UNIT-III_Principles & Practice of Management, BBA I Sem Dr.A.

Subrahmanyam

HRMG (1001) Principles & Practice of Management

BBA I Semester, GIM
Course Instructor: Dr. Subrahmanyam A

Supporting Study Material

Unit III Structure, Nature, Types of Organizations, Principles of Organizing;
Departmentalization; Delegation; Decentralization of Authority; Span of Control - Line and Staff
Functions; Staffing: Concept, Significance and Functions.
---------------------------------------------------------------------------------------------------------------------
Organizing:
Organizing refers to the process of grouping the related activities and assigning them to a manager
with authority to supervise it. Organizing is an essential function that makes the plans operational
by identifying and classifying necessary activities. Responsibility is fixed on every manager for
the achievement of the given plans.
Fayol explains organization as structure of relationships. It explains superior-subordinate
relationships. Organizing shows how the tasks can be achieved with the given resources. It paves
way for formal communication.
Organizing makes the organizational environment more conductive for group effectiveness. The
well-defined authority and responsibility are used as tools to evaluate one’s performance at work.
The function of organizing provides the manager enough flexibility in the organization to create
higher managerial positions that the employees would cherish to reach.
Organization:
Organization is form of organizing which is a part of management process. Organization defied
as collectivity of people for achieving common objectives.
“Organization means the determination and assignment of duties to people, and also the
establishment and the maintenance of authority relationships among these grouped activities it
is the structural frame work with in which the various efforts are coordinated and related to
each other”.
Definitions:
“Organization are collectivities of people that have been established for the pursuit of
relatively specific objectives on a more or less continuous basis”.
William Scott
“Organization is the form of every human association for the attainment of a common
purpose”.
Mooney and Reilly
“Organization involves the grouping of activities necessary to accomplish goals and plans
assignment and these activities to appropriate departments and positions to appropriate
departments and positions for authority delegation and coordination”.
Koontz and O’Donnell

1
UNIT-III_Principles & Practice of Management, BBA I Sem Dr.A.Subrahmanyam

Organization is used in the following ways:

1. as entity; 2. as group of people; 3. as structure ; 4. as process

Nature of organization
• Common objectives
• Specialization or Division of labour
• Authority of structure
• Group of persons
• Co-ordination
• Communication
• Environment/Culture
• Rules and regulation

Purpose or importance or advantages of organization

• Facilitate administration
• Increase the efficiency of management
• Facilitates growth and diversification
• Ensures optimum use of man and material resources
• Facilitates co-ordination and communication
• Permits optimum use of technological innovations
• Simulates creativity and initiative
• Facilitates development of managerial ability

Process of Organizing:
1. Determination of activities: The work load is broken into component activities that
are to be performed by all the employees. The activities are so split to determine the
job which can be performed by an individual.
2. Separation and grouping of activities: Once activities are identified, then they need to be
grouped. They are grouped in different ways. The activities which are similar in nature can be
grouped as one and a separate department can be created.
For example – activities undertaken before sale of a product, during the sale of the product
and after the sale of the product can be grouped under the functions of a marketing department.
Normally, all activities of a manufacturing unit can be grouped into major functions like
purchasing, production, marketing, accounting and finance, etc. and each function can be
subdivided into various specific jobs.
3. Delegation of authority: Authority is necessary for the performance of the job and therefore
authority is delegated to the subordinates to enable them to carry out their work smoothly and
efficiently.
4. Delegation of responsibility: Responsibility may be described as the obligation and
accountability for the performance of delegated duties. A superior is always accountable
for the acts of his subordinate. Therefore, responsibility always flows from subordinates to
superiors.

2
UNIT-III_Principles & Practice of Management, BBA I Sem Dr.A.Subrahmanyam

5. Establish inter-relationships: This is a very important job of management as everybody in

the organization should know as to whom he/she report, thereby establishing a structure of
relationships. By doing so, relationships become clear and delegation is facilitated.
6. Providing physical facilities and proper environment: Physical facilities means provide
machinery, tools, equipment, infrastructure etc. Environment means provide proper lighting,
ventilation, heating, cooling arrangement at the workplace, reasonable hours of work, safety
devices, job security etc.
Organizational structure
• Organization structure is the basic framework within which the manager’s decision-making behavior
takes place. Structure basically deals with relationships. It is an important scientific concept.
• One needs to understand how organizations are structured and how these structures are created and
maintained.
• Organization structure is a pattern in which various components of the organization are interrelated or
interconnected. This prescribes the relationships between various activities among various positions in
the organization.
The organization structure being abstract is not visible though it can infer from the actual operations
and behavior of the organizations. Organization structure can be viewed as establishment pattern of
relationships among the components of the organization.
• Design of basic structure involves such issues as how the work of the organization is divided and
assigned among various positions, groups and departments etc. and how the necessary coordination to
accomplish the total organizational objectives is achieved.
• Besides the formally established organizational structure, people create relationships independent of
the formal relationships known as informal relationships. Thus organization structure is the totality of
both formal and informal relationships in an organization.
What are the factors affecting organization structure
The organisation function is the immediate logical function after planning. To achieve the
objectives set in the plan, somebody should work and should do the right work. The organising
function makes the people to work. The function "involves managers in decisions which result in
a system of specialised coordinated jobs." In an organisation structure so many aspects are
involved. Human and non-human elements will be working. Orgnisationál structure is an
integrated whole. Job of each worker is specified, control measures are adopted for performing
those jobs effectively. An organisational chart depicts tangibly the reporting relationships and
channels of communication. Work flow and accountability are also shown. What factors actually
determine the organisation structure? It is grouping activity of men, machine and material for
attaining a specific objective. Hence the following factors determine the organisation structure.
1. Size of the Unit. Size indicates the scale of operation. Normally there are three scales of
operation, viz., small, medium and large. Size is an important factor governing cost, efficiency
and profitability of a business enterprise. Before any business or non-business enterprise is
started, the organisers will have to decide the most profitable and viable size of the unit.
Optimum or the best size is a dynamic concept and it changes with the development of science
and technology. Therefore, technology is one factor which determines the size and the
organisation structure. To introduce new technology, in business enterprise, the activity has
to be expanded and hence the structure changes.

3
UNIT-III_Principles & Practice of Management, BBA I Sem Dr.A.Subrahmanyam

The size of the organisation is also determined by the capital employed in the unit. There
may be heavy capital outlay but it may be less labour intensive. In such cases the size will be
small as authority relation will be less. However, capital outlay is one factor which determines
the size of the organisation.
Another important factor which determines the size of the organisation is "men employed."
If more men are employed there will be more level of management and more authority
relationships. If men employed are less, the size of the organisation will be less and less levels
of management and authority relationships.
The nature of business unit also determines the size and organisation structure. If it is capital
goods industry with huge capital outlay, the organisation structure will be complex in nature.
Consumer goods industries will have more authority relationships in marketing division and
less in production and finance line. Thus the nature of activity also determines the organisation
structure.
2. Job Design. The bricks that develop an organisation structure are jobs. What are the jobs to
be done in an organisation has to be decided by the top brass. Job design is the first managerial
decision of the organisation structure. Jobs in a task have to be specified as one person cannot
perform a task. It is a team work. Job in each task is to be specified and assigned. What an
individual has to do to contribute to the overall tasks and objectives has to be decided.
Therefore the fundamental factor, which determines the organisation structure is "Job
designing" and "numbering" them. These numbers decide the size of the organisation.
3. Grouping of Activities. The designed jobs have to be formed into groups according to the
nature of activity. Grouping of activities are essential to achieve coordination. Each group is
termed as "DEPARTMENT." Departmentation is another factor which determines the
organisation structure. Thus in each business organisation we observe departments like
Marketing Department, Production Department, Finance Department etc which discharge
their functions. In each department we find authority relationships like Finance
Manager, Assistant Finance Section Officer, Finance Supervisor etc., each assigned with
specific job and responsibility to perform. There will be accountability to higher ups also. Like
this in every business or non-business activity, there will be grouping of similar jobs in the
form of departments which are responsible to perform to specific task. There will be sub-
departments in each basic department like Production Department in which we find (i)
Purchase Department (ii) Stores Department (iii) Technical Design Department etc. These
sub-departments constitute Production Department. All the functional departments put
together forms an organisation. Grouping of the designed jobs according to their nature and
activity is another factor which determines the organisation structure.
4. Span of Control. Another factor that determines the organisation structure is the number of
persons to be managed by each manager. This is called "Span of management." Depending
upon the nature of organisation some departments will be big in size and some will be small.
Therefore, each manager should be assigned with manageable tasks and personnel. If the tasks
are many in a department, there should be splitting the tasks into number of divisions and
lower levels are to be created. All this takes place depending upon resources and personnel
available.
However, the span of management, i.e., the number of persons to be managed by each
manager, has to be decided and that becomes one of the major factors to decide the size of
organisation structure. The number varies from manager to manager and the number
4
UNIT-III_Principles & Practice of Management, BBA I Sem Dr.A.Subrahmanyam

determines the span. Manageable span found out by experience is six, i.e., one manager can
manage six, persons effectively.
5. Delegation of Authority. Authority relationship also decides the organisation structure. If the
span is more, there will be more authority levels and top management has to delegate authority
to each level. Authority, means "the right to make decisions without having to obtain approval
from a higher up." In an organisation structure, if the span and levels of management are more,
the delegation of authority will be more and there will be decentralisation of authority for
smooth functioning of tasks. If the span is narrow, less levels and more centralisation of
authority. Thus delegation of authority decides the organisation structure.
The specialised job designs will have narrow spans, homogenous departments, little control,
little authority and small structure will be designed. Job designs with less or no specialisation
will have heterogeneous departments, more spans of management, more delegation of
authority and forms a complex organisation structure. Although these are the factors which
decide the organisation structure, research and experience have shown that performance,
attitudes, satisfaction and other factors also influence the structure.
Principles/Elements of organization
The following are principles of organization

Principle of exception

Principle of balance

Principle of Unity of command

Principle of co-ordination

Principle of Specialization

Principle of Scalar Chain

Principle of Decentralization

Principle of Formalization

An organizational structure is the formal framework by which job tasks are divided, grouped and
coordinated. When managers develop or change an organization’s structure, they are said to be
engaged in organizational design. In organizational design decisions about six key elements are
taken: work specialization, departmentalisation, chain of command, span of control, centralization
and decentralization, and formalization.
Organizational design is a process that involves decisions about six key elements:
1. Work specialization,
2. Departmentalization,
3. Chain of command,
5
UNIT-III_Principles & Practice of Management, BBA I Sem Dr.A.Subrahmanyam

4. Span of control,
5. Centralization and decentralization, and
6. Formalization.
1. Work specialization: The degree to which tasks in an organization are divided into separate
jobs; also known as division of labor.
2. Departmentalisation: The basis by which jobs are grouped together.
· Functional departmentalisation – Groups jobs by functions performed.
· Product departmentalisation – Groups jobs by product line.
· Geographical departmentalisation – Groups jobs on the basis of territory or geography.
· Process departmentalisation – Groups jobs on the basis of product or customer flow.
· Customer departmentalisation – Groups jobs on the basis of common customers.
3. Chain of command: The continuous line of authority that extends from upper organizational
levels to the lowest levels and clarifies who reports to whom. Authority refers to the rights
inherent in a managerial position to tell people what to do and to expect them to do it. The
obligation or expectation to perform is known as responsibility. Unity of command states that
a person should report to only one manager (Fayol).
4. Span of control: Refers to the number of employees a manager can efficiently and effectively
manage. If the number of members is too large, it will be difficult to manage the person and
perform the work effectively.
5. Centralization and decentralization: The degree to which decision-making is concentrated
at a single point in the organization is called centralization. The degree to which lower level
employees provide input or actually make decisions is called decentralization.
6. Formalization: Formalization refers to the degree to which jobs within the organization are
standardized and the extent to which employee behavior is guided by rules and procedures.

Organizational Design Decisions

Mechanistic Organization
A rigid and tightly controlled structure
• High specialization
• Inflexible departmentalization
• Narrow spans of control
• High formalization
• Limited information network
(downward)
• Low decision participation
Organic Organization
Highly flexible and adaptable structure
• Non-standardized jobs
• Fluid team-based structure
• Little direct supervision
• Minimal formal rules
• Open communication network
• Empowered employees

6
UNIT-III_Principles & Practice of Management, BBA I Sem Dr.A.Subrahmanyam

Types of Organization
Type of organization: On the basis of authority, relationships and organization classified
as follows
1. Line organization or Military organization or Scalar organization
2. Line and Staff organization
3. Functional organization
4. Project organization
5. Matrix organization
6. Committee organization
7. Formal and Informal organizations

1. Line organization:
Where efforts of large number of people have to be controlled and discipline is of prime
importance line type organization structure will serve the purpose. This is also one of the
oldest structures. However, in present conditions this type of structure has lost the applicability.
In line structure ten lines of instruction, directing is vertical. This means in this type boss is always
right and his orders are to be obeyed at any cost.
Ø Merits:
o Simplicity: Line organization is very simple to establish and can be easily understand
by the employees
o Discipline: Since each position is subject to control by its immediate superior
position, often the maintenance of discipline is easy unity of command and unity of
direction foster discipline among the people in the organization.
o Co-ordination: The hierarchy in management helps in achieving effective coordination
o Effective communication: There will be a direct link between superior and his
subordinate; both can communicate properly among him or herself.
o Economical: Line organization is easy to operate and less expensive
o Unity of command: In line organization every person is under the command of
one boss only.
o Prompt decision: Only one person is in charge of one division or department.
o This enables manager to take quick decisions.
o Over all development of the managers: The departmental head has to look after
all the activities of his department; therefore, it encourages the development of all round
managers at the higher level of authority.
Ø Demerits:
o Undue reliance: The success of the enterprise depends upon the caliber and ability of
few departmental heads, loss of one or two capable men may put the organization in
difficulties.

7
UNIT-III_Principles & Practice of Management, BBA I Sem Dr.A.Subrahmanyam

o Personnel limitations: In this type of organization an individual executive is supposed

to discharge different types of duties. He cannot do justice to all different activities
because he cannot be specialized in all the trades.
o Overload of work: Departmental heads are overloaded with various routine jobs
hence they cannot spare time for important managerial functions like planning,
development budgeting etc.
o Dictatorial (autocratic) way: In line organization, too much authorities center on line
executive. Hence it encourages autocratic way of working.
o General interest of enterprise may be over looked: Departments may work for
their self-interest and may sacrifice the general interest of the enterprise.
o Scope of favourism: As the departmental heads has the supreme authority, there is chance
of favourism.

2. Line and Staff Organization:

Line and Staff organization is the in which the line heads are assisted by specialist staff. If the
firm is of large size, manager cannot give careful attention to every aspect of management.
They are busy with ordinary task of production and selling. Hence staff is deputed to do the
work of investigation, research, recording, and advising to managers. Thus the staff brings
advising to managers. Thus the staff brings specialization by assisting the line officers.
“Line” means - Operating
“Staff” means - Service
Ø Merits:
o Planned specialization: The line and staff structure is based upon the principle of
specialization. The line managers are responsible for operations contributing directly to the
achievement of organizational objectives whereas staff people are there to provide expert
advice on the matters of their concerns.
o Quality decisions: Decisions come after careful consideration and thought each
expert gives his advice in the area of his specialization which is reflected in the
decisions.

8
UNIT-III_Principles & Practice of Management, BBA I Sem Dr.A.Subrahmanyam

o Prospect for personal growth: Prospect for efficient personal to grow in the
organization not only that, it also offers opportunity for concentrating in a
particular area, thereby increasing personal efficiency
o Less wastage: There will be less wastage of material. Training ground for personnel: It
provides training ground to the personnel in two ways. First, since everybody is
expected to concentrate on one field, one’s training needs can easily be identified.
Second, the staff with expert knowledge provides opportunities to the line managers
for adopting rational multidimensional approach towards a problem.

Ø Demerits:
o Chances of Misinterpretation: Although the expert advice is available, yet it reaches
the workers through line supervisors. The line officers may fail to understand the
meaning of advice and there is always a risk of misunderstanding and misinterpretation.
o Chances of friction: There are bound to be occasions when the line and staff may
differ in opinion may resent in conflict of interests and prevents harmonious
relations between the two.
o Ineffective Staff in the absence of authority: The staff has no authority to execute their
own advice. Their advice is not a binding on the line officers. Therefore the advice
given by specialist may be ignored by line heads.
o Expensive: The overhead cost of the product increases because of high salaried
specialized staff.
o Loss of initiative by line executives: If is they start depending too much on
staff may lose their initiative drive and ingenuity.

9
UNIT-III_Principles & Practice of Management, BBA I Sem Dr.A.Subrahmanyam

3. Functional organization:
This structure most widely used, in the medium and large organizations having limited number of
products. This was introduced by F.W.Taylor and is logical extension of the division of labour
cover departments as well as men. In this authority is delegated to an individual or department
to control specified processes, policies or other matter relating to activities under taken by
persons in other departments.
In this system planning is separated from performance since the direction of work is divided by
various functions in the factory. It has been found that this type of structure becomes ineffective
when the work of departments and individuals increases in variety and complexity.
Ø Merits:
o Separation of work: In functional organization, work has been separated from routine
work. The specialist has been given the authority and responsibility for supervision
and administration pertaining to their field of specialization unnecessary over loading of
responsibilities is thus avoided.
o Specialization: Specialization and skilled supervisory attention is given to workers the
result is increase in rate of production and improved quality of work.
o Narrow range with high depth: The narrow range of activities enable the functional
expert to developing in depth understanding in his particular area of activity
o Ease in selection and training: Functional organization is based upon expert knowledge.
The availability of guidance through experts makes it possible to train the workers properly
in comparatively short span of time.
o Reduction in prime cost: Since for every operation expert guidance is there, wastage of
material is reduced and thus helps to reduce prime cost.
o Scope of growth and development of business: This type of organization presents ample
scope for the growth and development of business.
Ø Demerits:
o Indiscipline: Since the workers receive instructions from number of specialist it leads to
confusion to which they should follow. Therefore, it is difficult to maintain discipline
o Shifting of responsibility: It is difficult for the top management to locate responsibility
for the unsatisfactory work everybody tries to shift responsibility on others for the faults
and failure.
o Kills the initiative of workers: As the specialized guidance is available to the
workers the workers will not be using their talents and skills therefore their initiative
cannot be utilized.
o Overlapping of authority: The sphere of authority tends to overlap and gives rise to
friction between the persons of equal rank.
o Lack of co-ordination between functions: except the function in which he is
specialized he is absolutely indifferent to other functions. Therefore, there is a lack of
coordination of function and efforts.

10
 UNIT-III_Principles & Practice of Management, BBA I Sem Dr.A.Subrahmanyam

4. Project-based organizational structure.

• Project organizational structure refers to the creation of an independent project team, the
team’s management is separated from the parent organization’s other units, have their own
technical staff and management, enterprise assigns certain resources to project team, and grant
project manager of the largest free implementation of the project .
• The advantages of this structure:
• First, focus on this project team, project manager is solely responsible for the project, the
only task for project members is to complete the project, and they only report to the
project manager, avoiding the multiple leadership;
• Second, the project team’s decision is developed within the project, the reaction time is
short;
• Third, in this project, members work with strong power, high cohesion, participants
shared the common goal of the project, and individual has clear responsibilities.
• The disadvantage of this organizational structure:
• First, when a company has several projects, each project has its own separate team, which
will lead to duplication of efforts and the loss of scalable economies;
• Second, the project team itself is an independent entity, prone to a condition known as
“Project inflammatory” disease, that is, there is a clear dividing line between the project
team and the parent organization, weakening the effective integration between project
team and the parent organization;
• Third, the project team members lack of a business continuity and security, once the
project ended, return to their original functions may be more difficult.

11
UNIT-III_Principles & Practice of Management, BBA I Sem Dr.A.Subrahmanyam

5. Matrix Organization:
Matrix organizational structure is a hybrid form, it loads a level of project management structure
on the functional hierarchical structure. According to the relative power of project managers and
functional managers, in practice there are different types of matrix systems, respectively,
1. Functional Matrix: in this matrix, functional managers have greater powers than project
managers);
2. Project Matrix: in this matrix, project managers have greater powers than functional
managers);
3. Balance Matrix: in this matrix, functional managers and project managers have the equal
powers.
The advantages of this organizational structure:
• It is the same as functional structure that resources can be shared in multiple projects, which
can significantly reduces the problem of redundant staff;
• Project is the focus of work, with a formal designated project manager will make him give
more attention to the project, and responsible for the coordination and integration work
between different units;
• When there are multiple projects simultaneously, the company can balance the resources
to ensure that all the projects can progress to complete their respective costs and quality
requirements;
• The anxiety of project members is reduced greatly after the end of the project, while they
are strongly associated with the project, on the other hand, they have a “home” feeling
about their functions.
The disadvantage is that this organizational structure:
• The matrix structure has exacerbated the tensions between functional manager and project
manager;
• Under any circumstances, sharing equipment, resources and personnel among different
projects will lead to conflict and competition for scarce resources;
• In the process of project implementation, the project manager must negotiate and consult
with the department managers on various issues, which leads to the delay in decision
making;

12
UNIT-III_Principles & Practice of Management, BBA I Sem Dr.A.Subrahmanyam

• Matrix management is not according to the principles of unified management, project

members have two bosses, the project manager and functional managers, when their
commands are divided, it will make members at a loss.
Three different forms of the matrix organizational structure does not necessarily have the
advantages and disadvantages described above:
Project Matrix can increase the project’s integration, reduce internal power struggle, its weakness
is poor control of their functional areas and prone to “project inflammation”;
Functional Matrix can provide a better system for managing the conflict between different
projects, but maintaining the control of functions is at the cost of inefficient integration of projects;
Balanced Matrix can achieve the balance between technology and project requirements better,
but its establishment and management is very subtle, is likely to encounter many problems related
to matrix organization.

6. Committee Organization:
A committee is formed when two or more persons are appointed to work as a team to arrive at a
decision on the matters referred to it. It is intended to utilize the knowledge, skills, and
experiences of all the concerned parties. Particularly, in large organizations, problems are too
big to be handled by one single expert.
Ø Merits
o It pools up the organizational resources in terms of knowledge skills and experiences.
o It represents all interested groups and thus, facilitates group decision.
o It yields good results if the committee are headed by taskmaster like chairman and
time bound in terms of decision-making.
o It minimizes the fear of too much authority vested in one person
o It motivates all the concerned or effected groups to participate.
Ø Demerits:
o Responsibility of decisions cannot be fixed on a particular person.
o It calls for high degree of coordination.
o It involved high cost in terms of time and money.

13
UNIT-III_Principles & Practice of Management, BBA I Sem Dr.A.Subrahmanyam

7. Formal and informal organization

Formal organization
o Formal organization refers to the officially established pattern of relationship among
departments, divisions and individuals to achieve well-defined goals and is a consciously
designed structure of roles.
o In other words, formal organization clearly spells what a person has to do, from who he has to
take orders and what rules, policies and work procedures are to be followed.
o Thus, it is a system of well-defined jobs, each bearing a definitive measure of authority,
responsibility and accountability. This promotes order and facilitates planning and controlling
functions.
Informal organizations
o Informal organizations on the other hand, refers to relationship between individuals in the
organization based on personal attitudes, likes and dislikes and originates to meet their social
and emotional needs and develops spontaneously.
o It represents natural grouping of people in work situation and is supplementary to formal
organization as it serves the needs not satisfied by formal organization.
o The formal organization does not provide opportunity to members to exchange personal views
and experiences and so they interact informally to fulfill such interest and needs.
o In fact, informal organization comes into being because of the limitations of the formal
structure and both are interlinked. However, they differ in respect of their origin, purpose,
structure, and authority, channels of communication and behavior of members.
Difference between Formal and Informal Organizations
Formal Organisation Informal Organisation
1. It is created by the top management It is not created by top management. It arises out
of the natural desire of the people to associate
2. It is created to get the jobs of an It is formed to satisfy those needs of members
organisation performed in a planned and which cannot be satisfied through formal
systematic manner organization
3. It is managed by officially appointed Members of the informal group select someone
managers. as their leader to take care of the interests of the
group members.

14
UNIT-III_Principles & Practice of Management, BBA I Sem Dr.A.Subrahmanyam

4. Managers of formal organisation have The authority of the leader of the informal group
formal authority depends upon the combined support of group
members.
5. Formal organisation is permanent and Informal organisation is of temporary nature. It
stable. changes its size and membership from time to
time.
8. Contemporary Organizational Structures
a. Boundaryless Organization: An flexible and unstructured organizational design that is
intended to break down external barriers between the organization and its customers and
suppliers.
b. Removes internal (horizontal) boundaries:
• Eliminates the chain of command
• Has limitless spans of control
• Uses empowered teams rather than departments
c. Eliminates external boundaries: Uses virtual, network, and modular organizational
structures to get closer to stakeholders.
Organizational Chart
“An Organization chart is a graphic of the various positions in the enterprise and the formal
relationships among them”.
It is a blueprint of the company organization structure.
George Terry “ An Organizational Chart is a diagrammatical form, which shows important
aspects of an Organization including the major functions and the respective relationships, the
channels of supervision and the relative authority of each employee who is in change of each
respective function.
• Organizational charts are a good way to visualize reporting relationships and team roles
in businesses, nonprofit organizations, educational institutions and governments.
• The type of organization chart you need will reflect on the type of organization you have
and what information you want to focus on conveying.
Characteristics
- a diagrammatical presentation
- represent the formal Organization structure
- it shows the main lines of authority in the Organization
- indicates inter-play of various functions & relationships
- indicates the channel of communication

Contents of Organization Chart

- Basic Organization structure & flow of authority
- Authority & Responsibility of various executives
- Name of components of Organization
- Positions of various office personnel
- Total number of person working in an Organization
- Ways of Promotions and salary particulars
15
UNIT-III_Principles & Practice of Management, BBA I Sem Dr.A.Subrahmanyam

Departmentation
As the process of grouping individual jobs in department. It involves grouping of activities and
employees into departments so as to facilitate the accomplishment of Organisation Objectives.

Need & Significance of Departmentation

- Specialisation
- Expansion
- Autonomy
- Fixation of responsibility
- Appraisal
- Management development
- Administrative control

Choosing a basis for Departmentation

- Specialisation
- Coordination
- Control
- Economy
- Human Consideration

Types or Basis of Departmentation

Departmentation by Functional Basis – Grouping of activities in accordance with the function
of an enterprise. Each major function of the enterprise is grouped into a department.
Departmentation by Territorial basis – A company may have separate departments to serve
the southern region, northern region etc. It has the advantage of the intimate knowledge of local
conditions.
Departmentation by Process basis – is done on the basis of several discrete stages in the process
or technologies involved in the manufacture of a product. A cotton textile mill have separate
departments for ginning, spinning, weaving, dyeing and printing and packing and sales.
Departmentation by Product basis – suited for a large organization manufacturing a variety of
products. For each major product a semi-autonomous department is created and is put under the
charge of a manager who may also be made responsible for producing a profit of a given
magnitude. Product dept is the logical pattern to follow when each product requires raw materials,
manufacturing, technology and marketing methods and that are markedly different from those
used by other products in the Organisation. Eg. HLL manufacturing detergents, toiletries,
Clearasil cream and soap.
Departmentation by Customer basis – An enterprise may be divided into a number of
departments on the basis of the customers that it services. For Eg. An educational institution may
have separate departments for day, evening and correspondence course to impart education to
full time students, locally employed students and outstation students respectively.

16
UNIT-III_Principles & Practice of Management, BBA I Sem Dr.A.Subrahmanyam

Power Vs Authority
• Power means the ability or potential of an individual to influence others and control their
actions.
• Authority is the legal and formal right to give orders and commands, and take decisions is
known as an Authority.

BASIS POWER AUTHORITY

What is it? • It is a personal trait. • It is a formal right, given to
the high officials.

Source • Knowledge and expertise. • Position & office

Hierarchy • Power does not follow any • Authority follows the

hierarchy. hierarchy.

Resides with • Person • Designation

Legitimate • No • Yes

Delegation of Authority
Delegation is the assignment to another person of formal authority (legitimate power) and
accountability for carrying out specific activities. The delegation of authority to managers and
employees is necessary for the efficient functioning of any organization, because no manager can
personally accomplish or completely supervise all what happens at the organization.
In organizations, it is difficult on the part of a manager to complete all the jobs assigned to him.
He thus, can take help from others by asking them to do some of the work in a formal way. It
means, he can assign some of the work to his subordinate and give them authority to carry on the
work and at the same time make them accountable.
For example, a production manager may have the target to produce 1000 units in a week time. He
can distribute his work to three of his subordinates to produce 250 units each and keep 250 units
for self to produce. And then he must also give them enough authority to use organisational
resources to produce. By doing so he also makes his subordinates answerable to him for non-
performance.
This active process of entrustment of a part of work or responsibility and authority to another and
the creation of accountability for performance is known as delegation.
Thus, there are three elements of delegation as follows.
1. Assignment of Responsibility: This is also known as entrustment of duties. Duties can be
divided into two parts: one part that the individual can perform himself and the other part that he
can assign to his subordinates to perform.
2. Granting Authority: Authority here simply refers to the official powers and position required
to carry on any task. When duties are assigned to subordinates then the required authority must
also be conferred on him.

17
 UNIT-III_Principles & Practice of Management, BBA I Sem Dr.A.Subrahmanyam

For example, when a manager asks his subordinate to receive a guest of the company on his behalf
then he must also grant him some authority like carry the company vehicle, booking the company
guest house for accommodation etc.
3. Creating Accountability: This refers to the obligation on the part of the subordinates, to whom
responsibility and authority are granted to see to it that the work is done. In other words, the
delegate is fully answerable to his superior for performance of the task assigned to him. Thus, the
superior ensures performance through accountability by his subordinate.
Ø Importance/ advantages of Delegation of Authority
o Delegation is considered as one of the most important elements in the process of organization
because, it reduces the load on managers as work is successfully shared by the subordinates.
o This improves the managerial effectiveness because by delegating a good part of work to the
subordinate the managers are able to concentrate on important matters which require them
personal attention.
o Not only that, the organizations now-a-day are usually large in size and complex in character,
and no manager can claim to have all the skills and expertise to handle all kinds of jobs himself.
Moreover, the business activities are spread over a larger area with several branches and units,
which makes it difficult for him to look after the supervise activities personally at all places.
o The delegation of responsibility with commensurate authority offers a good workable solution.
This also provides an opportunity for subordinates to develop, and motivates and prepares them
for taking up higher responsibilities in future. It leads to creating a healthy work environment
and harmony among the employees. Thus, delegation facilitates organizational growth and
prosperity.
Ø Barriers to Delegation/ Why do you think managers hesitate to delegate authority?
o Despite these advantages, managers can be reluctant to delegate authority. Mangers often have
number of excuses for not delegating: “I can do it better myself”; “My employees aren’t
capable enough”; “It takes too much time to explain what I have done”. The real reason may
be the manager is simply too disorganized or inflexible to delegate work effectively.
Decentralization and Centralization
o Managers make decision about delegation continually. It can be ongoing part of the organizing
process. At the same time, top managers make broad decisions about how much delegation
they want to practices general rule throughout the organizational structure. These decisions are
in effect planning decisions about organizing practices.
o The degree to which the managers throughout the organization delegate the formal authority
runs along a continuum from decentralization to centralization. In relatively, decentralized
organization, considerable authority and accountability are passed down the organization
hierarchy. Centralized organizations, considerable authority and accountability remain at the
top level of the hierarchy.

18
UNIT-III_Principles & Practice of Management, BBA I Sem Dr.A.Subrahmanyam

What is Centralization?
Centralization refers to the process in which activities involving planning and decision-making
within an organization are concentrated to a specific leader or location. In a centralized
organization, the decision-making powers are retained in the head office, and all other offices
receive commands from the main office. The executives and specialists who make critical
decisions are based in the head office. Similarly, in a centralized government structure, the
decision-making authority is concentrated at the top, and all other lower levels follow the
directions coming from the top of the organization structure.
Advantages of Centralization
1. A clear chain of command: A centralized organization benefits from a clear chain of
command because every person within the organization knows who to report to. Junior
employees also know who to approach whenever they have concerns about the
organization.
2. Focused vision: When an organization follows a centralized management structure, it can
focus on the fulfillment of its vision with ease. There are clear lines of communication and
the senior executive can communicate the organization’s vision to employees and guide
them towards the achievement of the vision.
3. Reduced costs: A centralized organization adheres to standard procedures and methods
that guide the organization, which help reduce office and administrative costs. The main
decision-makers are housed at the company’s head office or headquarters, and therefore,
there is no need for deploying more departments and equipment to other branches.
4. Quick implementation of decisions: In a centralized organization, decisions are made by
a small group of people and then communicated to the lower-level managers. The
involvement of only a few people makes the decision-making process more efficient since
they can discuss the details of each decision in one meeting.
5. Improved quality of work: The standardized procedures and better supervision in a
centralized organization result in improved quality of work.
Disadvantages of Centralization
1. Bureaucratic leadership: Centralized management resembles a dictatorial form of
leadership where employees are only expected to deliver results according to what the top
executives assigned them. Employees are unable to contribute to the decision-making
process of the organization, and they are merely implementers of decisions made at the
higher level.
2. Remote control: The organization’s executives are under tremendous pressure to
formulate decisions for the organization, and they lack control over the implementation
process. The failure of executives to decentralize the decision-making process adds a lot of
work to their desk.
3. Delays in work: Centralization results in delays in work as records are sent to and from
the head office. Employees rely on the information communicated to them from the top,
and there will be a loss in man-hours if there are delays in relaying the records.

19
UNIT-III_Principles & Practice of Management, BBA I Sem Dr.A.Subrahmanyam

4. Lack of employee loyalty: There is no initiative in work because employees perform tasks
conceptualized by top executives. It limits their creativity and loyalty to the organization
due to the rigidity of the work.
Decentralisation
Decentralization refers to a systematic effort to delegate authority at all levels of management and
in all departments. This shifts the power of decision making to lower level under a well-considered
plan.
Take the case of traffic police controlling movement of vehicles on road. He holds a lower level
position in the organization yet he has lot of authority given to him. The senior concentrate on
ways and means to improve traffic control.
In case of business units, the heads of departments have the authority to take decisions on most
matters relating to the functioning of their department. The top managers are confining themselves
to policy decisions like product lines to be added, further investment etc. Decentralisation has
number of benefits.
Advantages of Decentralisation:
1. Reduces the burden on top executives: Decentralisation relieves the top executives of the
burden of performing various functions. Centralisation of authority puts the whole
responsibility on the shoulders of an executive and his immediate group. This reduces the time
at the disposal of top executives who should concentrate on other important managerial
functions. So, the only way to lessen their burden is to decentralise the decision-making power
to the subordinates.
2. Facilitates diversification: Under decentralization, the diversification of products, activites
and markets etc., is facilitated. A centralised enterprise with the concentration of authority at
the top will find it difficult and complex to diversify its activities and start the additional lines
of manufacture or distribution.
3. To provide product and market emphasis: A product loses its market when new products
appear in the market on account of innovations or changes in the customers demand. In such
cases authority is decentralised to the regional units to render instant service taking into
account the price, quality, delivery, novelty, etc.
4. Executive Development: When the authority is decentralised, executives in the organisation
will get the opportunity to develop their talents by taking initiative which will also make them
ready for managerial positions. The growth of the company greatly depends on the talented
executives.
5. It promotes motivation: To quote Louis A. Allen, “Decentralisation stimulates the
formation of small cohesive groups. Since local managers are given a large degree of authority
and local autonomy, they tend to weld their people into closely knit integrated groups.” This
improves the morale of employees as they get involved in decision-making process.
6. Better control and supervision: Decentralisation ensures better control and supervision as
the subordinates at the lowest levels will have the authority to make independent decisions.
As a result they have thorough knowledge of every assignment under their control and are in
a position to make amendments and take corrective action.

20
 UNIT-III_Principles & Practice of Management, BBA I Sem Dr.A.Subrahmanyam

7. Quick Decision-Making: Decentralisation brings decision making process closer to the scene
of action. This leads to quicker decision-making of lower level since decisions do not have to
be referred up through the hierarchy.

Disadvantages of Decentralisation:
Decentralisation can be extremely beneficial. But it can be dangerous unless it is carefully
constructed and constantly monitored for the good of the company as a whole.
Some disadvantages of decentralisation are:
1. Uniform policies not Followed: Under decentralisation, it is not possible* to follow uniform
policies and standardised procedures. Each manager will work and frame policies according
to his talent.
2. Problem of Co-Ordination: Decentralisation of authority creates problems of co-ordination
as authority lies dispersed widely throughout the organisation.
3. More Financial Burden: Decentralisation requires the employment of trained personnel to
accept authority, it involves more financial burden and a small enterprise cannot afford to
appoint experts in various fields.
4. Require Qualified Personnel: Decentralisation becomes useless when there are no qualified
and competent personnel.
5. Conflict: Decentralisation puts more pressure on divisional heads to realize profits at any cost.
Often in meeting their new profit plans, bring conflicts among managers.

Ø Factors influencing Centralization/Decentralization

Decentralization has value only to the extent that it helps the organization members to achieve
their objectives. In determining the amount of decentralization appropriate for an organization, the
following factors are usually considered.
§ Environmental influences, such as market characteristics, competitive pressures and
availability of materials: The strategic plan will influence the types of markets and
technological environments and competition with which the organization must contend. These
factors will in turn, influence the degree if decentralization that the firm finds appropriate.
§ The organization size and growth rate: As an organization grows in size and complexity,
decentralization tends to increase. The faster the rate of growth, the more likely it is that the
upper management, bearing the weight of an ever-increasing work load, will be forced to
accelerate the delegation of authority at the lower levels.
§ Other characteristics of the organization: such as costliness of given decisions, top
management preferences, the organization’s culture and the abilities of lower level managers.
§ Ability of lower level management: Lower level managers are capable and experienced in
making decisions.

21
UNIT-III_Principles & Practice of Management, BBA I Sem Dr.A.Subrahmanyam

Factors that influence the amounts of centralization and decentralization are listed below:
Centralization
• Environment is stable
• Lower level managers are not as capable
or experienced at making decisions as
upper level managers
• Lower level managers do not want to
have a say in decisions
• Decisions are significant
• Organization is facing a crisis or the risk
of failure
• Company is large
• Effective implementation of company
strategies depends on managers
retaining say over what happens
Decentralization
• Environment is complex and uncertain
• Lower level managers are capable and
experienced in making decisions
• Lower level managers want a voice in
decisions
• Decisions are relatively minor
• Corporate culture is open to allowing
managers to have a say in what happens
• Company is geographically dispersed
• Effective implementation of company
strategies depends on managers having
involvement and flexibility to make
decisions

Ø Distinction between Delegations and Decentralisation

o Decentralisation is not same as delegation. The points of differences are - While delegation is
the process of assigning responsibility and authority and thereby creating accountability;
decentralisation is the ultimate outcome of planned delegation.
o Delegation of authority takes place between the manager and his subordinates while
decentralisation involves the entire organization, and is between top management and
divisions/departments.
o Delegation is done to speed up the work and is essential in trace; while decentralisation is
optional and is usually done in large scale organisations.
o In case of delegation the responsibility and authority delegated may be withdrawn by the
delegator; which is not so easy in case of decentralisation.

22
UNIT-III_Principles & Practice of Management, BBA I Sem Dr.A.Subrahmanyam

Ø Span of Control
Span of Control means the number of subordinates that can be managed efficiently and effectively
by a superior in an organization. It suggests how the relations are designed between a superior and
a subordinate in an organization.
Factors Affecting Span of control:
a) Capacity of Superior: Different ability and capacity of leadership, communication affect
management of subordinates.
b) Capacity of Subordinates: Efficient and trained subordinates affects the degree of span of
management.
c) Nature of Work: Different types of work require different patterns of management.
d) Degree of Centralization or Decentralization: Degree of centralization or decentralization
affects the span of management by affecting the degree of involvement of the superior in decision
making.
e) Degree of Planning: Plans which can provide rules, procedures in doing the work higher would
be the degree of span of management.
f) Communication Techniques: Pattern of communication, its means, and media affect the time
requirement in managing subordinates and consequently span of management.
g) Use of Staff Assistance: Use of Staff assistance in reducing the work load of managers enables
them to manage more number of subordinates.
h) Supervision of others: If subordinate receives supervision form several other personnel besides
his direct supervisor. In such a case, the work load of direct superior is reduced and he can
supervise more number of persons.
Types of Span of control:
Narrow span of control: Wide span of control:
Narrow Span of control means a single Wide span of control means a single manager
manager or supervisor oversees few or supervisor oversees a large number of
subordinates. This gives rise to a tall subordinates. This gives rise to a flat
organizational structure. organizational structure.

Advantages:
Advantages: • More Delegation of Authority
• Close supervision • Development of Managers
• Close control of subordinates • Clear policies
• Fast communication

23
UNIT-III_Principles & Practice of Management, BBA I Sem Dr.A.Subrahmanyam

Disadvantages: Disadvantages:
• Too much control • Overloaded supervisors
• Many levels of management • Danger of superiors loss of control
• High costs • Requirement of highly trained managerial
• Excessive distance between lowest level and personnel
highest level • Block in decision making

STAFFING
• After planning and selection of the organization structure, the next step in the management
process is to fill the various posts provided in the organization. This is termed as the
management of staffing function.
• In the simplest terms, staffing is ‘putting people to jobs’. It begins with workforce planning
and includes different other function like recruitment, selection, training, development,
promotion, compensation and performance appraisal of work force.
• In other words, staffing is that part of the process of management which is concerned
with obtaining, utilizing and maintaining a satisfactory and satisfied work force. Today,
staffing may involve any combination of employees including daily wagers, consultants and
contract employees.
• Staffing recognizes the importance of every single person employed by an organization
as it is the individual worker, who is the ultimate performer.
• Staffing has been described as the managerial function of filling and keeping filled the
positions in the organization structure. This is achieved by, first of all, identifying
requirement of work force, followed by recruitment, selection, placement, promotion,
appraisal and development of personnel, to fill the roles designed into the organization
structure.
Significance of Staffing
• Staffing is one of the most important elements of management process.
• In any organization, there is a need for people to perform work. The staffing function
of management fulfills this requirement and finds the right people for the right job. Basically,
staffing fills the positions as shown in the organization structure.
• Due to its growing popularity and significance in organization to perform staffing functions,
‘personal management’ or human resource management’ department is created as a line
department.
• The significance of staffing functions arises from the key and important role assumed by
human force at all time but it also helps in securing capable and qualitative human inputs
through effective recruitment and selection. Its overall importance can be understood on the
following counts.
Proper Staffing ensures the following benefits to the organization:
Ø Helps in discovering and obtaining competent personnel for various jobs and it is done by
procuring required quantity and quality of human force.

24
 UNIT-III_Principles & Practice of Management, BBA I Sem Dr.A.Subrahmanyam

Ø Makes for higher performance, by putting right person on the right job;
Ø Ensures the continuous survival and growth of the enterprise through the succession
planning for managers;
Ø Helps to ensure optimum utilization of the human resources by avoiding over manning, it
prevents underutilization of personnel and high labor costs. At the same time it avoids
disruption of work by indicating in advance the shortages of personnel; and
Ø Improves job satisfaction and morale of employees through objective assessment and fair
reward for their contribution
Functions of Staffing or Elements of Staffing Process
The prime concern of the staffing function in the management process is the timely
fulfillment of the manpower requirements within an organization.
It is important to appreciate staffing as a process that starts from understanding the manpower
requirements within the organization and identifying the potential sources from where it can
be met, either from within the organization or from outside.
The following elements are involved in staffing process
1. Manpower of human resource planning
2. Job analysis
3. Recruitment
4. Selection
5. Placement and orientation
6. Training and development
7. Performance appraisal
8. Promotion and transfer of the employees
9. Compensation
1. Manpower of human resource planning
• The need of manpower planning arises because at any given point of time organization might
be experience gap between desired and actual state of human forces. And it is through the
process of manpower planning, the management determines how organization should move
from its current manpower position to a desired manpower position.
• According to Edwin B Gester, “ Manpower planning is a process including forecasting,
developing, implementing and controlling by which a firm ensures that it has right number of
the people and right kind of people at a right place and at the right time for things for which
they are economically useful.” This definition indicates that manpower planning is concerned
with raising required quantity of manpower, of required quality at a right time when it is needed
and at a lesser cost.

2. Job analysis:

25
 UNIT-III_Principles & Practice of Management, BBA I Sem Dr.A.Subrahmanyam

• Job analysis is an important part of manpower planning. It refers to detailed and proper study
of all elements involved in the job such as job contents, duties, functions, responsibility
abilities, knowledge and skills, etc.
• According to Mill Woich and Boudev job analysis is, “Systematic process of collecting data
and making certain judgment about all the important information related to the nature of
specific job”.
• The process of job analysis consists of two sub-processes, namely job description and job
specification. Job-description is a factual statement and summary of the job- content in terms
of duties, equipment to be used, working conditions, amount of supervision needed, and
relationship with other jobs and personnel requirements of the job.
• Job specification states minimum qualification required on the part of personnel to perform the
job in satisfactory manner such as educational qualifications, job related experiences,
knowledge, skill and capabilities needed for performing the job. Job specifications can be used
as an important tool in the process of selection.
3. Recruitment:
• Recruitment may be defined as the process of searching for prospective employees and
stimulating them to apply for jobs in the organization.
• It is a process of identifying sources of human force and attracting and motivating them to
apply for the jobs in the organization.
• A primary task of recruitment is to help in deciding whether they are likely to be suitable
to fill the job vacancy.
• The essential objective is to create a pool of the prospective job candidates. Both internal
and external sources of recruitment may be explored. Internal sources may be used to a
limited extent. For fresh talent and wider choice external sources are used.
4. Selection
• Selection is the process by which candidates for employment are distinguished between
those who are suitable and those who are not suitable.
• It is involves rejection of some candidates and hence sometimes known as negative process
of elimination.
• It aims at choosing from a list of applicants for a job, the person or persons who best meet
selection criteria and related constraints.
• In fact, the process of selection starts with reference to job specifications which do not
indicate only immediate requirements but also other qualities and abilities which may be
considered desirable in long run are pointed out by it.
5. Placement and orientation
• Once the candidate is finally selected and joins the organization, he needs to be places on
the job for which he was selected.
• Placement may be defined as a process of determining the job to which successful
candidate has been appointed and to place him on that job or assignment.

26
 UNIT-III_Principles & Practice of Management, BBA I Sem Dr.A.Subrahmanyam

• Placement is made by taking into account aptitude, interest and knowledge and skill of the
selected candidate for a particular job which may likely to be assigned to him.
• The process of placement requires special attention particularly when two or more
alternative positions are to be filled.
6. Training and development
• Training and development of the employees both managerial and non-managerial is the
most important aspect of staffing function.
• Training may be defined as a systematic and continuous process of providing relevant
information and knowledge to the employees as to enable them to contribute more
significantly to the accomplishment of organizational goals.
• According to Decenzo and Robbins, “training is a learning experience in that it seeks a
relatively permanent change in an individual that will improve his or her ability to perform
on the job”.
• Training may be considered as key input for developing man power in organization so as
to improve their job performance.
7. Performance appraisal
• After the employees have undergone a period of training and they have been on the job for
some time, there is a need to evaluate their performance. All organizations have some
formal or informal means of appraising their employee’s performance.
• Performance appraisal means evaluating an employee’s current and/or past performance as
against certain predetermined standards. The employee is expected to know what the
standards are and the superior is to provide the employee feedback on his/her performance.
• The performance appraisal process, therefore, will include defining the job, appraising
performance and providing feedback
10. Promotion and career planning
• It becomes necessary for all organizations to address career related issues and promotional
avenues for their employees. Managers need to design activities to serve employees’ long-
term interests also.
• They must encourage employees to grow and realize their full potential. Promotions are an
integral part of people’s career. They refer to being placed in positions of increased
responsibility. They usually mean more pay, responsibility and job satisfaction.
11. Compensation
• All organizations need to establish wage and salary plans for their employees. There are
various ways to prepare different pay plans depending on the worth of the job. Basically
the price of the job needs to be determined.
• Compensation, therefore, refers to all forms of pay or rewards going to employees. It may
be in the form of direct financial payments like wages, salaries, incentives, commissions
and bonuses and indirect payments like employer paid insurance and vacations.
******

27
 UNIT-III_Principles & Practice of Management, BBA I Sem Dr.A.Subrahmanyam

Functional Departmentalization:
Functional departmentalization groups together jobs which are involving the same or similar activities.
This approach is most common in the form of departmentalization. Functional departmentalization allows
the organization to staff all important positions with functional experts and facilitates coordination and
integration. However; it also promotes tends to promote centralization. For the organization to operate
efficiently in this design there must be considerable coordination across departments.
Advantages of functional departmentalization:
• It provides a logical reflection of functions that maintains the power and prestige of major
functions.
• Follows principle of occupational specialization.
• Simplifies training and supervisor of the subordinates.
• Furnishes means of tight control at the top.
• Each department can be staffed by experts in that functional area.
• Coordination of activates within the departments is easy.
Disadvantages of functional departmentalization:
• Decision making becomes slower and more bureaucratic.
• De-emphasis on overall company objectives.
• Accountability and performance become increasingly difficult to monitor.
• Overspecializes and narrows viewpoints of key personnel.
• Reduces coordination between functions or departments.
• Responsibility for profits is at the top only.
• Slow adaptation to changes in the environment.
• Limits development of general managers.
Divisional Departmentalization:
The divisional organizational structure organizes the activities of a business around geographical,
market, or product and service groups. Thus, a company organized on divisional lines could have
operating groups for the United States or Europe, or for commercial customers, or for the green
widget product line. Each such division contains a complete set of functions. Thus, the green widget
division would handle its own accounting activities, sales and marketing, engineering, production,
and so forth.
Advantages of Divisional Departmentalization:
• Accountability: This approach makes it much easier to assign responsibility for actions and
results. In particular, a division is run by its own management group, which looks out for the
best interests of the division.
• Competition: The divisional structure works well in markets where there is a great deal of
competition, where local managers can quickly shift the direction of their businesses to
respond to changes in local conditions.
• Culture: You can use this structure to create a culture at the divisional level that most
closely meets the needs of the local market. For example, a retail division could have a
culture specifically designed to increase the level of service to customers.
• Local decisions: The divisional structure allows decision-making to be shifted downward in
the organization, which may improve the company's ability to respond to local market
conditions.
28
 UNIT-III_Principles & Practice of Management, BBA I Sem Dr.A.Subrahmanyam
• Multiple offerings: When a company has a large number of product offerings, or different
markets that it services, and they are not similar, it makes more sense to adopt the divisional
structure.
• Speed: This approach tends to yield faster responses to local market conditions.
Disadvantages of Divisional Departmentalization:
• Cost: When you set up a complete set of functions within each division, there are likely to be
more employees in total than would be the case if the business had instead been organized under a
purely functional structure.
• Inefficiencies: When there are a number of functional areas spread among many divisions, no
one functional area will be as efficient as would have been the case if there had instead been one
central organization for each function.
• Rivalries: The various divisions may have no incentive to work together, and may even work at
cross-purposes, as some managers undercut the actions of other divisions in order to gain
localized advantages.
• Silos: All skills are compartmentalized by division, so it can be difficult to transfer skills or best
practices across the organization. It is also more difficult to cross-sell products and services
between the divisions.
• Strategic Focus: Each division will tend to have its own strategic direction, which may differ from
strategic direction of the company as a whole.
Difference Between Functional and Divisional Departmentalization:

Basis for Comparison Functional Structure Divisional Structure

Meaning Functional Structure is one which
the reporting relationships of the
organization are bifurcated
according to their functional
area.
Basis Functional areas
Responsibility Difficulty to fix responsibility on
a particular department.
Autonomy of Decisions Managers do not have autonomy
of decisions.
Cost Economical, as the functions are
not repeated.
Appropriate for Small and simple organizations.
An organizational structure
wherein the organizational
functions are classified into
divisions as per product or
service lines, market, is called
divisional structure.
Specialized divisions.
Easy to fix responsibility for
perfomance
Managers have an autonomy of
decisions.
Expensive as it involves
repetition of resources.
Large and dynamic
organizations.

29