CHAPTER5

Formation of Organisation1

When two or more persons come together to achieve a
common goal,they are said to be organised themselves
and the arrangement is called Organisation
According to one of the definition:
Organization is that structure that assigns authority
and responsibility amongst individuals working
together for accomplishment of a common goal.

FEATURES OF ORGANISATION
Objective-oriented activity
Delegation of Authority and Responsibility
Dependent on Planning
Importance to Human Element
Flexibility
Group activity
Supervision, Control and Co-ordination are its
basis

Importance of Organisation:
Organisation establishes an inter-relation
between authority and responsibility.
To clarify the importance of organisation a
successful industrialist says,
Take away our plants,take away our
business , oh! Take away our wealth but
permit us to retain our organisation. Within
no time we shall be on our feet once
again. Andrew Carnegie.
IMPORTANCE OF ORGANISATION
1. The success or failure of a business largely depends upon its formation
of organisation
2. There is no duplication of work and co-ordination is maintained because
of organisation.
3. Organisation establishes inter-relationship between functions and
functions and also between functions and individuals.
4. Maximum utilization of time and resources becomes possible due to
organisation
5. Employees become more responsible.
6. Organisation makes control easy and effective.
7. Discipline and morale of personnel increases.
8. Division of labour and research are encouraged , and by adopting new
technology administrative efficiency can be increased.
9. Smooth administration is maintained due to clarity of authority and
responsibility.
10. Every activity gets equal justice.



Every business has to form an organisation for
accomplishment of targeted objectives.
With the existence of business, there is existence
of organisation.
Organisation should be flexible so as to adapt to
the changing time and circumstances.
Following are the stages for the formation of
organisation:

1. Clarification of Objectives.
2. Listing of Functions.
3. Departmentation.
4. Departmental position and qualification.
5. Delegation of Authority and Assignment
of Responsibility.
6. Establishment of Inter-relationship.
7. Preparation of Organisational Chart.
1) Line Organization
2) Functional Organization
3) Committee Organization
4) Line and Staff Organization
5) Matrix Organization
A type of organization where the authority and
responsibility flow in a downward trend from
top to bottom is called Line organization
It is more known, old and simple type of
organization.
Every person is responsible to his immediate
superior.
This type of organization is used in military for
years.
Firstly the entire business is divided into
different departments.
Each department gets the head of the
department.
The departmental head is given full authority
and responsibility of his department.
Departmental head has internal authority and
are independent of one another.
The other name for this type of organisation is
departmental organization
Generally organization is divided into three
departments namely Production, Sales and
Administrative.
Production manager ,sales officer, etc are
appointed on the basis of important functions
of departments.
The one co-ordinating the functioning of
departmental heads is the General Manager.
Thus, in line organisation authority flow from
top to bottom.
Board of directors
General manager
Production department Sales department Administrative
department
Purchase
officer
Production
officer
Sales officer Publicity
officer
Administrative
officer
Accounts
officer
Foremen
Supervisors
Workers
Workers
Salesmen Personnel
officer
Clerks
Clerks
Line organisation has a simple structure that can be
understood by every common man .
There is a clear division of authority and
responsibility in such type of organisation.
The departmental head possess full authority over
his department which helps in maintaining internal
control.
Due to internal autonomy the head can take quick
decisions.


Departmental head concentrates on developing his
personality as he himself has to extract work from
persons of his dept.
Flexibility can be brought as per the changes in time
and circumstances.
Unity of command is well maintained as everyone
has to take orders from one individual only.
The structure is less expensive and more economic.

Sometimes this type becomes autocratic .
Lack of Specialization.
Centralization of authority to one head.
In this type of organisation it becomes difficult to
acquire the services of highly Qualified executives
capable in every respect.
As the department and officers are independent ,co-
ordination is difficult.
There is no flow of communication from bottom to
top and therefore many problems are created.
A type of organisation that gives importance to
functions instead of departments is called Functional
organisation .
Different functions are given importance.
Experts are included who have specialisation in their
own fields.
Different experts are assigned different tasks of work
to bring effectiveness and increasing productivity.

Division of authority and responsibility is on the basis
of functions rather than on departments.
Experts are appointed for every function.
The experts are given responsibility not for a specific
department but for the unit as a whole.
Workers are responsible to different officers instead of
one officer.
There is a good co-ordination between the experts to
achieve the organizational objectives.

Chief Executive
Planning
division
Factory division
Information
officer
Discipline
officer
Accounts
officer
Counseling
officer
Group
officer
Speed
officer
Quality
control
officer
Maintenance
officer
Workers Workers
1) Specialization is possible.
2) Decentralization of Authority.
3) Co-ordination is possible because all the experts
are inter-dependent.
4) Less burden of work.
5) Benefit of expertise.
6) Training.
7) Flexibility.
8) Easy Decision Making.

1) Complexity.
2) Lack of unity of Command
3) Lack of discipline
4) Lack of Responsibility.
5) Delay in Decision.
6) Expensive.

A committee is a group of people who have been
formally assigned some task or some problem for their
decision and implementation.
In modern business enterprise there is a widespread
use of committee in all areas of mgmt.
In short, committee is that type of organisation that
takes decisions collectively for the business.
This type is not only useful in business but also has
been found to be more useful in social institutions,
public undertakings, religious and political
institutions.
Top executive Committee
Production Committee Sales Committee Administrative
Committee
Purchase
Committee
Factory
Committee
Publicity
Committee
Sales
Committee
Secretary Accountant
Clerks
Clerks Clerks Clerks Workers Salesmen
1) Better decision making.
2) Democratic.
3) Specialization.
4) Co-ordination.
5) Decentralization of Authority.
6) Reduced work burden.
7) Improvement in Relations.
8) Research is encouraged.
1) Secrets maintained.
2) Delay in decision making.
3) No individual responsible.
When it is responsibility of everybody, it is of nobody.
4) Autocracy.
5) Groupism or internal conflicts.






A form of organisation in which the authority is
assigned only for meeting the responsibility of some
functions is known as formal organisation.
It is an organisation to bridge the relationship for the
accomplishment of specific objectives.
E.g., Line, Functional, Line & Staff organisation,etc.
The hierarchy of authority is clear and well-defined.
The position of superior subordinate s is well
defined.
INFORMAL ORGANISATION::
It is a natural structure arising out of the social tendency
of people to associate and interact.
Such organisation emerges when a group of willing and
concerned employees is formed on the basis of human
relations.
Its values , goals are mainly centered around group and
individual satisfaction, relationship, and friendship.
People with similar attitudes, interests and work related
needs are attracted to one another.
Informal organisation are largely accepted in modern
times.


MERITS:-
1) Mental stress of employees gets reduced.
2) The authority of management is restrained
because of employee groups.
3) This type complements the
accomplishments of objectives of formal
organisation.
4) It helps in communication.
5) Social restrictions on employees are
imposed.
DEMERITS::
Due to opposition by employees there is a
possibility of resistance to changes by the
mgmt.
Indiscipline is likely to be encouraged.
In place of correct information there is a risk
of rumours being spread.
There is also a risk of industrial peace being
endangered due to negative leadership.
There is possibility of obstacles being placed
in mgmt.

Which is the oldest type of organisation?
Formation of organisation is what type of
process?
Define: Formal Organisation.
Give the other name of Line organisation.
What is the basis of organisation?
In which type there is a possibility of
becoming autocratic?
Who has the top most authority in functional
organisation?