CHAPTER 5

Meaning
A process that initiates implementation of plans by clarifying jobs and working relationships
and effectively deploying resources for attainment of identified and desired results (goals).
Definition according to Louis Allen
s of identifying and grouping the work to be performed, defining and delegating
responsibility and authority, and establishing relationships for the purpose of enabling people
to work most effectively together in accomplishing objectives.
Steps in the Process of Organising
(i) Identification and division of work: The first step in the process of organising
involves identifying and dividing the work that has to be done in accordance with
previously determined plans. The work is divided into manageable activities so
that duplication can be avoided.
(ii) Departmentalisation: activities of similar nature are grouped together to facilitate
specialisation. This grouping process is called departmentalisation. . Departmentation can
be done on the basis of:
•Functions: marketing, personnel, finance etc.
•Products: Textiles, chemical, power division etc.
•Territories: Western, northern, central, eastern etc.
(iii) Assignment of duties: Define the work of different job positions and allocate work
accordingly.Once departments are formed, the dept is placed under the charge of an
individual. Jobs are then allocated to the members of each department in accordance to
their skills and competencies. E.g. activities of finance should be assigned to persons
having qualifications and experience in finance e.g. C.A‘s.
(iv) Establishing reporting relationships: Merely allocating work is not enough. Each
individual should also know who he has to take orders from and to whom he is
accountable. The establishment of such clear relationships helps to create a
hierarchal structure and helps in coordination amongst various departments.
Importance of organising
1. Benefits of specialization: In organizing every individual is assigned apart of total
work and not the whole task. This division of work into smaller units and repetitive
performance leads to specialization. Thus organizing promotes specialization which in
turn leads to efficient & speedy performance of tasks.
2. Clarity in working relationship: It helps in creating well defined jobs and also
clarifying the limits of authority and responsibility of each job. The superior-subordinate
relationship is clearly defined in organizing.
3. Effective administration: Organising provides a clear description of jobs and related
duties. This helps to avoid confusion and duplication. Clarity in working relationships
enables proper execution of work which results in effective administration.
 4. Optimum utilization of resources: The proper assignment of jobs avoids
overlapping/duplication of work. This helps in preventing confusion and minimizing the
wastage of resources and efforts.
5. Adoption to Change: A properly designed organizational structure is flexible which
facilitates adjustment to changes in workload caused by change in external environment
related to technology, products, resources and markets.
6. Development of Personnel: Sound organization encourages initiative and relative
thinking on part of the employees. When managers delegate their authority, it reduces
their workload so they can focus on more important issues related to growth &
innovation. This also develops the subordinates’ ability and helps him to realize his full
potential.
7. Expansion and growth: It helps in growth & diversification of an enterprise by adding
more job positions, departments, products lines, new geographical territories etc.
Organizational Structure
It seeks to establish relations among all the persons working in the organization. Under
the organizational structure, various posts are created to perform different activities for
the attainment of the objectives of the enterprise. Relations among persons working on
different posts are determined. The structure provides a basis or framework for managers
and other employers for performing their functions. The organization structure can be
defined as the frame work within which managerial and operating tasks are performed.
Types of Organisation Structures
1. Functional structure Grouping of jobs of similar nature under functional and
organising these major functions as separate departments creates a functional
structure. All departments report to a coordinating head. For example, in a
manufacturing concern division of work into key functions will include production,
purchase, marketing, accounts and personnel.

Managing
director

Human resource Research &

Marketing Purchasing
development

Suitability: It is most suitable when the size of the organisation is large, has a diversified
activities and operations require a high degree of specialisation.
Advantages:
1. Specialization: A functional structure leads to occupational specialisation since
emphasis is placed on specific functions.
 2. Coordination is established: All the persons working within a departmental are
specialists of their respective jobs. It makes the co-ordination easier at departmental
level.
3. Helps in increasing managerial efficiency: Managers of one department are
performing same type of function again and again which makes them specialized and
improves their efficiency.
4. Minimizes cost: It leads to minimum duplication of effort which results in economies
of scale and thus lowers cost.
5. It leads to minimal duplication of effort which results in economies of scale and this lowers
cost.
6. It makes training of employees easier as the focus is only on a limited range of skills. (f) It
ensures that different functions get due attention.

Disadvantages

1. A functional structure places less emphasis on overall enterprise objectives than the
objectives pursued by a functional head.
2. ) It may lead to problems in coordination as information has to be exchanged across
functionally differentiated departments
3. A conflict of interests may arise when the interests of two or more departments are not
compatible
4. ) It may lead to inflexibility as people with same skills and knowledge base may develop
a narrow perspective and thus, have difficulty in appreciating any other point of view.

Divisional Structure
Dividing the whole enterprise according to the major products to be manufactured like
metal, plastic, cosmetics etc. is known as divisional organization structure.

Managing
Director

footwear cosmetics garments skincare

Human Human
Marketing Finance Marketing Finance
Resource Resource

Suitability: This structure is suitable in organizations producing multi product or

different lines of products requiring product specialization. Also growing companies
which intend to add more lines of products in future adopt this structure.
Advantages
1. Product specialisation helps in the development of varied skills in a divisional head and this
prepares him for higher positions.
2. Divisional heads are accountable for profits, as revenues and costs related to different
departments can be easily identified and assigned to them. This provides a proper basis for
performance measurement.
3. It promotes flexibility and initiative because each division functions as an autonomous unit
which leads to faster decision making.
4. It facilitates expansion and growth as new divisions can be added without interrupting the
existing operations by merely adding another divisional head and staff for the new product
line
Disadvantages:
1. Conflict may arise among different divisions with reference to allocation of funds and further
a particular division may seek to maximise its profits at the cost of other divisions.
2. It may lead to increase in costs since there may be a duplication of activities across products.
3. It provides managers with the authority to supervise all activities related to a particular
division. In course of time, such a manager may gain power and in a bid to assert his
independence may ignore organisational interests.
FORMAL AND INFORMAL ORGANISATION
FORMAL ORGANISATION
Formal organisation refers to the organisation structure which is designed by the management to
accomplish a particular task. It specifies clearly the boundaries of authority and responsibility and
there is a systematic coordination among the various activities to achieve organisational goals.
The structure in a formal organisation can be functional or divisional.
DEFINITION
The formal organisation is a system of well-defined jobs, each bearing a definite measure of
authority, responsibility and accountability. Louis Allen
FEATURES
(a) It specifies the relationships among various job positions and the nature of their
interrelationship. This clarifies who has to report to whom.
(b) It is a means to achieve the objectives specified in the plans, as it lays down rules and
procedures essential for their achievement.
(c) Efforts of various departments are coordinated, interlinked and integrated through the formal
organisation.
(d) It is deliberately designed by the top management to facilitate the smooth functioning of the
organisation.
ADVANTAGES
1. Systematic Working:
Formal organisation structure results in systematic and smooth functioning of an organisation.
2. Achievement of Organisational Objectives:
Formal organisational structure is established to achieve organisational objectives.
3. No Overlapping of Work:
In formal organisation structure work is systematically divided among various departments and
employees. So there is no chance of duplication or overlapping of work.
4. Co-ordination:
Formal organisational structure results in coordinating the activities of various departments.
5. Creation of Chain of Command:
Formal organisational structure clearly defines superior subordinate relationship, i.e., who reports
to whom.
6. More Emphasis on Work:
Formal organisational structure lays more emphasis on work than interpersonal relations.
Disadvantages of Formal Organisation:
1. Delay in Action:
While following scalar chain and chain of command actions get delayed in formal structure.
2. Ignores Social Needs of Employees:
Formal organisational structure does not give importance to psychological and social need of
employees which may lead to demotivation of employees.
3. Emphasis on Work Only:
Formal organisational structure gives importance to work only; it ignores human relations,
creativity, talents, etc.
Informal Organisation:
In the formal organisational structure individuals are assigned various job positions. While
working at those job positions, the individuals interact with each other and develop some social
and friendly groups in the organisation. This network of social and friendly groups forms another
structure in the organisation which is called informal organisational structure.
Features of informal organisation:
(1) Informal organisational structure gets created automatically without any intended efforts of
managers.
(2) Informal organisational structure is formed by the employees to get psychological satisfaction.
(3) Informal organisational structure does not follow any fixed path of flow of authority or
communication.
(4) Source of information cannot be known under informal structure as any person can
communicate with anyone in the organisation.
(5) The existence of informal organisational structure depends on the formal organisation
structure.

Advantages of Informal Organisation:

 1. Fast Communication:
Informal structure does not follow scalar chain so there can be faster spread of communication.
2. Fulfills Social Needs:
Informal communication gives due importance to psychological and social need of employees
which motivate the employees.
4. It contributes towards fulfillment of organisational objectives by compensating for
inadequacies in the formal organisation.
Disadvantages of Informal organisation:
1. Spread Rumours:
According to a survey 70% of information spread through informal organisational structure are
rumors which may mislead the employees.
2. No Systematic Working:
Informal structure does not form a structure for smooth working of an organisation.
3. May Bring Negative Results:
If informal organisation opposes the policies and changes of management, then it becomes very
difficult to implement them in organisation.
4. More Emphasis to Individual Interest:
Informal structure gives more importance to satisfaction of individual interest as compared to
organisational interest.

Basis Formal organisation Informal organisation

Meaning Structure of authority relationships created by Network of social relationships

the management arising out of interaction among
employees

Origin Arises as a result of company rules and Arises as a result of social

Policies interaction

Authority Arises by virtue of position in management Arises out of personal qualities

Behavior It is directed by rules There is no set behaviour pattern

Flow of Communication takes place through the Flow of communication is not

Communication scalar chain through a planned route. It can
take place in any direction

Nature Rigid Flexible

Leadership Managers are leaders Leaders may or may not be

managers. They are chosen by the
group
DELEGATION
DEFINITION
 Delegation is the process a manager follows in dividing the work assigned to him so that he
performs that part which only he because of his unique organisational placement, can perform
effectively and so that he can get others to help with what remains. Louis Allen
MEANING
Delegation refers to the downward transfer of authority from a superior to a subordinate. delegation is
the entrustment of responsibility and authority to another and the creation of accountability for
performance.
Elements of delegation
1. Authority: Authority refers to the right of an individual to command his subordinates and to
take action within the scope of his position.It refers to the right to take decisions inherent in a
managerial position to tell people what to do and expect them to do it.
2. Responsibility: responsibility is the obligation of a subordinate to properly perform the
assigned duty. It arises from a superior–subordinate relationship because the subordinate is
bound to perform the duty assigned to him by his superior. Thus, responsibility flows
upwards i.e., a subordinate will always be responsible to his superior.
3. Accountability: Accountability implies being answerable for the final outcome. Once
authority has been delegated and responsibility accepted, one cannot deny accountability. It
cannot be delegated and flows upwards i.e., a subordinate will be accountable to a superior
for satisfactory performance of work.
Importance of Delegation
1. Effective management: By empowering the employees, the managers are able to function
more efficiently as they get more time to concentrate on important matters.
2. Employee development: As a result of delegation, employees get more opportunities to utilise
their talent and this may give rise to latent abilities in them. Delegation empowers the
employees by providing them with the chance to use their skills, gain experience and develop
themselves for higher positions.
3. M o t i v a t i o n o f employees: Delegation helps in developing the talents of the employees.
It also has psychological benefits. When a superior entrusts a subordinate with a task, it is not
merely the sharing of work but involves trust on the superior’s part and commitment on the
part of the subordinate.
4. Facilitation of growth: Delegation helps in the expansion of an organisation by providing a
ready workforce to take up leading positions in new ventures
5. Basis of management hierarchy: Delegation of authority establishes superiorsubordinate
relationships, which are the basis of hierarchy of management.
6. Better coordination: The elements of delegation, namely authority, responsibility and
accountability help to define the powers, duties and answerability related to the various
positions in an organisation.
DECENTRALISATION
Decentralisation explains the manner in which decision making responsibilities are divided
among hierarchical levels. Decentralisation refers to delegation of authority throughout all the
levels of the organisation. Decision making authority is shared with lower levels and is
consequently placed nearest to the points of action.

DEFINITION
Decentralisation refers to systematic effort to delegate to the lowest level all authority except that
which can be exercised at central points.- Louis Allen
IMPORTANCE
1. Develops initiative among subordinates: Decentralisation helps to promote selfreliance and
confidence amongst the subordinates. A decentralisation policy helps to identify those
executives who have the necessary potential to become dynamic leaders.
2. Develops managerial talent for the future: Decentralisation gives them a chance to prove their
abilities and creates a reservoir of qualified manpower who can be considered to fill up more
challenging positions through promotions.
3. Quick decision making: since decisions are taken at levels which are nearest to the points of
action and there is no requirement for approval from many levels, the process is much faster.
There are also less chances of information getting distorted because it doesn’t have to go
through long channels.
4. Relief to top management: Decentralisation diminishes the amount of direct supervision
exercised by a superior over the activities of a subordinate because they are given the freedom
to act and decide albeit within the limits set by the superior. Decentralisation also leaves the
top management with more time which they can devote to important policy decisions rather
than occupying their time with both policy as well as operational decisions.
5. Facilitates growth: Decentralisation awards greater autonomy to the lower levels of
management as well as divisional or departmental heads. This allows them to function in a
manner best suited to their department and fosters a sense of competition amongst the
departments.
6. Better control: Decentralisation makes it possible to evaluate performance at each level and
the departments can be individually held accountable for their results. Which brings better
control in performance in the organisation as deviations can to corrected.
DIFFRENCE BETWEEN DELEGATION AND DECENTRALISATION

Basis Delegation Decentralisation

Nature Delegation is a compulsory act because no Decentralisation is an optional policy
individual can perform all tasks on his decision. It is done at the discretion of
own. the top management

Freedom of action More control by superiors hence less Less control over executives hence
freedom to take own decisions greater freedom of action.

Status It is a process followed to share tasks It is the result of the policy decision of
the top management

Scope It has narrow scope as it is limited to It has wide scope as it implies

superior and his immediate subordinate extension of delegation to the lowest
level of management
Purpose To lessen the burden of the manager To increase the role of the subordinates
in the organisation by giving them
more autonomy