Module-3

ORGANIZING

Once a plan has been created, a manager can begin to organize. Organizing involves assigning tasks,
grouping tasks into departments, delegating authority, and allocating resources across the organization.
During the organizing process, managers coordinate employees, resources, policies, and procedures to
facilitate the goals identified in the plan. Organizing is highly complex and often involves a systematic
review of human resources, finances, and priorities.

Organizing is a “process of defining the essential relationships among people, tasks and activities in such
a way that all the organization’s resources are integrated and coordinated to accomplish its objectives
efficiently and effectively”. — Pearce and Robinson.

Importance of Organising:

(i) Facilitates Administration:

Top managers cannot perform all the organisational tasks as they will be overburdened to concentrate on
strategic matters. It is essential that part of the workload is shared by middle and lower level managers.
Top executives will be relieved of managing routine affairs and concentrate on effective administration.

The basic elements of organising (division of work, grouping of activities, distribution of authority and
coordination) facilitate better administration by the top management.

(ii) Growth and Diversification:

A well-organised institution is adaptive to change and responsive to growth and diversification. It can
multiply its operations.

(iii) Creates Synergies:

Division of work provides the benefits of synergies, that is, total task achieved by a group of people is
more than the sum total of their individual achievements. People coordinate their tasks in the same and
different departments. This gives the benefit of ‘one plus one makes eleven.’

(iv) Establishes Accountability:

When every person knows his superiors and subordinates, the organisation can function efficiently.
Establishing limitations in the area of operations defines people’s accountability to their immediate boss
which gears the organisation towards its broader goals.

(v) Optimum Use of Technology:

It is the age of technological developments. Organisations not having well-developed technology will not
be able to compete in the market. Well-organised structures enable the organisations to optimally use and
update their technology and remain competitive in the dynamic market conditions.

(vi) Facilitates Communication:

Communication is the essence of organisation. Efficiency of organisation depends upon how well
organisational members communicate with each other. A well-designed system of communication
(vertical and horizontal) is facilitated through effective organising efforts of top executives.

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(vii) Facilitates Creativity:

Creativity means creating something new. It develops new ways of doing the things. A sound
organisation enables the top management to improve the ways of doing things by delegating routine
affairs to people down the scalar chain. It creates a sense of achievement amongst managers that provides
moral boost for further creative thinking

(viii) Improves Inter-personal Relationships:

A sound organisation structure ensures that workload is divided into well-defined jobs and assigned to
people according to their abilities and skills. Placing the right person at the right job ensures job
satisfaction and morale boost of employees. This improves inter-personal relationships amongst people
working in the organisation

(ix) Facilitates Coordination:

Well-defined objectives and plans can fail if organisational activities are not coordinated in a unified
direction. A well designed organisation structure promotes order and system in its activities. It
coordinates work of people at different levels in different departments

(x) Facilitates Teamwork:

Though people are responsible for specific tasks assigned to them, they work collectively as a team and
optimise the use of scarce organisational resources to achieve the organisational goals. Organisation, thus,
facilitates teamwork. Rather than viewing organisational goals from personal perspectives, they view
them from group perspectives. Organisational goals satisfy individual goals.

(xi) Facilitates Control:

Organisation provides sound direction to activities and ensures that people work according to plans. This
facilitates control and promotes organisational goals. Objectives are determined and regular feedback
ensures conformance of actual performance to targeted performance.

(xii) Increase in Output:

Sound organisation divides activities into various departments (production, marketing etc.). These
departments specialise in their tasks and increase organisational output. Specialisation is an important
contribution of organisation that promotes higher output

(xiii) Optimum Allocation of Resources:

Organising promotes optimum allocation of resources. Resources are allocated over different departments
(production, marketing, personnel etc.) in the order of priority. People are assigned jobs they are best
suited for. All activities are assigned to all people in the organisation. There is no duplication of work.
Organising, thus, avoids overlapping of activities to ensure that collectively, people working in different
departments perform activities that contribute to organisational goals.

Principles of Organising:

(i) Principle of Unity of Objectives:

All organisational activities are geared towards organisational objectives. Objectives are framed for each
level (top, middle and low) and each functional area. The objectives must be clearly understood by all.
They should support each other at each level to attain objectives at higher levels
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(ii) Organisational Efficiency:

Organisational goals should be achieved efficiently. It means optimum (efficient) use of resources, that is,
maximum output should be achieved with minimum inputs. The resources should be spread over
activities in various functional areas that collectively result in maximum output through their optimum
use

(iii) Division of Labour:

Division of labour means breaking the main task into smaller units. The major task is broken into sub-
tasks. This makes each person concentrate on his part of the job and perform it efficiently thereby,
increasing the total output. Work should be divided and assigned to workers according to their skills. This
leads to specialisation and contributes to organisational output

(iv) Authority – Responsibility:

Authority and responsibility must go hand-in-hand. Responsibility means obligation to carry out the
assigned task. To carry out this task, authority should be delegated to every person. Conversely, given the
authority, the tasks assigned (responsibility) should be within the scope of authority. Authority without
responsibility will result in misuse of authority and responsibility without authority will result in poor
performance.

(v) Delegation:

The total work load is divided into parts. A part is assigned to subordinates and authority is given to
efficiently carry out that task. Top managers delegate part of their duties to lower levels and concentrate
on important organisational matters. This speeds up the organisational tasks and enables the organisation
to grow in the dynamic, competitive business environment

(vi) Scalar Chain:

Scalar chain is the line of authority running from top to lower levels. Authority flows from top to bottom
in this chain and responsibilities flow from bottom to top. This chain promotes communication amongst
people at different levels and facilitates decision making. Every person in the chain knows his superior
and subordinate

(vii) Span of Control:

Span of control means the number of subordinates that a superior can effectively supervise. Exact number
of employees that a manager can supervise cannot be determined. It depends upon competence of
managers, nature of work, system of control, capacity of subordinates etc.

However, if manager can supervise less number of workers, there will be more levels in the organisation
structure and vice-versa. Supervising few subordinates creates tall structures and supervising large
number of workers creates flat structures

(viii) Unity of Command:

One subordinate should have one boss. People should receive orders from their immediate boss only. This
brings discipline and order in the organisation. Receiving orders from two or more bosses can create
confusion and indiscipline.

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(ix) Balance:

There must be balance between different principles of organising. Balance should be maintained between
centralisation and decentralisation, narrow and wide span of control etc.

(x) Flexibility:

Organisation should be flexible. Changes in structure should be made according to changes in the
environmental factors.

(xi) Continuity:

Organisation should adapt to the environmental changes for its long-run survival, growth and expansion.

(xii) Exception:

Every matter should not be reported to top managers. Only significant deviations should be reported up
the hierarchy. Routine matters should be dealt by middle and lower-level managers. It develops lower-
level managers as they deal with simple and routine problems.

(xiii) Simplicity:

Organisation structure should be simple that can be understood by everyone. People can work efficiently
in a simple structure as they are clear of various jobs and authority/ responsibility associated with those
jobs. A simple structure promotes co-operation, coordination and effective communication in the
organisation

(xiv) Departmentation:

It means dividing activities into specialised groups (departments) where each department performs
specialised organisational task. All activities of similar nature are grouped in one department headed by
the departmental manager. Departments can be created on the basis of geographical locations, customers,
products etc

(xv) Decentralisation:

It means delegation of authority to lowest-level managers. It increases the decision-making authority of

lower-level managers and increases organisational efficiency.

(xvi) Unity of Direction:

All activities of similar nature are grouped in one unit (production or marketing), headed by the
departmental manager. He directs the efforts of departmental members towards a single objective; the
departmental objective

(xvii) Co-Operation:

All individuals and departments should co-operate and help the organisation achieve its goals.
Cooperation leads to teamwork and focus on a unified goal

FORMAL AND INFORMAL ORGANIZATION:

FORMAL: a formal organization is a system of consciously coordinated activities or forces of two or

more persons. In formal organization employees perform their delegated tasks and duties in cooperation
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with other personnel and staff members. As they communicate with one another during their tasks they
eventually develop interactive relationship among them. These relationships become the basis of various
social workgroups of interactive employees.

INFORMAL: individuals within in a formal organization communication with one another during their
tasks and develop interactive or friendly relationship among them to become a part of social groups that
fulfill their cultural and social requirements. Therefore these social groups known as informal
organization originate naturally under the formal organization and are regarded as a constituent of the
formal organization.

Difference between formal and informal organization:

Basis of difference Formal organization Informal organization

Meaning A formal organization is purposely
formulated by the managers to attain
objectives of the organization. It
consists of tasks, duties, and
authorities relations
Formation Formed on purpose
Purpose The main purpose is to attain
objectives of the organization
Rigidity v/s Flexibility Under formal organizations the
members are not expected to devise
from set behavioral norms that is it is
not flexible
Structure A pyramid shaped clear and well
defined structure is implemented
Standards of behavior and Management defines the set of Mutual agreement between group
performance behavioral norms and performance
Use of communication Formal communication
An informal organization is a complex
structure which incorporates social
relationship of employees. It
originates naturally within a formal
organization to cater the emotional
and social requirements of the
individuals
It originates naturally through social
communication
The main purpose is to fulfill the
cultural and social requirements of the
individuals
Under informal organizations the
members can deviate from their
behavioral norms up to an extent it is
flexible
No clear or well defined structure
members defines the set of behavioral
norms and performance
Informal communication

Different types of organization structure:

Line Organisation:
Line organisation is the simplest and oldest form of organisation structure. It is called as military or
departmental or scalar type of organization. Under this system, authority flows directly and vertically
from the top of the managerial hierarchy ‘down to different levels of managers and subordinates and
down to the operative level of workers.

Line organisation clearly identifies authority, responsibility and accountability at each level. The
personnel in Line organization are directly involved in achieving the objectives of the organization.

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Advantages of Line Organization:
a. The line organization structure is very simple to understand and simple to operate.

b. Communication is fast and easy and feedback can be acted upon faster.

c. Responsibility is fixed and unified at each level and authority and accountability are clear-cut, hence
each individual knows to whom he is responsible and who is or in truth responsible to him.

d. Since it is especially useful when the company is small in size, it provides for greater control and
discipline in the organization.

e. It makes rapid decisions and effective coordination possible. So it is economic and effective.

f. The people in line type of organization get to know each other better and tend to feel close to each
other.

g. The system is capable of adjusting itself to changing conditions for the simple reason that each
executive has sole responsibility in his own sphere.

Disadvantages of Line Organization:

a. It is a rigid and inflexible form of organization.

b. There is a tendency for line authority to become dictatorial.

c. It overloads the executive with pressing activities so that long-range planning and policy formulation
are often neglected.,

d. There is no provision for specialists and specialization, which is essential for growth and optimisation.

e. Different departments may be much interested in their self-interests, rather than overall organizational
interests and welfare.

f. It is likely to encourage nepotism.

g. It does not provide any means by which a good worker may be rewarded and a bad one punished.

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Line and Staff Organization:
This type of organization structure is in large enterprises. The functional specialists are added to the line
in line and staff organization. Mere, staff is basically advisory in nature and usually does not possess any
command authority over line managers. Allen has defined line and staff organization as follows.

“Line functions are those which have direct responsibility for accomplishing the objectives of the
enterprises and staff refers to those elements of the organization that help the line to work most
effectively in accomplishing the primary objectives of the enterprises.”

In the line and staff organisation, staffs assist the line managers in their duties in order to achieve the high
performance. So, in an organization which has the production of textiles, the production manger,
marketing manager and the finance manager may be treated as line executives, and the department headed
by them may be called line departments

On the other hand, the personnel manager who deal with the recruitment, training and placement of
workers, the quality control manager who ensure the quality of products and the public relations manager
are the executives who perform staff functions.

Type of Staff:
The staff organizations mentioned above all has in common the fact that they are auxiliary to the main
functions of the business. There are, however, different types of staff.

The three main divisions may be listed as:

1. Personal Staff.

2. Specialized Staff.

3. General Staff.

1. Personal Staff:
Personal staff consists of a personal assistant or adviser attached to the line executive at any level. His
main function is to aid and advise the line executive as also to perform any other work assigned to him.

In business, the personal staff is typified by the private secretary, who may keep the executive’s personal
check book, buy his Christmas presents and arrange his appointments. General or business executives are
given personal staff assistants on the same theory. Their time is too valuable to be spent in handling the
details of daily living.

2. Specialised Staff:
The specialised staffs have expert knowledge in the specific fields. The specialised staffs are those that
handle the specialised functions. For example, accounting, personnel, engineering and research. It is now
impossible for one man to familiarise himself with all the various specialities needed in the modern large
business.

Hence the general or the company president, and perhaps the department head, is provided with
experts in each Field to counsel him on the various specialise staff could serve in any of the
following capacities:
a. Advisory Capacity.

b. Service Capacity.

c. Control Capacity.

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a. Advisory Capacity:
Its purpose is to render specialised advice and assistance to management while needed. Some typical
areas covered by advisory staff is legal, public relations and economic development areas.

b. Service Capacity:
This group provides a service, which is useful to the organisation as a whole and not to any specific
division or function. An example would be the personnel department serving the enterprises by procuring
and training the needed personnel for all departments. Other areas of service include research and
development, purchasing, statistical analysis, insurance problems etc.

c. Control Capacity:
This includes quality control staff that may have the authority to control the quality and enforce standards.

3. General Staff:
Any decision that cuts across departmental lines must be made by the Chief Executive. It cannot be
delegated to the head of a specialised staff group or to a line department head, since other department
heads will naturally resent interference in their department heads will naturally resent interference in their
department by someone who is in no way their superior.

A typical case would be a change in the organisation structure of the company as a whole: the
combination of two departments under a single head, for example or the organisation of a new top-level
department.

It is with these functional that cannot be delegated that the general staff personnel can provide assistance
and save the time of the top man. True, the chief cannot delegate any one of these functions to a general
staff person, but he can often delegate parts of each of them.

The title of the general staff person is most often “assistance to” the company president, or other
executive.

A staff member may serve as a coach, diagnostician, policy planner, coordinator, trainer, strategist etc.

Advantages of Line and Staff Organisation:

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a. Line officers can concentrate mainly on the doing function as the work of planning and investigation is
performed by the staff. Specialisation provides for experts advice and efficiency in management.

b. Since the organisation comprises line and staff functions, decisions can be taken easily.

c. The staff officers supply complete factual data to the line officers covering activity within and without
their own units. This will help to greater co-ordination.

d. It provides an adequate opportunity for the advancement of workers.

e. The staff services provide a training ground for the different positions.

f. Adequate organisation a balance among the various activities can be attained easily.

g. The system is flexible for new activities may be undertaken by the staff without forcing early
adjustments of line arrangements.

h. Staff specialists are conceptually oriented towards looking ahead and have the time to do programme
and strategic planning and analyse the possible effects of expected future events.

Disadvantages of Line and Staff Organisation:

a. Confusion and conflict may arise between line and staff. Because the allocation of authority and
responsibility is not clear and members of the lower levels may be confused by various line orders and
staff advices.

b. Staff generally advises to the lines, but line decides and acts. Therefore the staffs often feel powerless.

c. Too much reliance on staff officers may not be beneficial to the business because line officials may
lose much of their judgment and imitative.

d. Normally, staff employees have specialised knowledge and expert. Line makes the final decisions, even
though staff gives their suggestions. Staff officers, therefore, may be resented.

e. Staff officers are much educated so their ideas may be more theoretical and academic rather than
practical.

f. Although expert advice is available it reaches the workers through the managers. Here it is liable to
create a greater deal of misunderstanding and misinterpretation.

g. Since staff specialists demand higher payments, it is expensive.

h. The staff are unable to carry out its plan or recommendations because of lack of authority. So they
become ineffective sometimes, it will make them careless and indifferent towards their jobs.

i. Since the line are performed, with the advise provided by the staff, if things go right then the staff takes
the credit and if things go wrong then the line get the blame for it.

Functional Organisation:
The functional organisation was evolved by F.W. Taylor while he was working as a foreman. He
suggested eight foremen, four in factory and four in planning division as under.

Factory Division:
(i) The gang boss,
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(ii) The speed boss,

(iii) The inspector, and

(iv) The maintenance or repair boss.

Planning Division:
(i) Route Clerk,

(ii) Instruction card clerk,

(iii) Time and cost clerk, and

(iv) The shop disciplinarian.

He evolved his functional organisation system, which consists in “so dividing the work of management
that each man, from the assistant superintendent down, shall have as few functions as possible to
perform.”

According to Terry, “Functional organisation refers to the organisation which is divided into a number of
functions such as finance, production, sales, personnel, office and research and development and each of
functions are performed by an expert”. Line authority, staff authority and functional authority as a third
type of authority are in this type of organisation.

Features of Functional Organisation:

a. Each worker receives instructions not only from one superior, but also from a group of specialists.

b. Three types of authority relationships are in the functional organisation such as line authority, staff
authority and functional authority.

c. Staff specialists are given the authority to decide and do things in a limited way.

d. The scope of the work is kept limited but the area of authority is left unlimited.

e. There is a grouping of activities of the enterprise into certain major functional departments.

Advantages of Functional Organisation:

a. Each manager is an expert in his field. He has to perform a limited number of functions. So complete
specialisation will be in functional organisation.

b. The greater degree of specialisation leads the improvement in the quality of product.

c. Since the job requirements are definite and tangible, organisation can achieve the intensive utilisation
of the principle of specialisation of labour at the managerial level.

d. Specialisation will lead for mass production and standardisation.

e. Since experts get sufficient time for creative thinking, planning and supervision are made efficient.

f. It increases the work satisfaction for specialists who presumably do what they like to do.

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Disadvantages of Functional Organisation:
a. Since there is no direct boss or controller of the workers, co-ordination is hard to achieve.

b. Since workers are under different bosses, discipline is hard to achieve. As results there will be low
morale on the part of the workers.

c. The non-supervisory employees are uncertain as to whom they should turn for advice and aid when
problem call for analysis.

d. Due to that control is divided, action cannot be taken immediately.

e. Since there will be many foreman of equal rank in the same department, the conflicts of leadership may
arise.

f. It reduces the opportunities for the training of all-round executives to assume further leadership in the
firm

Project Organisation:
This organisational structure are temporarily formed for specific projects for a specific period of time, for
the project of achieving the goal of developing new product, the specialists from different functional
departments such as production, engineering, quality control, marketing research etc., will be drawn to
work together. These specialists go back to their respective duties as soon as the project is completed.

Really, the project organisation is set-up with the object of overcoming the major weakness of the
functional organisation, such as absence of unity of command, delay in decision-making, and lack of
coordination

Advantages of Project Organisation:

a. It is a remarkable illustration of relationship between environment, strategy and structure.

b. The grouping of activities on the basis of each project results in introduction of new authority patterns.

c. Since the specialists from different departments is drawn to work together under the project
organisation it helps to coordination.

d. It makes for meaningful control and fixation of individual responsibility.

Disadvantages of Project Organisation:

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a. The uncertainty may be attributed to the diverse backgrounds of the professional who are deputed to the
project.

b. The project manager finds it difficult to motivate and control the staff in a traditional way in the
absence of well-defined areas of responsibility lines of communication and criteria to judge performance.

c. Delay in completion of the project may occur.

d. Effective project management may also be hindered by the top management who may not be wholly
are of the problems at the project centre.

Matrix Organisation:
According to Stanley Davis and Paul Lawrence matrix organisation is “any organisation that employs a
multiple command system that includes not only the multiple command structure, but also related support
mechanism and an associated organisational culture and behaviour pattern.”

A matrix organisation, also referred to as the “multiple command system” has two chains of command.
One chain of command is functional in which the flow of authority is vertical.

The second chain is horizontal depicted by a project team, which is led by the project, or group manager
who is an expert in his team’s assigned area of specialisation.

Since the matrix structure integrates the efforts of functional and project authority, the vertical and
horizontal lines of authority are combination of the authority flows both down and across. The matrix
form of organisation is given below.

Advantages of Matrix Organisation:

1. Since there is both vertical and horizontal communication it increases the coordination and this
coordination leads to greater and more effective control over operations.

2. Since the matrix organisation is handling a number of projects, available resources will be used fully.

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3. It focuses the organisational resources on the specified projects, thus enabling better planning and
control.

4. It is highly flexible as regards adherence to rules, procedures etc. Here experience is the best guide to
establishing rules and procedures.

5. As any department or division has to harness its effort towards accomplishment of a single project,
employees are effectively motivated.

Disadvantages of Matrix Organisation:

1. Since, there is more than one supervisor for each worker, it causes confusion and conflicts and reduce
effective control.

2. There is continuous communication both vertically as well horizontally, which increases paper work
and costs.

3. It is difficult to achieve a balance below on the projects technical and administrative aspects.

Meaning of Departmentation:
Departmentation is the foundation of organisation structure, that is, organisation structure depends upon
departmentation. Departmentation means division of work into smaller units and their re-grouping into
bigger units (departments) on the basis of similarity of features.

As the organisation grows in size, the work is divided into units and sub-units. Departments are created
and activities of similar nature are grouped in one unit. Each department is headed by a person known as
departmental manager.

Departmentation, thus, helps in expanding an organisation and also promotes efficiency by dividing the
work on the basis of specialisation of activities and appointing people in various departments on the basis
of their specialised knowledge.

Importance of Departmentation:
Organisation structure:
Division of work into units and sub-units creates departments. Supervisors and managers are appointed to
manage these departments. People are placed in different departments according to their specialised skills.
The departmental heads ensure efficient functioning of their departments within the broad principles of
organisation (scalar chain, unity of command, unity of direction etc.).

Thus, organisation structure is facilitated through departmentation. If there are no departments, it will be
difficult to keep track of who is doing what and who is accountable to whom.

Flexibility:
In large organisations, one person cannot look after all the managerial functions (planning, organising
etc.) for all the departments. He cannot adapt the organisation to its internal and external environment.
Such an organisation would become an inflexible organisation. Creating departments and departmental
heads makes an organisation flexible and adaptive to environment. Environmental changes can be
incorporated which strengthen the organisation’s competitiveness in the market.

Specialisation:
Division of work into departments leads to specialisation as people of one department perform activities
related to that department only. They focus on a narrow set of activities and repeatedly performing the
same task increases their ability to perform more speedily and efficiently. Specialisation promotes
efficiency, lowers the cost of production and makes the products competitive.

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Sharing of resources:
If there are no departments, organisational resources; physical, financial and human, will be commonly
shared by different work units. Departmentation helps in sharing resources according to departmental
needs. Priorities are set and resources are allocated according to the need, importance and urgency
regarding their use by different departments.

Co-ordination:
“The organisation is a system of integrated parts, and to give undue emphasis to any functional part at the
expense of the entire organisation creates organisational islands, thus, resulting in inefficiency and
significant behavioural problems”. Creating departments focuses on departmental activities and facilitates
co-ordination.

Control:
Managers cannot control organisational activities if they have to be collectively supervised.
Departmentation facilitates control by departmental manager over the activities of his department only.
Activities are divided into smaller segments, standards of performance can be framed, factors affecting
performance can be identified and control can be more objective in nature.

Efficiency:
Flow of work from one level to another and for every department, i.e., vertical and horizontal flow of
work in the organisation increases organisational efficiency.

Scope for growth and diversification:

In the absence of departmentation, managers can supervise a limited number of activities, depending upon
their skills and abilities. Departmentation enables them to expand their area of operation into new product
lines and geographical divisions. Departmentation provides scope for organisational growth (along the
same product lines) and expansion (adding new product lines).

Responsibility:
Since similar activities are grouped in one department headed by departmental managers, it becomes easy
for top managers to fix responsibility of respective managers for achieving the desired results. If planned
performance is not achieved, the department responsible becomes answerable. When responsibility is
clear, authority can also be delegated to managers. Clear identification of responsibility and authority
increases efficiency of the departmental activities.

Development of managers:
Departmentation enables departmental heads to be creative in making decisions with respect to their
departmental activities. Training needs can also be identified because manager’s task is clear and specific.
There are opportunities to improve performance in their area of specialisation.

Basis of Departmentation:
The form of organisation structure depends upon the basis of departmentation. Creating departments and
sub-dividing the work of departments into smaller units creates organisation structure. With growing size
of organisations, departments are created for activities of similar nature.

There are two broad forms of departmentation:

a. Functional departmentation, and

b. Divisional departmentation.

a. Functional Departmentation:
Functional organisation creates departments along activities or functions of the undertaking (functions do
not refer to managerial functions of planning, organising , staffing, directing and controlling). It is
grouping of activities on the basis of similarities of functions.
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The nature of activities performed by different organisations is different. For example, activities carried
by a manufacturing organisation are production, finance, personnel and sales. For a trader, the major
activities are buying and selling, a bank performs borrowing and lending functions. Functional
departmentation is, “the grouping of jobs and resources within the company in such a way that employees
who perform the same or similar activities are in the same department”.

It is the simplest, logical and most widely accepted form of creating departments. It is suitable for
organisations where limited number of products are produced. The major functional departments further
have derivative departments. Production department, for example, has sub-departments to manage
purchase, production planning and control, manufacturing etc. Finance department creates departments to
look into capital budgeting (fixed assets) and current assets, cash management and budgets.

Personnel department has sub-departments to take care of appointments, training, placement and
promotion of employees. These sub-departments can be further sub-divided if needed. Advertising
department (sub-department of marketing department), for example, can further have sub-departments
like advertising in Newspapers, Radio, TV etc.

Organisation Chart Showing Functional Departmentation:

Merits of Functional Departmentation:

It has the following merits:
1. Simple and logical basis of creating departments:
Production, marketing, finance and personnel are widely accepted and recognised functions of a
manufacturing organisation and, therefore, it is a simple basis of departmentation.

2. Specialisation:
Since workers in one functional area focus on that area only, they acquire expertise and specialised skills
in performing their duties. This offers the benefits of specialisation; efficiency and speed.

3. Co-ordination:
People working in one department are closely knitted and work collectively towards achievement of
departmental goals. The departmental manager can co-ordinate various derivative activities.

4. Training and control:

The departmental manager is accountable for functions performed by his department. He ensures that
activities are performed strictly according to rules and procedures laid down for the department. He can,
thus, exercise control over his departmental activities. If workers are not able to carry out the activities
efficiently, managers can train them to do so.

5. Supervision:
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It is easy for managers to supervise the departmental activities as they have to supervise a narrow set of
functional skills.

6. Suitable for stable organisations:

Organisations which do not frequently change their work units and work force are suitable for creating
departments on the basis of functional activities.

7. Suitable for small organisations:

This basis of departmentation is suitable for small sized organisations which produce a limited line of
products. Even for large organisations, it is suitable only for top levels. Thereafter, some other basis of
departmentation has to be used. Marketing department, for instance, can be further branched out on the
basis of territorial or geographical departmentation.

Limitations of Functional Departmentation:

This form of departmentation suffers from the following limitations:
1. Overall organisational goals:
The employees become so focused on departmental goals that they lose sight of the overall organisational
goals.

2. Delayed decisions:
Since decisions are made by departmental heads for their respective departments, it may delay decision-
making for the organisation as a whole.

3. Co-ordination:
Water-tight compartments are sometimes created amongst departments as people show loyalty towards
their departmental managers. Top manager finds it difficult to co-ordinate various functional activities.

4. Accountability:
Top managers find it difficult to hold accountability of any one department for failure of the product in
the market. For example, if the product does not earn profits, top managers cannot say with assertion
whether the problem lies with production department or sales department.

5. Unsuitable for dynamic organisations:

As this is a suitable form of departmentation for stable organisations, organisations operating in the
dynamic environment do not accept functional activities as the basis of departmentation. They use other
basis of departmentation also to remain competitive in the market; either customer or product or territorial
departmentation depending upon where and how they want to reach, grow and expand their business.

6. Complexity:
As organisations grow complex in terms of size and operations, they add more products to their line of
products and expand into new geographical areas for marketing the existing products. Functional
departmentation is not suitable in such cases.

b. Divisional Departmentation:
Divisional structures are created on the basis of smaller divisions where each division has its own
functional activities (production, finance, personnel and marketing).

Major divisions that determine the organisation structure are as follows:

1. Product Departmentation:
This form of departmentation is suitable for companies that produce multiple products. Product
departmentation is grouping of jobs and resources around the products or product lines that a company
sells. With increase in operations of a company, it adds more products to its line of products which
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require various functional activities (production, marketing etc.). Product departmentation is suitable for
product diversification where marketing characteristics of each product are different from others.

An organisation selling stationery, for example, also starts selling cosmetics and pharmaceuticals. While
marketing strategies for cosmetics need to be intensive, it is not so in case of stationery or
pharmaceuticals. Similarly, funds required for each product line are different.

The focus is on the product line and all functional activities associated with the product line. Departments
are created on the basis of products and product manager has the authority to carry out functional
activities for his department. Each product manager is in charge of his product line though general
managers of various functional areas provide them the necessary support. It helps in coordinating the
activities of different products.

Organisation Chart Showing Product Departmentation:

Product departmentation, along with various functional areas appear on the organisation chart as
follows:

There could be further extension of this basis of departmentation. For instance, if product C is a car, the
department can be branched out for commercial car, luxury car, special utility vehicle etc.

Merits of Product Departmentation:

Departmentation on the basis of product has the following merits:
(i) Better performance:
One manager may not have skills to carry out all operations for different product lines. By creating
departments where each product department looks after one product or product line only, decision-
making, fixing responsibilities and assessment of performance can be done efficiently. Sales people for
one product will concentrate on sales promotion of that product only. This ensures better performance of
employees of each department.

(ii) Flexibility:
Firms operating in the dynamic environment are well suited for this form of departmentation as it helps
them respond to environmental changes, analyse competitors’ products and change their product line, if
necessary. The focus is completely on one product and all functional activities related to that product
rather than one functional activity related to all products. This promotes product specialisation which
helps in product growth.

(iii) Fast decisions:

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Since all decisions related to a product are taken by product manager (under the guidance of General
Managers of different functional areas), decisions are taken quickly.

(iv) Co-ordination:
All the primary and auxiliary activities are managed by one manager. He can co-ordinate the efforts of
people working under him.

(v) Control:
Every product manager wants to maximise profits of his product, for which he delegates authority to
people of his department and establishes authority-responsibility relationships amongst them.
Subordinates are trained to carry out functions related to each product. He, thus, controls activities of his
department to ensure that the product contributes to the organisational goals.

(vi) Responsibility:
Product managers are accountable for results of their product departments. This promotes performance
and profitability of different product departments.

(vii) Efficiency:
The costs and revenues of all the products can be compared. This helps in eliminating the unprofitable
products and promoting the profitable ones thereby increasing organisational efficiency.

Limitations of Product Departmentation:

Some of the limitations of product departmentation are as follows:
(i) Co-ordination:
Coordination becomes difficult when departments focus excessive attention on activities of their
departments without linking their performance with other departments.

(ii) Expensive:
This is comparatively a costly basis of departmentation than functional departmentation because every
department appoints people to look after specialised activities, like accounting, finance, marketing,
personnel etc. It results in duplication or multiplication of efforts because same functional activities are
performed for different products.

(iii) Control:
If every product division works as an autonomous unit, tries to maximise its goals/profits without linking
them with overall organisational needs, it will be difficult for top management to control the overall
organisational activities.

2. Process or Equipment Departmentation:

In manufacturing organisations where the product passes through different stages of production, each
stage is designated as a process and department is created for each process. It is called process
departmentation.

Manufacturing paper, for example, requires processes like crushing the bamboo, making pulp, purifying
the pulp, making paper rolls, and cutting it into rims. For each process, departments are created and
headed by people skilled and competent to carry that process.

Since finished product goes through different processes, each process is assigned to a different
department. This form of departmentation is suitable for medium and large-sized organisations where
goods are produced through a series of operations.

Organisation Chart Showing Process Departmentation:

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Merits of Process Departmentation:
The merits of process departmentation are as follows:
(i) Specialisation:
As work is divided into different processes, the process manager and his team specialise in that process by
constantly carrying out activities related to that process only.

(ii) Economic considerations:

Specialisation results in economy of time, money and managerial skills.

(iii) Technological consideration:

Large organisations, where each process requires different technology, operate most suitably under
process departmentation. It also helps in maintenance of the equipment’s related to a process because
specialised technology requires specialised skills to maintain that process.

(iv) Facilitates training:

Since employees carry out only one operation or process on the work activity, managers can train people
to efficiently carry out that process.

Limitations of Process Departmentation:

Process departmentation suffers from the following limitations:
(i) Co-ordination:
Output of one process department is input of the other. If different departments work at different speed,
co-ordination amongst different processes becomes difficult. This can also result in conflict amongst
process managers.

(ii) Boredom:
Repeated handling of the same job with a very short cycle (time required to complete that process) leads
to boredom. This can affect efficiency of the process. An alternative to this is parallel pattern of process
departmentation against the serial pattern (work moves in a series of steps) as described above. In the
parallel process of departmentation, the number of steps to accomplish the task is the same.

For example, a job requires three steps for its completion. Step 1, Step 2, and Step 3. Rather than A (a
worker) handling step 1, B handling step 2 and C handling step 3, A may carry out all the steps on
product X, B carries out the same set of steps for product Y and C for product Z.

Though this reduces boredom on the work process, it requires trained workers who can carry out all the
processes. This form of departmentation is suitable for small organisations where limited number of
products with limited processes are produced.

3. Customer Departmentation:

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When organisations sell to customers with different needs, departments are created on the basis of
customers. Customer departmentation is “the organising of jobs and resources in such a way that each
department can carefully understand and respond to different needs of specific customer groups”.

A lending institution, for example, gives loan to meet different customer requirements like housing loan,
car loan, commercial loan etc. An educational institution which provides academic and non-academic
subjects (vocational subjects), full-time or part-time courses, morning or evening shifts is a typical case of
customer departmentation. Clear identification of customers and their needs is the basis of customer
departmentation. This method of departmentation can be followed only in marketing division.

Organisation Chart Showing Customer Departmentation:

The organisation chart for customer departmentation (for a lending company) appears as follows:

Merits of Customer Departmentation:

Customer departmentation has the following merits:
(i) Competitive advantage:
Contemporary marketing world revolves around customers. ‘Consumer is the king.’ By catering to varied
customer needs, companies have an edge over competitors and, therefore, better chances of survival and
growth.

(ii) Customer orientation:

The goal of an organisation is to earn profits by customer satisfaction. An organisation where the basis of
departmentation is to sell goods according to customer needs justifies its existence.

(iii) Specialisation:
A department created for satisfying customer requirements becomes specialized in that area resulting in
cost efficiency. Sales people understand consumer behaviour and provide them the desired services. They
develop understanding with the consumers and build clientele for the organisation.

Limitations of Customer Departmentation:

Customer departmentation has the following limitations:
(i) Co-ordination:
Excessive involvement of employees in their respective departments makes it difficult for top managers to
co-ordinate the functions of different departments.

(ii) Identification of consumer groups:

It is not easy to identify various consumer groups. A large industrial buyer for one product, for example,
may be a small buyer for another product. The same product may be of industrial use for one buyer and
personal use for another. Identifying buyers as industrial and non-industrial is not very easy.

(iii) Change in consumer behaviour:

Consumer department managers cannot easily frame policies for their departments because of changing
consumer behaviour. Demand for the same product for same set of consumers differs during different

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times. Marketing managers have to balance the time and money spent in framing policies so that
organisation can adapt to the changing customer environment.

(iv) Specialised staff:

Change in consumer behaviour, their demand for different goods at different times cannot be easily
predicted. The departmental managers, therefore, must have specialised skills to determine the consumer
needs.

4. Territory or Geographic Departmentation:

In territorial departmentation, organisation creates departments:
(i) Close to its customers because they are geographically dispersed over different areas, or

(ii) Near the sources of deposits.

Each geographic unit has resources to cater to the needs of consumers of that area. The production,
purchase, personnel and marketing activities are looked after by departmental managers but finance is
vested at the headquarters. General Manager of every department looks after functional activities of his
geographical area but overall functional managers provide supporting services to the managers of
different areas.

Thus, customers of different regions with different tastes and preferences for the same product are looked
after by geographical departments set up in their territories. The product or customer differentiation, both
can be the basis of geographic or territorial departmentation. This basis is suitable for large-sized
organisations which have activities dispersed over different geographical areas.

Organisation Chart Showing Geographic Departmentation:

Division of organisation on the basis of geographic dispersal of activities appears on the
organisation chart as follows:

Merits of Geographic Departmentation:

It has the following merits:
(i) Training and development:
Employees are trained to sell goods in specific areas according to customer needs.

(ii) Customer orientation:

The emphasis is on selling in different regions according to customer needs. ‘Consumer is the king’ is
duly recognised by departmental managers as they develop their skills to know the customs, styles and

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preferences of customers of different regions. Managers are able to promote sales as they are aware of the
local conditions of the area where they are operating.

(iii) Low cost of production:

If firms establish their areas of operation near the sources of raw material, they will be able to produce at
low cost and take advantage of economies of operation.

(iv) Communication:
The sales people belong to local areas of operation. They can directly communicate with the consumers
and frame policies to satisfy their needs.

Limitations of Geographic Departmentation:

Territorial departmentation has the following limitations:
(i) Co-ordination and control:
Since departments are widely dispersed, top managers find it difficult to control and co-ordinate their
activities. While some of the functional activities are decentralised, others are centralised. Policy framers
are at the head quarters and policy executors are at the regional offices. Different local conditions can
create problems of understanding.

(ii) Expensive:
Since each department has auxiliary departments like personnel, accounting etc. to offer specialised
services to managers, this is a costly method of departmentation. Before adopting this basis of
departmentation, therefore, benefits must be weighed against costs. This method is suitable for large-scale
organisations who can afford its cost.

(iii) Managerial skills:

Managers should be competent to perform functional activities (production, marketing etc.) related to
their departments. They may not specialise in all the functional activities.

5. Departmentation by Time:
This method of departmentation is used in situations where work is done round the clock because:
1. The machine cannot be stopped before finishing the work.

2. The demand is high and the machine has to work overtime.

3. The nature of work entrusted to the organisations is such.

4. The services are essential in nature (health and fire services).

5. Workers work in shifts; morning, afternoon and night, so that work can progress continuously.

6. Departmentation by Size:
This method is followed in army where number of workers in the unit is important. The company’s
performance is judged by the number of people working with it, and therefore, it adopts departmentation
by size. Departments are created on the basis of number of people who form the department. Soldiers in
army are grouped in numbers to form departments.

7. Departmentation by Task Force:

When organisation has a number of projects, it forms task forces which consist of people from different
units having different skills to complete those projects. These groups are formed temporarily till
completion of the project. They are similar to project organisations.

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 Span of Management
Definition: The Span of Management refers to the number of subordinates who can be managed
efficiently by a superior. Simply, the manager having the group of subordinates who report him directly is
called as the span of management.

The Span of Management has two implications:

1. Influences the complexities of the individual manager’s job

2. Determine the shape or configuration of the Organization

The span of management is related to the horizontal levels of the organization structure. There is a wide
and a narrow span of management. With the wider span, there will be less hierarchical levels, and thus,
the organizational structure would be flatter. Whereas, with the narrow span, the hierarchical level
increases, hence the organizational structure would be tall.

Both these organizational structures have their advantages and the disadvantages. But however the tall
organizational structure imposes more challenges:

 Since the span is narrow, which means less number of subordinates under one superior, requires more
managers to be employed in the organization. Thus, it would be very expensive in terms of the salaries
to be paid to each senior.
 With more levels in the hierarchy, the communication suffers drastically. It takes a lot of time to reach
the appropriate points, and hence the actions get delayed.
 Lack of coordination and control because the operating staff is far away from the top management.
The major advantage of using this structure is that the cross communication gets facilitated, i.e., operative
staff communicating with the top management. Also, the chance of promotion increases with the
availability of several job positions.

In the case of a flatter organizational structure, where the span is wide leads to a more complex
supervisory relationship between the manager and the subordinate. It will be very difficult for a superior
to manage a large number of subordinates at a time and also may not listen to all efficiently.

However, the benefit of using the wider span of management is that the number of managers gets reduced
in the hierarchy, and thus, the expense in terms of remuneration is saved. Also, the subordinates feel
relaxed and develop their independent spirits in a free work environment, where the strict supervision is
absent.

Tall structures:
These structures are found in classical bureaucratic organisations. In this structure, a manager can
supervise less number of subordinates. He can, therefore, exercise tight control over their activities. This
creates large number of levels in the organisation. This is also known as narrow span of control. A tall
structure or a narrow span of control appears like this.
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Flat Structures:
These structures have a wide span of control. When superior supervises a larger number of subordinates,
flat structure is created with lesser number of hierarchical levels. A departure was made from tall
structures to flat structures by James C. Worthy who was a consultant in the L. Sears, Roebuck and
company.

A structure where span of control for each managerial position is 4 appears as follows:

Factors Affecting Span of Management:

The following factors help in determining the suitable span of management:
1. Competence of managers:
If managers are competent in their jobs, they can have a wide span of management. Competence of
managers is judged by their ability to make decisions related to motivational plans, leadership styles,
communication channels and chains, techniques of control etc. Managers who rank high on these
parameters can effectively supervise larger number of subordinates.

2. Nature of work:
If employees perform similar and repetitive work, managers can supervise large number of subordinates
and, thus, have a wide span of control. Non-repetitive and challenging work requires narrow span of
control. Changes in the nature of work also affects the span of management.

Frequent changes as a result of dynamic environment support a narrow span as superiors frequently have
to direct the activities of subordinates. Stability in the nature of work supports a wide span of
management as superiors’ directions are not frequently required to carry out the work processes.

3. Assistance to managers:
If managers have access to technical or secretarial assistance, a larger group of subordinates can be
managed. Span of control can, therefore, be wide. Staff assistance can be useful for collecting and
processing information related to various decisions and issuing orders to the subordinates. Managers save
time in communicating with subordinates, direct the activities of larger number of subordinates and focus
on other strategic organisational matters.

4. Competence of subordinates:
If subordinates are competent to manage their jobs without much assistance from the superiors, span of
control can be wide. Competent subordinates do not require frequent directions from the superiors with
respect to various organisational activities. Superiors can thus, manage a larger group of subordinates.

5. Plans and policies:

If plans clearly define the organisational/individual goals and policies, superiors can supervise a larger
group of subordinates and have a wide span of control. Clearly defined plans include well-formulated
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policies procedures, methods etc. Particularly, if standing plans are well defined, subordinates know the
broad guidelines within which they have to make decisions in similar and repetitive situations.

They do not approach the superiors every time they face a similar problem-solving situations. Superiors
can, thus, manage a larger group of subordinates. However, if most of the decisions are made by resorting
to single use plans (programmes, budgets, projects etc.), managers have to be frequently approached and
the span can, thus, be narrow.

6. Organisational level:
The top executives look after important and specialised activities and, therefore, the span is narrow at the
top level but at lower levels the span can be wide, since supervisors are mainly concerned with routine
jobs. According to J.C. Worthy, a manager can supervise as many as 20 subordinates at the lower levels.

7. Authority-responsibility structure:
If authority-responsibility structure is well-defined and understood, superiors can supervise larger number
of subordinates. People work within the confines of their responsibility and take directions from superiors
only when required. Lack of clarity in authority-responsibility structure will create confusion in the
organisation. Jobs and who will perform which job, who is accountable to whom will not be clear. In such
a situation, managers cannot supervise a large group of subordinates. The span of management will, thus,
be narrow.
8. System of control:
Effective techniques of control can enable the manager to supervise larger number of subordinates.
Effective system of control promotes decentralisation. Superiors do not actively involve in the decision-
making processes as decisions are taken at the levels where they are required. There is extensive
delegation, clarity of jobs, authority-responsibility relationships and freedom to take decisions. The span
of control can, thus, be wide.

9. Financial factors:
Both narrow and wide structures have financial constraints. A narrow span requires more managers and
is, thus, a costly form of structure. Wide span, on the other hand, may result into organisational
inefficiencies. Proper balance has to be maintained between the costs and benefits of the span that a
manager can effectively supervise.

These factors are situational in nature and the span of management is also, thus, situational. Sometimes it
can be narrow and sometimes wide. For the same organisation, it can be different for different functional
areas and different levels. The span is usually narrow in the finance department and wide in the marketing
department for the same level. It may be different in different organisations for the same functional areas
and levels.

Graicunas Theory on Span of Management:

A French management consultant, V.A. Graicunas, introduced a theory on span of management which
explains three kinds of relationships that a superior can have with subordinates. He formulated a theory
and suggested the number of subordinates under one superior based on mathematical calculations.
Superior-subordinate relationships are based on mathematical formulae.

The kind of relationships and the formulae for arriving at the number of relationships is as follows:

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Graicunas identified three types of relationships:
1. Direct single relationships,

2. Direct group relationships, and

3. Cross relationships.

1. Direct single relationship:

This is the relationship between the superior and his immediate subordinates. It represents direct contact
of the superior with his subordinates. If there are 3 subordinates (A, B and C) under one superior (X),
there will be three direct single relationships, represented by the formula n. These are relationships
between X and A, X and B, and X and C.

2. Direct group relationships:

This is the relationship of superior with subordinates in the presence of other subordinates. All possible
combinations of superior and subordinate relationship-exist in group relationships. It represents contact of
the superior with one or more subordinates while others (one or more) assist the relationships.

For one superior (X) and three subordinates (A, B, C), there will be 9 direct group relationships as
follows:
1. X and A with B providing assistance

2. X and A with C providing assistance

3. X and B with C providing assistance

4. X and A with BC providing assistance

5. X and B with AC providing assistance

6. X and C with AB providing assistance

7. X and AB with C providing assistance

8. X and AC with B providing assistance

9. X and BC with A providing assistance

The number of relationship (9) is represented by the formula:

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3. Cross relationships:
While the subordinates work under the same superior, they also interact amongst themselves. These are
the relationships amongst subordinates. As interaction with B and B’s interaction with A will be different
as viewed by the managers and, therefore, this relationship will also be different. Based on the formula n
(n -1), with 3 subordinates, 6 such relationships will be formed.

These are between:

A and B

Band A

A and C

C and A

B and C

C and B

With every increase in the number of subordinates by one, increase in the number of relationships is by
more than one. While, with 2 subordinates, the total number of relationships is 6, with 3 subordinates, it is
18.

The theory does not seem to have any practical application as it emphasises on the number of
relationships and not on the importance of relationships. Based on Gaicunas’ theory, many other
management thinkers also suggested numerical limits on the span of management, ranging from 3 to 9 for
top managerial positions and 8 to 30 for supervisory management. More than the number of subordinates
that can affect the ability to manage the subordinates, managerial effectiveness is judged by the situational
factors that can affect the span of management.

Centralization and Decentralization

Centralization is said to be a process where the concentration of decision making is in a few hands. All
the important decision and actions at the lower level, all subjects and actions at the lower level are subject
to the approval of top management. According to Allen, “Centralization” is the systematic and consistent
reservation of authority at central points in the organization. The implication of centralization can be :-

1. Reservation of decision making power at top level.

2. Reservation of operating authority with the middle level managers.
3. Reservation of operation at lower level at the directions of the top level.

Under centralization, the important and key decisions are taken by the top management and the other
levels are into implementations as per the directions of top level. For example, in a business concern, the
father & son being the owners decide about the important matters and all the rest of functions like
product, finance, marketing, personnel, are carried out by the department heads and they have to act as
per instruction and orders of the two people. Therefore in this case, decision making power remain in the
hands of father & son.

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On the other hand, Decentralization is a systematic delegation of authority at all levels of
management and in all of the organization. In a decentralization concern, authority in retained by the top
management for taking major decisions and framing policies concerning the whole concern. Rest of the
authority may be delegated to the middle level and lower level of management.
The degree of centralization and decentralization will depend upon the amount of authority delegated
to the lowest level. According to Allen, “Decentralization refers to the systematic effort to delegate to the
lowest level of authority except that which can be controlled and exercised at central points.
An organization has a greater degree of decentralization if the number of decisions made and functions
affected at the lower level are higher.

Further, while decentralization and delegation of authority might seem similar, you must not confuse one
with another. A decentralized way of working is more about the philosophy of the organization.

Unlike delegation, it is not just about handing over a part of the authority to a subordinate but a way of
approaching the decision-making process in the organization.

Decentralization is a choice, while delegation is a must. Let’s take a quick look at the advantages of
centralization and decentralization:

Advantages of Centralization

 The organization can strictly enforce uniformity of procedures and policies.

 It can help in the elimination of overlapping or duplicate activities and save costs.
 The organization has a better chance of utilizing the potential of its outstanding employees.
 It offers a better control over the activities of the organization by ensuring consistency
in operations and uniformity in decision-making.

Advantages of Decentralization

 Faster decision-making and better quality of decisions

 Improves the effectivity of managers.
 Offers a democratic environment where employees can have a say in their governance.
 Provides good exposure to mid and lower-level managers and creates a pool of promotable manpower
with managerial skills.
 Since managers can see the results of their own actions, they are more driven and have improved
morals.
Both centralization and decentralization have their own advantages and disadvantages. Even if an
organization is working in a decentralized manner, some functions are usually centralized. Next, let’s look at
the factors that determine the degree of decentralization.

DELEGATION
A manager alone cannot perform all the tasks assigned to him. In order to meet the targets, the manager
should delegate authority. Delegation of Authority means division of authority and powers downwards to
the subordinate. Delegation is about entrusting someone else to do parts of your job. Delegation of

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authority can be defined as subdivision and sub-allocation of powers to the subordinates in order to
achieve effective results.

Elements of Delegation

1. Authority - in context of a business organization, authority can be defined as the power and right
of a person to use and allocate the resources efficiently, to take decisions and to give orders so as
to achieve the organizational objectives. Authority must be well- defined. All people who have
the authority should know what is the scope of their authority is and they shouldn’t misutilize it.
Authority is the right to give commands, orders and get the things done. The top level
management has greatest authority.

Authority always flows from top to bottom. It explains how a superior gets work done from his
subordinate by clearly explaining what is expected of him and how he should go about it.
Authority should be accompanied with an equal amount of responsibility. Delegating the
authority to someone else doesn’t imply escaping from accountability. Accountability still rest
with the person having the utmost authority.

2. Responsibility - is the duty of the person to complete the task assigned to him. A person who is
given the responsibility should ensure that he accomplishes the tasks assigned to him. If the tasks
for which he was held responsible are not completed, then he should not give explanations or
excuses. Responsibility without adequate authority leads to discontent and dissatisfaction among
the person. Responsibility flows from bottom to top. The middle level and lower level
management holds more responsibility. The person held responsible for a job is answerable for it.
If he performs the tasks assigned as expected, he is bound for praises. While if he doesn’t
accomplish tasks assigned as expected, then also he is answerable for that.
3. Accountability - means giving explanations for any variance in the actual performance from the
expectations set. Accountability can not be delegated. For example, if ’A’ is given a task with
sufficient authority, and ’A’ delegates this task to B and asks him to ensure that task is done well,
responsibility rest with ’B’, but accountability still rest with ’A’. The top level management is
most accountable. Being accountable means being innovative as the person will think beyond his
scope of job. Accountability, in short, means being answerable for the end result. Accountability
can’t be escaped. It arises from responsibility.

For achieving delegation, a manager has to work in a system and has to perform following steps : -

1. Assignment of tasks and duties

2. Granting of authority
3. Creating responsibility and accountability

Delegation of authority is the base of superior-subordinate relationship, it involves following steps:-

1. Assignment of Duties - The delegator first tries to define the task and duties to the subordinate.
He also has to define the result expected from the subordinates. Clarity of duty as well as result
expected has to be the first step in delegation.
2. Granting of authority - Subdivision of authority takes place when a superior divides and shares
his authority with the subordinate. It is for this reason, every subordinate should be given enough
independence to carry the task given to him by his superiors. The managers at all levels delegate
authority and power which is attached to their job positions. The subdivision of powers is very
important to get effective results.
3. Creating Responsibility and Accountability - The delegation process does not end once powers
are granted to the subordinates. They at the same time have to be obligatory towards the duties
assigned to them. Responsibility is said to be the factor or obligation of an individual to carry out
his duties in best of his ability as per the directions of superior. Responsibility is very important.
Therefore, it is that which gives effectiveness to authority. At the same time, responsibility is
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 absolute and cannot be shifted. Accountability, on the others hand, is the obligation of the
individual to carry out his duties as per the standards of performance. Therefore, it is said that
authority is delegated, responsibility is created and accountability is imposed. Accountability
arises out of responsibility and responsibility arises out of authority. Therefore, it becomes
important that with every authority position an equal and opposite responsibility should be
attached.

Therefore every manager,i.e.,the delegator has to follow a system to finish up the delegation process.
Equally important is the delegate’s role which means his responsibility and accountability is attached with
the authority over to here.

Relationship between Authority and Responsibility

Authority is the legal right of person or superior to command his subordinates while accountability is the
obligation of individual to carry out his duties as per standards of performance Authority flows from the
superiors to subordinates, in which orders and instructions are given to subordinates to complete the task.
It is only through authority, a manager exercises control. In a way through exercising the control the
superior is demanding accountability from subordinates. If the marketing manager directs the sales
supervisor for 50 units of sale to be undertaken in a month. If the above standards are not accomplished, it
is the marketing manager who will be accountable to the chief executive officer. Therefore, we can say
that authority flows from top to bottom and responsibility flows from bottom to top. Accountability is a
result of responsibility and responsibility is result of authority. Therefore, for every authority an equal
accountability is attached.

Differences between Authority and Responsibility

Authority Responsibility

It is the legal right of a person It is the obligation of subordinate to perform the

or a superior to command his work assigned to him.
subordinates.

Authority is attached to the Responsibility arises out of superior-

position of a superior in subordinate relationship in which subordinate
concern. agrees to carry out duty given to him.

Authority can be delegated by a Responsibility cannot be shifted and is absolute

superior to a subordinate

It flows from top to bottom. It flows from bottom to top.

Principles of Delegation
There are a few guidelines in form of principles which can be a help to the manager to process of
delegation. The principles of delegation are as follows: -

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 1. Principle of result excepted- suggests that every manager before delegating the powers to the
subordinate should be able to clearly define the goals as well as results expected from them. The
goals and targets should be completely and clearly defined and the standards of performance
should also be notified clearly. For example, a marketing manager explains the salesmen
regarding the units of sale to take place in a particular day, say ten units a day have to be the
target sales. While a marketing manger provides these guidelines of sales, mentioning the target
sales is very important so that the salesman can perform his duty efficiently with a clear set of
mind.

2. Principle of Parity of Authority and Responsibility- According to this principle, the manager
should keep a balance between authority and responsibility. Both of them should go hand in hand.

According to this principle, if a subordinate is given a responsibility to perform a task, then at the
same time he should be given enough independence and power to carry out that task effectively.
This principle also does not provide excessive authority to the subordinate which at times can be
misused by him. The authority should be given in such a way which matches the task given to
him. Therefore, there should be no degree of disparity between the two.
3. Principle of absolute responsibility- This says that the authority can be delegated but
responsibility cannot be delegated by managers to his subordinates which means responsibility is
fixed. The manager at every level, no matter what is his authority, is always responsible to his
superior for carrying out his task by delegating the powers. It does not means that he can escape
from his responsibility. He will always remain responsible till the completion of task. Every
superior is responsible for the acts of their subordinates and are accountable to their superior
therefore the superiors cannot pass the blame to the subordinates even if he has delegated certain
powers to subordinates example if the production manager has been given a work and the
machine breaks down. If a repairman is not able to get repair work done, production manager will
be responsible to CEO if their production is not completed.

4. Principle of Authority level- This principle suggests that a manager should exercise his
authority within the jurisdiction/framework given. The manager should be forced to consult their
superiors with those matters of which the authority is not given that means before a manager
takes any important decision, he should make sure that he has the authority to do that on the other
hand, subordinate should also not frequently go with regards to their complaints as well as
suggestions to their superior if they are not asked to do. This principle emphasizes on the degree
of authority and the level up-to which it has to be maintained.

Concept of Authority
Usually, power is compared to an authority in the real world. But when you look closely both terms are
absolutely different from each other. Power is something that is referred to as the ability to influence the
attitude or behavior of any individual. While authority is generally a representation of someone’s position. It
is derived from multiple sources like seniority, technical competence, etc. The power of a manager is
considered as their ability to ask the subordinates whatever they wish them to do. In simpler terms, when you
broaden the concept of authority you get power.

Power and Authority

The manager’s power can be measured in his ability to-

 Punish the individuals

 Withdraw the rewards

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 Provide rewards, etc.
Thus, the main sources of power can be considered as the dominating personality, expertise, rewards, etc.
While authority is described as an institutionalized power which is bestowed by the organization formally.

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