CHAPTER 5

ORGANISING
INTRODUCTION
Once the plans have been laid down and
objectives specified therein, the next step is to
organise resources in a manner which leads to the
accomplishment of objectives.
The activities of an enterprise
must be organised in such a
manner that plans can be
successfully implemented.
 The word organising
is derived from
'organism', which
means that a unit with
many parts and each
part of it ,even though
working independently
has a definite
relationship with the
main unit.
MEANING
Organising is the process of identifying and
grouping various activities and bringing together
physical, financial and human resources and
establish1ing productive relations among them for
the achievement of specific goals.
It is concerned with building up a framework for
structure of tasks and authority relationship.
 Organising essentially implies a process
which coordinates human efforts,
assembles resources and integrates both
into a unified whole.
 M.D

Sales
Purchase Finance
Manager
manager manager
STEPS IN THE PROCESS OF
ORGANISING
Read this Example:
Suppose 25 students work for the school library in the
summer vacations. Their job is shipment of new releases, stock
the bookshelves, and then dispose of all waste. If all the students
decide to do it in their own way, it will result in mass confusion.
If one student supervises the work by grouping students,
dividing the work, assigning each group their quota and
developing reporting relationships among them, the job will be
done faster and in a better manner.
Organising Involves a series of
steps that need to be taken in
order to achieve the desired
goal. They are:-
STEPS IN THE PROCESS OF ORGANISING
1. Identification and division of work
2.Departmentalisation
3. Assignment of duties
4. Establishing reporting relationships
1. Identification and division of work
It means dividing total work into specific
activities, these activities are then grouped into jobs
and assigned to different individuals. The work is
divided into manageable activities so that
duplication can be avoided and the burden of work
can be shared among the employees.
2.Departmentalisation:
The second step in organizing is to combine or
group similar or related jobs into larger units called
departments , divisions or sections. This grouping of
activities is known as departmentalisation.
Departments can be created using several criteria
as a basis-Functions,Products,Territory.

PRODUCTION FINANCE MARKETING

 3. Assignment of duties:
The next step involves the allotment of
various activities to different individuals
according to their ability and attitude.
Each one is given a
specific job and he is
responsible for its
execution.
4. Establishing reporting relationships:
The last step in the organisation process is
defining the relationship among the people in
the organisation in clear terms.
Each individual
should know from
SUPERIOR
whom he has to
receive orders and
to whom he is
SUBORDINATES answerable.
STEPS IN THE PROCESS OF ORGANISING
1. Identification and division of work
2.Departmentalisation
3. Assignment of duties
4. Establishing reporting relationships
 IMPORTANCE
OF
ORGANISING
Organising is an important tool
to achieve the objectives of the
enterprise, which can be proved by
the following facts-
1. Benefits of specialization:
Organisation makes clear
division of work. Every job is
assigned to the right person.
The scientific analysis and
classification of job results in
specialisation and its related
advantages.
2.Clarity in working relationships:
A good organisation structure follow
the principle of unity of command which
specify who is to report to whom. It
minimizes conflicts and confusion.
3. Optimum utilization of resources:
Organising leads to the proper usage of all
material, financial and human resources. The
proper assignment of jobs avoids overlapping
of work and also makes possible the best use
of resources.
4. Adaptation to change:
Properly designed organisation
structure is flexible. It can be modified
according to the changes in the business
environment.
5.Effective administration:
Organising helps in
effective administration
by providing a clear
description of jobs and
related duties. This helps
to avoid confusion and
duplication.
 6.Development of personnel:
Organising helps in
development of personnel by
delegation of work to
subordinates. Organising
stimulates creativity
amongst the managers. It
also provides opportunity to
the subordinates to utilise
their talent.
7. Expansion and growth:
Organizing helps in the growth
and expansion of an enterprise by
bringing an order for everything.
Through organisation,
management can multiply its
strength. It is through a sound
organisation structure that many
small firms have grown and
become big.
IMPORTANCE OF ORGANISING:
1. Benefits of specialization
2.Clarity in working relationships
3. Optimum utilization of resources
4. Adaptation to change
5. Effective administration
6. Development of personnel
7. Expansion and growth
ORGANISATION
STRUCTURE
 Organisation structure is the outcome
of the organising process.
 Organization structure is the established
pattern of relationships among various
components of an enterprise.
An organization structure is the pattern of
authority-responsibility relationships among
various levels of management and other
personnel of the enterprise.
It specifies the relationships between
people, work and resources.
Organisation Chart:
It is the diagrammatic representation
of the organization structure.
Span of management :
Span of management refers to the number
of subordinates that can be effectively
managed by a superior. It gives shape to the
organisational structure.

Eg: A teacher can control

50 students effectively
 TYPES OF
ORGANISATION
STRUCTURE
TYPES OF ORGANISATION STRUCTURE
The organisational structure can be classified under two
categories which are as follows:

ORGANISATION
STRUCTURE

FUNCTIONAL DIVISIONAL
STRUCTURE STRUCTURE
I). Functional Structure:
This organization structure
is formed on the basis of
different functions or work to
be done in the enterprise.
 In functional organizational structure
each major functions of business is
considered as separate department and
each function is entrusted to a specialist
department manager.
For example, in a manufacturing
concern division of work into key functions
will include production, purchase,
marketing,
 MANAGING DIRECTOR

HUMAN
PRODUCTION FINANCE MARKETING RESOURCE
MANAGER MANAGER MANAGER MANAGER

MARKETING CUSTOMER
ADVERTISEMENT
RESEARCH SERVICE
 ADVANTAGES OF
FUNCTIONAL STRUCTURE:
Advantages of Functional structure:
1. Occupational Specialisation:
A functional structure leads
to occupational specialisation
because employees perform
similar tasks within a
department and are able to
improve performance.
Advantages of Functional structure:

2.Easy control and

coordination:
Control and
coordination within a
department is easy.
Advantages of Functional structure:
3.Helps to increase
managerial efficiency:
It helps in increasing
managerial and
operational efficiency
and this results in
increased profit.
Advantages of Functional structure:
4.Lower cost:
Helps to reduce
duplication of work
which results in
economies of scale and
this lowers cost.
Advantages of Functional structure:
5.Less training cost:
It makes training
of employees easier
as the focus is only
on a limited range of
skills.
Advantages of Functional structure:

6.Equal importance:
It ensures that
different functions
get due attention.
 Disadvantages of
Functional structure:
Disadvantages of Functional structure:
1.Emphasis on departmental
objectives:
This structure gives more
emphasis to functional heads or
departments. So that only a least
importance may be given to the PRODUCTION
PURCHASE
DEPARTMENT
overall objectives of the DEPARTMENT

organization.
Disadvantages of Functional structure:

2.Conflict between departments:

Since interest of different
departments differs, there will be
interdepartmental conflicts
which are harmful to
organisational interest.
Disadvantages of Functional structure:

3.Interdepartmental co
ordination is difficult:
Coordination of
activities of different
department is difficult.
Disadvantages of Functional structure:

4.Restrict overall development:

Functional heads do not get
training for top management
positions because they are
unable to gather experience in
diverse areas.
 Advantages & Disadvantages of Functional structure:

Advantages Disadvantages
1. Occupational Specialisation 1.Emphasis on departmental
2.Easy control and coordination objectives
3.Helps to increase managerial 2.Conflict between departments:
efficiency 3.Interdepartmental co
4.Lower cost ordination is difficult
5.Less training cost 4.Restrict overall development
6.Equal importance
Suitability of Functional structure:
Functional Structure is suitable in the
following cases-
a) When the size of organization is large.
b) Where there are diversified activities.
c) Where a high degree of specialization is
required.
II).Divisional
structure (Product
structure):
II).Divisional structure (Product
structure):
It is suitable for large organizations
having different products or having
business in different areas and if huge
investment is needed in each product.
 Divisional structure is the division
of organization on the basis of
products.
In this structure the products
come under similar category are
grouped together and it is called
division.
 Each division will be under the
charge of a separate manager.
Each division may be
subdivided into production,
sales, finance and personnel
activities.
 MANAGING DIRECTOR

CEMENT TEXTILES FOOD FOOT WEAR

PRODUCTION SALES FINANCE

DEPARTMENT DEPARTMENT DEPARTMENT
 Advantages of
Divisional structure:
 Advantages of Divisional structure:
1. Product specialisation:
Product specialisation is
possible because managers
gains experience in all
functions related to a
particular product.
Advantages of Divisional structure:

2.Helps in fixing responsibility:

Divisional heads are
accountable for profits,So
responsibility of profit can be
fixed for each division.
Advantages of Divisional structure:

3.Quick decision
making:
Each division is
autonomous unit
which leads to faster
decision making.
Advantages of Divisional structure:
4.Facilitates expansion and
growth:
It facilitates expansion and
growth as new divisions can
be added without
interrupting the existing
operations.
 Disadvantages of
Divisional structure:
 Disadvantages of Divisional structure:
1.Conflict may arise among
different divisions:
There may be conflict with
different divisions regarding
allocation of resources,
priorities etc.
Disadvantages of Divisional structure:
2.High cost:
It may lead to increase
in costs since there may
be a duplication of
activities across divisions.
Disadvantages of Divisional structure:
3.Independent authority
to heads:
The divisional
manager is independent,
so that he can do as he
likes.
Disadvantages of Divisional structure:
4.Not suitable to small
business:
It is not suitable to
small business ,it is a
costly affairs.
Advantages & Disadvantages of Divisional structure:

Advantages Disadvantages
1. Product specialisation: 1.Conflict may arise among
2.Helps in fixing different divisions:
responsibility: 2.High cost:
3.Independent authority to
3.Quick decision making:
heads:
4.Facilitates expansion and 4.Not suitable to small
growth: business:
Suitability of divisional structure:
1.Where a large variety of products are
manufactured.
2. Where an organization works in various
parts of the country.
3.Growing companies which plan to add more
line of products in future.
 DIFFERENCE
BETWEEN
FUNCTIONAL
STRUCTURE AND
DIVISIONAL
STRUCTURE
Difference between functional structure and divisional structure:

FUNCTIONAL STRUCTURE DIVISIONAL STRUCTURE

BASIS FUNCTIONAL STRUCTURE DIVISIONAL STRUCTURE
1.Basis Based on functions. Based on product lines.
2.Specialisation Functional specialisation. Product specialisation.
3.Responsibility Responsibility of profit cannot Responsibility of profit can be
be fixed for one department fixed for one division.
4.Cost Functions are not duplicated Duplication of resources in
hence economical. various departments, hence
costly.
5.Managerial Less chance as manager More chance as managers
development becomes specialised in one perform multi-functions.
function only.
6.Co ordination Co ordination between 6.Coordination between
departments is difficult. divisions is simple.
7.Structure Simple Structure Complicated Structure
FORMAL AND
INFORMAL
ORGANISATION:
 FORMALAND INFORMAL ORGANISATION:

Relationship between individuals in

the organization can be classified
into
1.Formal organization
2.Informal organization
1. Formal Organization:
1. Formal Organization:
1. Formal Organization:
It refers to the pattern of
relationships deliberately designed by
the top management to attain the
objectives. Here the responsibility,
authority etc. will be specified.
 In formal communication
takes place only through
‘Scalar chain’.
The structure in a formal
organisation can be functional
or divisional.
OFFICIAL RELATIONSHIP
Features of Formal organization:
1.It is deliberately created by top management to
achieve common goals.
2. It is based on division of work and specialization.
3.It defines clearly the authority and responsibility
of every person.
4.It specifies the official lines of communication and
official relationship.
5.It is impersonal
6.It has written rules and procedures
Advantages of Formal organization:
1.It is easier to fix responsibility.
2.Helps in avoiding duplication of effort.
3.Unity of command is maintained
4.It leads to effective accomplishment of
goals.
5.It provides stability to the organization.
Disadvantages of Formal organization:
1.It may leads to procedural delays.
2.Inadequate recognition of creativity.
3.Ignore social needs of employees.
4.It gives importance only to the job but
not for human relations.
 2.INFORMAL
ORGANISATION
WITHIN AN ORGANISATION
2.Informal Organization:
People working together in the
formal organization interact or
communicate with each other in the
course of work. Gradually they develop
friendly relationships and form small
social groups.
The network of these social groups based on
friendship is known as informal organization.
Thus informal organization is the system of
social relationship among the members of a
formal organization. These relations are highly
in personal in nature.

For example: Managers and subordinates

forming a football team.
Social relationship among the members of a formal
organization(within an organisation)

FRIENDS HAND BALL TEAM DRAMA TEAM

Features of informal organisation:
1.Arise as a result of personal interaction
among employees.
2.It arises spontaneously and not preplanned.
3.No written rules and regulations
4.It has no definite structure.
5.It is highly flexible.
6.It is based on personal preference
Advantages of Informal organization:
1.Quick Communication is possible
2.Give importance to social needs of
employees.
3.Top level managers can know the real
feedback of employees.
4.Supports formal organization.
Disadvantages of Informal Organisation:
1.Spreads false news.
2.If the informal group is strong, they may
oppose the plans of top management, which
will lead to delay in growth of the business.
3.It gives priority to personal interest rather
than organizational interest, which will be
harmful to the organization.
4.May bring negative results.
CONCLUSION:
The informal organization is a part of
the formal organization. It cannot be
separated. In other words a single
organization has two faces - the formal
one and informal.
 DIFFERENCE BETWEEN

FORMAL INFORMAL
ORGANISATION ORGANISATION
 DIFFERENCE BETWEEN FORMALAND INFORMAL
ORGANISATION:

FORMAL ORGANISATION INFORMAL ORGANISATION

No BASIS FORMAL ORGANISATION INFORMAL ORGANISATION

1 Meaning Pattern of relationships deliberately designed Arises spontaneously as a result

by the top management of social interaction among the
employees.

2. Purpose It is created to achieve predefined It achieve personal and social

organizational needs of employees.
objective.

3. Communication Formal communication. Friendly communication.

4. Nature Rigid Flexible

5. Leadership Managers are leaders Leaders may or may not be managers.

6. Behaviour It is directed by rules There is no set of behaviour

pattern

7. Stability It is usually stable It does not last long.

8. Organisational It is supported by There is no such chart

chart organizational chart
 DELEGATION OF
AUTHORITY
AND
DECENTRALIZATION
OF AUTHORITY:
DELEGATION
OF
AUTHORITY
 DELEGATION OFAUTHORITY:
There is a limit to what an individual manager
can perform. So he must share his duties with
subordinates.
Delegation refers to the downward transfer of
authority from a superior to a subordinate. It is
a pre-requisite to the efficient functioning of an
organisation because it enables a manager to use
his time on high priority activities.
 Delegation refers to administrative
process of getting things done through
others by sharing authority with them.
It also satisfies the sub ordinate’s need
for recognition. Delegation does not mean
abdication (handing over).The manager
shall still be accountable for the
performance of the assigned tasks.
Elements of Delegation:
According to Louis Allen, “delegation is the
entrustment of responsibility and authority to
another and the creation of accountability for
performance”.
Louis Allen’s definition gives three essential
elements of delegation-
1. Authority
2. Responsibility
3. Accountability
1. Authority:
Authority refers to the right of an
individual to command his subordinates.
Authority also refers to the right to take
decisions.
The extent of authority is highest at the top
management. Authority flows from top to
bottom,i.e., the superior has authority over
the subordinate(Downward).
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.
3. Accountability:
Accountability implies being answerable for
the final outcome.
It cannot be delegated and flows upwards
i.e., a subordinate will be accountable to a
superior for satisfactory performance of
work.
Responsibility is derived from authority
while accountability is from responsibility.
ELEMENTS OF DELEGATION –A COMPARISON
Basis Authority Responsibility Accountability

Meaning Right to Obligation to Answerability

command perform for outcome
assigned task.

Delegation Can be delegated Cannot be Cannot be

entirely delegated at all
delegated

Flow Flows downward Flows upward Flows upward

IMPORTANCE
OF
DELEGATION
 Importance of Delegation
1.Effective management:
Delegation of authority relieves
the top executives from heavy
load of work.
It enables him to concentrate
on policy matters and decision
making. This would increase his
effectiveness.
2.Employee development:
As a result of
delegation, employees get
opportunities to utilise
their talent.
It makes them better
leaders and decision
makers.
3.Motivation of employees:
Delegation implies grant
of authority to subordinates.
So, they have a sense of
recognition.
They are motivated to
work for higher
performance.
4.Facilitates growth:
Delegation enables
workforce to assume more
responsibilities.
Thus it helps the growth
and expansion of the
organization.
5.Better Coordination:
Delegation helps to avoid
overlapping and
duplication of work.
Clarity in reporting helps
to develop and maintain
effective coordination.
6.Basis of management
hierarchy:
Delegation of authority
establishes superior-
subordinate relationships,
which are the basis of
hierarchy of management.
Importance of Delegation :
1.Effective management:
2.Employee development
3.Motivation of employees
4.Facilitates growth
5.Better Coordination
6.Basis of management hierarchy
DECENTRALIZATION
OF AUTHORITY
 Decentralization refers to the
systematic dispersal of authority to the
lower levels of organization.
An organization is said to be
decentralized when managers at middle
and lower levels are given the requisite
authority to take decisions relating to
their respective areas of work.
 DECISION
MAKING AUTHORITY
IS SHARED
According to Henry Fayol,
“Everything which goes to
increase the sub-ordinate’s role is
decentralization and everything
which goes to decrease it is
centralisation”.
Centralisation:
Centralisation refers to
concentration of authority at top
level. An organisation is centralised
when the decision the making Decision
making
authority
authority is in the hands of top level
management only.
An organisation can never be
completely centralised or decentralised.
Hence, there is a need for a balance
between these.
 IMPORTANCE
OF
DECENTRALIZATION
 Importance of Decentralization:
1.Quick decision making:
The subordinates have
sufficient authority to take quick
decisions. They need not consult
their superiors on every issue.
This avoids delay in decision
making and facilitates quick
decisions.
 Importance of Decentralization:

2.Relief to top management:

Decentralisation relieves
the top executives from the
heavy load of work. It enables
them to concentrate on higher
functions of management.
 Importance of Decentralization:
3.Facilitates growth:
Decentralisation prepares
executives for the future. This
enables the organization to face
future challenges effectively and
promotes the potential for
growth.
 Importance of Decentralization:

4.Better control:
Decentralisation leads to
better control by evaluating
performance of various
departments. The departments
can be individually held
accountable for their results.
 Importance of Decentralization:
5.Develops managerial talent for
the future:
Decentralisation gives them a
chance to prove their
abilities .Thus, it is a means of
management education as well as
an opportunity for trained
manpower.
 Importance of Decentralization:
6.Develops initiative among
subordinates:
Decentralisation helps to
promote self-reliance and
confidence among the
subordinates. This will improve
their career prospects.
Difference between
Delegation and
Decentralization
BASIS DELEGATION DECENTRALIZATION
1.Meaning Assigning duties by Systematic delegation of
superiors. authority through out the
organization.
2.Need It is compulsory It is optional
3.Freedom Less freedom to take own Greater freedom of action.
of action decisions.
4.Status It is a process to share tasks. It is the result of the Policy
5.Scope It has narrow scope It has wide scope
6.Purpose To reduce the burden of To increase the role of
manager. subordinates
7.Nature It is Individualistic It is totalistic