Business Studies

Chapter 5 Organising Class 12th

Introduction

O rganising is the process of identifying, dividing the work and grouping the
work to be performed, defining and delegating responsibility and authority,
and establishing relationships for the purpose of enabling people to work
most effectively together in accomplishing objectives. Louis Allen
In other words Organising implies a process which coordinates human efforts,
assembles resources and integrates both into a unified whole to be utilised for
achieving specified objectives. Thus Organising can be defined as a process that
initiates implementation of plans by clarifying jobs and working relationships and
effectively deploying resources for attainment of identified and desired results
(goals).

Process of Organising
1. Identification and division of work:
The first step in the process of organising involves identifying and dividing
the work that has to be done in accordance with previously determined plans.
The work is divided into manageable activities so that duplication can be
avoided and the burden of work can be shared among the employees and
each employee is able perform specific activities and creates expertise.
Suppose manufacturing a bench, it has different activities allotted with it like
cutting of wood, shaping of wood, joining the parts, painting and packing. So
the work is identified and divided in these small parts.

2. Departmentalisation:
Once work has been divided into small and manageable activities then those
small activities which are similar in nature are grouped together which
facilitates specialisation. This grouping process is called departmentalisation.
Departments can be created using several criteria as a basis and some of the
most popularly used basis are territory (north, south, west etc.) and products
(appliances, clothes, cosmetics etc) and even lower dept, high dept and higher
in your school.

3. Assignment of duties:
Once departments have been formed by grouping similar activities together,
each of them is placed under the charge of an individual. Jobs are then
allocated to the members of each department in accordance to their skills and
competencies. The work must be assigned to those who are best fitted to
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 perform it well so as to ensure efficient performance and efficient utilisation
of resources.

4. Establishing reporting relationships:

After assigning duties and grouping jobs together, each individual should
also know from whom one has to take orders from and to whom he is
accountable. Simply creating boss and subordinate relation and who reports
to whom. The establishment of such clear relationships helps to create a
hierarchal structure and helps in coordination amongst various departments
and thus resulting in creation of organisation.

Importance of organising

1. Benefits of specialisation:
Organising leads to a systematic allocation of jobs and activities amongst the
work force. This reduces the workload as well as enhances productivity
because of the specific workers performing a specific job on a regular basis
and repeatedly. Repetitive performance of a particular task allows a worker to
gain experience in that area and leads to specialisation.

2. Clarity in working relationships:

Establishing a working relationships based on authority and responsibility
relation clarifies lines of communication and specifies who reports to whom.
This removes ambiguity in instruction and information to be passed to
subordinates.
It helps in creating a hierarchical order thus enabling the providing
responsibility and specification of the extent of authority to be exercised by
an individual.

3. Optimum utilization of resources:

Organising leads to the proper usage of all material, financial and human
resources through proper assignment of jobs and avoiding duplication of
work. Prevention of duplication of work helps in preventing confusion and
minimising the wastage of resources and efforts.

4. Adaptation to change:
Organising allows a business enterprise to accommodate changes in the
business environment as it allows the organisation structure to be suitably
modified and the modification of inter-relationships amongst managerial
levels and positions to create the way for a smooth transition.

5. Effective administration:

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 Organising provides a clear description of jobs and related duties also
hierarchy of who reports to whom. This helps to avoid confusion and
duplication of any activity or order. Clarity in working relationships enables
proper execution of work, proper utilisation of resources and thus brings
effectiveness in the management.

6. Development of personnel:
Organising inspires creativity and innovative thinking amongst the managers.
Effective delegation allows the managers to reduce their workload by
assigning routine jobs to their subordinates. The reduction in workload
through delegation is not just necessary because of limited capacity of an
individual but also allows the manager to develop new methods and ways of
performing tasks. By giving workforce specific activities to perform
repeatedly allows personnel to develop.

7. Expansion and growth:

Organising helps in the growth and diversification of an enterprise by
enabling it to deviate from existing norms and taking up new challenges and
adding more positions and creating new relations among those positions and
resulting in new organisational structure.

Organisational structure

Organisation structure is the outcome of the organising process and an effective

structure will result in increased profitability & efficiency of the enterprise. As an
organisation grows, coordination becomes difficult due to the addition of new
functions and increase in structural hierarchies. Thus, for an organisation to
function smoothly and face environmental changes, it becomes necessary for some
to pay attention to its structure.
Peter Drucker reiterated the importance of having an appropriate organisation
structure when he said, “organisation structure is an indispensable means; and the
wrong structure will seriously impair business performance and even destroy it.”
The organisation structure can be defined as the framework of authority and
responsibility relationship among various positions of an organisation within which
managerial and operating tasks are performed. It specifies the relationships between
people, work and resources.

Types of organisational structure

The organisational structure can be classified under two categories which are as
follows:
(i) Functional structure
(ii) Divisional structure

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Functional structure
Grouping of jobs of similar activities under one functional department and
arranging these major functions as separate departments under a departmental head
creates a functional structure.

Managing Director

Human sales and

Production Marketing Finance
resource after sales

For example, in above example of a manufacturing unit, division of work into key
functions will include production, purchase, marketing, accounts and personnel.
These departments may be further divided into sections. Thus, a functional structure
is an organisational design that groups similar or related jobs together.

Advantages
1. A functional structure leads to work and activity specialisation since
emphasis is placed on specific functions performed overtime and repeatedly.
This promotes efficiency in utilisation of manpower as employees perform
similar tasks within a department and are able to improve performance.
2. It promotes control and coordination within a department because of
similarity in the tasks being performed with a clear authority and chain of
command to follow.
3. It helps in increasing managerial and operational efficiency by division of
labour and assigning a specific function to a department and thus results in
increased profit.
4. It leads to minimal duplication of effort which results in economies of
scale and this lowers cost.
5. It makes training of employees easier as the focus is only on a limited
range of skills and training an employee in that limited skills is very
convenient and easy.
6. It ensures that different functions get due attention with proper supervision
from the departmental head.

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Disadvantages
1. A functional structure sometimes places more emphasis on departmental
goals rather than organisational goal by a functional head which may lead to
diversion of effort from the subordinates. Such practices may even lead to
functional collusions and groups wherein the importance of a particular
function may be overemphasised.
2. It may lead to problems in coordination as information has to be
exchanged across functionally differentiated departments and can create
conflict.
3. A conflict of interests may arise when the interests of two or more
departments are not compatible. As all the departments are trying to secure
the same resources and thus can create sense of unwanted competition in the
name of organisation goals and thus resulting in conflict.
4. It may lead to inflexibility as people with same skills and knowledge base
may develop a narrow viewpoint about other departmental goals and use and
thus, have difficulty in appreciating any other point of view.

Divisional structure
Divisional structure is useful and suitable for the enterprises which have more than
one line of products to offer. Even though, every organisation performs a set of
homogenous and similar functions, as it diversifies into diverse product categories,
the need for a more advanced structural design is required.
In a divisional structure, the organisation structure comprises of separate business
units or divisions. Each unit has a divisional manager or head responsible for
performance and who has authority over the unit. Each division is multifunctional
because within each division functional structure exists and functions like
production, marketing, finance, purchase etc, are performed together for a specific
to achieve a common goal. Each division is self-contained or semi-autonomous
division, as it develops expertise in all functions related to a product line.
Each division works as a profit centre where the divisional head is responsible for
the profit or loss of his division and each division acts a separate business unit and
functions as a SBU (Strategic business Units). Below mentioned diagram depicts
the divisional structure with business form operating different SBU under an
umbrella of one head.

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 Managing Director
HQ

Cosmetics Textiles Footwear Skincare

SBU 1 SBU 2 SBU 3 SBU 4

Production Marketing Finance Human resource

Advantages
1. This type of structure creates Product specialisation which helps in the
development of diverse skills in a divisional head and this prepares him for
higher positions and gains experience in all functions related to a particular
product.
2. Divisional heads are accountable for profits, revenues and costs related to
different departments and thus can be easily identified and assigned to each
division. This provides a proper basis for performance measurement and
helps in fixation of responsibility for each division.
3. It promotes flexibility and initiative because each division functions as an
autonomous unit which leads to faster decision making.
4. It facilitates expansion and growth as new divisions can be added without
interrupting the existing operations by merely adding another divisional head
and staff for the new product line.

Disadvantage
1. Conflict may arise among different divisions with reference to allocation
of funds and further a particular division may seek to maximise its profits at
the cost of other divisions.
2. It may lead to increase in costs since there may be a duplication of
activities across products with each division having respective functions
related to the division.
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 3. It provides managers with the authority to supervise all activities related to
a particular division. It may cause divisional head to gain power and try to
assert his authority may dilute the business interests.

Formal and Informal Organisation

Formal organisation refers to the organisational structure which is designed by the
management to accomplish a particular task. It specifies clearly the authority and
responsibility among various positions of an organisation or reporting relation and
there is a systematic coordination among the various activities to achieve
organisational goals. The structure in a formal organisation can be either functional
or divisional.
Features:
1. It specifies the relationships among various job positions and the nature of their
inter-relationship clarifying who has to report to whom.
2. It is a means to achieve the objectives specified in the plans, as it lays down rules
and procedures for performing any task and thus is essential for achievement of the
goals.
3. Efforts of various departments are coordinated, interlinked and integrated
through the formal organisation.
4. It is deliberately designed by the top management to facilitate the smooth
functioning of the organisation.
5. It places more emphasis on work to be performed than interpersonal relationships
among the employees.

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 Following diagram is an example of formal organisation

Managing Director

Formalization

Human sales and

Production Marketing Finance
resource after sales

The degree to which jobs within the organization are

standardized and the extent to which employee
behaviour is guided by rules and procedures

Highly formalized jobs offer little discretion over

what is to be done

Low formalization means fewer constraints on how

employees do their work

Informal Organisation
Interaction and social exchanges among individuals at work gives rise to a
„network of social relationships among employees‟ called the informal
organisation.
Informal organisation emerges from within the formal organisation when people
interact beyond their officially defined roles and tasks. Based on the interaction and
social exchange they tend to form groups which show conformity in terms of
interest. Examples of such groups formed with common interest may be those who
take part in cricket matches on Sundays, meet in the cafeteria for coffee, are
interested in dramas etc. Informal organisation has no written rules, is fluid in form
and scope and does not have fixed lines of communication.
Informal organisation is a network of personal and social relations not
established or required by the formal organisation but arising spontaneously as
people associate with one another---- Keith Davis

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Above diagram depicts informal organisation
Features:
1. An informal organisation originates from within the formal organisation as a
result of personal and social interaction among employees.
2. The standards of behaviour evolve from group norms rather than officially laid
down rules and regulations which creates volatile relations among these groups.
3. Independent channels of communication without specified direction of flow of
information are developed by group members.
4. It emerges spontaneously based on common interests and hobbies, and is not
deliberately created by the management to achieve any goal.
5. Informal structures do not have any specific goals to achieve and thus are free
from any kind of obligation among group members.

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Below mentioned chart shows formal and informal organisation

Delegation of Authority
Delegation refers to the downward dispersal of authority from a supervisor to a
subordinate in lower levels. It enables a manager to use his time on high priority
activities and provide some portion of authority to the lower subordinates. It also
satisfies and motivates the subordinate’s need for recognition and provides them
with opportunities to develop and exercise initiative.
“Delegation of authority merely means the granting of authority to subordinates
to operate within prescribed limits.”
Theo Haimman
Elements of Delegation of authority
Authority:
Authority refers to the power of an individual to issue commands and orders to his
subordinates and to take action within the scope of his position. Authority arises
from the establishing scalar chain which links the various job positions and levels of
an organisation and creates boss and subordinate relation.

Responsibility:
Responsibility is the obligation of a subordinate to properly perform the assigned
duty according to orders and commands of supervisor. It arises from a superior–
subordinate relationship because the subordinate is bound to perform the duty
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assigned to him by his superior. Thus, responsibility flows upwards i.e., a
subordinate will always be responsible to his superior.

Accountability
Delegation of authority, empowers a subordinate employee to act for his superior
but the superior would still be accountable for the outcome and the decisions taken
and orders issued to subordinates. Accountability implies being answerable for the
final outcome and once authority has been delegated and responsibility accepted,
accountability is implied and irrevocable.

Centralisation and Decentralisation

An organisation is centralised when decision-making authority is retained by higher
management levels whereas it is decentralised when authority to take decision is
delegated to levels. Delegation of authority is the process to create a decentralised
organisation. The more the delegation the more the decentralisation.
As per Fayol, there needs to be a balance between centralisation and
decentralisation in an organisation. Complete centralisation would imply
concentration of all decision making functions at the apex of the management
hierarchy. Such a scenario would remove the need for a management hierarchy and
even reduces the confidence in lower level managers.
On the other hand, complete decentralisation would imply the delegation of all
decision making functions to the lower level of the hierarchy and this would remove
the need for higher managerial positions. Both the scenarios are unrealistic and thus
has to be viable balance between two situations.
“Decentralisation refers to systematic effort to delegate to the lowest level all
authority except that which can be exercised at central points”.
Louis Allen
Importance of Decentralisation
1. Develops initiative among subordinates:
Decentralisation helps to promote self-reliance and confidence amongst the
subordinates as lower managerial levels are given authority to take their own
decisions they learn to depend on their own judgment and experience. It also
constantly challenges the employees and creates sense of accountability and
responsibility towards business goals.

2. Develops managerial talent for the future:

Formal training plays an important part in providing subordinates with skills
that help them in decision making but equally helps in gaining experience by
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 handling assignments independently. Decentralisation gives them a chance to
prove their abilities and creates a pool of qualified manpower who can be
considered to fill up more challenging positions in future.

3. Quick decision making:

The management hierarchy is a chain of communication routes throughout
the organisation. In centralised organisation every decision is taken by the top
management the flow of information is slow as it has to cross many levels
thus taking time when decision may be of high importance and to be taken in
less time. This reduces the speed of decision making and makes it difficult
for an enterprise to adapt to dynamic operating conditions. Thus
decentralisation allow lower levels to take decision and thus helps in quick
decision making bypassing the normal and long route from top to lower level.

4. Relief to top management:

Decentralisation reduces the amount of direct supervision exercised by a
superior over the activities of a subordinate and even the limit of decisions
taken by top level managers because lower level is given the freedom to act
and decide albeit within the limits set by the superior thus reducing the
burden of top management.

5. Better control:
Decentralisation makes it possible to evaluate performance at each level by
departmental heads and the departments can be individually held accountable
for their results. The achievement of organisational and departmental goals is
easy to evaluate through the decisions of the lower managers. Though
decentralisation feedback from all levels helps to analyse discrepancies and
improve the overall performance.

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