
1. Effective management
 Permits a manager to share his workload with his subordinates. Thus, the manager is able to
concentrate on more important policy matters & decision
making .
2. Employee development:
Subordinates are required to exercise their authority to handle situations and to solve
managerial problems. This makes them better leaders and decision makers. Through the
experience and competence acquired, they are prepared to take up higher responsibilities in
course of time. This improves their career prospects & makes them better leaders & decision
makers.
3. Motivation of employees:
Delegation provides a feeling of status and importance to subordinates, builds their
self-esteem and enhance job satisfaction and confidence level. They become more
willing to work hard and achieve targets laid down by higher authorities.
4. Facilitation of growth:
Helps in expansion of an organization by providing a ready workforce to take up
leading positions in new ventures.These trained and experienced employees are able
to play significant roles in the launch of new projects
5. Basis of management hierarchy
Delegation of authority establishes superior subordinate relationships, which are the
basis of management hierarchy. It directs and regulates the flow of authority from top
to bottom of the organization. It gives meaning and content to managerial jobs.
6. Better coordination:
Delegation helps to define the authority, responsibility and accountability related to
the various positions in the organization. Such clarity in reporting relationships help
to avoid duplication of work and facilitate effective coordination amongst
departments, levels and functions of management.

Conclusion:
From the above discussion it is clear that delegation of authority is necessary for the smooth
functioning of work and facilitates higher efficiency levels in the organization. Infact, the
success of management is determined by the effectiveness of delegation of authority.

Elements of delegation:
There are three basic elements of delegation:
A) Authority: Refers to the right of an individual to command the subordinates and to take action
within the scope of his or her position. It is needed to discharge a given responsibility.
Authority flows from top to bottom of the scalar chain i.e. the superior has authority over the
subordinate.The extent of authority is highest at the top and reduces successively as we go down the
corporate ladder.
B) Responsibility: Refers to the obligation of a subordinate to perform an assigned duty. It arises
because of superior -subordinate relationship because the subordinate is bound to perform the duty
assigned to him or her by his or her superior.
Responsibility flows upwards i.e. a subordinate will always be responsible to his or her superior.
C) Accountability: Refers to being answerable for the assigned task. Despite the delegation of
authority a superior is responsible for the outcome.
Accountability flows upwards i.e, subordinates will be accountable to a superior for satisfactory
performance of work.He or she will explain consequences of his or her actions or omissions.
 Difference between Authority, Responsibility and Accountability.
Basis Authority Responsibility Accountability

Meaning Right to command. Obligation to perform an Answerability for outcome of

assigned task. the assigned task.

Delegation Can be delegated. Cannot be entirely delegated. Cannot be delegated at all.

Origin Arises from formal position. Arises from delegated Arises from responsibility.
authority.

Flow Flows downward from Flows upward from subordinate Flows upward from
superior to subordinate. to superior. subordinate to superior

Inter Relationship Between Authority, Responsibility And Accountability

● Authority is delegated, responsibility is created and accountability is imposed.

● Responsibility arises out of authority and accountability arises out of
responsibility.
● Authority flows downwards whereas responsibility and accountability flow
upwards

DECENTRALIZATION
Decentralization of authority means dispersal of authority to take decisions throughout the
organization, upto the lower levels.
It implies reservation of some authority with the top level management and transferring rest of the
authority to the lower levels of the organization. This empowers lower levels to take decisions
regarding problems faced by them without having to go to the upper levels.
According to Louis Allen,“ Decentralization refers to systematic efforts to delegate to the
lowest level, all authority except the one which can be exercised at central points.”
Centralization refers to authority retained at top level and Decentralization refers to systematic
delegation of authority at all levels and in all departments of a firm.. Firm needs to balance the two.
Importance of Decentralization
1. Develops initiative among subordinates
Helps to promote self-reliance and confidence amongst the subordinates,because lower
managerial levels are given freedom to make their own decisions, they learn to depend on
their own judgment & feel constantly challenged to develop solutions for the problems they
encounter.
2. Develops managerial talent for the future
Decentralization gives the employees a chance to prove their abilities. They learn how to
decide and develop managerial skills This helps them to create a reservoir of qualified
manpower who have the necessary potential to become dynamic leaders and who can be
considered to fill up more challenging positions.
3. Quick decision making
 Under decentralization, authority to make decisions is placed in the hands of those who are
well aware of the realities of the situation and are responsible for executing the decisions.As
a result, more accurate and faster decisions can be taken. There are also lesser chances of
information getting distorted because it does not have to go through long channels.
4. Relief to top management
Decentralization helps to reduce the workload of the top executives. They can devote greater
time and attention to important policy matters by decentralizing authority for routine
operational decisions.
It reduces the need for direct supervision by the superior over the subordinates.
5. Facilitates growth
Decentralization facilitates the growth and diversification of the enterprise.Each department
or product division are given sufficient autonomy for innovations and creativity .Also a
sense of competition can be created among different departments or divisions and the top
management can extend overall leadership over a giant enterprise.

6. Better control
Managers at all levels have adequate authority to make changes in work assignment, to
change production schedules, to recommend supervision and to take disciplinary actions.
Therefore more effective supervision can be exercised.Control can be made effective by
evaluating the performance of each decentralized unit in the light of clear and predetermined
standards.

As a conclusion, it must be noted that in spite of its benefits decentralization should be applied with
caution as it can lead to organizational disintegration if the departments start to operate on their own
guidelines which may be contrary to the interest of the organization. Decentralization must always
be balanced with centralization in areas of major policy decisions.

Basis Delegation Decentralization

1. Nature It is compulsory as no It refers to an optional policy decision. It is done

individual can perform all at the discretion of top management
tasks on his own.

2.Status A process followed to share tasks. Decentralization is a result of policy decision of

top management

3.Scope Narrow scope as limited to It has wide scope as it implies extension of

superior subordinate delegation to the lowest levels of
management.

4. Freedom of More control by superiors hence Less control over executives, hence greater
action less freedom to take own freedom of action.
decisions
5.Purpose To reduce the burden of a To increase the role of subordinates and
manager. giving them more autonomy.

Answer the following Questions

Part - A
1. Which management function translates the plans into action?
2. What is Organisation Structure?
3. Which type of organisation structure is suitable for enterprises having a large variety
of products?
4. Which type of organisation structure is suitable for enterprises producing one line of
product.
5. When can one say that an organisation is centralized?
6. What is Decentralisation?
7. Can Accountability be delegated?
8. What is Delegation?
9. What is Authority?
10. What is Responsibility?
11. What is span of management ?

Part - B

12. Define Organizing

13. Give the meaning of Organizing
14. Give the meaning of Formal Organisation
15. Write any two differences between Functional and Divisional Structures.
16. Compare and contrast Authority and Accountability (any two).
17. State any two differences between Delegation and Decentralisation.

Part - C

1. Explain the steps in the process of Organising

2. State any two advantages and two disadvantages of Functional Structure.
3. Write any two advantages and two disadvantages of Divisional Structure.
4. State any four features of Formal Organisation.
5. Mention any four features of Informal Organisation.
6. State any two advantages and disadvantages of Informal Organisation.
7. Distinguish between Formal and Informal Organisation by taking any four basis.
8. Explain briefly the elements of Delegation.
9. Explain the importance of Delegation
Part -D

1. Explain the importance of Organizing.

2. State the advantages and disadvantages of Formal Organization.
3. What is Decentralization? Explain its importance.

******