MODULE V

DR. SHWETA DANI

MODULE V
• Organizing: (a) Meaning (b) Constituents of organizing
• Organization Structures: (a) Meaning
• b) Types of Organization Structures
• Departmentation: (a) Meaning (b) Types of Departmentation
• Span of Control: (a) Meaning (b) Types: Narrow & Wide SOC
• (c) Advantages & Disadvantages of Narrow & Wide SOC
• (d) Factors determining the SOC
• Delegation of Authority: (a) Meaning
• (b) Advantages & Barriers
• (c) Guidelines for Effective Delegation
• Centralization Vs. Decentralization: (a) Meaning (b) Difference: Delegation & Decentralization
• (c) Advantages & Disadvantages of Centralization Vs. Decentralization. Organizing of start-ups
LEARNING OUTCOME - MODULE V (CLO3)

• Students will understand the influence of organizational structure on decision-

making and control in different contexts in the business environment. In
addition, they will understand the flow of communication and authority in the
different structures. This module is very beneficial also for aspiring
entrepreneurs to decide on the appropriate structure or SOC for their start-
ups
Definitions of Organising…..

To organise a business is to provide it with everything

useful to its functioning-raw materials, tools, capital
and personnel.
Henri fayol
Organising is grouping of activities necessary to attain
enterprise objectives and the assignment of each
grouping to a manager with authority necessary to
supervise it.
Koontz and O’ Donnell
Organising is dividing up the activities which are
necessary to any purpose and organising them in
groups which are assigned to individuals.
Urwick

Organisation is the establishing of effective

behavioural relationship among selected work
person and work places in order for the group to
work together effectively.
George R. Terry
CONSTITUENTS OF ORGANIZING
ORGANIZATION STRUCTURES: (A) MEANING
B) TYPES OF ORGANIZATION STRUCTURES
DEPARTMENTATION

*Departmentation represents the pattern of grouping activities.

*Similar activities closely related with a particular function are

grouped together to form department.

Aims of Departmentation:
a) Unity of Direction
b) Effective Communication
c) Coordination
d) Control
Activity Analysis (It is required before Departmentation)

1. Identification of the activities that are critical to the achievement of

organisational goals

2. Analysis of these activities in terms of contributions they are

expected to make. These activities can be classified into four
categories:

a) Result Producing Activities: Make measurable contribution to the

performance of the entire enterprise (Sales, directly yield revenues,
production)

b) Support Activities: Do not directly produce quantifiable results but

help result producing activities in their effective and efficient
performance (Industrial relations, purchasing, accounting, security)
……….continued
c) Hygiene and House Keeping Activities: Related to
the creation of environment for the performance of
result producing and support activities (medical ad
recreational services, motivating the employees,
creating healthy work climate etc.)

d) Top Management activities: Related to defining

organisational purpose and objectives, formulating
major policies, manning the key positions, and overall
coordination and control)
Criteria for grouping the activities

* Activities, making similar contribution should be grouped together and

activities differentiated in terms of contribution should be grouped
separately.

Drucker proposed three broad criteria for grouping activities:

1) Key activities should never be subordinated to secondary activities

2) Revenue producing activities should never be subordinated to non-

revenue producing activities

3) Support activities should never be grouped with result producing or

result contributing activities
BASES OF DEPARTMENTATION
1. DEPARTMENTATION BY FUNCTION:

*Based on distinct and major functions of organization

*Results into the creation of units, dealing with functionally similar
activities
*Functions are different for different organizations; and depend
on the objectives, nature of inputs and outputs, and work
activities of the organization
*Key functions in a manufacturing organization are production,
marketing and finance
*These functions are supported by a number of supportive
functions like, Industrial Relations, purchasing, quality control,
transportation, security etc.
*Top Management is responsible for organizing all the activities
for the achievement of organizational goals.
 General Manager

I Level Departments

Production Department Marketing Department

Finance Department Research and Development Dept.

Industrial Engineering Dept.

Industrial Relations Dept. Purchasing Dept.

II Level Departments Of Production

Manufacturing
Production Planning
Quality Control

III Level Departments of Manufacturing

Foundry
Stores
Advantages of Departmentation By Function

• Organisation of similar activities into distinct departments promotes

specialization and operational efficiency

2. It assigns responsibility for the efficient and effective performance of each

function to the head of that function

3. It reflects the basic functions involved in the performance of various activities

leading to the achievement of organizational objectives

4. It indicates the kind of special abilities needed by the organization, which

helps in staffing and training

5. It provides a frame work for effective control and coordination

6. It provides unity of direction to closely related activities

Disadvantages of Departmentation By Function

1. Profit responsibility cannot be assigned to functional

departments:

a) Profit responsibility remains with only top management

b) Performance of some departments cannot be evaluated,

such as Personnel, Quality Control and Public Relations
Department

c) Quantitative measurement of performance is only possible

in production and marketing department

2. As each functional head is often inclined towards his own

function, horizontal coordination among various functions is poor.
This leads to hamper other functions and total enterprise
3. Inter-departmental conflicts (between marketing and
production; staff and line) are very common

4. Functional executives try to enhance the power and

prestige of their function through putting pressure on top
management to allocate funds and manpower to their
department more then required

5. It inhibits the development of managers who have abilities

to occupy top management positions because when a
functional head is promoted to the general management
position, he look at the organization from the view point of
his functional speciality, which can damage the
organizational morale, profitability and growth
2. DEPARTMENTATION BY PRODUCT

• Commonly found in multiproduct companies

* All the resources required for the manufacturing and distribution of each
product are grouped under a separate product department

* Generally, product departments and functional departments exist together

* Work on the basis of decentralized operations and centralized control

(control of Finance, Industrial Relations and Personnel Dept. is with Corporate
level)
 General Manager
↓
_______________________________
↓ ↓ ↓ ↓ ↓
Finance Marketing Research & Development Industrial Relations Legal

Foods Division Textiles Division Detergents Division

Industrial Relations Production Marketing Accounting Legal

Advantages of Departmentation By Product

1. Specialisation of production facilities, technical skills and knowledge

2. Full responsibility for efficient and effective operations is on the head of the product
division (decentralized operations and centralized control) and is treated as “Profit
Centre”

3. Development of managers is possible who are capable of taking full responsibility

for operating semi-autonomous divisions

4. Proper functioning of business empires, engaged in the production and marketing of a

wide range of products, is possible

5. Effective coordination of unique activities related to a particular product

6. Greater flexibility and adaptability in responding to changes in environment

Disadvantages of Departmentation By Product
1. Divisional staff tends to become overly division-
centered which is not in favor of company’s interest
2. As product departments are profit centers, there is a
need of high-quality managerial resources
3. If the product division is not sufficiently big, the over-
head cost is going to be high to sustain the creation of
staff departments at the divisional level
4. Coordination and control of the functioning of a
number of divisions is difficult
3. DEPARTMENTATION BY PROCESS OR ACTIVITY

* It is suitable for companies where production operations flow in

a sequence from one stage to another

Departmentation by Process of an Integrated Steel Mill

PRODUCTION DIVISION

Iron-Ore Refining →Steel Smelting →Hot Rolling →

Cold Rolling →Foundry

Advantages of Departmentation By Process or Activity

1. Coordination of all the activities is possible which

are required for the completion of each distinct phase
2. More effective utilization of specialized equipments
and special skills
3. Head of the process department is fully responsible
for the completion of that particular process or phase.
Disadvantages of Departmentation By Process or Activity

1. Coordination among different process departments is

difficult, because breakdown in one process will
interrupt the working of all other process departments,
which are in sequence
2. Inefficient operations in one process department may
adversely affect the quality of other process
departments
3. Departmental personnel’s main focus is on their
own department, which may create conflict among
various departments ……contd.
4. Process departments cannot be assigned profit responsibility

5. There may be a duplication of general-purpose equipment

(which are used in all the processes) and if the organization is
not sufficiently large then it is wastage
4. DEPARTMENTATION BY CUSTOMER

*When company has distinctly different customer

groups, it may create departments on the basis of
customer differences

Marketing Manager
__________________________
↓ ↓
Industrial Sales Office Household Sales
Advantages of Departmentation By Customer

1. It can focus on the special customer needs

2. Personnel with special abilities required to deal with different

customer requirements can be recruited
Disadvantages of Departmentation By Customer

1. If the sales people are given bonus on the basis of sales

revenues and market for various customer groups is not the
same, then there will be intergroup problems

2. In recession period, it is possible that personnel in separate

customer departments are not being fully utilized
5. DEPARTMENTATION BY TERRITORY

*If company is having the operations or market in different

geographical locations, departments can be created on the
basis of territory or geographical location (MNCs, Banks,
Insurance Companies and Railways)

General Manager
___________________________________________________

↓ ↓ ↓

Production Marketing Finance

Pithampur Plant Pune Plant Calcutta Plant

Advantages of Departmentation by Territory

1. Through the departmentation by Territory, company

is able to relate its operations more effectively with
unique local environment. (Can handle regional
difference in social values, way of living,
topography, transportation facilities, availability of
raw material etc.).
2. It facilitates aggressive marketing.
3. Companies dealing with bulky commodities can
manage their warehouses in various territories.
4. Companies (Like cement companies) requiring specific sources
of raw materials can locate their operations near any
particular source otherwise the cost of transportation will be
higher.
5. Branch units can be organized semi-autonomous profit
centers, so they have all the advantages of divisionalisation.
6. Company can train and produce managers who are having
abilities to function independently.
7. Through territorial marketing activities, company can focus on
specific customer need of that particular region. Marketing
strategies can be developed accordingly.

8. Efficiency is also increased by savings in traveling time and

expenses.
Disadvantages of Departmentation by Territory

1. Large number of managers with general management abilities

is required

2. Duplication of Production Facilities

3. Problems of Coordination and control

4. Sometimes regional managers overlook the organisational

objectives & policies
……contd.
5. Efficient utilization of centralized staff departments is
difficult

6. Often, Headquarters do not fully appreciate the unique

needs of their regional units due to cost

7. If personnel policies and accounting policies are uniform in

all the regional units, it may be contrary to local needs.
6. ALPHA-NUERICAL DEPARTMENTATION

*This departmentation is based on alphabetical orders of the

names or the numbers
*Often found at lower levels of hierarchy and is based on
specific requirements of any particular division, so does not
have any specific advantage or disadvantage, but helps in
smooth functioning of that division.

Divisional Manager
↓
_____________________
↓ ↓

Ledger Clerk Ledger Clerk

7. COMPOSITE DEPARTMENTATION

• It exist when functional departmentation is combined

with one or more types of departmentation
• Composite departmentation is the key to decision to
choose one method for the primary levels and
combination of methods at the secondary levels which
best facilitates coordination and integration.
• It has all the advantages and disadvantages of every
basis which is being implemented.
 General Manager

Finance Industrial Relations Research & Development Legal

Textiles Division Steel Division

Ginning Spinning Weaving Dyeing Printing

Marketing Marketing Marketing

Woolen Coarse Fine and Superfine

HIERARCHY OF INTERRELTED POSITIONS

General Manager

Production Manager Marketing Manager

Foreman Foreman Sales Manager Sales

Manager

Worker Worker Sales Executive Sales

Executive
• Lyndall Urwick Found “ the ideal number of subordinates for all
superior authorities to be four” and at the lowest level of
organization, where what is delegated is responsibility for the
performance of specific tasks and not for the supervision of
others, the number may be eight or twelve”

• According to Hamilton, the proper number of subordinates

should be three near the top and six near the bottom of the
organization.
According to Graicunas, There are
three types of superior-
subordinate relationships:

a) direct single relationship

b) direct group relationship
c) cross relationships
For e.g. when a superior (A) is supervising 2 subordinates (B & C),
he has to supervise 6 relationships as follows:

a)Direct Relationship with B b) Direct Relationship with C

c) Relationship with B when C is present
d) Relationship with C when B is present
e) Relationship of B with C
f) Relationship of C with B
He has derived a formula to calculate the no. of relationships in
reference to the no. of subordinates……

n(2n-1+(n-1))

n-no. of subordinates
Span of Management is dependent on the following factors

SUPERIOR RELATED FACTORS

1. Abilities and Competence

2. Supervisory Style
3. Delegation of Authority

SUBORDINATE RELATED FACTORS

1. Abilities and Competence

ORGANISATIONAL FACTORS

1. Nature of Tasks
2. Geographical Location
3. Plans and Policies
4. Objective Criteria of Performance Evaluation
5. Rate of Change
Centralisation

Everything that goes to reduce the importance of

subordinate’s role is centralisation.

Henri Fayol

Centralisation is the systematic and consistent reservation

of authority at central points within an organisation.

Allen
Advantages of centralisation

1. Facilitates Personal Leadership

2. Can be managed with less skilled subordinates
3. Proper Handling of Emergencies
4. Integration of total Operation
5. Uniformity of action
Limitations of Centralisation

1. Increases the burden on the top executives

2. Hampers the growth and development of subordinates
3. Slow up the operations of the enterprise
4. Reduces the scope for specialisation (as managers at top
levels are not all round experts)
Decentralisation

Decentralisation means the division of a group of

functions and activities into relatively autonomous units
with overall authority and responsibility for their
operation delegated to a head of each unit.
Earl P. Strong

Decentralisation is simply a matter of dividing up the

managerial work and assigning specific duties to the
various executive skills.
Advantages of Decentralization

1. Reduces the burden on top executives

2. Facilitates diversification
3. Provide product and market emphasis
4. Facilitates Executive development
5. Promotes motivation
6. Facilitates control and supervision
Limitations of Decentralisation

1. Uniform policies and standardised procedures can

not be followed.
2. Creates problems of coordination and control.
3. Involves more financial burden as requires
employment of trained personnel to accept authority.
4. It becomes useless when there are no qualified and
competent personnel.
DELEGATION OF AUTHORITY

Delegation is a mean of dividing organizational work among

employees at various levels in the hierarchy, transferring them
authority to enable them to perform assigned duties, extracting
from them an obligation to perform adequately, and controlling
their performance to ensure the achievement of desired results.
PROCESS OF DELEGATION (According to Newman)

1. Assignment of Duties
2. Delegation of Authority
3. Creation of an Obligation
4. Establishment of a Control System
OBSTACLES TO EFFECTIVE DELEGATION

1. SUPERIOR RELATED REASONS OF INEFFECTIVE

DELEGATION

a) Belief that he can make better decisions

b) Fear of losing importance
c) Fear of Loss of control
d) Fear of being exposed
e) Unwillingness to take calculated risk
f) Tendency to be authoritarian
2. SUBORDINATE RELATED REASONS OF INADEQUATE
DELEGATION

a) Lack of self-confidence in their abilities

b) Fear of making mistakes
c) Dependent personality
d) Unclear delegation
e) Lack of self motivation