Chapter-5 Organising

Introduction

Once the plans have been laid down and objectives specified therein, the next step is to
organise resources in a manner which

leads to the accomplishment of objectives. A critical issue in accomplishing the goals

specified in the planning process is struc

turing the work of an organisation to adapt to the dynamic business environment. The
activities of an enterprise must be organ

ised in such a manner that plans can be successfully implemented. For planning to be
fruitful a number of considerations like

resources that will be needed, optimum utilisation of the same translation of work into
attainable tasks, empowering the work

force to accomplish these tasks etc., need to be understood and dealt with properly.

The management function of organising ensures that efforts are directed towards the
attainment of goals laid down in the plan

ning function in such a manner that resources are used optimally and people are able to
work collectively and effectively for a

common purpose. Thus, it is in the context of effective management that the

organisation function earns due importance. It is a

means for translating plans into action.

Steps in the Process of Organising

Organising involves a series of steps that need to be taken in order to achieve the
desired goal. Let us try and understand how

organising is carried out with the help of an example. Suppose twelve students work for
the school library in the summer vaca
tions. One afternoon they are told to unload a shipment of new releases, stock the
bookshelves, and then dispose of all waste

(packaging, paper etc). If all the students decide to do it in their own way, it will result in
mass confusion.

(i) Identification and division of work: The first step in the process of organising involves
identifying and dividing the work

that has to be done in accordance with previously determined plAnswer: The work is
divided into manageable activities so

that duplication can be avoided and the burden of work can be shared among the
employees.

(ii) Departmentalisation: Once work has been divided into small and manageable
activities then those activities which are

similar in nature are grouped together. Such sets facilitate specialisation. This grouping
process is called departmentalisa

tion. Departments can be created using several criteria as a basis. Examples of some of
the most popularly used basis are

territory (north, south, west, etc.) and products (appliances, clothes, cosmetics etc).

(iii) Assignment of duties: It is necessary to define the work of different job positions and
accordingly allocate work to various

employees. Once departments have been formed, each of them is placed under the
charge of an individual. Jobs are then

allocated to the members of each department in accordance to their skills and

competencies. It is essential for effective

performance that a proper match is made between the nature of a job and the ability of
an individual. The work must be

assigned to those who are best fitted to perform it well.

(iv) Establishing authority and reporting relationships: Merely allocating work is not
enough. Each individual should also
know who he has to take orders from and to whom he is accountable. The
establishment of such clear relationships helps

to create a hierarchal structure and helps in coordination amongst various

departments.

Importance of Organising

Performance of the organising function can pave the way for a smooth transition of the
enterprise in accordance with the dynamic

business environment. The significance of the organising function mainly arises from
the fact that it helps in the survival and

growth of an enterprise and equips it to meet various challenges. In order for any
business enterprise to perform tasks and suc

cessfully meet goals, the organising function must be properly performed. The following
points highlight the crucial role that

organising plays in any business enterprise:

(i) Benefits of specialisation: Organising leads to a systematic allocation of jobs

amongst the work force. This reduces the

workload as well as enhances productivity because of the specific workers performing a

specific job on a regular basis.

Repetitive performance of a particular task allows a worker to gain experience in that

area and leads to specialization spe

cific job on a regular basis. Repetitive performance of a particular task allows a worker
to gain experience in that area and

leads to specialisation.

(ii) Clarity in working relationships: The establishment of working relationships clarifies

lines of communication and speci

fies who is to report to whom. This removes ambiguity in transfer of information and
instructions. It helps in creating a
hierarchical order thereby enabling the fixation of responsibility and specification of the
extent of authority to be exercised

by an individual.

60

(iii) Optimum utilisation of resources: Organising leads to the proper usage of all
material, financial and human resources.

The proper assignment of jobs avoids overlapping of work and also makes possible the
best use of resources. Avoidance of

duplication of work helps in preventing confusion and minimising the wastage of

resources and efforts.

(iv) Adaptation to change: The process of organising allows a business enterprise to

accommodate changes in the business

environment. It allows the organisation structure to be suitably modified and the

revision of inter-relationships amongst

managerial levels to pave the way for a smooth transition. It also provides much needed
stability to the enterprise as it can

then continue to survive and grow inspite of changes.

(v) Effective administration: Organising provides a clear description of jobs and related
duties. This helps to avoid confusion

and duplication. Clarity in working relationships enables proper execution of work.

Management of an enterprise thereby

becomes easy and this brings effectiveness in administration.

(vi) Development of personnel: Organising stimulates creativity amongst the managers.

Effective delegation allows the man

agers to reduce their workload by assigning routine jobs to their subordinates. The
reduction in workload by delegation is
not just necessary because of limited capacity of an individual but also allows the
manager to develop new methods and

ways of performing tasks. It gives them the time to explore areas for growth and the
opportunity to innovate thereby

strengthening the company’s competitive position. Delegation also develops in the

subordinate the ability to deal effectively

with challenges and helps them to realise their full potential.

(vii) Expansion and growth: Organising helps in the growth and diversification of an
enterprise by enabling it to deviate from

existing norms and taking up new challenges.

Organisation Structure

Organisation structure is the outcome of the organising process. An effective structure

will result in increased profitability of the

enterprise. The need for an adequate organisation structure is felt by an enterprise

whenever it grows in size or complexity. It is

only those enterprises which do not focus on growth that can maintain a particular
structure for a long period of time. However,

it is important to understand that such stagnancy may prove to be detrimental to an

enterprise as those companies which do not

change at all will close down or cease to grow. As an organisation grows, coordination
becomes difficult due to the emergence of

new functions and increase in structural hierarchies. Thus, for an organisation to

function smoothly and face environmental

changes, it becomes necessary to pay attention to its structure.

Types of Organisation Structures

The type of structure adopted by an organisation will vary with the nature and types of
activities performed by an organsation.
The organisational structure can be classified under two categories which are as
follows:

(i) Functional structure

(ii) Divisional structure

Functional Structure

Functional organisation structure refers to a system of organising in which various

activities are classified into several functions,

and for each function, a department is created and placed under the charge of a
functional expert. In this type, each major or basic

function is organised as a separate department. Again a major function may be divided

into various sub-function. Functional

structure is the most widely used organisation structure. As it becomes necessary for
an expanded business enterprise to appoint

experts possessing specialized knowledge.

For example, production, sales and finance are the basic functions of the
manufacturing enterprise. The function may be classified

into various sub-functions, such as repair and maintenance, quality control, etc. This
concept grew out of function foremanship

61

suggested by F.W. Taylor. He recommended the appointment of specialists at different

positions that the subordinate may serve

and receive orders from several specialists and managers working over there.

Suitability

A Functional structure is suitable for the following uses:

• When the organisation has to carry out diversified activities.

• When the size of the organisation is large.

• When the task requires a high degree of specialization.

• Advantages and Disadvantages of Functional Structure

Advantages of Functional Structure

The following are the advantages of functional structure:

1. Specialization: Functional structure promotes specialization because employees

perform similar work within a department

and it improves their efficiency.

2. Effective Control and Coordination: Functional structure promotes effective control

and coordination within a department

due to the similarity of work or individuals of one department being closely tied
together, so they develop a link between each

other. It helps the departmental manager in coordination and performing various

activities.

3. Improves Efficiency: Experts and experienced officers are specially appointed for
each functional department. It helps in in

creasing managerial and operational efficiency, which results in increased profits.

4. Avoids Duplications: It helps in avoiding duplication of efforts, which leads to

economies of scale and reduces the cost of

production.

5. Easy Training: It makes the training of employees easier as the focus is only on a
limited range of skills.

6. Proper Attention: Functional structure ensures that different functions get due
attention.

Disadvantages of Functional Structure

The following are the disadvantages of functional structure:

1. Functional Empire: Employees involved in achieving their departmental goals, don’t

know their organisational goals. Such

practice leads to a functional empire in which departmental functions are given more
importance.
2. Difficulty in Coordination: Departmental managers have a limited outlook, so they
don’t look beyond their departments. It

makes coordination difficult between different departments. Coordination is also

difficult when the size of the department is very

large.

3. Difficult to hold Accountable: It becomes difficult to hold a particular department

accountable if the organisation’s goal is not

clear. For example, if a company has not achieved the sales target, then there is no
certain reason for the failure to achieve the

organisational goals.

4. Conflict of Interest: Functional structure may lead to conflict between two or more
departments if their interest is not

achieved. For example, if the sales department insists on a customer-friendly design,

which is not acceptable to the production

department, then such disagreement is harmful to the organisation as a whole.

5. Inflexibility: Employees get training for one function only, and functional heads are not
trained for the top management, as a

result, they can not be shifted to the other department or another position.

Divisional Structure

When jobs related to one product are grouped under one department then it is termed a
divisional structure. This type of struc

ture is suitable for a large organisation that has several products. Under this method, a
separate department is created for each

major product. Each department is headed by a divisional manager, who has to carry
out all functional activities related to the

departments. Every department operates as a multifunctional unit because all

necessary functions are performed over there. In

this type of structure, each division work as a profit centre, and the divisional head is
responsible for the profit and loss of each

division.
Suitability

A Divisional structure is suitable for the following uses:

• When large varieties of products are manufactured by using different productive

sources.

• When an organisation grows and needs to add more employees

• When it is important to determine the profit and loss made by each product line.

• When an enterprise creates more departments and introduces new levels of

management.

• Advantages and Disadvantages of Divisional Structure

Advantages of Divisional Structure

The following are the advantages of divisional structure:

1. Product Specialization: Divisional structure leads to specialization in a particular

product because all activities related to one

product are grouped in one department.

2. Greater Accountability: In a divisional structure, each product department is treated

as the profit center. So, the departmental

manager is accountable for his own profit and loss. This provides a base for measuring
performance.

3. Flexibility: Divisional structure promotes flexibility because each division works as an

autonomous unit. This thing leads to

faster decision-making and allows greater flexibility to change in the environment.

62

4. Expansion and Growth: Divisional structure facilitates diversification and expansion

of the organisation because a new divi

sion can be added without interrupting the existing decision.

Disadvantages of Divisional Structure

The following are the disadvantages of divisional structure:

1. Department Conflicts: Conflicts may arise among different departments, such as
production, marketing, sales, etc., with re

spect to the allocation of funds. A particular department may seek to maximize its
profits at the cost of other departments.

2. Costly: There is a duplication of physical facilities and functions. Each product

division has to maintain its own facilities and

personnel. It may lead to an increase in operating costs. Since there may be duplication
of activities.

3. Ignore Organisational Interests: Divisional structure provides managers with the

authority to supervise all activities related

to a particular division. Managers focus on their own products without thinking of the
rest of the organisation. Thus, organisa

tional objectives suffer and become difficult to accomplish.

Difference between Functional Structure and Divisional Structure:

Basis Functional Structure Divisional Structure

Meaning Functional structure refers to grouping of jobs of

similar nature under one department.

Divisional structure refers to grouping of jobs re

lated to one product under one department.

Formation It is formed on the basis of function. It is formed on the basis of product.

Specializa

tion

It leads to functional specialization. It leads to product specialization.

Responsibility Fixing responsibility for a particular department

is difficult.

Fixing responsibility for a particular department is

easy.

Managerial Develop
ment

Managers become specialized in one function

only, so there is less chance for overall manage

rial development.

Multiple functions are performed by the managers

which make managerial development easy.

Cost It is economical as there is no duplication of

work.

It is not economical as all the resources are re

quired by each department.

Coordination In the case of a multi-product company, coordi

nation is difficult.

Coordination is easy as all the functions related to

a particular product are integrated into a single de

partment.

Suitability It is suitable for such organizations which have a

single product or small number of products.

It is suitable for organizations which have varieties

of products.

Formal Organisation

In all organisations, employees are guided by rules and procedures. To enable smooth
functioning of the enterprise, job descrip

tion and rules and procedures related to work processes have to be laid down. This is
done through the formal organisation.

Formal organisation refers to the organisation structure which is designed by the

management to accomplish a particular task. It
specifies clearly the boundaries of authority and responsibility and there is a systematic
coordination among the various activities

to achieve organisational goals. The structure in a formal organisation can be functional

or divisional. The formal organisation

can be better understood by a study of its features which are as follows:

(a) It specifies the relationships among various job positions and the nature of their
interrelationship. This clarifies who has to

report to whom.

(b) It is a means to achieve the objectives specified in the plans, as it lays down rules
and procedures essential for their achieve

ment.

(c) Efforts of various departments are coordinated, interlinked and integrated through
the formal organisation.

(d) It is deliberately designed by the top management to facilitate the smooth

functioning of the organisation.

(e) It places more emphasis on work to be performed than interpersonal relationships

among the employees.

63

Advantages:

Formal organisation offers many advantages. Some of the important ones are:

(a) It is easier to fix responsibility since mutual relationships are clearly defined.

(b) There is no ambiguity in the role that each member has to play as duties are
specified. This also helps in avoiding duplication

of effort.

(c) Unity of command is maintained through an established chain of command.

(d) It leads to effective accomplishment of goals by providing a framework for the

operations to be performed and ensuring that

each employee knows the role he has to play.

(e) It provides stability to the organisation. This is because behaviour of employees can
be fairly predicted since there are specific

rules to guide them.

Limitations:

The formal organisation suffers from the following limitations:

(a) The 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.

(b) Poor organisation practices may not provide adequate recognition to creative talent,
since it does not allow any deviations

from rigidly laid down polices.

(c) It is difficult to understand all human relationships in an enterprise as it places more

emphasis on structure and work. Hence,

the formal organisation does not provide a complete picture of how an organisation
works.

Informal Organisation

Interaction among people at work gives rise to a ‘network of social relationships among
employees’ called the informal organisa

tion. Informal organisation emerges from within the formal organisation when people
interact beyond their officially defined

roles. When people have frequent contacts they cannot be forced into a rigid formal
structure. Rather, based on their interaction

and friendship they tend to form groups which show conformity in terms of interest.
Examples of such groups formed with com

mon interest may be those who take part in cricket matches on Sundays, meet in the
cafeteria for coffee, are interested in dramat
ics, etc. Informal organisation has no written rules, is fluid in form and scope and does
not have fixed lines of communication. The

Table on the next page compares informal organisation with the formal organisation to
provide better understanding of both

types. Informal organisation can be better understood with the help of the following
features:

(a) An informal organisation originates from within the formal organisation as a result of
personal interaction among employees.

(b) The standards of behaviour evolve from group norms rather than officially laid down
rules and regulations.

(c) Independent channels of communication without specified direction of flow of

information are developed by group members.

(d) It emerges spontaneously and is not deliberately created by the management.

(e) It has no definite strucure or form because it is a complex network of social

relationships among members.

Advantages:

The informal organisation offers many benefits. Important among them are given below:

(a) Prescribed lines of communication are not followed. Thus, the informal organisation
leads to faster spread of information as

well as quick feedback.

(b) It helps to fulfill the social needs of the members and allows them to find like minded
people. This enhances their job satis

faction since it gives them a sense of belongingness in the organisation.

(c) It contributes towards fulfillment of organisational objectives by compensating for

inadequacies in the formal organisation.

For example, employees reactions towards plans and policies can be tested through the
informal network.

Disadvantages:
The informal organisation has certain disadvantages. Some of them are as follows:

(a) When an informal organisation spreads rumours, it becomes a destructive force and
goes against the interest of the formal

organisation.

(b) The management may not be successful in implementing changes if the informal
organisation opposes them. Such resistance

to change may delay or restrict growth.

64

Elements and Importance of Delegation

It is not possible for an individual to perform all the tasks assigned to him. To meet the
targets, the appropriate authority is to be

delegated to the respective person. Delegation of authority means the division of

authority, position, and power flowing down

wards to the subordinate. It can also be defined as subdivision and sub-allocation of

formal authority to the subordinates to

achieve the desired result. In fact, it is the base of the superior-subordinate relationship.
A chain of command from the top man

agement to the individual at the lowest level is created through the delegation of
authority, and it also serves as a channel of

communication. The person who delegates authority is known as the delegator, and the
other person known is the delegate.

Elements or processes of Delegation

The process of delegation has three important elements:

• Authority: It is the power granted to an individual to facilitate the performance of the

assigned work. When a manager as

signs some of his responsibility to his subordinate, it means he has also granted some
authority to his subordinate. The
subordinate needs authority to make the right decision and to carry out the
responsibility given by the superior. Authority

flows downwards because the superior has authority over the subordinates. Authority
determines the superior and subor

dinate relationship, where the subordinate has to execute the order of the superior.

• Responsibility: The delegation process begins when the manager passes on some of
his responsibility to his subordinate.

Responsibility is the obligation of an individual to carry out assigned duties properly.

Responsibility flows upward, i.e., a

subordinate will always be responsible to his superior. This is because every

subordinate has to execute the order of a supe

rior. When responsibility is given to an employee for a particular job, there is a

consideration that is to be kept in view. The

employee must be given the degree of authority to carry out his assigned job. The
authority provided must be commensurate

to the responsibility for an effective delegation. Inappropriate grant of authority and

responsibility leads to either misuse of

authority or ineffectiveness in a person.

• Accountability: It is the third and final step in the process of delegation. Accountability
means being answerable to the su

perior for the final result. Once authority has been delegated and responsibilities have
been accepted, then a person cannot

deny accountability because the subordinate is accountable to his superior.

Accountability flows upward, i.e., subordinates

are accountable to their superiors for their assigned jobs. Therefore, managers have to
make sure that there is a proper

discharge of duties by the subordinates.

Importance of Delegation

Following are the importance of delegation:

• Effective Management: Delegation make it possible for the managers to distribute

their workload amongst subordinates.
With the reduction of workload, a manager can give more time for strategic planning and
for making policy. Delegation ena

bles managers, to assign routine work to their subordinates and managers to

concentrate on challenging jobs.

• Employee Development: Delegation of authority gives more chances to the

subordinate to flourish in their ability and skills.

It acts as a training ground for managerial development. It also provides opportunities

for the subordinate to learn and de

veloped new qualities and skills. The delegation also helps to improve self-confidence
and to make decisions.

• Motivation of Employees: Delegation motivates the subordinate to work with greater

responsibility. Delegation shows the

trust and confidence of a superior in his subordinate. Subordinate takes more interest
when they have authority and respon

sibility.

• Facilitation of Growth: Delegation allows the lower-level management to show their

capability. It helps the organization to

grow. It acts as a good training ground and prepares subordinates during diversification
and expansion of business.

• Basis of Management Hierarchy: Delegation establishes a superior-subordinate

relationship, which is the basis of the hi

erarchy of the management. It is the degree and flow of authority, which determines
who has to report to whom. The extent

of delegated authority also decides the power that each job position enjoys in the
organization.

• Better coordination: The three-element of delegation helps to define power, duties,

and answerability related to the various

job positions. It provides clarity in duties to be performed and avoids overlapping or

duplication of works.

Centralization and Decentralization

As far as we are concerned with different business organizations, Centralization and
Decentralization are two relative terms. Cen

tralization focuses all the decision-making functions at the top of the management
hierarchy. Such a situation would get rid of

the need for a management hierarchy. In other words, the decision-making authority lies
with the higher management. Decen

tralization implies assigning all the decision-making functions to the lower level of the
hierarchy, and that would remove the

need for higher management, i.e., the decision-making authority is divided between all
the levels of the hierarchy. Both of these

situations are unrealistic, and therefore both centralization and decentralization are
needed in the working of an organization.

Interdependence between Centralization and Decentralization

An organization is both centralized as well as decentralized. In many organizations, all

the major decisions are taken by the top

level, while in some organizations that power is vested in the lower organizations. The
organization whose decisions are taken

by the top management are known as centralization, whereas the organizations whose
decision-making responsibilities are dis

tributed between the lower levels are termed decentralization. It is more likely for an
organization to make decentralized

65

decisions because of its constant growth and complexity. In larger organizations, the
employees who are at the lower levels are

usually more involved in different kinds of operations and tend to have more knowledge
and understanding about the working

of the organization. Therefore, there is a need for both forces in an organization. Thus,
there should be a balance between cen

tralization and decentralization in every organization. Delegation means the downward

flow of responsibility and authority from

top management or superior to lower levels of management or subordinate. Delegation

helps the organization to work efficiently
by enabling the manager to use his time to focus on other important tasks. It also gives
the subordinates some kind of recognition

and also provides them with opportunities to help them develop.

Delegation helps the manager to extend his work as he can distribute his responsibility
and work on other areas otherwise his

responsibilities would be restricted to only what the manager might be capable of

doing. This does not mean that he will not be

accountable for the tasks performed. The authority delegated to the subordinate can be
taken back or transferred. But irrespective

of the delegation, the manager will still be responsible for the assigned tasks.

Delegation is much more important than decentralization. This is because in

decentralization only the decision and authority are

passed on between different levels of management whereas in delegation the manager

transfers some of his authority and re

sponsibility to his subordinates. Delegation is required in almost every field whether big
or small. An organization cannot work

without delegation. While on the other hand decentralization is only a part of mostly
bigger organizations. It is not mandatory.

Decentralization is an extension of Delegation

When in delegation, the management of an organization is evenly assigned to the lower

levels, which eventually leads to decen

tralization. In delegation, the managers assign some of their tasks to their subordinates,
and they have to work accordingly. In

delegation, the authority is just transferred by the manager to the subordinates,

whereas in decentralization, it is passed on to

the subordinates of different levels of management. Thus, in decentralization, the

authority passed on by the manager to subor

dinates is multiplied from a single level of management to several different

management levels. Therefore, we can say that dele

gation is an extension of decentralization.

Importance of Decentralization
Decentralization is not only the passing of authority onto the lower levels of
management, but it also involves the selective distri

bution of authority to the lower levels because of the belief that they are resourceful,
knowledgeable, and efficient. Decentraliza

tion is an important step, and it can be understood by the following points:

• Develops initiative among subordinates: Since the lower levels of management have
to make decisions on their own and

perform the tasks with the help of their capabilities, they become more confident and
self-reliant. It also enables them to

stay focused and find the answers to solve all the different kinds of problems they might
have to face. Decentralization is

helpful for the subordinates to develop and identify themselves, and also to find their
potential to become strong leaders.

• Develops managerial talent for the future: The experience that a subordinate gain from
handling different kinds of tasks

and situations is equally important that one receives from the training based on skills
and talent. Decentralization gives the

subordinates a purpose to prove themselves and helps them build their potential to
qualify for a more ambitious position

through promotion. It is also a means to identify those persons who are not ready and
need more training and development.

Thus, it is an opportunity for the subordinates to implement their training in real-life

situations.

• Quick decision making: In centralization, the decisions are taken by the top level of
management, which has to be trans

ferred down to the lower levels. This transfer of information has to go through several
levels, which could slow down the

response and hence the decision-making. However, in decentralization, the decisions

are taken even at the lower levels, so

they are already updated, and therefore, there is no need for the information to travel
through long channels for their ap

proval. This makes communication quick and easy and also saves up a lot of time for
the organization. Besides this, the in
formation is more accurate, as there is no need for it to pass through all the levels of
management.

• Relief to the Top management: Decentralization reduces direct management of the

subordinates at the hands of the supe

riors, as the subordinates are free to act and manage the given activities by the
restriction set by the top management. The

top management can focus better on the policy decisions, i.e., future decisions, rather
than being concerned with both policy

and operational decisions. They can invest their time in thinking and planning for the
future of the organization without

being worried about daily activities. Thus, decentralization is helpful as the superiors do
not have to check up on all the

decisions made by the lower levels every single time.

• Facilitates growth: Decentralization makes the lower levels as well as the top
management or departmental heads self

reliant. This allows them to make better decisions concerning their departments.
Decentralization also creates a competitive

environment for different departments, which enables them to compete and excel with
each other. This competition pro

motes productivity and allows the different departments to generate greater returns to
help expand their business.

• Better control: Decentralization makes it possible for the top management to manage
and control each level based on their

performance. Also, their department will be held responsible for their actions alone. The
result accomplished by the organi

zation and the contribution of each department in achieving those objectives can be
determined through decentralization.

Reports received from each level help the organization understand and improve its
performance of the organization. This

encourages the organizations to improve and develop an innovative system of

management.