UNIT 1 INTRODUCTION TO ORGANISATION

Structure

0.0 Objectives
0.1 Introduction
0.2 Concept of Organisation
1.3 Basics of Management
1.3.1 Meaning of Management
1.3.2 Levels of Management
1.3.3 Basic Principles of Management
1.4 Functions of Managers
1.5 Roles of Managers
1.6 Organisation as a Process of Management
1.7 Types of Organisation
1.8 Features of Modern Organisation
1.9 Let Us Sum Up
1.10 Key Words
1.11 Terminal Questions

1.0OBJECTIVES
After studying this unit, you should be able to:
• explain the concept of organisation;
• discuss the basic concept of management;
• analyse the functions of managers;
• identify the roles of managers;
• discuss various types of organisation; and
• explain the features of modern organisation.

1.1 INTRODUCTION
An organisation is a group of people working together to achieve the specified goal. A manager play a
central role in grouping the people and activities, establishing authority and responsibility and interacting
with people for the achievement of the organisational goal. He performs the functions of planning,
organising, directing and controlling for smooth functioning of the organisation. Moreover, continuous
influence of dynamic environment on the organisation requires new managerial techniques to manage these
changes. The detailed study of various aspects of organisation and management may provide proper
techniques for managing them effectively. In this unit, you will learn the concept of organisation and
management. You will further learn the functions and roles of managers. You will be acquainted with the
types of organisation and the features of the modern organisation.

1.2 CONCEPT OF ORGANISATION

To understand basic concept of organisation, let us learn it through following dimensions of enquiry:

• What? - What do we mean by an organisation?

• Why? - Why is study of organisation needed?
• When? - When are organisations able to serve its purpose
(or otherwise fail)?
• How? - How are organisations formed?
• Where? - Where to find people who can manage organisations well?
• Who? - Who are the people having ability to create excellent organisation?

What do we mean by an organisation?

Stoner, Freeman, and Gilbert describe that at an organisation, two or more people work together in a
structured way to achieve a specific goal or set of goals. Through this description, certain salient features of
an organisation emerge. These are:
• Organisation is a conglomerate of multiple number of persons;
• Relationship among people working together is defined through a structure. Through structure,
communications take place among persons working in the organisation. Such structure may be
relatively rigid, as in the case of formal structure, or the structure may be relatively loose, as in the
case of informal structure;
• Organisation strives to achieve planned goal. The goal(s) may be singular or plural. Goal is one of the
fundamental elements of an organisation.

Robbins describes an organisation as a consciously coordinated social entity, with a relatively identifiable
boundary, that functions on a relatively continuous basis to achieve a common goal or set of goals. The
additional salient features of this description of organisation are following:
• The activities at an organisation are consciously coordinated. It means affairs at organisation are
properly managed. It implies importance of management in organisation;
• The term relatively identifiable boundary implies that organisation works within a flexible yet definable
boundary. Any organisation with a significant size has three layers of boundaries. The innermost
boundary contains of the internal stakeholders i.e. employees, shareholders, and board of directors. The
next layer consists of external stakeholders i.e. customers, competitors, financial institutions, suppliers,
government, labour unions, media, and special-interest group. The outermost boundary consists of major
macro variables like economic variables, technological variables, political variables, legal variables, and
social variables.

Brown and Moburg describe organisations as relatively permanent social entities characterised by goal-
oriented behaviour, specialisation, and structure. This description of organisation suggests that organisations
have four basic features:
• Organisations are relatively permanent social entities though many changes which might be taking place
within the organisation- thus continuity is at the core of existence of any organisation;
• Goals remain an integral part of any organisation;
• Organisations need highly specialised skills to attain goals,
• In order to bring together various work activities, organisations need to have structures.
Hicks describes an organisation as a structured process in which persons interact for objectives. This
description indicates five facts that are common to all organisations:
• An organisation always include persons;
• These persons are involved with one another in some way;
• The interactions among persons can always be ordered or described by some sort of structure;
• Each person in the organisation tries to meet personal objectives also through organisational activities;
• These interactions can also help to achieve compatible joint objectives, i.e. organisational objectives and
personal objectives.

Schein describes organisation as the planned coordination of the activities of a number of people for the
achievement of some common, explicit purpose or goal, through division of labour and function, and through
hierarchy of authority and responsibility. According to this definition, Organisations have following
characteristics:
• Coordination of efforts;
• Common goal;
• Division of labour;
• Hierarchy of authority.

Why is study of organisation needed?

Arguing in favour of rationale for the creation of organisations, Chris Argyris states:
Organisations are usually created to achieve objectives that can best be met collectively. This means that the
sequences of activity necessary to achieve objectives are too much for one individual and they must be cut
up into sequential units that are manageable by human beings. At the individual level the unit are roles; at the
group level the units are departments. These units are integrated or organised in a particular sequence or
pattern designed to achieve the objectives, and the resulting pattern constitutes the organisation structure.

Organisations have become cornerstone of our basic existence. Organisations pursue goals and objectives
that can be more efficiently and effectively achieved by the concerted actions of individuals. Hospitals,
educational institutions, production units, service centres are nothing but organisations. Our civilized life
would perhaps collapse without various organisations around us. Therefore there is need for us to know how
does an organisation work ? Further it is more important to make organisations around us healthier and more
effective for better future.

When are organisations able to serve its purpose (or they otherwise fail)?

Organisations are able to serve its purpose when they are well managed. In fact study of organisation and
study of management of organisation go hand in hand. A well managed organisation is able to utilize human
input and its resources like money, material, machine, motivation of employees, market etc. in an integrated
manner. Organisations are able to survive and excel if they utilize their all resources in tune with the market
needs. Successful organisations also orient themselves towards external factors like economic environment,
political environment, legal environment, social environment, environment of international market etc.

How are organisations structured?

There are various approaches to structure and design organisations. You shall study about this issue in detail
in Unit 3. At this point of time, it would be desirable for you to comprehend that organisational structure or
its design is appropriately chosen to facilitate various factors like flow of communication, decision making,
execution of decision, controlling, and integration of all activities of the organisation.

Where to find people who can manage organisations well?

People who can manage an organisation well may be found within the already existing organisation.
Otherwise in case of a newly established organisation or even in case of old organisation, appropriate people
can be identified from outside. People who are already with the organisation can be further developed for
higher responsibilities through developmental programmes, on the job training, and career planning.
Appropriate people from outside can be identified for positions at various levels through proper recruitment
and selection policies and procedures.

Who are the people having ability to create excellent organisation?

In fact employees are the greatest assets of an organisation. In modern organisations, employees are expected
to possess multiple skills. In order to perform various activities in an organisation, different persons are
expected to possess different skills, so that organisation has an appropriate skills-basket. Normally people
who can create excellent organisation have many desirable skills and traits. Some important skills and traits
are:
• Integrative values i.e., ability to generate faith and trust;
• Organising ability;
• Ability to see further i.e., ability to perceive future trend;
• Ability to put adequate effort;
• Up-to-date skills to perform ever changing nature of task;
• Skills to establish effective human relations with insiders and outsiders;
• Ability to generate adequate resources.

So far you were developing basic understanding of organisation. Through the next section let us develop
basic understanding of management.

Activity A

For appropriate understanding the subject matter dealt in this Unit as well as in all the subsequent units of
this course, apart from reading the course material, you are required to have a direct feel of functioning of
organisations. Visit an organisation near to your place. Such organisation may be a production organisation, a
service organisation, a voluntary organisation, or a cooperative organisation. Through observation, secondary
data, and dialogue with a few persons working there, analyse the following: a) What is the purpose of
existence of the organisation? b) How does the organisation coordinate its various activities of different
departments? c) How are people working in the organisation connected to one another formally, through an
organisational chart?
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1.3 BASICS OF MANAGEMENT

In this section we shall examine the basic meaning of management, levels of management in an
organisation, and basic principles of management.
1.3.1 Meaning of Management

Many experts call management as a process. Some others call it as activity directed towards coordination of
resources. Let us take following descriptions of the term ‘management’. Stoner, Freeman, and Gilbert
describe the term management as the process of planning, organising, leading, and controlling the work of
organisation members and of using all available organisational resources to reach stated organisational goals.
Kimball states that management may be broadly defined as the art of applying the economic principles that
underlie the control of men and materials in the enterprise under consideration.

Koontz defines management as the art of getting things done through and with people in formally organised
group. According to Henry L. Sisk, management is the coordination of all resources through the process of
planning, organising, directing, and controlling in order to attain stated objectives.

Yet another view on management calls management as a body of personnel. The management plans the work,
organises and obtains the production. Emphasizing the importance of management for an organisation,
Urwick states, No ideology, no ism, no political theory, can win greater output with less efforts from a given
complex of human and material resources: only sound management. And it is on such greater output that a
higher standard of life, more leisure, more amenities for all must necessarily be founded.

In the recent era management has emerged as a prominent profession, as management fulfils the following
characteristics of a profession:
• Management is a body of knowledge;
• There is formal teaching of that knowledge;
• There are representative associations and body of members in the field of management;
• There are ethical standards of conduct enforced by the profession;
• There is provision of suitable remuneration to the members in the service of management.

1.3.2 Levels of Management

In order to coordinate various activities in an organisation, various levels of management are created. In
general there are three levels of management:
• Top management;
• Middle-level management
• Supervisory or Junior level management.

Top level management consists of Board of Directors, Chairperson, Managing Director, and General
Managers of functional areas like production, marketing, finance, and human resource management. Top
level management gets involved in all activities like planning, organising, directing, and controlling, however
it focuses more on planning and organising than the other levels of management. The prime concerns of top
management include : enhancing shareholder values, providing vision and mission to organisation, upholding
overall objectives of the organisation, taking policy decisions, review of budget and keeping organisation
financially sound, maintaining progress, profit, and sustainability of the organisation, communicating goals
of organisation to all the members, protecting integrity, and guiding the organisation through sound
leadership. There are more requirements of conceptual skills than human skills or technical skills at the level
of top management.

Middle-level management acts with guidance of top management to accomplish the objectives of the
organisation. The prime concern of the middle management is to carry out organising function in more detail,
in order to keep top management free for doing planning level activities. Some of the functions of middle
management include: creating coordination and cooperation among various departments of the organisation,
to design and operate upon a system in the organisation which would keep various resources in smooth flow
as well as which would ensure motivation and morale of people working in the organisation, to develop staff
at various levels through training and developmental activities, and to creatively control and guide the
personnel at junior level in order to achieve bottom line results. There are more requirements of human skills
than conceptual or technical skills at the level of middle management.

At supervisory or junior level management, there is more requirement of technical skills than conceptual
skills or human skills. However in the modern era when role of service sector is increasing in the economy,
the importance of human skills is increasing at the level of middle management also. People at junior level
management are directly connected to the people who work at operational level. Hence junior level
management is more concerned with direction and control of activities than planning and organising
functions.

All three levels of management : top, middle, and junior play crucial roles in achieving the organisational
goal. The three levels differ only in terms of emphasis on certain activities. Top management is more
concerned with planning and overall organising, middle management is more concerned with detailed out
organising, and junior level is more concerned with directing and controlling. However now we are
witnessing appropriate empowerment at the level of middle level and junior level management, thus the roles
of these two levels are enhancing in the modern organisations.

1.3.3 Basic Principles of Management

Different experts have described principles of management in various ways. However, general principles of
management as propounded by Henri Fayol are one of the most comprehensive principles of management.
The general principles of management as given by Henri Fayol have following components:
Division of Work: It is closely related to specialisation. Division of work promotes more skills on a
particular job, leading to more efficiency.
Authority and Responsibility: Authority is the vested power through the position one holds. Authority and
responsibility go hand in hand. Authority is required to fulfil the responsibilities entrusted.
Discipline: By discipline, Fayol meant obedience, application, energy, and respect. Penalties should be
judiciously applied, and supervision should be competent and fair.
Unity of Command: A subordinate should take orders from only one authority. Fayol apprehended that in
the absence of unity of command, authority is undermined, discipline is jeopardized, order gets disturbed,
and stability gets threatened.
Unity of Direction: Fayol advocated that there should be only one head and only one plan.
Subordination of Individual Interests to General Interests: The interest of organisation should come
before the interest of an individual.
Remuneration: Practice of fair pay should prevail and attempt should be made to arrive at the best scheme
of payment.
Centralisation: For overall control there should be one central point in the organisation. In relatively larger
organisation, appropriate decentralisation may be practiced through delegation of authority.
Scalar Chain: Authority should flow from top to bottom through unbroken chain. Through scalar chain
various people in the organisation are connected in a particular way and the chain determines the direction of
flow of communication. However in many cases, quicker action is possible if people at lower level directly
communicate between themselves.
Order: People and materials should be at right place at right time. A position should be manned with a
person who is most suitable for that job.
Equity: Equity brings forth loyalty and devotion from employees.
Stability of Staff: Stable work force promotes efficiency in the organisation.
Initiative: Initiative should be promoted in the organisation and a climate of sufficiently tolerating mistakes
should be promoted.
Esprit de Corps: Through promoting team spirit and fellow feeling, an organisation can become stronger.
More informality and healthy communication promote unity in the organisation.

Apart from these 14 principles of management given by Fayol, there are some other principles of
management also which you should know. In brief they are:

Harmony of Objectives: Organisations perform more effectively when all functions are directed towards
harmonised grand objective.
Universality of Management: A sound principle of management is applicable to any type of organisation,
engaged in varied activities, and located anywhere.
Primacy of Objectives and Planning: Objectives and planning precede any other activities in an
organisation.
Control by Exception: Subordinate staff should take up routine activities, and management should take up
exceptional control and supervision, having broader impact on the organisation.
Decision by Exception: A manager should take decision within the boundary defined by authority of the
position. The higher authority should decide a matter beyond that boundary.
Equality of Authority, Power, Responsibility, and Accountability: In an organisation, authority, power,
responsibility, and accountability should be in balance. Otherwise the results are hostility, friction,
resentment, dissatisfaction, and strife. If organisation is not balanced, it may be a factor responsible for its
decay in the long run.
Coordination: Coordination is the corner stone of the efficient functioning of the organisation. Each
activity as well as efforts of the people working in the organisation should be coordinated.
The basic principles of management as described above provide a guideline for managing an organisation
effectively. The application of these principles generate efficiency and effectiveness in an organisation.
However we should remember that certain principles of management have universal and eternal appeal
whereas some other principles need to be flexible in nature in order to create healthy flow of activities within
an organisation.

Check Your Progress A

1) Why do we need to study about organisations? How are different activities in an organisation
coordinated for achieving a common goal?
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2) Do the terms ‘organisation’, and ‘management’ go together? Describe purpose of management in an

organisation.
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3) Do you agree with all the 14 principles of management given by Henri Fayol in context of modern
organisations?
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1.4 FUNCTIONS OF MANAGERS
It may be interesting to note that the three terms, organisation, management, and manager are quite different
from each other, yet for practical purposes they are inseparable. We need organisations for various purposes,
as they fulfil different needs of society. Once an organisation exists, there is need for establishing sound
principles of management for its efficient and effective functioning. Then for establishing sound principles
of management, we need managers who have ability, required skills, proper motivation and satisfaction, and
never ending zeal to achieve new heights.

Managers perform certain functions and certain roles. Though the terms function and role are used
interchangeably, there is technical difference between these two terms. Functions of a manager include
the assigned tasks according to the authority level as well according to the job description of the position of
the manager. On the other hand roles indicate what a manager is expected to do as a person of
conscientiousness. Let us learn some important functions of managers.

Main functions of managers include following activities:

• Planning (including creating vision, mission, goal setting, setting objectives);
• Organising;
• Staffing
• Directing;
• Communicating;
• Decision making;
• Controlling.
Let us describe them briefly.

Planning : The planning function includes those activities, which lead to the definition of ends and the
determination of appropriate means to achieve the defined ends. Planning is the process by which a manager
anticipates the future and discovers alternative courses of action open to him.
Vision refers to creating and articulating a realistic, credible, attractive position of the future of an
organisation or organisational unit that grows out of and improves upon the present situation. Mission refers
to the broad purpose that the society expects the organisation to serve. Mission statements are broad and
value-driven.

Goals refer to a future state or condition which contributes to the fulfilment of the mission of the
organisation; when they are realized. The goal is relatively more concrete than mission yet less concrete than
objectives.

Objectives are derived from goals and are ordinary short-run, specific milestones towards goals.

Organising : Organising is the process by which the structure and allocation of jobs are determined. The
organising function includes all managerial activities, which are undertaken to translate the required
activities of plans into a structure of tasks and authority. The organising function involves four sub-functions:
• Defining the nature and content of each job in the organisation;
• Determining the bases for grouping the jobs together;
• Deciding the size of the group;
• Delegating authority to the assigned manager.

Staffing : It is the process by which managers select, train, promote, and retire subordinates. Staffing is
concerned with entire human resource planning activities done by managers.

Directing : It is the process by which actual performance of subordinates is guided toward common goals.
Supervising is one aspect of this function at lower levels of management.

Communicating : It is the process by which ideas are transmitted to others for the purpose of achieving a
desired result.

Decision-making : It is the process by which a course of action is consciously chosen from available
alternatives for the purpose of achieving a desired result.

Controlling : It is the process that measures current performance and guides it toward some predetermined
goal. The controlling function includes activities, which managers undertake to assure that actual outcomes
are consistent with planned outcomes. Three basic conditions must exist to undertake control:
• Standards;
• Information;
• Corrective action.
As explained earlier, functions of a manager directly emerge from the authority of his position as well as
from the job description of the position held by the manager.
Now let us analyse some important roles of managers.

1.5 ROLES OF MANAGERS

Henry Mintzberg has identified ten roles (clubbed under three broad
categories) of managers. The roles of managers are as follow:

Interpersonal Roles
• Leading
• Liaison
• Symbol/Figurehead

In their interpersonal roles, managers act as figurehead, lead, and

interact with members of the organisation, within the department or outside the
department. Now let us understand the three roles: leading, liaison, and symbol/figurehead.

Leading is one of the important roles of a manager. A manager supervises a number of persons reporting to
him/her. The manager is responsible for motivating and directing the subordinates. Through the role of
leading, a manager helps subordinates to visualize the plan of action, and helps them to achieve the result
through committed performance.

Liaison is another role of a manager. Liaison means maintaining a network of interaction with outsiders who
matter. For example a manager heading a production unit need to maintain relationship with external
members of the board, regulating authorities, government officials, police force, civil authorities etc.
Through this role a manager establishes contact with those who matter in managing the activities at hand.

A manager is the symbolic head of a firm, or of an unit, or of a department. You are aware of the role of the
head of a family. In the same way, a manager symbolizes the role of figurehead because he/she has to
perform a number of duties of legal or social nature.
Informational Roles
• Monitoring
• Sharing information
• Spokesperson

In their informational roles, managers seek information from others,

provide information to others, and provide information to people outside the
organisation, in the capacity of representative of the organisation. Now let us understand the three roles:
monitoring, sharing information, and spokesperson.

A manager acts as nerve center for receiving all the external and internal information. Through the role of
monitoring, a manager receives information. The manager utilizes such information appropriately.

Once a manager has gathered information, he/she needs to share information among internal employees for
proper execution of work. Through meeting, e-mail, circular, notice, office order etc. a manager acts as
disseminator of information particularly to subordinates.

As a spokesperson, a manager is authorized to share information about the organisation to outsiders. The
manager may share information with outsiders about plans, strategies, and future direction of the
organisation. The sharing of information may be through conference, meeting the press, board meeting,
interview etc.
Decisional Roles

• Taking initiative
• Handling disagreement
• Allocating resources
• Negotiating

In their decisional roles, managers take proactive actions, sort out differences in opinion amicably, allocate
resources to various departments in optimum way, and negotiate implementation of new projects. Now let us
understand the four roles: taking initiative, handling disagreement, allocating resources, and negotiating.

A manager is required to take initiative and should lead from the front. A manager analyzes the future
opportunities in the business, evaluates alternative opportunities, analyzes internal strength and weaknesses
of the organisation, and also calculates risks before implementing a new idea. In a way a manager need to
explore business opportunities through entrepreneurial skills.

Always going is not smooth in an organisation. At times due to various dissatisfactions among the
subordinates, conflicts may arise. A manager is responsible for handling conflict and disturbances in a way
that would reestablish the confidence of subordinates as well as good productive culture. Disagreements are
handled through periodical meetings, review sessions, collective bargaining, grievance handling machinery
etc.
Manager is custodian of organisational resource. He/she has to allocate resources to various departments in
optimum way. For allocating resources the manager has to do budgeting, scheduling of tasks, authorization
and sanctioning of resource, and approving of significant organisational decisions.

Negotiating is also an important role of a manager. Sometime manager has to negotiate with internal
employees on the matter related to rights, benefits, and sharing of revenue. This is done through internal
bargaining. Sometime negotiation is tripartite including, the management, the employees, and the appropriate
government (Central or the State Government). Negotiation is also done on matter related to contract
assignment, purchase of material etc. A manager plays important role in these activities.

1.6 ORGANISATION AS A PROCESS OF MANAGEMENT

In this Unit you have already studied about basic concepts of organisation and basic concepts of
management. Out of various functions of management, organising is one of them. However before organising
various activities within the organisation, the organisation itself needs to be organised through defined
structure. In this light organising the organisation itself becomes an important process of management.

McFarland describes management as the process by which manager create, direct, maintain and operate
purposive organisations through systematic, coordinated and cooperative human efforts. In order to achieve
desired results in an organisation, process of management should be such that it should lead to effective
achievements of the objectives.

The process of planning, organising, staffing, directing, and controlling need to continue effectively, as long
as organisation needs to achieve its objectives.

1.7 TYPES OF ORGANISATION

Hicks has identified various types of organisations along various parameters. They are:

• Organisations classified according to their structure

Formal and Informal Organisations
Their characteristics can be understood through following continuum:

Table 1.1 : Formal and Informal Organisation

Formal Informal

Structured Loose

Rigid Flexible

Defined Undefined

Durable Spontaneous

Formal and informal define the extremes of a continuum of organisational types. As shown above formal
organisations are structured more rigidly, and processes are more or less defined to the maximum extent. On
the other hand, informal organisations are characterised by more flexible structure, and processes are more
spontaneous than rigid. You may appreciate that arguably in a repetitive production organisation formal
structure may be required, whereas in service organisations, which require more of spontaneous decisions,
informal structure may be more suitable. In actual practice, it would probably be impossible to find a
completely formal or informal organisation.
• Organisations classified according to the emotional involvement of members:

Primary and Secondary organisations

Their characteristics can be understood through following continuum:

Table 1.2 : Primary and Secondary Organisation

Primary Secondary

Complete emotional involvement Contractual involvement

Again, in actual practice, it would probably be impossible to find a completely pure form of organisation.

• Organisations classified according to their principal objectives. On this basis we can broadly identify
following types of organisations:
• Service organisation (e.g., charities, public schools, park, zoo, road etc.);
• Economic organisation (e.g. , cooperations, proprietorships, partnerships etc.);
• Religious organisations (e.g., sects, orders, temple trusts, churches etc.);
• Protective organisations (e.g. ,police, military, fire department etc.);
• Government organisations (e.g. ,central and state government departments, courts, cities etc.);
• Social organisations (e.g., fraternities, clubs, teams etc.).

1.8 FEATURES OF MODERN ORGANISATION

Changing economic environment has always a great impact on organisations. Hence, before understanding
features of modern organisation let us first review the rapid changes taking place in economic environment
particularly during last one decade. Following are the major changes in economic environment:
• The economy has become more competitive. Hence organisations are facing stiffer competition for its
survival and growth;
• Various economies are joining hands together to enjoy higher economy of scale. This has further created
more challenges for organisations in developing countries;
• Giant organisations are joining hands through merger, acquisition, and takeover, thus enjoying economic
benefits of being big. In this situation domestic organisations big or small are finding it tough to survive
and grow;
• International norms, domestic laws, and mood of the policy makers throughout the world are getting
tilted towards letting organisations survive through excellence. Era of protectionism is disappearing;

• Technology is becoming substitute of human power in larger domain of activities;

• Contribution of service sector in national economy is continuously increasing in most of the developing
countries including in India;
• Advent of computer has revolutionized the work place in organisation. It has also created impact on the
interaction pattern of people working in the organisation;
• Continuous product innovation and product differentiation are becoming rules of the game in business;

• With fast growing competition among producers and service providers, it is time for consumers to dictate
the terms in the game of demand and supply;
• Producers are facing stiff competition for reaching to their consumers through speedy supply chain;

• It appears that we have entered era of obsolescence (or era of continuous innovation). Not only a
particular technology is subjected to obsolescence very fast, any idea (managerial innovation) also is
replaced soon by newer idea;
• The world has become a global village, and organisations like multinationals are like one roof beneath
which multicultural society gets nurtured.

Such changes are taking place on continuous basis. The changes listed above are not exhaustive but only
indicative. Such changes in economic environment have created impact on modern organisations. In this
light, some of the salient features of modern organisations are as follow:

• There is tendency towards organisations becoming smaller with respect to the size of manpower;
• Numbers of layers in the organisations are reducing. Taller organisational structure is giving way to
flatter organisational structure- even to the circular organisational structure;
• Average technical skills of modern technical workers is much more than their earlier counterparts;
• Customer satisfaction and enhancing shareholder values are becoming focal points of business;
• Flexi-time, flexi-place are more frequently being applied;
• Quality orientation is being more focussed;
• With the increasing advent of service organisation, there is more empowerment at the level of middle
management as well as at the level of junior management, as they have first hand feel of and information
about customer needs. With this change, apart from upward communication, and downward
communication getting overhauled, more of lateral as well as informal communications within the
organisational structure are being promoted;
• Middle-management and even junior management are being involved more frequently in decision
making at top level;
• Now business ethics is formally emphasized as ethics is basic input for long-term survival of any
organisation;
• Individual learning and organisational learning are emphasized because any technology or any concept,
both are getting subjected to depletion very fast;
• Due to more advent of multinational organisations, cross-cultural issues within and outside the
organisation are gaining importance;
• Concept of permanent departments in the organisation is being replaced by outsourcing the activities of a
department where job is repetitive.
 Now you are aware of some of the features of modern organisations. You shall learn more about the changing
trends of organisations while going through Unit 20.

Check Your Progress B

1) What are various functions and roles of managers?

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2) What are various types of organisations?

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3) Which factors determine that an organisation belongs to a particular type?

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4) What kinds of changes are taking place in the economic environment impacting change on
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5) Identify five new changes taking place in the environment, which have not been mentioned in this
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1.9 LET US SUM UP

An organisation is a group of people working together for the achievement of specific goal. On the other
hand, the management is the art of getting things done through and with people in formally organised group.
It is the process of planning, organising, leading and controlling the activities of an organisation to increase
its effectiveness. The philosophies and principles of organisation and management are widely used for
enhancing the efficiency and productivity of the enterprise. The levels of management are : top level, middle
level and supervisory level. All levels play crucial role in achieving the organisational goal. The general
principles of management propounded by Fayol provide guidelines for smooth functioning of the
organisation.
In an organisation, the managers perform various functions. The major functions performed by the manager
are : Planning, organising, staffing, directing, communicating, decision making and controlling. Managers
also perform various roles in the organisation. The major roles are : Interpersonal roles, informational roles
and decisional roles.

Organisation may be classified into formal and informal organisation, primary and secondary organisation
and principal objectives based organisation. The rapid changes in the environment have led to the
emergence of modern organisation. The features of modern organisation are : smaller size, smaller layer,
higher technical skills, focus on customer satisfaction and shareholder’s value, flexi time and flexi place,
quality orientation, more empowerment at middle level, business ethics gaining ground, continuous learning
orientation, cross cultural management, growing outsourcing business; etc. These features require highly
vigilant and dynamic management styles for the smooth and efficient functioning of the organisation.
1.10 KEY WORDS

Formal Organisation: Organisation, which has more rigid structure and where processes are more or less
defined to the maximum extent.
Functions of Manager: Assigned tasks according to the authority level as well according to the job
description of the position of the manager.
Informal Organisation: Organisation characterized by more flexible structure, and here processes are more
spontaneous than rigid.
Levels of Management: Generally speaking there are three levels of management- top, middle, and junior.
Management: Process of planning, organising, leading, and controlling the work of organisation members
and of using all available organisational resources to reach stated organisational goals.
Organisation: A place where two or more people work together in a structured way to achieve a specific
goal or set of goals.
Organisational Structure: A formal way to relate various persons working in the organisation to facilitate
various factors like flow of communication, decision making, execution of decision, controlling, and
integration of all activities of the organisation.
Principles of Management: Basic philosophy and guidelines around which managerial functions are woven
together for effective management in an organisation.

Roles of Manager: What a manager is expected to do as a person of conscientiousness.

1.11 TERMINAL QUESTIONS

1) Explain basic purpose of existence of various organisations in society.

2) Describe basic features of an organisation.
3) What are various responsibilities of various levels of management in an organisation?
4) What are various principles of management? How are modern organisations different from typical
classical organisations, in terms of practices of various principles of management?
5) Explain various functions and roles of managers. How are they useful in enhancing the efficiency of the
organisation ?
6) Describe various types of organisations. Why do organisations differ from one another?

Note : These questions will help you to understand the unit better. Try to write answers for them. Do
not submit your answers to the university for assessment. These are for your practice only.
UNIT 2 ORGANISATION THEORY
Structure

2.0 Objectives
1.1 Introduction
1.2 Concept of Organisation
1.1.1 Importance of Organisation
1.1.2 Steps in the Organisation Process
2.3 Principles of Organisation
2.4 Classical Theory of Organisation
1.1.1 Bureaucracy
1.1.2 Administrative Theory
1.1.3 Scientific Management
2.5 Neo-Classical Theory of Organisation
2.6 Modern Theory of Organisation
2.6.1 Systems Theory
2.6.2 Contingency Theory
2.7 Contemporary Issues in Organisation Theory
2.8 Let Us Sum Up
9.9 Key Words
9.10 Terminal Questions

2.0 OBJECTIVES
After studying this unit, you should be able to:
• discuss the concept and importance of organisation;
• explain the principles of organisation;
• describe the classical theory of organisation;
• discuss the neo-classical theory of organisation;
• explain the modern theory of organisation; and
• analyse the contemporary issues in organisation.

1.1 INTRODUCTION
We are born in organisation, educated by organisations and most of us spend much of our lives working for
organisations. An organisation is a coordinated social entity, grouped together and interact for the
achievement of the common goal. It refers to the process of identification and grouping of activities,
defining and establishing the authority responsibility relationship and determining the manner in which the
organisational activities are interrelated. Thus the organisation consists of a group of people working
together for the achievement of the organisational goal. Various theories have been propounded which
explain the organisation in terms of closed, open and dynamic system. Traditionally organisation is viewed
as a closed system which does not get affected by external environment . Here the focus is for designing
sound organisational structure which facilitates people to accomplish its objectives smoothly. Contrarily the
modern view of organisation accepts the environment as an integral part of organisational reality. Therefore
to accomplish predetermined goals the organisation must adapt to external environment. The open system’s
view perceives the organisation as a social system which is composed of a number of sub-systems all of
which are independent and interrelated. Man and his organisations are interwoven. Man works in
organisations and seek great benefits from organisations. Successful organisations imply the well
coordinated efforts of two or more persons. These persons may enhance their abilities and reap the benefits
from organisational entities. In this Unit, you will learn the concept and the principles of organisation. You
will further learn various theories of organisation. You will be also acquainted with the contemporary issues
in organisation theory.

2.2 CONCEPT OF ORGANISATION

Organising refers to the process involving the identification and grouping of activities to be performed and
defining and establishing the authority responsibility relationships. This enables people to work most
effectively together in achieving the enterprise objectives. In a general sense, organising consists of
determining and arranging for men, materials, machines and money required by an enterprise for the
attainment of its goals. In a restricted and operational sense, the term organising means defining the duties
and responsibilities of the people employed, and determining the manner in which their activities are to be
interrelated. The end result of organising is the creation of a structure of duties and responsibilities of people
in different positions, grouped according to the similarity and interrelated nature of activities. In other
words, the outcome of the organising process is an Organisation consisting of a group of people working
together for the achievement of one or more common objectives.

Robins has defined organisation as a consciously coordinated social entity, with a relatively identifiable
boundary, that functions on a relatively continuous basis to achieve a common goal or set of goals. Thus, it
can be concluded that an organisation is an economic and social entity in which a number of persons perform
tasks to achieve a predetermined goals. This helps them to accomplish the personal goals like socio-
economic satisfaction which they cannot achieve alone. Similarly it is a system of clearly defined structure
of activities consciously designed to allow organisational participants to work effectively toward common
goal.

The characteristics of an organisation are as follow:

Group of People : An organisation comes into existence when a group of people combine their efforts for
some common purpose and willingly contribute towards their common endeavour.

Division of Work : Setting of an organisation involves division of the total work into various activities and
functions, and assigning the tasks to different persons according to their skill, ability and experience.

Common Purpose : Every organisation comes into existence on the basis of goals of the enterprise which
are separate from the personal goals of the people employed. It is the common purpose of the organisation
which provides the basis of cooperation among the members of the organisation.

Vertical and Horizontal Relationships : An organisation creates cooperative relationships between

different departments and divisions as well as between superiors and subordinates. Different functions and
activities like production, marketing, financing etc. are integrated for the achievement of proper
coordination. The duties and responsibilities of superiors and subordinates in each department or division are
also unified so as to serve the purpose of their joint efforts.
Chain of Command : The superior-subordinate relationships established in an organisation are based on the
authority which flows from the higher levels of management to the next lower levels, thereby forming a
hierarchical chain. This is known as the chain of command, which also determines the line of
communication.
Dynamics of Organisation : Besides the structural relationships among people which are based on their
activities and functions, there exists an organising interactions based on sentiments, attitudes and behaviour
of individuals and groups. These aspects of relationship provide a dynamic element to the organisational
functioning. They are subject to change from time to time.

2.1.1 Importance of Organisation

Sound organisation contributes greatly to the continuity and success of the enterprise. Its importance can be
discussed below:

Facilitates Administration : Sound organisation facilitates management to relate resource flows

continually to overall objectives. It provides an appropriate platform from where management can perform
the functions of planning, direction coordination, motivation and control.

Facilitates Growth and Diversification : It helps in organisational elaboration. Growth and diversification
of activities is facilitated by clear division of work, proper delegation of authority etc. As the organisation
expands to a reasonable proportion, the functional types can be replaced by a more flexible decentralised
organisation.

Permits Optimum use of Resources : Sound organisation permits optimum use of technical and human
resources. The organisation can incorporate the latest technological improvements like computers, electronic
data processing machines etc. It permits optimum use of human efforts through specialisation. It also
develops people by creating appropriate training and promotion opportunities. Thus, organisation gives a
company the greatest possible strength for meeting predicted needs-changing conditions.

Stimulate Creativity : Specialisation provides individuals with well-defined duties, clear lines of authority
and responsibility. Sound organisation structure enables managers to turn over routine and repetitive jobs to
supporting positions and concentrate on important issues where they can exploit their potential better. Thus,
it encourages the creativity of the people.

Encourages Humanistic Approach : People can work in team and not like robots or machines.
Organisation provides job rotation, job enlargement and enrichment. Jobs are designed to suit human needs
and are made meaningful and interesting. Organisation adopts efficient methods of selection, training,
remuneration and promotion of employees. Proper delegation and decentralisation, conducive working
environment and democratic and participative leadership provide higher job satisfaction to the employees. It
enhances the interaction among different levels of the management.

Although we have discussed the importance of the organisation, a sound organisation structure by itself does
not guarantee success. According to Drucker good organisation structure does not by itself produce good
performance-just as a good constitution does not guarantee great presidents, or good laws or a moral society.
But a poor organisation structure makes good performance impossible no matter how good the individuals
may be.

2.1.2 Steps in the Organisation Process

Organising involves the following interrelated steps:
Determination of Objectives : Organisation is always related to certain objectives. Therefore, it is
essential for the management to identify the objectives before starting any activity. It will help the
management in the choice of men and materials with the help of which it can achieve its objectives.
Objectives also serve as the guidelines for the management and the workers. They will bring unity of
direction in the organisation.
Identification and Grouping of Activities: If the members of the groups are to pool their efforts effectively
there must be proper division of the major activities. Each job should be properly classified and grouped.
This will enable the people to know what is expected from them as members of the group and will help in
avoiding duplication of efforts. For instance, the total activities of an individual industrial organisation may
be divided into major functions like production, purchasing, marketing, and financing, and each such
function is further subdivided into various jobs. The jobs then may be classified and grouped to ensure the
effective implementation of the other steps.

Allotment of Duties : After classifying and grouping the activities into various jobs, they should be allowed
to the individuals so that they could perform them effectively. Each individual should be given a specific job
to do according to his ability and made responsible for that. He should also be given the adequate authority
to do the job assigned to him.

Developing Relationships: Since so many individuals work in the same organisation it is the responsibility
of management to lay down structure of relationships in the organisation. Everybody should clearly know to
whom he is accountable. This will help in the smooth working of the enterprise by facilitating delegation of
responsibility and authority.

Integration of these Groups of Activities: Integration can be achieved in all activities in following ways :
(a) through authority relationships – horizontally, vertically, and laterally and (b) through organised
information or communication systems, i.e., with the help of effective coordination and communication. We
can achieve unity of objectives, team work and team spirit by the integration of different activities.

2.3 PRINCIPLES OF ORGANISATION

The principles of organisation are guidelines for planning an efficient organisation structure. Let us discuss
the important principles of organisation :

Unity of Objectives : An enterprise strives to accomplish certain objectives. The organisation and every
part of it should be directed towards the attainment of objectives. Every member of the organisation should
be familiar with its goals and objectives. There must be unity of objective so that all efforts can be
concentrated on the set goals. The principle requires objectives to be clearly formulated and well-
understood.

Division of Work and Specialisation : The entire work in the organisation should be divided into various
parts so that every individual is confined to the performance of a single job. This facilitates specialisation
which in turn leads to efficiency and quality. However, each area of specialisation must be interrelated to the
total integrated system by means of coordination of all activities of all departments.

Definition of Jobs : Every position in the organisation should be clearly defined in relation to other
positions in the organisation. The duties and responsibilities assigned to every position and its relationship
with other positions should be so defined that there is no overlapping of functions.

Separation of Line and Staff Functions : Whenever possible, line functions should be separated from staff
activities. Line functions are those which accomplish the main objectives of the company. In many
manufacturing companies, the manufacturing and sales departments are considered to be accomplishing the
main objectives of the business and so are called the line functions. Other functions like personnel, plant
maintenance, financing and legal are considered as staff functions.
Chain of Command or Scalar Principle : There must be clear lines of authority running from the top to
the bottom of the organisation. Authority is the right to decide, direct and coordinate. The organisation
structure should facilitate delegation of authority. Clarity is achieved through delegation by steps or levels
from the top position to the operating level. From the chief executive, a line of authority may proceed to
departmental managers, to supervisors or foremen and finally to workers. This chain of command is also
known as scalar principle of organisation.

Parity of Authority and Responsibility or Principle of Correspondence : Responsibility should always

be coupled with corresponding authority. Each subordinate must have sufficient authority to discharge the
responsibility entrusted to him. This principle suggests that if a plant manager in a multiplant organisation is
held accountable for all activities in his plant, he should not be subject to seek orders from company
headquarters for his day to day activities.

Unity of Command : No one in the organisation should report to more than one line supervisor. Everyone
in the organisation should know to whom he reports and who reports to him. Stated simply, everyone should
have only one boss. Receiving directions from several supervisors may result in confusion, chaos, conflicts
and lack of action.

Unity of Direction : According to this principle a group of activities that have a common goal should be
managed by one person. There should be one head and one plan for a common objective of different
activities. This facilitates smooth progression towards the achievements of overall organisational goals.

Exception Principle : This principle suggests that higher level managers should attend to exceptional
matters only. All routine decisions should be taken at lower level, whereas problems involving unusual
matters and policy decisions should be referred to higher levels.

Span of Supervision : The term ‘span of supervision’ means the number of persons a manager or a
supervisor can direct. No manager should be required to supervise more subordinates than he can effectively
manage within the limits of available time and ability. The exact number may vary according to the nature of
the job and the frequency of intensity of supervision needed.

Principle of Balance : There should be proper balance between various parts of the organisation and no
function should be given undue importance at the cost of others. Balance should be maintained also
between centralisation and decentralisation, span of supervision and lines of communication, and authority
allocated to department and personnel at various levels.

Communication : A good communication network is essential to achieve the objectives of an organisation.

No doubt the line of authority provides channels of communication downward and upward, still some blocks
in communication occur in many organisation. The confidence of superior in his subordinates and two-way
communication are the factors that unite an organisation into an effectively operating system.

Flexibility : The organisation structure should be flexible so that it can be easily and economically adopted
to the changes in the nature of business as well as technological innovations. Flexibility of organisation
structure ensures the ability to change with the environment without disrupting the basic design.

Continuity : Change is the law of nature. Many changes take place outside the organisation. These changes
must be reflected in the organisation. For this purpose the form of organisation structure must be able to
serve the enterprise to attain its objective for a long period of time.
Check Your Progress A

1) Enumerate the basic characteristics of an organisation.

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2) How do principles of organisation facilitate smooth functioning of the organisation ?

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3) Enumerate five principles of organisation which you find practicising in an organisation.

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2.4 CLASSICAL THEORY OF ORGANISATION

The old theories of organisations are classified as classical theories of organisation. The origin of classical
theories can be traced back to the writings of F.W. Taylor, Max Weber, James Moorey, E.F.L. Beach and Lois
Allen. The impact of classical theory has been profound.

Classical theory was developed in three streams: Bureaucracy, Administrative Theory, and Scientific
Management. These components of classical theory were developed on similar assumptions at about the
same time (1900-1950 AD). These components develop the idea of structure within the connotation of
organisation. Accordingly, organisation was defined as a structure of relationships, power, objectives, roles,
activities, communications and other factors that exist when persons work together. Thus, these streams of
classical theory view organisation as a mechanistic structure. Let us learn these three streams of classical
theory in detail.

1.1.1 Bureaucracy

Bureaucracy is a social invention perfected during the industrial revolution to organise and direct the
activities of a firm. It describes a system where the Government is run by officials, directly or indirectly.
Bureaucracy is defined as a system of organisation in which roles, tasks and relationships among people and
positions are clearly defined, carefully prescribed and controlled in accordance with formal authority and any
deviations from rules and regulations is viewed very seriously. The bureaucratic theory was systematically
developed by Max Weber (1864-1920). Weber termed his formulation of organisation as ideal type.
According to Max Weber, every organisation can be defined as a structure of activities (means) directed
towards the achievement of certain objectives (ends). Every organisation develops a system of specialisation
(division of tasks) and a set of systematic rules and procedures to maximise efficiency and productivity.
Weber stressed that the bureaucratic form is capable of attaining the highest degree of efficiency, and is in
this sense, formally the most rational known means of carrying out control over human beings in any
organisation. It is superior to every other form in precision, stability, discipline and reliability.

Weber tried to identify various factors and conditions that have contributed to the growth of bureaucracy in
modern times. Development of modern Organisation and Corporation led to the development and
considerable spread of bureaucracy in Organisations. Bureaucracy is simply indispensable irrespective of its
inherent evils for the running of complex organisations. Secondly, an important factor responsible for the
superiority of bureaucracy is the role of expanding technical knowledge and the development of modern
technology. Whether the economic system is capitalistic or socialistic a considerable degree of bureaucratic
specialisation is required to attain a high level of organisational efficiency. Thirdly, Weber repeatedly
stressed the fact that the capitalist system has undesirably played a major role in the development of modern
bureaucracy. The proper functioning of a capitalist system necessitated a stable state and a well organised
administration. Besides, capitalism is considered the most rational economic basis for bureaucratic
administration itself.

Characteristics of Bureaucracy

The bureaucratic form of organisation is distinguished by the following structural and behavioural
characteristics:

Division of Labour and Specialisation : Specialisation based on division of labour is the cornerstone of
bureaucracy. It applies more to the job than to the individual. The roles of various officials based on the
division of job work are clearly defined. This leads to the clear definition of the job-content of an individual
and his position in the organisation set up which in turn leads to the clarity of the goals/objectives of the
organisation and helps in designing the hierarchical structure of the organisation. It is based on a specified
sphere of competence which involves: (a) a sphere of applications to perform functions which has been
marked off as part of a systematic division of labour, (b) the provision of the incumbent with necessary
authority, and (c) the necessary means of compulsion are clearly defined and their use is subject to definite
conditions.

Hierarchy : Hierarchy is the second fundamental characteristic which is the feature of any bureaucratic form
of organisation. There is a clear separation between superior and subordinate officers, i.e., each lower officer
is under the control and supervision of a higher one. Remuneration is fixed in accordance with the nature of
the job and the grade of responsibility. Promotion and career advancement is on the basis of seniority and
merit.

Rules : Bureaucracy operates in accordance with a consistent system of abstract rules. The role of rules has
been stressed by Weber so that personal favouritism, arbitrariness or nepotism may not hinder the working
of an organisation. Every act of personal discretion of official must be justified by impersonal ends.

Rationality : Weber’s ideas on efficiency and rationality are closely related to his ideal typical model of
bureaucracy. He observed that bureaucracy is the most rational known means of achieving imperative
control over human beings. It is capable of obtaining a high degree of efficiency since the means used to
achieve goals are rationally and objectively chosen towards the desired ends. An added factor of efficiency is
that personal whims of the leaders and traditional pressures are no longer effective in such a system; it is run
according to rules and there is a clearer demarcation between personal and official affairs. Rationality is also
reflected by the relatively easier means of calculability of results in the organisation.

Impersonality : It should be observed by all officials in decision-making and in overall organisational life.
The bureaucratic form has no place for personal whims, fancies or irrational sentiments. Official activity is
conducted in a business like manner with a high degree of operational impersonality.

Rule Orientation : Rationality and impersonality are mainly achieved through formulation of rules and
procedures which clearly define official spheres of authority and conduct. Employees are expected to follow
the rules in discharging their duties.

Neutrality : Neutrality in decision making and their implementation are the cardinal principles of bureaucratic
way of functioning. Bureaucracy is supposed to be a political and neutral in its orientation. It is committed only
to the work it is meant to perform.
Criticism of Bureaucracy
Max Weber gave the model which is normative in nature and could be followed by any large and complex
organisation. However, the actual practices of bureaucracy often fall short of these ideals. Bureaucracy is a
necessary evil in large and organisationally complex organisation. Following demerits have been pointed
out in the bureaucratic model by various scholars:

Rigidity : A rigid organisation often fails to see innovation as a necessary life giving element to an evolving
adaptive organisation. The ultimate goal of a bureaucracy sometimes seem to be perfect but its excessive
dependence on rules tend to kill initiative and it leads to obsolescence of an organisation.

Impersonality : Relationships in a bureaucracy are secondary and contractual rather than being primary and
personal. The characteristics of impersonality, anonymity, neutrality to values etc. are contradictory to the
very basic nature of organisation where close cooperation between the people and bureaucracy is desirable.
Lack of personal involvement leads to poor productivity levels.
Delegation : It is criticised on the ground of the problems of delegation that crop up in operative stages. The
bureaucratic staff tend to concentrate power at higher positions and very little of delegation of authority and
responsibilities down the rank is seen. In absence of delegation, organisational decisions are unnecessarily
delayed.
Goal Displacement : Excessive adherence to rules and regulations lead to the problem of goal displacement.
The rules and regulations that are meant to facilitate the functioning of the organisation are adhered
irrespective of the fact whether they lead to goal achievement or not.

Strict Categorisation : In bureaucracy, coordination and specialisation are advantageous if there is strict
categorisation or compartmentalisation of activities and persons. The dysfunction of categorisation results
from the tendency of bureaucracy to grant career status to a position. Bureaucracy is not comfortable with
the fact that an adaptive world can never be completely categorised.

Self-perpetuation and Empire Building : Bureaucrat often thinks that holding an office gives him personal
ownership and privileges. Through their desire to perpetuate the old, bureaucracies discourage innovations.
According to Max Weber, Once its is fully established, bureaucracy is among those social structures which
are hardest to destroy, even when it has outlived its usefulness. In bureaucracy, prestige and pay are often
determined by the number of one’s subordinates. Thus, the chief aim of bureaucracy is to increase the
number of people employed under one’s control, this is the familiar empire building.

Cost of Controls : The cost of maintaining rules, regulations and sometime seemingly countless procedures
employed to gain conformity in bureaucracy is dysfunctional. There is frustration from perceived excessive
restrictions and delays imposed by bureaucratic procedures.
Activity A

a) Suppose you wanted to eliminate bureaucracy to avoid its demerits, how could this be done? What
would be the consequences?
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b) Would you like to work in a bureaucracy? Why and why not?
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2.4.2 Administrative Theory

Scientific management was primarily concerned with increasing the productive efficiency of individual
workers at the shop floor. The role of managers and their functions in the total organisation were not given
adequate attention. Around the same time, that is the first quarter of the 20th century Henri Fayol, director
of a coal mining company in France, made a systematic analysis of the process of management. His
approach to the study of management is also known as the process or Functional Approach.

According to Fayol, business activities in any organisation consist of six inter-dependent operations viz.,
technical, commercial, financial, security, accounting and administrative or managerial operations. He
analysed the nature of managerial activities and skill requirements which were so far given little attention by
thinkers. He considered the process of management to be of universal application and distinguished among
five elements of the process viz., to forecast and plan, to organise, to command, to coordinate, and to control.
The concept of management was, thus, defined as the process of performing certain functions like planning,
organising, etc. These functions were expected to be performed by managers at all levels in the organisation
as well as in all types of industries and in all countries.

Fayol emphasized that management involved the application of certain skills which could be acquired by
persons on the basis of systematic instructions and training. Once acquired, the skills could be applied to all
types of institutions including the church, schools, political as well as industrial organisations.

Besides a systematic analysis of the management process and management functions, Fayol formulated a set
of fourteen principles as guidelines for implementing the process of management. These principles were
stated in flexible terms and expected to be of use of managers under all circumstances. The skill and
abilities required for effective management were stated to be dependent on the managers’ position at
different levels of organisation. According to Fayol, administrative skills were more essential for higher
level managers’, while technical abilities were required more at the lower level positions. He also believed
that managerial training was essential for people in all walks of life. He stressed, for the first time, the
necessity of formal education and training in management. In short, Fayol’s analysis provides a set of means
(viz., planning, organising, commanding, coordinating and controlling) for viewing the management process
and guidance (i.e., the principles for implementing the process).

The fourteen principles of management are as follow. You have already learnt them in Unit 1. Let us
recapitulate them.
• Division of work
• Authority and Responsibility
• Discipline
• Unity of command
• Unity of Direction
• Subordination of individual interest to general interest
• Remuneration of Personnel
• Centralisation
• Scalar Chain
• Order
• Equity
• Stability of Tenure
• Initiative
• Esprit de corps

The Administrative Theory of Management and Functional Approach to management may be said to have
developed on the foundation laid by Fayol. He provided a conceptual framework for analysing the process
of management. At the same time, he isolated and analysed management as a separate, distinct activity.
Management as a body of knowledge gained immensely from Fayol’s analysis of managerial skills of
universal relevance, and principles of general management developed by him. Although some critics called
it inconsistent, vague and pro-management based theory, still this theory experts considerable influence on
the practice as well teaching of management the world over.

2.4.3 Scientific Management

The approach of scientific management was formulated by F.W. Taylor and others between 1890 and 1930
sought to determine scientifically the best method for performing any task, and for selecting, training, and
motivating workers. Frederick Winslow Taylor and other contributors notably Frank Gilbreth, Lillian
Gilbreth and Henry Gants investigated the effective use of human beings in industrial organisations,
particularly at shop floor levels. Tayor (1856-1915) an engineer by training is regarded as the father of
scientific management.

Taylor based his management system on production line time studies instead of relying on traditional work
methods. He analysed and tuned steel workers movements on a series of jobs. Using time study as his base,
he broke each job down into its components and designed the quickest and best methods of performing each
component. In this way he established how much should workers be able to work with the equipment and
materials at hand and also encouraged employers to pay more productive workers at a higher rate, using a
scientifically correct rate that would benefit both company and worker. Thus, workers were urged to surpass
their previous performance standards to earn more money Taylor called his plan the differential rate system.

The modern production miracle is just one legacy of scientific management. In addition, its efficiency
techniques have been applied to many tasks in non-industrial organisations, ranging from fast food service
to the training of surgeons. Taylor relentlessly pursued the idea that efficiency at work could be improved
through careful scientific analysis. He advocated an inductive, empirical, detailed study of each job to
determine the one best way to organise work.

Taylor’s concept of scientific management essentially consisted of a scientific approach to management. Its
primary objective was to replace methods based on trial and error and rule of thumb. The new approach
rested on the following principles.

• Development and use of scientific methods in setting work standards, determining a fair day’s work and
best way of doing work.
• Scientific selection and placement of workers best suited to perform the various tasks and provision of
their training and development for maximum efficiency.
• Clear cut division of work and responsibility between management and workers.
• Harmonious relations and close cooperation with workmen to secure performance of work in accordance
with the planned jobs and tasks.
A number of techniques were developed to facilitate scientific management. Taken together the following
techniques constituted the mechanism of the new approach :
• Time study to analyse and measure the time taken in doing the various elements of a job, and to
standardise the operations as well as determining a fair day’s work.
• Motion Study involving close observation of the movements required to perform a job with a view to
eliminate wasteful motions and decide on the best way of doing the job.
• Standardisation of tools, equipments and machinery and working conditions.
• Incentive wage plan with differential piece rate of wages for efficient and inefficient workmen.
• Functional Foremanship involving different specialist foremen supervising machine speed, group work,
repairs, etc.

Taylor presented his ideas on scientific management as a systematic body of thought. His main contribution
to management practices included the following aspects :
• The importance of applying scientific methods of enquiry , observation and experimentation to the
problems of management.
• Separation of planning of work from its execution so as to enable workers to perform at his best and earn
accordingly.
• Emphasizing the aim of management to be the maximum prosperity of the employer along with the
maximum welfare of each employee.
• The necessity of a complete mental revolution on the part of both workmen and management to derive
the benefits of scientific management through harmony and cooperation rather than individualism and
discord.

Merits : The primary benefit of scientific management was conservation and proper use of every ounce of
energy. Moreover specialisation and division of labour have brought about the second industrial revolution.
Time and motion techniques are important tools to organise the tasks in a more efficient and rational way. In
short scientific management is not only a rational approach to solve organisational problems but it also
facilitates the professionalisation of management.

Although the basic principles of scientific management were originally developed by Taylor, several
associates of Taylor like Gantt, Frank and Lillian Gilbreth, and Emerson further elaborated the ideas,
developed new techniques and improved upon the new approach to management. In practice, scientific
management proved to be so fruitful in increasing productivity and efficiency of operations that it was
widely accepted in the USA and Western Europe.

Limitations : Scientific management has its limitations and was criticised on several grounds. Some critics
argue that scientific management is concerned with the efficiency of workers in the technical sense, and it
emphasizes only the importance of production. It assumes that workers are inherently lazy and they require
strict supervision and exercise of authority by managers. It is believed that workers can be motivated by
monetary rewards alone. No importance is attached to social and psychological aspects of work
environment. Other critics have called it unscientific, antisocial, psychologically aspect of work
environment. Other critics is unscientific antisocial, psychologically unfair and anti-democratic. It is
unscientific because there is no valid and reliable method to measure the efficiency and wages of the
workers. It is antisocial because workers are treated as glorified economic tools only. It is psychologically
unfair because each worker is pitted against every other worker in an unhealthy competitive scheme to make
more and earn more. It is anti-democratic because it overshadows the workers independence.
Trade unions have been opposed to scientific management on the ground that it leads to autocratic
management, and raises the workload of employees with a corresponding adverse impact on employment of
men.

Check Your Progress B

1) How does bureaucracy enhance the efficiency of an organisation ?

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2) Enumerate the limitations of Fayol’s principles of management.

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3) How does scientific management enhance the efficiency of an organisation ?

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Activity B

Which of Fayols principles of management do you observe in use of organisations today?

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2.5 NEO-CLASSICAL THEORY OF ORGANISATION

The neo-classical theory (also referred as the human relations school of thought) was built on the basis of
classical theory. It is modified, added to and in some ways extended classical theory. Its basic assumption is
that the psychological and social aspects of the worker as an individual and his work group ought to be
emphasized. In classical view, organisation focussed on structure, order, the formal organisation, economic
factors and objective rationality. Whereas neo classical view emphasized social factors and emotions at
work. Human relation is frequently used as a general term to describe the ways in which managers interact
with their employees. The essence of the human relations contributions is contained in two aspects:
Organisational situation should be viewed in social terms as well as in economic and technical terms, and in
terms of clinical method it is analogous to the doctor’s diagnosis of the human organism.

The Howthorne Experiments

The human relations movement grew out of a famous series of studies conducted at the western Electric Co.
from 1924 to 1933. These eventually became known as the “Hawthorne Studies” because many of them were
preformed at Western Electrics Hawthorne plant near Chicago. The Hawthorne studies began as an attempt
to investigate the relationship between the level of lighting in the workplace and worker productivity.
In some of the early studies, the Western Electric researchers divided the employees into test groups, who
were subjected to deliberate changes in lighting, and control groups, whose lighting remained constant
throughout the experiments. The results of the experiments were ambiguous. When the test group’s lighting
was improved, productivity tended to increase although erratically. When lighting conditions were made
worse, there was also a tendency for productivity to increase in the test group. To compound the mystery, the
control groups output also rose over the course of the studies, even though it experienced no changes in
illumination. Obviously, something besides lighting was influencing the workers’ performance.

In a new set of experiments, a small group of workers was placed in a separate room and a number of
variables were altered. Wages were increased, rest period of varying length were introduced, the workday
and work weeks were shortened. The researchers, who allowed the groups to choose their own rest periods to
have say in other suggested changes. Again the results were ambiguous. Performance tended to increase over
time, but it also rose and fell erratically. Partway through this set of experiments, Elton Mayo (1880-1949)
and some associates from Harvard, including Fritz J. Roethlisberger and William J. Dickson, became
involved.

In these and subsequent experiments, Mayo and his associates decided that a complex chain of attitudes led
to increase in productivity. They had been singled out for special attention, so both the rest and the control
groups had developed a group pride that motivated them to improve their work performance. Sympathetic
supervision had further reinforced their motivation. The researchers concluded that employees would work
harder if they believed management was concerned about their welfare and supervisor paid special attention
to them. This phenomenon was subsequently labeled as the Hawthorne Effect. Since the control group
received no special supervisory treatment or enhancement of working conditions but still improved its
performance, some people (including Mayo himself) speculated that the control group’s productivity gains
resulted from the special attention of the researchers themselves.

The researchers also concluded that informal work groups and the social environment of employee have a
positive influence on productivity. Many of Western Electric’s employees found their work dull and
meaningless, but their associations and friendships with co-workers, sometimes influenced by a shared
antagonism towards the bosses, imparted some meaning to their working lives and provided some protection
from management. For these reasons, group pressure was frequently a stronger influence on worker
productivity than management demands.

The findings of Howthorne studies are as follows :

• Physical environment at the work place do not have any material impact on the efficiency of work.
• Favourable attitudes of workers and work-team towards their work were more important factors
determining efficiency.
• Fulfilment of the workers’ social and psychological needs had a beneficial effect on the moral and
efficiency of workmen.
• Employee groups based on social interactions and common in the rest exercised a strong influence on
workers’ performance.
• Workers cannot be motivated solely by economic rewards. More important motivators are job security,
recognition by superiors, and right to express their opinion on matters which are of concern to them.

The human relations approach to management problems is based on the view that the modern organisation is
a social system in which the social environment and interpersonal relations govern the behaviour of
employees. It emphasizes that the authority responsibility relationship between superiors and subordinates
should relate to the social and psychological satisfaction of employees. It is only by making employees
happy, the organisation can secure their full cooperation and thus increase efficiency. Management should
encourage the development of social groups on the job and provide opportunities for free expression of the
employees’ viewpoints. Managers should recognize the importance of democratic leadership, so that there is
free flow of communication and subordinates may participate in decision-making.
It must be noted that the objective of human relations approach was to make workers more productive. But it
was emphasized that employee satisfaction was the best means of achieving the goals of higher productivity
and efficiency. For this purpose, it was necessary that managers must know why employees act and what
social and psychological factors motivate them. Attempt should be made to create a satisfying work
environment in which people may fulfil their own needs as well as contribute to the achievement of
organisational goals.

According to Mayo, the concept of social man motivated by social needs, wanting, rewarding on the job
relationships, and responding more to work-group pressures than to management control was necessary to
complement the old concept of rational man motivated by personal economic needs. All these findings might
seem unremarkable today. The neo-classical theory examines in detail and has made significant
contributions in the field of human relations for structural adjustments in an organisation. The contribution
of the neo-classical theorists can be categorised as the modification of the classical theory.

The theory recognises the importance of co-ordination and communication for motivation of human
resources. More attention was given on fatigue and monotony than division of labour. They are of the view
that if human beings are not treated well, human problems arise. For example, if authority does not
commensurate with responsibility it will lead to frustration or disfunctionality. The neo-classical theorists
view that participation, recognition of human dignity and communication are the cornerstones of efficient
management. Simultaneously the role of informal organisation should not be undermined in the formal
setting of organisations.

The neo-classical theory is a definite improvement over the classical theory. It explains various new
variables and concepts like informal organisation. However, the neo-classical viewpoint has also been
criticised on the ground of too much cynical puppeteering of people, a short sighted perspective and lack of
integration among many facets of human behaviour.

2.6 MODERN THEORY OF ORGANISATION

The modern organisation theory considers the dynamic conditions at micro and macro levels. It recognises
the dramatic changes taking place in the society. The modern organisation theory is a collection of views of
different thinkers of organisation. The theory is centred around the concept of a system hence it is termed
synonymous with system theory. For the first time Chester I. Barnard (1938) viewed organisation as a social
system of cooperative interactions among the members; organisation, individuals and customer are parts of
environment. Subsequently Mary Parker Follet (1940) emphasized on the integration of individual and
organisational units through systems approach. Norbert Weiner (1948), a pioneer in cybernetics gave a
crystal clear views of the organisation as a system. Further operational researchers like Churcham (1957),
etc. were also among those who considered the system as an interconnected complex of functionally related
components . Some more social scientists like Katz and Kahn presented a comprehensive theory of
organisation using open systems approach.
2.6.1 Systems Theory

Organisational realities have been investigated from different points of view. Divergent theories have thus
emerged; a need has arisen of looking at the organisation as a whole. Advance in scientific knowledge in
general have made possible the formulation of a general systems theory for the integration of scientific
knowledge.

The systems approach is particularly relevant to the study of complex public organisation that have elaborate
structures and that are embedded in larger social, political and economic environments. According to the
open systems perspective, an organisation survives and grows by drawing inputs from the environment
which are processed internally to produce its output. It is through this input conversion-output processes that
an organisation lives and develops. The systems thinking helps us to have a total view of the organisation
including its different parts and their interrelationships.

The systemic view of organisation was prominent in the writings of M.P. Follet and Chester Bernard. Herbert
Simon’s decision making scheme follows the systems approach which was further elaborated by him and his
associates later. Philips Selznick has used the systems framework in his studies of governmental and other
complex organisations. The most representative writings in this field are: “Organisation theory” by Haire
Norbet Weiner pioneered in the field of Cybernetics. He gave the first clear view of an organisation as a
system consisting of inputs, process, outputs, feed back and environment.

In simple words, a system may be defined as a set of interdependent parts forming an organised unit or entity.
These parts, known as sub-systems, interact with each other and are subject to change. They are interrelated
as well as interdependent. Thus, changes in any sub-system lead to changes in others. Any working
organisation may be said to consist of three broad sub-systems :
• technical sub-system which represents the formal relationships among the members of an organisation;
• Social sub-systems which provides social satisfaction to members through informal group relations, and
• Power sub-system which reflects the exercise of power or influence by individual and groups.

The total system emerges as a result of the interaction of the various sub-systems. The total system and sub-
systems also interact with the environment, which may influence or be influenced by the system or the sub-
systems.

The system approach has the following features :

• System is a group of interrelated but separate elements.
• The arrangement of all the elements must be orderly.
• There must be proper communication facilitating interaction among the elements.
• Finally the interaction should lead to achieve a common goal.

The enterprise operations are viewed in terms of basic elements engaged in procuring and transforming
inputs into outputs. Money, employees and the managers themselves are parts of the system. Inputs are the
materials, information and energy, flowing into the organisation. The outputs are products, services, and
satisfaction provided by the organisation. The organisation transforms input into a variety of outputs (in the
form of products, goods and services) and offers the same to the external environment. Sale of the outputs
provides the necessary energy which is called feedback to repeat this systems cycle. Loot at Figure 2.1
which shows this cycle.

Figure 2.1 : Cycle of Systems Approach

Input Output

Feedback
Organisation systems like social systems are considered to be Cybernetic in their behaviour with regard to
the external environment. This means that they are self steering, using feedback to guide and control their
behaviour. They develop mechanism to collect interpret and apply feed back in their decision making process
so as to acquire the capacity to adapt, evaluate perform and to correct errors.
Look at Figure 2.2 which shows the basic elements of systems theory.

Figure 2.2 : Basic Elements of Systems Theory

Inputs Throughputs Outputs

• Environmental conditions, needs & demands-goals• Societal norms & laws• Human resources•
Material resources OrganisationalTransformationsSub-system functions •
Goods• Services• Manpower• Strategies to influence environment

The systems approach to management view organisations as extremely complex entities subject to changes
from within and outside. To meet various needs of such an organisation, a balanced and integrated approach
to management is required. At the heart of the systems, approach lies a Management Information Systems
and communication network for collection, analysis and flow of information and quantitative data so as to
facilitate planning and control. It emphasizes the importance of decision-making and the primary means of
balancing the different parts of the organisation. Modern thinkers consider management as a system of
integrating activities aimed at making the best use of scarce resources. Management is viewed also as a sub-
system of the social system. As a sub-system management is required to adapt and cope with environmental
changes.

This systems approach has the following advantages :

• It provides a unified focus to organisational efforts.
• It provides managers an opportunity of looking at the organisation as a whole which is grater than the
sum of its parts.
• This theory treats the organisation as an open system. Moreover, the process of interaction between sub-
systems is dynamic.
• Modern theory is based on multilevel and multidimensional approach i.e., it includes both micro and
macro aspect.
• The system is based on multiple variables because an event may be the product of many factors which in
turn may be interrelated and interdependent.
• The feedback mechanism provides an opportunity to organisation to rearrange its parts according to the
change in the environment.

The systems approach is now being widely used in organisational analysis. It has proved to be a very useful
tool for the conceptualisation of the organisation and its external and internal relationships. It has also
facilitated the contingency or situational view of organisation which marks a radical departure from the
traditional approach that emphasized generally the one best way of structuring organisations. Under the
influence of systems theory the current view in organisations analysis is that the structure can vary from
situation to situation depending on such factors as their environmental conditions and technology.
Although system theory has given fascinating appeal still it has some limitation.
In fact, this is not the complete explanation of the whole organisational system. It does not explain how are
the sub-systems of a specific organisation uniquely related in a given environment.

2.2.2 Contingency Theory

The modern approach to organisation theory underlines the importance of dynamic interaction with
environment and other situational factors influencing organisational design.

Two important lines of thought are significant in this context as they seek to determine the key situational
factors. One of these underlies the significance of technology in determining organisational design. The other
line of thought suggests the importance of environment. Technology refers to the techniques used by
organisations in work flow activities to transform inputs into outputs. Technology is a term that is applicable
to all types and kinds of organisations. Irrespective of whether an organisation is production oriented or
service-oriented the role of technology can be seen in the activities that result in the transformation of things.
Looking into the role of environment in managerial functions, management ecology has been developed.
Individual and his organisational environment are in a complex state of interaction with each other and the
organisation itself is in a state of interaction with its environment. Thus, managing an organisation
effectively requires a thorough understanding of its environment.

Contingency approach is based on the view that there is no best way to manage. In fact there are many
effective ways to perform various management functions. This theory emphasizes that the best way to lead,
plans, organise and conduct managerial activities varies with the situation. A particular method may yield
fruitful results in one situation but may drastically fail in other situations. There is no universal principles to
be applied in all situations. Managers must analyse different situations and use the best approach which is
best suitable in that particular situation. For example to improve productivity, supporters of scientific
management may prescribe work simplication and additional incentives, the behavioural scientist may
recommend job enrichment and democratic participation of employees in the decision-making process. But
the supporters of contingency approach may offer a solution which is responsive to the characteristics of the
total situation being faced. Work simplication would be ideal where there is limited resources, unskilled
labour, limited training opportunities and limited products offered to the local markets. Job enrichment
would be ideal for that organisation where there are abundant skilled labour force. This shows that
managerial action depends upon circumstances within a given situation. In this approach managers are
supposed to diagnose a given situation and adopt to meet the conditions present. In short contingency
approach emphasizes on two aspects, 1) It focuses attention on specific situational factors that influence the
appropriateness of one managerial strategy over another, 2) It highlights the importance of developing skills
for managers in situational analysis. Such skills will help managers find out important contingency factors
which influence their managing approach.

Contingency approach has the following features:

• Management action is contingent on certain action outside the system or subsystem as the case may be.
• Organisational action should be based on the behaviour of action outside the system so that organisation
should be integrated with the environment.
• Because of the specific organisation environment relationship, no action can be universal. It varies from
situation to situation.

Contingency theory concentrates on practical, day to day situational puzzle solving assignments the
managers encounter. It has become popular because of several reasons which are as follow :
Conceptual framework : Contingency theory provides a conceptual framework within which managers can
systematically study the characteristics of the major organisational components, as well as their
interrelationship.

Linkage between theory and practice : Contingency theory is a practical way of studying and analysing the
organisations. This theory suggest a host of alternatives that might be applicable to a particular situation.

A basis for introducing changes : Contingency theory explains the dynamic process of organisational
change. It provides information about the relevant changes that occur in the environment from time to time.
It also provides the necessary information to maintain the dynamic equilibrium.

Wide applicability : Wherever there is a need to define or redefine the relationships in an organisation
contingency theory may be useful.

New Micro phase : Contingency approach is called by Scott and Mitchell as new micro phase in
management. Since the primary attention of contingency approach is on problem-solving puzzles and putting
out fires, it has entirely pragmatic flavour. Contingency approach is considered as refreshing breeze in
management literature that away the humanistic and general systems fog.

The main advantage of this contingency approach is that it compels us to be aware of the complexity in every
situation and forces us to take an active and dynamic role in determining what best would work in each case.
Like a system theory it does not only examines the relationships between sub-systems of a specific
organisation in a given environment, but also offers solutions to particular organisational problems.

Inspite of its towering appreciations the contingency theory is fraught with a number of limitations the
scientist cannot ignore. This theory has been criticised on the ground of heavy theoretical complexity. For
example a simple problem has to be analysed on a number of organisational components, each of which
having innumerable dimensions. So its empirical testing becomes very difficult.
Therefore, it is criticised mainly on the grounds of its complexity, paucity of contents, difficulty in empirical
testing, and its reactive nature.
2.7 CONTEMPORARY ISSUES IN ORGANISATION THEORY
Different theories of organisation have been discussed which clearly state that there are three types of
approaches; namely (i) Structural -Functional approach, (ii) Socio-Psychological approach and (iii) System-
Contingent approach. All of them are mutually dependent as they have inherent relationships. Each theory is
incomplete unless it is supplemented by other two approaches. However, at the same time, it is equally
difficult to generalise a single theory of organisation which can explain the organisation in totality. As
mechanistic (structural) approach ignores human problems, the humanistic socio-psychological approach
does not give weightage to closed and formal settings of an organisation. Thus the difference of these
theories is that of focus and emphasis . It is being recognised to consolidate different views to understand an
organisation in view of the recent/contemporary trends in organisation theory. Based on several scholars
research, a synoptic view of contemporary trends/issues in organisation theory has been presented in table
2.1.

Table 2.1 : Contemporary Trends in Organisation Theory

From To

Traditionalism Social dynamics

Job task hierarchy Social process

Efficiency a mechanical process Efficiency as a human process

Organisation as a bureaucratic Organisation as a social

structure institution.

Control through command Control through communication

Authority from the top Authority from the group

Leadership by authority Leadership by consent

Decision as an individual highly Decision as collective and

centralised situational

Regimented work environment Democratic work environment

Technological change by fear Technological change by

consultation

Job as subsistence Job as satisfying experience

Planning as crisis technique Planning as formalised process

Incomplete and delayed information Complete and current information

Policy and administration dichotomy Policy and administration

continuum

Profiteering Profit with social responsibility.

The basic objective of organisation theory is to explain and predict. It attempts to understand social or
human grouping that is designed as an organisation. The theory helps a researcher by providing him an
opportunity to test his ideas about organisation and improve the theories further. In view of the
environmental changes the contemporary issues to be addressed in organisational theory can be enumerated
as under.
• Impact of technology on human side of an organisation.
• Impact of globalisation on organisational designs.
• Impact of different strategies on organisation.
• Impact of behavioural change of human beings on organisation.
• Impact of newer organisations on the society.
• Environment organisation interface.
• Cross cultural impact on organisation.
• Impact of mobility of people and technology on Organisation and
so on.
Check Your Progress C

1) Distinguish between classical and neo-classical theory of management.

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2) How does systems theory operate in an organisation.
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3) What do you mean by contingency theory of organisation ?
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4) Enumerate five contemporary issues in organisation theory.
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2.8 LET US SUM UP

An organisation is an economic and social entity in which a number of persons perform tasks to achieve a
common goal. The structure and activities are clearly defined to facilitate the flow of work. The principles
of organisation provide guidelines for smooth functioning of the organisation. The organisation theory
explains the structure and design of organisations. It helps to understand, diagnose and respond to
organisational needs and problems.

The classical theory of organisation has been developed in three streams : Bureaucracy, Administrative
theory and Scientific management theory. Bureaucracy theory explains that every organisation develops a
system of specialisation and a set of systematic rules and procedures to maximize efficiency and
productivity. The characteristics of bureaucracy include : division of labour and specialisation, hierarchy,
rules, rationality, impersonality, rules orientation and neutrality. The demerits of bureaucracy are :
impersonality, little delegation, goal displacement, strict categorisation, self perpetuation and empire
building and the cost of controls.
Administrative theory divides the activities of an industrial organisation into six groups. They are :
technical, commercial, financial, security, accounting and managerial. This theory stressed that the
managing is a process and can be dissected intellectually by analysing the functions of the manager. The
theory stipulates fourteen principles of management which facilitates the smooth functioning of the
organisation. It has been criticised on the basis of having a closed system and underestimating the human
factors.
The scientific management theory helps in determining scientifically the best method for performing any task
and for selecting, training and motivating workers. The theory emphasizes on the scientific selection of
personnel, incentives and functional foremanship. It stresses on increase in productivity but ignores the
human relations.

The neo classical theory of organisation emphasized the social factors and emotions at the work place. It
advocates that the participative approach, human dignity and the communication are the cornerstones of
efficient management. It is considered as an improvement over the classical theory due to its focus on the
human relations and informal organisation. It is criticised on the ground that it stresses too much on the
people.
Modern theory of organisation considers the dynamic conditions at the micro and macro levels. The systems
theory emphasized on the integration of individual and organisational units through systems approach. It is
reflected in terms of inputs, process, output and feedback. The contingency theory explains that the
management action is contingent in certain action outside the system or subsystem. The behaviour should be
integrated with the environment. The contemporary issues in organisational theory suggests to consolidate
different views to understand an organisation.

2.9 KEY WORDS

Chain of Command : The line of authority running from the top to the bottom of the organisation

Departmentation : Grouping of various activities on some well defined basis.

Differential Piece Rate : Piece rates of wages which apply differently to efficient and inefficient workers.

Formation Organisation : A planned structure which represents the officially established pattern of relationship
among individuals, groups, sections, units, departments and divisions.

Functional Foremanship : Supervision of work by different specialist foremen.

Hawthorne Studies : Experimental studies conducted to find out what factors motivate workers on the shop
floor for improved performance.

Human Relations Approach : Motivating employees with a satisfying work environment and fulfillment of
their social and psychological needs.

Information Organisation : A network of relationship among the participants of an organisation which arises
spontaneously on the basis of psychological needs.

Motion Study : Observation of the movements required to perform a job so as to eliminate wasteful motions
and decide on the best way of doing the job.

Scientific Management : Application of scientific methods to resolve management problems in place of rule
of thumb or trial and error methods.

Span of Control : The number of subordinates a manager can effectively supervise.

Structure : A framework of relationship among parts.

Systems : An arrangement and set of relationship among multiple parts operating as a whole.
Systems Approach : Understanding management as a balancing and integrating system.
Time Study : Technique used to analyse and measure the time taken in doing the various elements of job.

Unity of Command : The principle of every subordinate being under one supervisor.

2.10 TERMINAL QUESTIONS

1) Describe the basic objectives and steps involved in the process of an organisation.
2) Explain the basic principles of organisation.
3) What do you mean by bureaucracy? Discuss its characteristics. Do you think that bureaucracy
enhances efficiency in the organisation. Give your arguments.
4) What is administrative theory of organisation? Is it relevant today? Explain with examples.
5) Discuss the central theme of scientific management. Do you think that the scientific management
enhances productivity in the organisation. Give your arguments.
6) Elaborate the Howthorne Experiments. What are their findings ? How are they relevant in the
modern organisation.
7) What is the contribution of Neo-classical theory of organisation? Do you think that the neo-classical
theory is an improved version of the classical theory. Discuss with examples.
8) Critically examine the modern theory of organisation.
9) Discuss the emerging trends/issues in organisation theory.

Note : These questions will help you to understand the unit better. Try to write answers for them. Do not
submit your answers to the university for assessment. These are for your practice only.

Transformation
Process

Direct-Indirect Feedback about outputs

UNIT 3 ORGANISATION STRUCTURE AND EFFECTIVENESS
Structure

3.0 Objectives
3.1 Introduction
3.2 Concept of Organisation Structure
3.3 Components of Organisation Structure
3.4 Types of Organisation Structure
3.4.1 Functional Structure
3.4.2 Divisional Structure
3.4.3 Adaptive Structure
3.5 Dimensions of Organisation Structure
3.6 Organisational Design
3.6.1 Classical form of Organisation
3.6.2 Alternate Design
3.6.3 Organisational and Mechanistic Design
3.7 Organisational Effectiveness
3.8 Let Us Sum Up
3.9 Key Words
10.10 Terminal Questions

3.0 OBJECTIVES
After studying this unit, you should be able to:
• discuss the concept of organisation structure;
• explain the components of organisation structure;
• analyse the dimensions of organisation structure;
• discuss the model of organisation designs; and
• explain the determinants of organisational effectiveness.

3.1 INTRODUCTION
In an organisation, a number of activities are performed. These activities are required to be coordinated.
Organisation structure is designed for division of tasks, grouping of activities and coordinating and
controlling the tasks of the organisation. The detailed study of all components and dimensions of
organisational structure is required for creation of efficient and stable structure. Well designed organisation
structure facilitates the smooth functioning of the organisation. In this unit, you will learn the concept,
components and types of organisation structure. You will further learn the dimensions of structure and the
models of organisational designs. You will be familiarised with the determinants of the organisational
effectiveness.

2.2 CONCEPT OF ORGANISATION STRUCTURE

Organisation structure may be defined as the established pattern of relationships among the components of
the organisation. Organisation structure in this sense refers to the network of relationships among
individuals and positions in an organisation. Jennifer and Gareth have defined organisation structure as the
formal system of task and reporting relationships that controls, coordinates and motivates employees so that
they cooperate and work together to achieve an organisation’s goals. In fact organisation structure describes
the organisation framework. Just as human beings have skeletons that define their parameters, organisations
have structures that define-theirs. It is like the architectural plan of a building. Just as the architect
considers various factors like cost, space, special features needed etc. while designing a good structure, the
managers too must look into factors like benefits of specialisation, communication problems, problems in
creating authority levels etc., before designing the organisation structure.

The manager determines the work activities to get the job done, writes job descriptions, and organises people
into groups and assigns them to superiors. He fixes goals and deadlines and establishes standards of
performance. Operations are controlled through a reporting system. The whole structure takes the shape of a
pyramid. The structural organisation implies the following things :

• The formal relationships with well-defined duties and responsibilities;

• The hierarchical relationships between superior and subordinates within the organisation;
• The tasks or activities assigned to different persons and the departments;
• Coordination of the various tasks and activities;
• A set of policies, procedures, standards and methods of evaluation of performance which are formulated
to guide the people and their activities.

The arrangement which is deliberately planned is the formal structure of organisation. But the actual
operations and behaviour of people are not always governed by the formal structure of relations. Thus, the
formal arrangement is often modified by social and psychological forces and the operating structure provides
the basis of the organisation.

Significance of Organisation Structure

The organisation structure contributes to the efficient functioning of organisation in the following ways.

Clear-cut Authority Relationships : Organisation structure allocates authority and responsibility. It

specifies who is to direct whom and who is accountable for what results. The structure helps an organisation
member to know what is his role and how does it relate to other roles.

Pattern of Communication : Organisation structure provides the patterns of communication and

coordination. By grouping activities and people, structure facilitates communication between people centred
on their job activities. People who have joint problems to solve often need to share information.

Location of Decision Centres : Organisation structure determines the location of centres of decision
making in the organisation. A departmental store, for instance may follow a structure that leaves pricing,
sales promotion and other matters largely up to individual departments to ensure that various departmental
conditions are considered.

Proper Balancing : Organisation structure creates the proper balance and emphasizes on coordination of
group activities. Those more critical aspect for the success of the enterprise may be given higher priority in
the organisation. Research in a pharmaceutical company, for instance, might be singled out for reporting to
the general manager or the managing director of the company. Activities of comparable importance might be
given, roughly equal levels in the structure to give them equal emphasis.
Stimulating Creativity : Sound organisation structure stimulates creative thinking and initiative among
organisational members by providing well defined patterns of authority. Everybody knows the area where he
specialises and where his efforts will be appreciated.

Encouraging Growth : An organisation structure provides the framework within which an enterprise
functions. If it is flexible, it will help in meeting challenges and creating opportunities for growth. A sound
organisation structure facilitates growth of the enterprise by increasing its capacity to handle increased level
of activity.

Making use of Technological Improvements : A sound organisation structure which is adaptable to change
can make the best possible use of latest technology. It will modify the existing pattern of authority-
responsibility relationships in the wake of technological improvements.

In short, existence of good organisation structure is essential for better management. Properly designed
organisation can help in improving team work and productivity by providing a framework within which the
people can work together most effectively. Therefore, an organisation structure should be developed
according to the needs of the people in the organisation.

2.3 COMPONENTS OF ORGANISATION STRUCTURE

Organisation structure influence the division of the tasks, grouping of activities, coordinating the activities
and the overall accomplishment of the tasks. Since organisation structure relates to relatively stable
relationship and process of the organisation, all influencing factors must be analysed for designing the
organisation structure.

According to Robbins organisation structure stipulates how tasks are to be allocated, who reports to whom,
and the formal coordinating mechanisms and interaction patterns that will be followed. John Ivancevich and
Michael Matteson have also expressed the same view and advocated that manager are required to take
following four decisions for designing organisational structure :
• Divisions of overall task into smaller jobs.
• Distribution of authority among the jobs.
• Bases by which the individual jobs are to be grouped together; and
• The appropriate size of group reporting to each superior.

Let us discuss each of them in detail.

Division of Labour

Adam Smith emphasized on the division of labour in his celebrated work, Wealth of Nation. In the early
twentieth century, Henry Ford used assembly line operations for manufacturing automobiles. He assigned a
specific repetitive task to each worker. The whole tasks were broken into number of smaller steps or
activities. Each step was required to be completed by separate individual. Thus, the individual attained
specialisation in performing that particular activity. The manufacturing sector has been using the work
specialisation extensively all over the world. The division of labour which results in work specialisation
provide following benefits to the organisation.
• The performance of specialised job enhances the work efficiency. Hence, the employees skills can be
used in the most efficient way.
• Since the work cycles of the job are very short, the workers can attain perfection on that job quickly.
• It enhances productivity in the organisation.
• The workers can be trained easily to perform the repetitive work.
• The training costs are reduced.
• It is easier to match workers with the specific job skills.

Despite these benefits, the division of labour has been criticised on the following ground.
• It can not be used for all types of jobs.
• It may lead to monotony and boredom.
• It focuses on physical performance of the job and underestimates the behavioural aspects of the workers.
The positive features of division of labour overshow the negative features. Hence, the work specialisation
has been widely used as an important means for enhancing productivity in the organisation.

Delegation of Authority

Delegation is the process that a manager follows in dividing the work assigned to him so that he performs
that part, which because of his position he can perform effectively. Delegation is legitimate authorisation to
a manager or employee to act in specified ways. It enables him to function independently without reference
to the supervisor but within the limits set by the supervisor and the normal framework of organisational
objectives, policies, rules and procedures. Thus, delegation involves : a) entrustment of work to another for
performance, b) grant of power, right or authority to be exercised to perform the work, c) creation of an
obligation on the part of the person accepting delegation.

Delegation of authority is one of the most important element in the process of organisation. Organisations
are characterised by a network of activities and roles. Delegation is the process through which the
interrelationships are created among individuals in their different roles in the organisation.

Delegation is necessary because it is physically impossible for a single man to look after the affairs of a large
organisation. The success of a manager lies in his ability to multiply himself through other people. The
organisations of today are not only large but also complex in character. No manager can claim to have all the
skills and expertise to perform all the diverse kinds of jobs. Again, large scale business activities are not
confined to one place. It may have several branches and units at several places. Delegation becomes a
necessity for running these branches.

An organisation is a continuity. Managers may go and come but the organisation continues. Delegation
provides continuity of operations in the organisation. The process of delegation helps managerial
development in an organisation.

Thus, delegations is important for any organisation because it reduces the burden of the managers and leaves
him free to look after important matters of the organisation. It is a method by which subordinates can be
developed and trained to take up higher responsibilities. It provides continuity to the organisation and
creates a healthy organisational climate by creating better understanding among the employees.
The major benefits of delegation are :
• Delegation leads to professionalism.
• Managerial decisions may involve creativeness and innovativeness.
• The competitive environment may be created in the organisation.
• The mangers may take quick decisions.
The limitations of delegation of authority are :
• The managers may resist to delegate authority.
• The managers may require training for taking decisions and the costs of training may be higher.
• Every person may not be able to take high level of decision in the effective way.
• The administrative costs may also increase.

Despite these limitations, delegation of authority enhances efficiency in the organisation.

Departmentation

The division of labour divides the jobs into smaller activities. In order to coordinate these activities, they are
grouped together. The basis by which these activities are grouped together are known as
departmentalisation.

It may be defined as the process of forming departments or grouping activities of an organisation into a
number of separate units for the purpose of efficient functioning. This term vary a great deal between
different organisations. For example, in business undertaking, terms are division, department and section; in
Government these are called branch, department and section; in military, regiment, batallion groups and
company.

The impact of departmentation is a delineation of executive responsibilities and a grouping of operating

activities. Every level in the hierarchy below the apex is departmentalised and each succeeding lower level
involves further departmental differentiation.

The major benefits of departmentalisation are :

Specialisation : Departmentation leads to the benefits of specialisation as various organisational activities

are grouped according to their relation with the specific functions or objectives. Every departmental
manager specialises in the tasks assigned to him.

Administrative control : Departmentation helps in effective managerial control because the standards of
performance for each and every department can be laid down precisely. Every department has a specific
objective. This also facilitates keeping expenditure within limits.

Fixation of responsibility : Since organisation work is divided into manageable units, and authority and
responsibility are precisely defined, it is easier to fix the accountability of different managers for the
performance of various tasks.

Freedom or autonomy : The departments created through departmentation are semi-autonomous units.
Their heads are given a sufficient degree of authority to run their departments. This increases the efficiency
of the departments.

Development of managers : Departmentation helps in the development of managerial personnel by

providing them opportunities to take independent decisions and initiative. The executives can develop
themselves for promotion to higher jobs.

Span of Control

The departmentation reflects the types of jobs which are grouped together. Different persons are involved in
performing these jobs. They are required to be supervised closely.
Span of control refers to the number of individuals a manager can effectively supervise. Thus, it is expected
that the span of control, that is, the number of subordinates directly reporting to a superior should be limited
so as to make supervision and control effective. This is because executives have limited time and ability.

It is sometimes suggested that the span of control should neither be too wide nor too narrow. In other words,
the number of subordinates should not be too large or too small. The number of subordinates cannot be
easily determined because the nature of jobs and capacity of individuals vary from one organisation to
another. Moreover, the actual span of supervision affects the organisation in different ways. A wide span
results in fewer levels of supervision and facilitates communication. It permits only general supervision due
to the limited availability of time. Narrow span, on the other hand, requires multiple levels of supervision
and hence longer time for communication. It is more expensive and complicates the process of
communication. A narrow span, however enables managers to exercise close supervision and control.

Although there are certain limits to the span of control, the tendency in recent years has been to avoid
specifying absolute number because it has been recognised that the ideal span depends on a number of
factors. Some of the important factors are discussed below :
Nature of the Work : If the work is simple and repetitive, the span of control can be wider. However, if the
work requires close supervision the span of control must be narrow.
Ability of the Manager : Some managers are more capable of supervising large number of people than
others. Thus for a manager who possesses qualities of leadership, decision-making ability and
communication skill in greater degree the span of control may be wider.
Efficiency of the Organisation : Organisations with efficient working systems and competent personnel
can have larger span of control.
Staff Assistants : When staff assistants are employed, contact between supervisors and subordinates can be
reduced and the span broadened.
Time Available for Supervision : The span of control should be narrowed at the higher levels because top
managers have less time available for supervision. They have to devote the major part of their work time in
planning, organising, directing and controlling.
Ability of the Subordinates: Fresh entrants to jobs take more of a supervisor’s time than trained persons
who have acquired experience in the job. Subordinates who have good judgement, initiative, and a sense of
obligation seek less guidance form the supervisor.
Degree of Decentralisation : An executive who personally takes many decisions is able to supervise fewer
people than an executive who merely provides encouragement and occasional direction.

It should be clear that the size of the span of control is related to numerous variables, and no single limit is
likely to apply in all cases. A variety of factors can influence the resulting number of employees comprising
the optimum span of control in any particular organisation. The span of control also influence the creation of
tall and flat structure. Let us learn the concept of tall and flat structure.

Tall and Flat Structure

A tall organisational structure would have many hierarchical levels There is a long distance between the top
most manager and the bottom most manager. There are large number of job titles and a career path to the
employee. Fewer number of subordinates a particular manager is required to guide, the organisational
structure would be taller. Contrarily, a flat structure would have wide span of management. The number of
hierarchy would be less. Larger the number of subordinates a particular manager is required to guide the
organisational structure would be flatter. Choosing an appropriate span of management is important for two
reasons. First, it affects efficiency. Too wide a span may mean that managers are over extended and
subordinates are receiving too little guidance or control. When this happens, managers may be pressured to
ignore or condone serious errors. In contrast, too narrow a span may mean that managers are underutilized.

Thus, the extent of division of work, the nature of delegation of authority, the process of departmentation and
the requirement of effective supervision i.e., span of control influence the designing of organisation
structure.

3.4 TYPES OF ORGANISATION STRUCTURE

Different types of Organisation structure can be created on the basis of arrangement of activities.
Accordingly, three broad types of structural forms are :
• Functional Structure
• Divisional Structure, and
• Adaptive Structure

Let us learn them in detail.

3.4.1 Functional Structure

When units and sub-units of activities are created in organisation on the basis of functions, it is known as
functional structure. Thus, in any industrial organisation, specialised functions like manufacturing,
marketing, finance and personnel constitute as separate units of the organisation. All activities connected
with each such function are placed in the same unit. As the volume of activity increases, sub-units are
created at lower levels in each unit and the number of persons under each manager at various levels get
added. This results in the interrelated positions taking the shape of a pyramid. Look at figure 3.1 which
shows the functional structure of a medium-size organisation.

Figure 3.1 : Functional Structure

Chief Executive

Manufacturing Marketing Finance

Mechanical Electrical Advertising Sales Accounts Audit

Work Work

Sub-units Sub-units Sub-units Sub-units Sub-units

The main advantage of the functional structure of organisation is that there is functional specialisation in
each unit, which leads to operational efficiency of people engaged, and the organisation as a whole derives
the benefit of specialised operations. The heads of the functional units are in direct touch with the chief
executive who can sort out inter-functional problems, if any, and also coordinate the interrelated functions.
The chief executive is also able to be in direct touch with lower level subordinates and thereby have full
knowledge of the state of affairs in the organisation.
However, while the functional arrangement may be well suited to small and medium size organisations, it is
incapable of handling the problems of an organisation as it grows in size and complexity. Problems of sub-
units at lower levels do not receive adequate attention of higher level managers while some of the activities
tend to be over-emphasized.
Functional units become unwisely and difficult to manage when there are diverse kinds of activities
performed in large number of sub-units. Personal contact between superiors and subordinates become rare,
and flow of communication is slow leading to problems of coordination and control.
2.2.2 Divisional Structure

The divisional organisation structure is more suited to every large enterprise particularly those which deal in
multiple products to serve more than one distinctive markets. The organisation is then divided into smaller
business units which are entrusted with the business related to different products or different market
territories. In other words, independent divisions (product divisions or market division), are created under
the overall control of the head office. Each divisional manager is given autonomy to run all functions
relating to the product or market segment or regional market. Thus, each division may have a number of
supporting functions to undertake. A divisional structure may consist of two or more product divisions or
market or territorial divisions as depicted in the diagrams 3.2 and 3.3.
Figure 3.2 : Product Divisionalisation

Chief Executive

Corporate Planning Finance Personnel

and Control

Chemicals Products Division Textiles Division

Manufacturing Marketing Accounting Personnel

Manufacturing Marketing Accounting Personnel

Figure 3.3 : Territorial Divisionalisaton

Chief Executive

Corporate Planning Manufacturing Finance Marketing Personnel

and Control

Eastern Division Western Division Northern Division Southern Division

Accounting Personnel Accounting Personnel Accounting Personnel Accounting Personnel

Manufacturing Marketing Manufacturing Marketing Manufacturing Marketing Manufacturing Marketing

In a divisional structure each division contributes planned profits to the organisation, but otherwise operates
as an independent business. The functional units are headed by managers while the final authority vests in
the divisional manager, who coordinates and controls the activities of the various functional units in the
division. The top management of the organisation, besides providing funds, determines the organisation
goals and formulates policies.

The divisional structure is characterised by decentralisation of authority. Thus, it enables managers to take
decisions promptly and resolve problems appropriate to the respective divisions. It also provides opportunity
to the divisional managers to take initiative in matters within their jurisdiction. But such a structure involves
heavy financial costs due to the duplication of supporting functional units for the divisions. Moreover, it
requires adequate number of capable managers to take charge of the respective divisions and their functional
units.

3.4.3 Adaptive Structure

Organisation structure are often designed to cope with the unique nature of undertaking and the situation.
This type of structure is known as adaptive structure. There are two types in structures.

i) Project Organisation, and

ii) Matrix Organisation

i) Project Organisation : When an enterprise undertakes any specialised, time-bound work involving
one-time operations for a fairly long period, the project organisation is found most suitable. In
this situation the existing organisation creates a special unit so as to engage in a project work
without disturbing its regular business. This becomes necessary where it is not possible to cope
with the special task or project. Within the existing system, the project may consist of
developing a new project, installing a plant, building an office complex, etc.. A project
organisation is headed by a project manager in charge, who holds a middle management rank and
reports directly to the chief executive. Other managers and personnel in the project organisation
are drawn from the functional departments of the parent organisation. On completion of the
project they return to their parent departments.

The main advantage of such a structural arrangement is that it leaves regular business undisturbed. It is
exclusively concerned with the task of completing the project work on time and in conformity with the
standards of performance relevant to its goal. There is better management and control over the project
activities as the project manager enjoys necessary authority and is alone responsible for the results. But
project organisation may create problems as well. Functional managers often resent the exercise of
authority by the project manager in the functional areas and hence conflict arises. The stability of the
functional departments is disturbed by transfer of personnel to project work from time to time. Shifting
of personnel from project to project disrupts their developments in the specialised fields.

ii) Matrix Organisation : This is another type of adaptive structure which aims at combining the
advantages of autonomous project organisation and functional specialisation. In the matrix organisation
structure, there are functional departments with specialised personnel who are deputed to work full time
in different projects sometimes in more than one project under the overall guidance and direction of
project managers. When a project work is completed, the individuals attached to it go back to their
respective functional department to be assigned again to some other project. This arrangement is found
suitable where the organisation is engaged in contractual project activities and there are many project
managers, as in a large construction company or engineering firm.
 Matrix organisation provides a flexible structure ideally suited to the requirements of changing
conditions. It facilitates pooling of specialised and technical personnel from different functional
departments, who can be deputed to a number of projects. They acquire valuable experience of handling
varied and complex problems in project work. There is speedy exchange of information and decision-
making as they work under the coordinating authority of project managers.

The major drawback of matrix organisation is that the personnel drawn from specialised functional
departments are subjected to dual authority, that of the functional heads and the project managers. The
principles of unity of command is thereby sacrificed. This generates stresses and strains in project
management, because there is simultaneous engagement of the same individual in a number of projects.

3.5 DIMENSIONS OF ORGANISATION STRUCTURE

Robins has identified three dimensions of organisation structure, i.e., formalization, centralisation and complexity.
Let us learn them briefly.

Formalization : It refers to the extent to which the activities, rules, procedures, instructions, etc. are
specified and written. This primarily means that the degree to which the activities of the organisation are
standardised. High division of labour i.e., specialisation, high level of delegation of authority, high degree of
departmentation and wide span of control lead to high degree of formalization. The major benefits of
formalization are as follow :

• Standardised activities reduce the variability in the organisation.

• It promotes coordination. All activities are defined and specified which facilitate the process of
coordination.
• There is least scope of discretion. The decision is taken on the basis of standard rules and procedures;
hence the scope of personal discretion is reduced.
• Operating costs are reduced.
• The standard activities reduce the conflict and ambiguity.

Formalization is criticised on the following ground :

• It prevents creativity and flexibility in the organisation.

• It may be difficult for the organisation to change the rules.
• The formulation and implementation of new rules may face great resistance by the employees.
Despite these limitations formalization has been widely used in the organisation. The formalized structure
helps in smooth functioning of the organisation. Well defined jobs and relationships enhance the efficiency
of the organisation.

Centralisation : There are some organisations, where top management makes all the decisions and middle
and lower level managers merely implement the decisions taken by the top management. At the other
extreme, there are some organisations in which decisions are made at all levels of management. The first
case fits into the centralised structure where as the second one is highly decentralised. One of the fourteen
principles of Henry Fayol happens to be centralisation. According to him, decreasing the role of
subordinates in decision-making is centralisation; increasing their role is decentralisation. Fayol believed
that managers should retain final responsibility but at the same time give their subordinates enough authority
to do their jobs properly. The problem is to find the proper degree of centralisation in each case. Thus,
centralisation refers to the degree to which decision making is centralised in the organisation.
In centralisation little delegation of authority is the rule; power and discretion are concentrated in a few
executives. Control and decision-making reside at the top levels of management. However, absolute
centralisation is untenable because it would mean that subordinates have no duties, power or authority.

Centralisation may be essential in small organisation to survive in a highly competitive world. But as the
organisation becomes more complex in terms of increasing size, interdependence of work-flow, complexity
of tasks and spatial physical barriers within and among groups, a function requisite for efficiency is to move
decision-making centres to the operating level. Thus, the larger the size of an organisation, the more urgent
is the need for decentralisation. This does not mean that decentralisation is good and centralisation is bad.

On the other hand, decentralisation is the systematic effort to delegate to the lowest levels all authority
except that which can be exercised at central points. It is the pushing down of authority and power of
decision-making to the lower levels of organisation. The centres of decision-making are dispersed
throughout the organisation. The essence of decentralisation is the transference of authority from a higher
level to a lower level. It is a fundamental principles of democratic management where each individual is
respected for his inherent worth and constitution.
As you know, decentralisation is a correlate of delegation; to the extent that authority is not delegated, it is
centralised. Absolute centralisation decreases the role of subordinate managers which in turn encourages
decentralisation. Absolute decentralisation is also not possible because managers cannot delegate all their
authority.

Complexity : It refers to the differences among the jobs and units. It reflects the degree of differentiation
existing within the organisation. A variety of jobs and units create more complex organisation structure. The
management of complex structure may be difficult. Based on the complexity of activities, there may be
horizontal differentiation, vertical differentiation and spatial differentiation. Let us learn them briefly.

Horizontal differentiation refers to the number of different units at the same level. This means if the number
of activities which require more specialised skills, the organisation will tend to be more complex.
Specialisation and departmentation are good examples of such differentiation. Another differentiation i.e.,
vertical differentiation refers to the number of levels in the organisation. It reflects the depth of the hierarchy
in the organisation. This means that increase in hierarchical level enhances complexity in the organisation.
In such organisation, coordination and communication become difficult. The process of interaction is
influenced by span of control which determines the number of persons effectively supervised by a manager.
In the wide span, the managers have more persons to be supervised and in the narrow span they have less
persons to be supervised. The supervision depends on number of other factors as well.

The third types of differentiation i.e., spatial differentiation refers to the degree to which location of units
and the personnel are dispersed. As you must be aware that these days activities of the organisation are
located in different areas. The multiple location increases the complexity of the organisation. Coordination
and interaction also become difficult in such organisation.

An increase in above types of differentiation may lead to increase in complexity in the organisation. Thus,
the complexity of the organisation determines the amount of coordination, communication and control. John
Invancevich and Michael Matteson have analysed that the high formalization reflects high specialisation,
delegated authority, functional departments and wide span of control. The high centralisation reflects the
high specialisation, centralised authority, functional departments and wide span of control. The high
complexity reflects high specialisation, delegated authority, territorial, customer and product departments
and narrow spans of control. The low formalization, centralisation and complexity reflect the opposite
characteristics.
3.6 ORGANISATIONAL DESIGN
Organisational design refers to the process of coordinating the structural elements of organisations in the
most appropriate manner. There are three distinct schools; the classical, the neoclassical and the
contemporary. The classical school represented by Max Weber, F.W.Taylor and Henry Fayol; the proponents
of formal hierarchy, clear set of rules and specialisation of labour. The neo-classical represented by
organisational scholar such as McGregor, Argyris and Likert. They emphasize on employee satisfaction
along with economic effectiveness and call for the designing of flat hierarchical structure with a high degree
of decentralisation. The proponents of contemporary design emphasize on the environmental factors in which
the organisations are operating. Let us now learn them briefly.

3.6.1 Classical Form of Organisation

The Simple Structure : A simple structure has low departmentalisation, wide span of control, concentration
of authority in a single person, and little or no formalization. Simple structure is normally flat type of
organisation having two or three vertical levels, a loose body of employees and one individual in whom the
decision-making authority is centralised. Usually, practiced in small organisations having owner manager or
family owned businesses. The advantage of simple structure is in its simplicity. It is fast, flexible,
inexpensive to maintain and accountability is absolutely clear. However, it is very difficult to maintain
especially when the organisations grow larger.

The Bureaucracy : The most common form of organisation is the classical bureaucratic structure. The
structure is inflexible, impersonal and highly standardised. You may observe some of the organisations we
come across very frequently. The banks, where we deposit our money and withdraw cash as and when we
need them. The stores from where we buy large number of items of daily use. The income tax office, we
need to file our income tax returns every year. If you observe these organisations closely, we may find that
they are all having highly routinised work system carried out through specialisation, formally written rules
and regulations, centralised authority, narrow span of control and all decision have to follow the chain of
command. Max Weber (1947), considered it as an ideal form of organisation.

The bureaucracy, though not very ideal form of organisation in modern times but still holds ground. The
strength of bureaucracy lies in its ability to perform standardised functions highly efficiently. However,
obsessive observance of rules and regulations is said to be its major weakness.

The Matrix Structure : Mathematically, matrix is an array of horizontal rows and vertical columns. In order
to understand the Matrix Structure, we first need to understand the Functional Organisation, a form of
departmentalisation in which every member of the organisation engaged in a functional area i.e., employee
engaged in marketing or production is grouped into one unit. The matrix organisation is defined as type of
organisation in which each employee has two bosses or (under dual authority). They have to report to both
functional and divisional manager and also to a project or group manager. This type of structure is most
popular in the advertising agencies, hospitals, Research and Development laboratory and universities. The
matrix structure allows for flexible use of organisations human resources, pooling and sharing of specialised
resources but the major problem is with regard to coordination of task and stress caused by two bosses.
2.2.2 Alternate Design

Robins has classified the structural designs into three broad types; the team structure, the virtual
organisation, and the boundary less organisation.

The Team Structure : The team structure uses the team as the central device to coordinate work activities.
Robins defines work team as a group whose individual efforts result in a performance greater than the sum of
the individual inputs. The primary characteristics of the team structure are that it breaks down departmental
barriers and decentralises decision making to the level of the work team. One of the prerequisites of the team
structure is that the employees have to be both generalists as well as specialists. In India some of the well
known multinationals like Xerox, Motorola and the IT giant H.P uses cross functional teams.

The Virtual Organisation : In the age of specialisation no organisation can survive without outsourcing.
The core activity remains with the main organisation whereas parts are performed by others. The virtual
organisation (also known as network or modular organisation) goes a step ahead by outsourcing major
business function. In structural terms the virtual organisation is highly centralised, with little or no
departmentation. When large organisations use virtual structure, they frequently use it to outsource
manufacturing activities. This is the reason why do some of the very large organisations do business of
crores of rupees without having manufacturing activities.

The Boundary Less Organisation : The credit for coining the term boundary less organisation goes to Mr.
Jack Welch of General Electrics (GE). He wanted GE to become boundary less organisation. The type of
organisation, which seeks to eliminate the chain of command, have limitless span of control and replace
departments with empowered teams.

By removing vertical boundaries, management flattens the hierarchy, status, and ranks are minimized. G.E.
has been using cross-hierarchical teams, participative decision making practices and 360-degree performance
appraisal system to break vertical boundaries. It is the networked computers (with the help of internet and
intra-net), which makes the boundaryless organisation possible by allowing people to communicate across
inter-organisational and intra-organisational boundaries. Electronic Mail for example permits hundreds of
employee to share information simultaneously and allows ranks and file workers to communicate directly
with senior executives.

3.6.3 Organisational and Mechanistic Designs

There are two extreme models of organisational design i.e., mechanistic model and organic model. Let us
learn them briefly. Robins has identified following characteristics of mechanistic and organic model of
organisational design :

Mechanistic Model : The major features of mechanistic model are as follow:

• extensive departmentalisation
• high formalisation
• a limited information network; and
• centralisation

The activities are grouped together based on the strategies of the departmentation like functional, division,
adaptive; etc. There are standardised policies, procedures, rules and decision making styles. The flow of
information is very limited. The decision making style is highly centralised. Thus, the mechanistic model
endevours to achieve efficiency because of its structural characteristics.
Organic Model : The major features of organic model are as follow:
• cross hierarchical and cross functional teams
• low formalization
• comprehensive information network
• high participation in decision making
In the organic model teams emerge from different hierarchy and functional areas. The tasks, rules,
procedures and decision making are in a fluid situation and changeable. The information flow across the
organisation. There exists decentralisation of decision making where participation is sought from the larger
group. This model focuses on flexibility and adaptability. It encourages greater utilisation of human
resources.

3.7 ORGANISATIONAL EFFECTIVENESS

The study of organisational structure is necessary to understand organisational effectiveness. In simple terms
better the structure of an organisation more effective would be the organisation and vice versa. You must be
aware that some organisations perform better and grow more rapidly than other. On the extreme side some
organisations perform badly and within a short period of time go out of business. How can we measure
effectiveness? In order to measure the effectiveness let us analyse following components of organisational
effectiveness.

The different components of organisational effectiveness can be found from the answer to the following
questions.
• Are the employees satisfied with the organisation?
• Are the customers satisfied with the organisation?
• Is the organisation profitable?
• Is the organisation growing in terms of profit, revenue, number of products, expansion into new
locations, line of products etc?
• Is the organisation productive i.e., creating goods and services of high value at minimum cost? and
• Is the organisation innovative or stale?

Determinants of Organisational Effectiveness

Several factors influence the organisational effectiveness. Let us learn them in detail.
Figure 3.4 : Determinants of Organisational Effectiveness

Managerial Policies and Practices

Managerial policies and practices integrate the entire organisation, maintain balance among the interest
groups in the organisation, and accommodate them with the external environment. Managerial policies and
practices have a direct bearing on the Organisational effectiveness. The major managerial policies and
practices are as follow :

Strategy: A strategy is a plan for interacting with the competitive environment to achieve organisational
goals. Goals define where does the organisation want to go and strategies define how will the organisation
reach there. In other words, strategy is the determination of basic long term goals of the organisation, the
adoption of the courses of action and the allocation of resources necessary to achieve them. The strategy is
the most important factor of an organisation which decides the future course of action for the organisation.
New strategy is often selected based upon environmental needs, and then the top management attempts to
redesign the organisation to achieve those ends.

Leadership: It is the process of influencing members towards the achievement of organisational goals. It is
said that managers are people who do things right and leaders are people who do the right thing. Leaders
facilitate the identification of organisational goals. They initiate the development of vision for their
organisation.

Decision-making: Decision-making is choosing among alternatives. It has close relationship with all
traditional management functions. The decision that management makes has a profound impact on the
success of an organisation.

Rewards: Organisational success to a large extent depends on how is management able to gain support of
its team by way of compensating them for the efforts they are making for the achievement of organisational
goals. It is primarily meant to sustain employee morale and improve or maintain productivity.

Communication: It is the linkages among members of the organisation whereby they exchange information.
The organisational structure has to provide for a perfect communication among different members of the
organisation. Organisational communication is the grease that enables any organisational change.

Environmental Characteristics

Organisational effectiveness is influenced to a great degree by the external environmental characteristics. It

is dependent on how is the external environment predictable, complex and hostile to the organisation and its
activity. The major characteristics are as follow :

Predictability: Predictability refers to how certain or uncertain an organisation may be towards supply of
various resources; human, raw material etc. It is an element of external environment.

Complexity: Environment complexity refers to the heterogeneity and range of activities which are relevant
to an organisation’s operations. How many diverse groups from external environment the organisations have
to deal with.

Hostility: A hostile environment is one in which the underpinning of the organisation is threatened. How is
an organisation viewed by the people at large. You may recall the case of Union Carbide after the Bhopal
gas leakage about the hostility of environment.

Employee characteristics

The characteristics of the human resource could make or break an organisation. It is employee
characteristics, which is reflected in the success or failure of an organisation. The major characteristics are
as follow :
Goals: Goals define where the organisation wants to go. Goals are intentions that an individual or an
organisation would like to achieve in the course of their working. Goals provide a directional nature to
people’s behaviour and guide their thoughts and actions.

Skills: Skill is the ability to engage in a set of behaviour that are functionally related to one another and that
lead to a desired performance in a given area. The skill can be technical, managerial, behavioural etc.

Motives: A motive is an inner state of a person that energizes activates, or moves and directs towards the
achievement of a pre defined goal. The motivated employees have high motives to perform better and
achieve the targets.

Attitudes: Attitudes are evaluative statements- either favourable or unfavourable concerning objects, events,
or people. Attitudes influence job behaviour and hence organisational effectiveness.

Values: Values represent basic convictions or a specific mode of conduct. It generally influences an
individual’s attitude and behaviour. The value that a person holds influences his or her motivation and
subsequently behaviour.

Organisational Characteristics
Organisational characteristics refer to the general conditions that exist within an organisation. Various
organisational characteristics influence organisational effectiveness. The major characteristics are as follow
:

Structure: An organisational structure defines how are job tasks formally divided, grouped and coordinated.
For organisational effectiveness, six elements need to be addressed while designing organisational structure.
These are: work specialisation, departmentation, chain of command, span of control, centralisation and
decentralisation, and formalization.

Technology: The term technology refers to how does an organisation transfer its inputs into outputs. Every
organisation has at least one technology for converting financial, human and physical resources into products
or services. The choice of technology and its use influences organisational effectiveness.
Size: In a narrow sense organisational size refers to the number of people in an organisation. But, if we take
a broader view, size refers to the physical capacity of the organisation, the personnel available to the
organisation, the organisational inputs or outputs and the discretionary resources available to an organisation.
It is the size which influences the structure which in turn influences organisational effectiveness.

Benefits of organisational effectiveness:

• Structures and behaviours are aligned with business needs.
• Disruption to business is minimised which reduces operational risk.
• Employee morale is sustained which maintains productivity.
• The right employees and talent are retained.
• Employees objectives and rewards are aligned to business goals.

3.8 LET US SUM UP

Organisation structure refers to the grouping of activities and establishing pattern of relationship among the
various parts of the organisation. It involves the assignment of tasks, establishment of hierarchical
relationship, creation of policies, procedures, coordination and control of all activities in the organisation.
The major components of organisation structure are : division of labour, delegation of authority,
departmentation and span of control.
Different types of organisation structure are created based on the arrangement of various activities. They are
: functional, divisional and adaptive. The adaptive structure consists of project organisation and matrix
organisation. The dimensions of organisation structure are : formalization, centralisation and complexity.

The Organisational structure has been changing over a period of time. There is not one organisational
structure, which is suitable for a particular type of organisation. We find that within the same organisation
there can be more than one structure in vogue. However, from bureaucracy to the matrix organisation there
has been wide variety of structures. As a result of growing outsourcing the organisational structure would
be more towards virtual and boundary less organisation. But bureaucracy in a limited manner shall remain
true in all ages and departmentation has to be done in order to assign task and ascertain accountability.

The Organisational designs are dependent on a wide variety of factors; namely the management philosophy,
the size of the organisation, the type of technology, and the external environmental factors. Therefore, there
cannot be tailor-made solutions for all organisations. The ultimate aim for the organisation is to be effective
and organisational structure is a tool in the attainment of organisational objectives. The components of
organisational effectiveness are managerial policies and practices, employee characteristics, organisational
characteristics and the environmental characteristics.

3.9 KEY WORDS

Bureaucracy: A structure with highly routine operating tasks achieved through specialisation, formal rules
and regulations.

Centralisation: The degree to which decision-making is concentrated in one or a small group of individuals
at the higher level of management.

Chain of Command: The unbroken line of authority that flows from the top of the organisation to the
lowest level and clarifies as to who reports to whom?

Decentralisation: The degree to which decision making power is extended to the lower levels of management
in the organisation.

Departmentation: The basis by which the jobs are grouped.

Division of Labour: The degree to which tasks are sub-divided into separate jobs in the organisation.

Hierarchy: Arrangement of positions in the organisations from higher to lower levels.

Organisation: Two or more people who work together in a structured way to achieve a specific goal or set of
goals.

Span of Management: The number of subordinates a manager can efficiently and effectively direct.

3.10 TERMINAL QUESTIONS

1) What is Organisational Structure? Discuss the significance of Organisational Structure.

2) What are the components of organisation structure. Discuss them and explain how do they help in
smooth functioning of the organisation.
 3) Explain various types of organisation structure. How do they facilitate the smooth functioning of the
organisation.
4) Describe various dimensions of organisation structure. Do you think that the study of formalization,
centralisation and complexity help in enhancing the efficiency of the organisation. Discuss.
5) What is Organisational Effectiveness. Explain different components and determinants of
organisational effectiveness.
6) Write notes on
i) Departmentalisation
ii) Dimensions of Organisation structure
iii) Delegation of authority

Note : These questions will help you to understand the unit better. Try to write answers for them. Do not
submit your answers to the university for assessment. These are for your practice only.

SOME USEFUL BOOKS

Dwivedi R. S., Human Relations and Organizational Behaviour – A Global Perspective, Macmillan, Delhi.
(Recent Edition).

Jennifer M. George and Gareth R. Jones. Understanding and Managing Organizational Behavior, Addisson,
Wesley Publishing Company, New York. (Recent Edition).

John M. Ivancevich and Michael T. Matteson, Organizational Behavior and Management, Irwin, Chicago.
(Recent Edition).

John W, Newstrom and Keith Devis, Organizational Behavior, Tata McGraw, Hill Publishing Company Ltd,
New Delhi. (Recent Edition).

Stephen P Robbins, Organization Behavior, Prentice Hall of India, New Delhi. (Recent Edition).

Steven L. Mcshane and Mary An Von Glinow, Organizational Behavior, Tata McGraw Hill Publishing
Company Limited, New Delhi (Recent Edition).
Organisational Characteristics
• Structure
• Technology,
• Size etc

ORGANISATIONAL EFFECTIVENESS

Managerial Policies and Practices

• Strategy
• Leadership
• Decision making
• Rewards
• Communication etc

Employee Characteristics
• Goals
• Skills
• Motives
• Attitudes
• values

Environmental Characteristics
• Predictability
• Complexity
• Hostility