ORGANIZING

Topics Covered:
Concept & Definition of Organizing · Importance and Functions of Organizing · Principles of Organizing
· Span of Organizing · Decentralization and Delegation of Authority · Concept of Organizational Design
· Factors Affecting Organizational Design · Departmentalization · Organizational Structures · Formal &
Informal Organization
1. Concept and Definition of Organizing
Organizing is the second major function of management, coming right after planning. Once a plan has been made,
management must determine the activities required to carry it out, and put people, resources, and authority
relationships in place to actually get the work done. In simple terms, organizing is the process of identifying and
grouping the work to be performed, defining and delegating authority and responsibility, and establishing
relationships so that people can work together efficiently to achieve organizational goals.

Definitions
“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.” — Louis A. Allen

“Organizing is the process of defining and grouping the activities of the enterprise and establishing the
authority relationships among them.” — Theo Haimann

“To organize a business is to provide it with everything useful for its functioning: raw materials, tools, capital,
and personnel.” — Henri Fayol

Key Features of Organizing

• It is a process that establishes relationships among employees at all levels, so that everyone knows who
they report to and who reports to them.
• It involves division of the total work into smaller, manageable activities (division of labour).
• Similar or related activities are grouped together into departments or units.
• Authority and responsibility are assigned to specific individuals to carry out defined tasks.
• It creates a formal structure through which coordination between different departments and levels can take
place.
• It is a continuous and dynamic process — as goals, technology, and the external environment change, the
organization structure may also need to change.

2. Importance and Functions of Organizing

Importance of Organizing
1. Benefits of Specialization: By dividing work into smaller, well-defined jobs, organizing allows employees
to specialize, which increases efficiency and reduces wastage of time and resources.
2. Clarity in Working Relationships: Organizing clearly defines who reports to whom (the chain of command),
which reduces confusion and overlapping of duties.
3. Optimum Utilization of Resources: Proper organizing ensures that duplication of effort is avoided, and
human and material resources are used efficiently.
4. Adaptation to Change: A well-designed organization structure allows a business to expand or modify its
activities without major disruption, since new positions/departments can be added within the existing
framework.
5. Effective Administration: A clear structure with well-defined jobs and reporting relationships makes it
easier for managers to direct, supervise, and coordinate the work of subordinates.
 6. Development of Personnel: Delegation of authority (a key part of organizing) encourages managers to
assign routine work to subordinates, freeing themselves for higher-level tasks while giving subordinates the
opportunity to develop their own decision-making abilities.
7. Expansion and Growth: Organizing helps businesses add new job positions, departments, and even product
lines in a systematic manner, without disturbing the existing set-up.

Functions / Process (Steps) of Organizing

Organizing is carried out through a systematic, step-by-step process:

1. Identification and Division of Work: The total work necessary to achieve organizational objectives is
identified and divided into manageable jobs/activities, in line with the plans made earlier.
2. Departmentalization: Similar or related jobs are grouped together into departments or divisions, usually
under one manager, so related activities can be coordinated easily (e.g., all sales-related jobs are grouped
into a Sales Department).
3. Assignment of Duties: Each individual/department is assigned specific tasks that match their skills and
competencies, along with the responsibility to perform them.
4. Establishing Reporting Relationships: Once duties are assigned, authority relationships are established —
i.e., who has authority over whom, and who is accountable to whom — so that a clear hierarchy or chain
of command is formed and coordination becomes possible.

3. Principles of Organizing
Certain principles guide managers in designing a sound and effective organization structure:

1. Unity of Command: Each employee should receive orders/instructions from, and be accountable to, only
one superior. This avoids confusion and conflicting instructions.
2. Span of Control/Management: There is a limit to the number of subordinates a manager can effectively
supervise. This number should be reasonable, not too large.
3. Scalar Chain: This refers to the unbroken line of authority/command that runs from the top-most executive
to the lowest-level employee, and clarifies who reports to whom throughout the organization.
4. Delegation of Authority: Authority delegated to a person should be adequate and commensurate with the
responsibility assigned, so the person is genuinely able to accomplish the task.
5. Responsibility and Accountability: While authority can be delegated, the responsibility for the ultimate
performance of a task cannot be delegated away by a superior — the person delegating remains accountable
to their own superior.
6. Efficiency: The organization structure should enable the enterprise to achieve its objectives at the minimum
possible cost.
7. Unity of Objective: Every part of the organization, and every individual within it, should contribute towards
the accomplishment of the overall organizational objectives.
8. Division of Work/Specialization: The entire work of the enterprise should be divided systematically among
individuals/departments so that each performs a specific, specialized part of the total task.
9. Balance: There should be a reasonable balance among various principles and factors — e.g., between
centralization and decentralization, or between span of control and levels of management.
10. Continuity: Organizing is not a one-time exercise; the structure must be reviewed and adapted continuously
in response to changes in the internal and external environment.
4. Span of Organizing (Span of Management / Span of Control)
Span of Management refers to the number of subordinates that can be effectively managed and supervised by
a single superior/manager.

The span of management determines the number of levels of management in an organization. A wider span
means fewer levels of management (a ‘flat’ structure), while a narrower span means more levels of management
(a ‘tall’ structure).

Wide Span vs. Narrow Span of Management

Basis Wide Span of Management Narrow Span of Management

Number of subordinates per Large Small

manager

Levels of management Fewer levels (flat structure) More levels (tall structure)

Supervision Less close supervision possible Close and direct supervision possible

Communication Faster, since fewer levels to pass Slower, since it must pass through
through many levels

Cost of administration Lower (fewer managers needed) Higher (more managers needed)

Suitability Suitable when subordinates are well- Suitable when work is complex and
trained and work is routine/similar requires close guidance

Factors Affecting Span of Management

1. Nature of Work: Routine and repetitive work allows a wider span, while complex, varied work requires a
narrower span for closer supervision.
2. Ability of the Manager: A more capable, experienced manager can effectively supervise a larger number
of subordinates.
3. Competence of Subordinates: Well-trained, competent, and experienced subordinates require less
supervision, allowing a wider span.
4. Degree of Decentralization: Where decision-making authority is decentralized to lower levels, managers
need to supervise less closely, allowing a wider span.
5. Use of Technology: Good communication and information systems (e.g., MIS, technology tools) enable a
manager to supervise more subordinates effectively.
6. Degree of Similarity/Difference of Functions: When the functions performed by subordinates are similar,
supervision is easier, allowing a wider span.

5. Delegation of Authority
Delegation refers to the downward transfer of authority from a superior to a subordinate, to enable the
subordinate to accomplish a specific assigned task.

Delegation is essential because no single manager can perform all tasks personally, especially as the organization
grows. It allows managers to focus on more important, strategic tasks while routine work is handled by
subordinates.
Elements of Delegation
Element Meaning

Authority The right of an individual to make decisions, issue instructions, and command
resources/subordinates in order to achieve organizational goals. Authority flows
downward, from superior to subordinate.

Responsibility The obligation of a subordinate to properly perform an assigned duty once authority
has been accepted. Responsibility flows upward — a subordinate is responsible to
their superior.

Accountability Being answerable for the final outcome of an assigned task. Accountability cannot
be delegated — the superior remains accountable to their own boss even after
delegating authority and responsibility.
It is important to note that while authority and responsibility can be delegated, accountability cannot be delegated.
A manager who delegates a task remains ultimately answerable to their own superior for the results.

Steps in the Process of Delegation

1. Assignment of Duties/Tasks: The superior first identifies and assigns the specific task or duty to the
subordinate.
2. Granting of Authority: The superior then grants sufficient authority to the subordinate, enabling them to
carry out the assigned duty (e.g., authority to use certain resources or make certain decisions).
3. Creating Accountability: Finally, the subordinate is made accountable for the performance of the assigned
task — accepting an obligation to complete it satisfactorily and answer for the outcome.

Importance of Delegation
1. Reduces the workload of managers, freeing them for more important, high-level tasks.
2. Facilitates the growth and expansion of business, since delegation enables timely completion of a larger
volume of work.
3. Develops subordinates by giving them the opportunity to make decisions and exercise judgment, preparing
them for higher responsibilities.
4. Improves motivation of employees, since they feel trusted and valued when given genuine authority and
responsibility.
5. Serves as a basis for management hierarchy, since it defines superior-subordinate relationships across the
organization.

6. Decentralization
Decentralization refers to the systematic delegation of authority throughout all levels of the organization, so
that decision-making authority is distributed to various management levels rather than concentrated at the
top.

While delegation is a process between two individuals (a superior and a subordinate), decentralization is an
organization-wide philosophy that concerns how widely decision-making authority is dispersed throughout all
levels of the enterprise. Decentralization is sometimes called the 'extension of delegation to the lowest level of
the organization.'
Difference between Delegation and Decentralization
Basis Delegation Decentralization

Scope Between a superior and an individual Organization-wide policy, applies to

subordinate all levels

Nature A process (a routine managerial act) A philosophy of management; an

outcome of extended delegation

Freedom of action Limited freedom given to the subordinate Considerable freedom of action to
lower levels

Necessity Necessary for any organization, since one Optional — top management may
person cannot do everything choose to remain centralized

Nature of relationship Creates a superior-subordinate Extends this relationship to the entire

relationship organization

Importance of Decentralization
1. Develops managerial talent for the future by giving lower-level managers real decision-making experience.
2. Ensures quicker decision-making, since decisions do not need to travel up and down a long chain of
command.
3. Facilitates growth and diversification of business, since divisions/units can operate with a degree of
independence.
4. Provides relief to top management from routine, day-to-day operational decisions, allowing focus on policy
and strategy.
5. Enables better control, since performance of each decentralized unit can be measured and evaluated
separately.

7. Concept of Organizational Design

Organizational Design refers to the process of creating a structure for the organization that will best fit its
strategy, environment, and the tasks it needs to accomplish, ensuring that the organization runs smoothly and
efficiently.

It involves decisions about how to divide work into specific jobs and departments, how to group these jobs, how
to distribute authority among jobs, and how to establish mechanisms for coordinating diverse organizational
tasks. In short, organizational design translates the abstract idea of 'organizing' into a concrete structure suited to
a specific enterprise's needs.

Factors Affecting Organizational Design

1. Strategy: The structure of an organization should follow and support its overall strategy. A change in
strategy (e.g., entering new markets) often requires a corresponding change in structure.
2. Size of the Organization: Larger organizations generally require a more complex, formal, and specialized
structure compared to smaller organizations, which can function well with a simpler structure.
3. Technology: The type of technology/production process used (e.g., mass production vs. customized/job-
order production) influences how work needs to be organized and coordinated.
 4. Environment: A stable, predictable external environment allows for a more mechanistic (rigid, rule-based)
structure, while a dynamic, uncertain environment calls for a more organic (flexible, adaptive) structure.
5. Nature of Human Resources: The skill level, competence, and experience of employees affects how much
authority can be delegated and how much supervision is required.
6. Nature of the Business/Industry: The specific requirements of the industry (e.g., diversified vs. single
product line) affect whether a functional or divisional structure is more suitable.

8. Departmentalization
Departmentalization is the process of grouping various activities and jobs into separate units or departments,
based on some common characteristic, so that they can be managed and coordinated effectively.

Bases/Types of Departmentalization
Basis Description Example

Functional Grouping of jobs based on functions performed Production Department, Finance

Departmentalization (e.g., production, finance, marketing, HR). Department, Marketing
Department

Product/Divisional Grouping of activities on the basis of different Two-wheeler Division,

Departmentalization product lines; each division handles a complete Passenger Car Division (in an
product line. automobile company)

Territorial/Geographical Grouping of activities on the basis of North Zone, South Zone, East
Departmentalization geographical regions or territories, useful for Zone Sales Offices
organizations operating over a wide area.

Process-wise Grouping of activities on the basis of Spinning, Weaving, Dyeing,

Departmentalization production processes/technology involved. Printing (in a textile mill)

Customer-wise Grouping of activities on the basis of different Wholesale Customers

Departmentalization types of customers served. Department, Retail Customers
Department

Advantages of Departmentalization
• Enables specialization, as work is grouped according to similar skills/functions, leading to greater
efficiency.
• Fixes responsibility clearly, since each department head is answerable for that department's performance.
• Facilitates management control, since performance of each department can be measured independently.
• Provides a basis for the development of managerial skills within specific functional/product areas.

Disadvantages of Departmentalization
• May lead to problems of coordination between departments, since each department may focus only on its
own goals (the 'silo effect').
• Can create conflict of interest between departments competing for resources.
• May lead to duplication of resources/facilities across departments, especially under product/divisional
departmentalization.

9. Organizational Structures
Organizational structure refers to the formal framework by which job tasks are divided, grouped, and coordinated.
Broadly, organizations may follow a Functional Structure, a Divisional Structure, or hybrid forms such as a
Matrix Structure.

9.1 Functional Structure

A Functional Structure is one in which activities are grouped, and departments are created, primarily on the
basis of functions such as production, marketing, finance, and human resources, with each function headed by
a specialist manager.

Merits of Functional Structure

1. Promotes specialization, as employees focus on a single functional area and develop expertise in it.
2. Ensures effective supervision, since each manager is an expert in the specific functional area they oversee.
3. Promotes control over functions, as performance in each functional area can be monitored closely.
4. Increases managerial and operational efficiency, leading to increased profit.
5. Results in economy of scale/operations, since similar activities are performed within a single department.

Demerits of Functional Structure

1. Can lead to a lack of coordination among different functional departments.
2. Conflicts may arise among department heads over relative importance of their respective functions.
3. Flexibility is reduced, as it may be inflexible for organizations with diverse/multiple product lines.
4. Employees may develop a narrow, department-first outlook (‘departmentalitis’) rather than an organization-
wide perspective.

9.2 Divisional Structure

A Divisional Structure is one in which the organization is divided into separate, semi-autonomous divisions,
generally on the basis of different product lines, with each division having its own set of functional departments
(production, marketing, finance, etc.) under a divisional head.

Merits of Divisional Structure

1. Promotes flexibility and initiative, since each division functions as an autonomous, self-contained unit.
2. Facilitates expansion and growth, as new divisions can be added without disturbing existing operations.
3. Fixes responsibility clearly for the performance of each product line/division, aiding performance
evaluation.
4. Facilitates the development of managerial talent, as divisional heads get exposure to all functions within
their division (similar to running a mini-company).

Demerits of Divisional Structure

1. May lead to duplication of resources and facilities, since each division maintains its own functional
departments.
2. Conflict may arise among divisions over the allocation of common/limited resources.
3. Increases costs, as separate sets of functional specialists (e.g., finance, marketing staff) are needed for each
division.
4. Divisional interest may be prioritised over organizational interest by divisional managers.
9.3 Matrix Structure (Brief Overview)
A Matrix Structure is a hybrid/combination of the functional and divisional structures, in which an employee
reports to two superiors simultaneously — a functional manager and a project/product manager. It is generally
used in organizations that handle multiple, complex, simultaneous projects (e.g., construction companies,
IT/software companies, consulting firms).

Merits of Matrix Structure

1. Results in effective utilization of resources, as specialists can be shared across multiple projects.
2. Offers flexibility in responding to changing project or product demands.
3. Stimulates interdisciplinary cooperation and encourages creative problem-solving through cross-functional
teams.

Demerits of Matrix Structure

1. Violates the principle of unity of command, since each employee has two superiors, which can cause
confusion.
2. Can lead to conflict between the functional manager and project manager over authority/priorities.
3. Requires a high level of coordination, which can be time-consuming and complex to manage effectively.

Functional vs. Divisional Structure: Quick Comparison

Basis Functional Structure Divisional Structure

Formation basis Formed on the basis of functions Formed on the basis of product
performed lines/divisions

Managerial development Difficult, as managers gain expertise in Easier, as divisional managers

only one function oversee all functions of their division

Accountability Difficult to fix accountability for overall Easy to fix accountability for each
product profitability division's performance

Cost More economical, avoids duplication Costlier, duplication of resources

across divisions

Suitability Suitable for organizations with a Suitable for large organizations with
single/few product lines multiple, diverse product lines

10. Formal and Informal Organization

10.1 Formal Organization
Formal Organization refers to the organizational structure that is deliberately and consciously designed by
management, in which job duties, authority, and responsibility relationships are clearly defined and
sanctioned by the organization.

Features of Formal Organization

• Deliberately created by top management to achieve organizational goals.
• Well-defined rules, procedures, and hierarchy of authority.
• Focus is on the achievement of organizational objectives.
 • Relationships between individuals are based on the positions they hold, not on personal likes/dislikes.
• It is generally depicted through an organization chart.

Merits of Formal Organization

1. Establishes clearly defined objectives, policies, and procedures, which facilitates smooth functioning.
2. Avoids duplication of work through clear division of work and specification of relationships.
3. Leads to effective accomplishment of goals, since each individual's role is clearly defined.
4. Provides stability to the organization, since it is based on well-defined rules and structure, not individuals.

Demerits of Formal Organization

1. Can lead to delays in decision-making due to a long chain of command and rigid rules/procedures.
2. Does not fully account for the human/social needs of employees, since it is based on rules rather than
relationships.
3. May lead to a rigid, bureaucratic style of functioning that does not adjust quickly to change.

10.2 Informal Organization

Informal Organization refers to the network of social and personal relationships that spontaneously arises
among members of an organization as they interact with each other during the course of work, without being
deliberately designed by management.

Features of Informal Organization

• Arises spontaneously, without any deliberate effort by management.
• Not depicted in any organization chart; it exists alongside the formal structure.
• Based on personal attitudes, likes/dislikes, common interests, and social needs of members.
• Relationships can cut across formal hierarchy — e.g., a junior employee and a senior manager might be
part of the same informal group.
• Communication in informal organization occurs through the ‘grapevine’, which spreads information
quickly but is prone to distortion.

Merits of Informal Organization

1. Leads to faster spread of information through the grapevine, complementing formal communication
channels.
2. Fulfils the social and psychological needs of members, contributing to job satisfaction.
3. Helps in the accomplishment of organizational work in situations where formal channels are slow (e.g., an
informal request can sometimes get quicker cooperation than a formal memo).
4. Contributes to a healthy work culture by fostering team spirit and cooperation among employees.

Demerits of Informal Organization

1. Can spread rumours and misinformation, since grapevine communication is often unverified.
2. May resist change if the informal group's interests conflict with the organization's proposed changes.
3. Can place pressure on members to conform to group norms, sometimes at the cost of organizational
efficiency.

Formal vs. Informal Organization: Comparison

Basis Formal Organization Informal Organization

Origin Deliberately created by management Arises spontaneously due to social

interaction

Purpose Achievement of organizational objectives Satisfaction of social/psychological

needs

Structure Well-defined, hierarchical structure No definite structure; exists

informally

Authority Flows from top to bottom, based on position Not based on position; based on
personal influence

Communication Follows the official/formal chain of Follows the grapevine; can move in
command any direction

Nature Stable and relatively permanent Unstable; may change based on

member interactions
Quick Revision Summary
• Organizing = identifying/dividing work, grouping activities, assigning duties, and establishing authority
relationships.
• Steps in organizing: Identify work → Departmentalize → Assign duties → Establish reporting
relationships.
• Key principles: Unity of command, span of control, scalar chain, delegation, accountability, division of
work.
• Span of management = number of subordinates one manager can effectively supervise; wide span → fewer
levels, narrow span → more levels.
• Delegation = superior → subordinate (authority + responsibility + accountability); accountability can never
be delegated.
• Decentralization = organization-wide dispersal of decision-making authority (an extension of delegation to
all levels).
• Organizational design = fitting structure to strategy, size, technology, environment, and people.
• Departmentalization bases: functional, product/divisional, territorial, process-wise, customer-wise.
• Structures: Functional (function-based, promotes specialization) vs Divisional (product-based, promotes
accountability) vs Matrix (dual reporting, used for projects).
• Formal organization = officially designed, rule-based; Informal organization = spontaneous, relationship-
based, spreads via the grapevine.