POM Unit-3

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Course: BCA Class: I Subject Name: Principles of Management Unit No.: 03 Lecture No.

: Topic:

Unit-3

Organising And Decision Making

Organising: Concept, Nature, Process, and Significance

ORGANISING

Organizing is the function of management that involves developing an organizational structure and allocating human
resources to ensure the accomplishment of objectives. The structure of the organization is the framework within
which effort is coordinated.

Organising is the process 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.

Organising is that managerial process which seeks to define the role of each individual (manager and operator)
towards the attainment of enterprise objectives

Organising is that managerial process which seeks to define the role of each individual (manager and operator)
towards the attainment of enterprise objectives; with due regard to establishing authority-responsibility relationships
among all; and providing for co-ordination in the enterprise-as an in-built device for obtaining harmonious groups
action.

Organizing is the function of management which follows planning. It is a function in which the synchronization and
combination of human, physical and financial resources takes place. All the three resources are important to get
results. Therefore, organizational function helps in the achievement of results which in fact is important for the
functioning of a concern.

Definition

“Organising is the establishment of authority relationships with provisions for co-ordination between them, both
vertically and horizontally in the enterprise structure”. -Koontz and O ‘Donnell

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Course: BCA Class: I Subject Name: Principles of Management Unit No.: 03 Lecture No.: Topic:

“Organising is the process of identifying and grouping the work to be performed, defining and delegating the
responsibility and authority and establishing a pattern of relationship for the purpose of enabling people work most
effectively to accomplish the objective”. – Louis A. Allen.

According to Chester Barnard, “Organizing is a function by which the concern is able to define the role positions, the
jobs related and the co-ordination between authority and responsibility. Hence, a manager always has to organize in
order to get results.

Importance of Organizing Function

1. Specialization - Organizational structure is a network of relationships in which the work is divided into units and
departments. This division of work is helping in bringing specialization in various activities of concern.

2. Well defined jobs - Organizational structure helps in putting right men on right job which can be done by selecting
people for various departments according to their qualifications, skill and experience. This is helping in defining the
jobs properly which clarifies the role of every person.

3. Clarifies authority - Organizational structure helps in clarifying the role positions to every manager (status quo).
This can be done by clarifying the powers to every manager and the way he has to exercise those powers should be
clarified so that misuse of powers do not take place. Well defined jobs and responsibilities attached helps in bringing
efficiency into managers working. This helps in increasing productivity.

4. Co-ordination - Organization is a means of creating co-ordination among different departments of the enterprise.
It creates clear cut relationships among positions and ensure mutual co-operation among individuals. Harmony of
work is brought by higher level managers exercising their authority over interconnected activities of lower level
manager.

Authority responsibility relationships can be fruitful only when there is a formal relationship between the two. For
smooth running of an organization, the co-ordination between authority- responsibility is very important. There
should be co-ordination between different relationships. Clarity should be made for having an ultimate responsibility
attached to every authority. There is a saying, “Authority without responsibility leads to ineffective behaviour and
responsibility without authority makes person ineffective.” Therefore, co-ordination of authority- responsibility is
very important.

5. Effective administration - The organization structure is helpful in defining the jobs positions. The roles to be
performed by different managers are clarified. Specialization is achieved through division of work. This all leads to
efficient and effective administration.

6. Growth and diversification - A company’s growth is totally dependant on how efficiently and smoothly a concern
works. Efficiency can be brought about by clarifying the role positions to the managers, co-ordination between

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Course: BCA Class: I Subject Name: Principles of Management Unit No.: 03 Lecture No.: Topic:

authority and responsibility and concentrating on specialization. In addition to this, a company can diversify if its
potential grow. This is possible only when the organization structure is well- defined. This is possible through a set of
formal structure.

7. Sense of security - Organizational structure clarifies the job positions. The roles assigned to every manager is clear.
Co-ordination is possible. Therefore, clarity of powers helps automatically in increasing mental satisfaction and
thereby a sense of security in a concern. This is very important for job- satisfaction.

8. Scope for new changes - Where the roles and activities to be performed are clear and every person gets
independence in his working, this provides enough space to a manager to develop his talents and flourish his
knowledge. A manager gets ready for taking independent decisions which can be a road or path to adoption of new
techniques of production. This scope for bringing new changes into the running of an enterprise is possible only
through a set of organizational structure.

Principles of Organizing

The organizing process can be done efficiently if the managers have certain guidelines so that they can take decisions
and can act. To organize in an effective manner, the following principles of organization can be used by a manager.

1. Principle of Specialization

According to the principle, the whole work of a concern should be divided amongst the subordinates on the basis of
qualifications, abilities and skills. It is through division of work specialization can be achieved which results in effective
organization.

2. Principle of Functional Definition

According to this principle, all the functions in a concern should be completely and clearly defined to the managers
and subordinates. This can be done by clearly defining the duties, responsibilities, authority and relationships of
people towards each other. Clarifications in authority-responsibility relationships helps in achieving co-ordination and
thereby organization can take place effectively. For example, the primary functions of production, marketing and
finance and the authority responsibility relationships in

these departments shouldbe clearly defined to every person attached to that department. Clarification in the
authority-responsibility relationship helps in efficient organization.

3. Principles of Span of Control/Supervision

According to this principle, span of control is a span of supervision which depicts the number of employees that can
be handled and controlled effectively by a single manager. According to this principle, a manager should be able to
handle what number of employees under him should be decided. This decision can be taken by choosing either froma
wide or narrow span. There are two types of span of control:-

a. Wide span of control- It is one in which a manager can supervise and control effectively a large group of persons at
one time. The features of this span are:-

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Course: BCA Class: I Subject Name: Principles of Management Unit No.: 03 Lecture No.: Topic:

i. Less overhead cost of supervision

ii. Prompt response from the employees

iii. Better communication

iv. Better supervision

v. Better co-ordination

vi. Suitable for repetitive jobs

According to this span, one manager can effectively and efficiently handle a large number of subordinates at one
time.

b. Narrow span of control- According to this span, the work and authority is divided amongst many subordinates and
a manager doesn't supervises and control a very big group of people under him. The manager according to a narrow
span supervises a selected number of employees at one time. The features are:-

i. Work which requires tight control and supervision, for example, handicrafts, ivory work, etc. which requires
craftsmanship, there narrow span is more helpful.

ii. Co-ordination is difficult to be achieved.

iii. Communication gaps can come.

iv. Messages can be distorted.

v. Specialization work can be achieved.

The Organization Process Chart

Following is a representation of organization process chart.

A well-defined organizing process leads to improved communication, transparency and efficiency in the organization.

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Course: BCA Class: I Subject Name: Principles of Management Unit No.: 03 Lecture No.: Topic:

LINE ORGANIZATION

Line organization is the most oldest and simplest method of administrative organization. According to this type of
organization, the authority flows from top to bottom in a concern. The line of command is carried out from top to
bottom. This is the reason for calling this organization as scalar organization which means scalar chain of command is
a part and parcel of this type of administrative organization. In this type of organization, the line of command flows
on an even basis without any gaps in communication and co-ordination taking place.

Features of Line Organization

1. It is the most simplest form of organization.

2. Line of authority flows from top to bottom.

3. Specialized and supportive services do not take place in these organization.

4. Unified control by the line officers can be maintained since they can independently take decisions in their areas
and spheres.

5. This kind of organization always helps in bringing efficiency in communication and bringing stability to a concern.

Merits of Line Organization

1. Simplest- It is the most simple and oldest method of administration.

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Course: BCA Class: I Subject Name: Principles of Management Unit No.: 03 Lecture No.: Topic:

2. Unity of Command- In these organizations, superior-subordinate relationship is maintained and scalar chain of
command flows from top to bottom.

3. Better discipline- The control is unified and concentrates on one person and therefore, he can independently make
decisions of his own. Unified control ensures better discipline.

4. Fixed responsibility- In this type of organization, every line executive has got fixed authority, power and fixed
responsibility attached to every authority.

5. Flexibility- There is a co-ordination between the top most authority and bottom line authority. Since the authority
relationships are clear, line officials are independent and can flexibly take the decision. This flexibility gives
satisfaction of line executives.

6. Prompt decision- Due to the factors of fixed responsibility and unity of command, the officials can take prompt
decision.

Demerits of Line Organization

1. Over reliance- The line executive’s decisions are implemented to the bottom. This results in over-relying on the
line officials.

2. Lack of specialization- A line organization flows in a scalar chain from top to bottom and there is no scope for
specialized functions. For example, expert advices whatever decisions are taken by line managers are implemented in
the same way.

3. Inadequate communication- The policies and strategies which are framed by the top authority are carried out in
the same way. This leaves no scope for communication from the other end. The complaints and suggestions of lower
authority are not communicated back to the top authority. So there is one way communication.

4. Lack of Co-ordination- Whatever decisions are taken by the line officials, in certain situations wrong decisions, are
carried down and implemented in the same way. Therefore, the degree of effective co-ordination is less.

5. Authority leadership- The line officials have tendency to misuse their authority positions. This leads to autocratic
leadership and monopoly in the concern.

Line and Staff Organization

Line and staff organization is a modification of line organization

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Course: BCA Class: I Subject Name: Principles of Management Unit No.: 03 Lecture No.: Topic:

and it is more complex than line organization. According to this


administrative organization, specialized and supportive activities
are attached to the line of command by appointing staff
supervisors and staff specialists who are attached to the line
authority. The power of command always remains with the line
executives and staff supervisors guide, advice and council the line
executives. Personal Secretary to the Managing Director is a staff
official. MANAGING DIRECTOR

↓ ↓ ↓

Production Marketing Manager Finance Manager


Manager

↓ ↓ ↓

Plant Supervisor Market Supervisor Chief Assisstant

↓ ↓ ↓

Foreman Salesman Accountant

1. Concept of Organizing: Organizing is the process of arranging resources and tasks in a systematic way to achieve
the organisation's objectives. It involves determining what tasks need to be done, who will do them, how tasks will be
grouped, and who reports to whom.

2. Nature of Organizing:

 Ongoing Process: Organizing is not a one-time task but continues as the organization grows and evolves.

 Goal-oriented: The main purpose is to ensure that all resources (human, financial, and physical) are used
efficiently to achieve the organization’s goals.

 Dynamic: The structure of an organization must adapt to the external environment, technological changes,
and internal needs.

 Coordination and Integration: Organizing ensures that all departments and individuals work harmoniously
toward common goals.

3. Process of Organizing:

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Course: BCA Class: I Subject Name: Principles of Management Unit No.: 03 Lecture No.: Topic:

 Identification of Activities: The first step is to determine all tasks that must be completed to achieve the
organizational objectives.

 Grouping Activities (Departmentation): Related tasks are grouped into departments or divisions for better
coordination.

 Assignment of Duties: Specific roles and responsibilities are assigned to individuals or teams based on their
expertise.

 Establishing Authority Relationships: Clear lines of authority and reporting relationships are established to
ensure smooth workflow and accountability.

 Coordination: Ensure that different parts of the organization are working together efficiently.

4. Significance of Organizing:

 Efficient Use of Resources: Proper organizing ensures that resources are used in the most effective way
possible.

 Clarity of Roles: It helps employees understand their roles, reducing duplication of effort and confusion.

 Enhances Flexibility and Adaptability: Well-organized structures are more adaptable to changes in the
business environment.

 Facilitates Growth and Expansion: A strong organizational structure supports the scaling and growth of a
business.

Authority and Responsibility Relationship

1. Authority:

 Authority is the formal right granted to a manager to make decisions, issue orders, and allocate resources. It
flows from top to bottom and is an essential part of management.

2. Responsibility:

 Responsibility is the duty of an individual to perform assigned tasks to the best of their ability. It flows from
bottom to top and involves accountability.

3. Authority and Responsibility Relationship:

 Balance: There must be a balance between authority and responsibility for effective management. A
manager should have enough authority to meet their responsibilities.

 Delegation: Authority is often delegated to subordinates, but the manager retains responsibility for the
outcomes of their tasks.

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Course: BCA Class: I Subject Name: Principles of Management Unit No.: 03 Lecture No.: Topic:

 Accountability: While authority can be delegated, responsibility cannot. The individual must be held
accountable for their performance.

 DELEGATION OF AUTHORITY
 A manager alone cannot perform all the tasks assigned to him. In order to meet the targets, the manager
should delegate authority. Delegation of Authority means division of authority and powers downwards to the
subordinate. Delegation is about entrusting someone else to do parts of your job. Delegation of authority can
be defined as subdivision and sub-allocation of powers to the subordinates in order to achieve effective
results.
 Delegation is the assignment of authority to another person (normally from a manager to a subordinate) to
carry out specific activities. It is the process of distributing and entrusting work to another person. Delegation
is one of the core concepts of management leadership.
 Delegation means devolution of authority on subordinates to make them to perform the assigned duties or
tasks. It is that part of the process of organization by which managers make it possible for others to share the
work of accomplishing organizational objectives.
 Delegation consists of granting authority or the right to decision-making in certain defined areas and charging
the subordinate with responsibility for carrying through the assigned tasks.
 Delegation refers to the assignment of work to others and confer them the requisite authority to accomplish
the job assigned.
 Through delegation, a manager is able to divide the work and allocate it to the subordinates. This helps in
reducing his work load so that he can work on important areas such as - planning, business analysis etc.
Through delegating powers, the subordinates get a feeling of importance.
 Elements of Delegation
 1. Authority - in context of a business organization, authority can be defined as the power and right of a
person to use and allocate the resources efficiently, to take decisions and to give orders so as to achieve the
organizational objectives. Authority must be well- defined. All people who have the authority should know
what is the scope of their authority is and they shouldn’t misutilize it. Authority is the right to give
commands, orders and get the things done. The top level management has greatest authority.

 Authority always flows from top to bottom. It explains how a superior gets work done from his subordinate
by clearly explaining what is expected of him and how he should go about it. Authority should be
accompanied with an equal amount of responsibility. Delegating the authority to someone else doesn’t imply
escaping from accountability. Accountability still rest with the person having the utmost authority.
 2. Responsibility - is the duty of the person to complete the task assigned to him. A person who is given the
responsibility should ensure that he accomplishes the tasks assigned to him. If the tasks for which he was
held responsible are not completed, then he should not give explanations or excuses. Responsibility without
adequate authority leads to discontent and dissatisfaction among the person. Responsibility flows from
bottom to top. The middle level and lower level management holds more responsibility. The person held
responsible for a job is answerable for it. If he performs the tasks assigned as expected, he is bound for
praises. While if he doesn’t accomplish tasks assigned as expected, then also he is answerable for that.
 3. Accountability - means giving explanations for any variance in the actual performance from the
expectations set. Accountability cannot be delegated. For example, if ’A’ is given a task with sufficient
authority, and ’A’ delegates this task to B and asks him to ensure that task is done well, responsibility

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Course: BCA Class: I Subject Name: Principles of Management Unit No.: 03 Lecture No.: Topic:


 rest with ’B’, but accountability still rest with ’A’. The top level management is most accountable. Being
accountable means being innovative as the person will think beyond his scope of job. Accountability, in short,
means being answerable for the end result. Accountability can’t be escaped. It arises from responsibility.

 Relationship between Authority and Responsibility
 Authority is the legal right of person or superior to command his subordinates while accountability is the
obligation of individual to carry out his duties as per standards of performance Authority flows from the
superiors to subordinates, in which orders and instructions are given to subordinates to complete the task. It
is only through authority, a manager exercises control. In a way through exercising the control the superior is
demanding accountability from subordinates. If the marketing manager directs the sales supervisor for 50
units of sale to be undertaken in a month. If the above standards are not accomplished, it is the marketing
manager who will be accountable to the chief executive officer. Therefore, we can say that authority flows
from top to bottom and responsibility flows from bottom to top. Accountability is a result of responsibility
and responsibility is result of authority. Therefore, for every authority an equal accountability is attached.
Differences between Authority and Responsibility
Responsibility Authority
It is the legal right of a person or a It is the obligation of subordinate to
superior to command his perform the work assigned to him.
subordinates.
Authority is attached to the position Responsibility arises out of superior-
of a superior in concern. subordinate relationship in which
subordinate agrees to carry out duty
given to him.
Authority can be delegated by a Responsibility cannot be shifted and
superior to a subordinate is absolute
It flows from top to bottom. It flows from bottom to top.
ORGANISATION STRUCTURE

An organization that is well structured achieves effective coordination, as the structure delineates formal
communication channels, and describes how separate actions of individuals are linked together.

Organizational structure defines the manner in which the roles, power, authority, and responsibilities are assigned
and governed, and depicts how information flows between the different levels of hierarchy in an organization.

The structure an organization designs depends greatly on its objectives and the strategy it adopts in achieving those
objectives.

An organizational chart is the visual representation of this vertical structure. It is therefore very important for an
organization to take utmost care while creating the organizational structure. The structure should clearly determine
the reporting relationships and the flow of authority as this will support good communication – resulting in efficient
and effective work process flow.

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Course: BCA Class: I Subject Name: Principles of Management Unit No.: 03 Lecture No.: Topic:

An organizational structure is a system that outlines how certain activities are directed in order to achieve the goals
of an organization. These activities can include rules, roles, and responsibilities. The organizational structure also
determines how information flows between levels within the company.

The key principle of an organizational structure is how authority is passed down and around the company.
Understanding what everyone's roles and responsibilities are helps to create accountability for individuals, teams
and departments.

Common Organization Structures

Managements need to seriously consider how they wish to structure the organization. Some of the critical factors
that need to be considered are −

 The size of the organization

 Nature of the business

 The objectives and the business strategy to achieve them

 The organization environment

Functional Organization Structure

The functional structure is the most common model found in most organizations. Organizations with such a structure
are divided into smaller groups based on specialized functional areas, such as operations, finance, marketing, Human
Resources, IT, etc.

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Course: BCA Class: I Subject Name: Principles of Management Unit No.: 03 Lecture No.: Topic:

Product Organizational Structure

This is another commonly used structure, where organizations are organized by a specific product type. Each product
category is considered a separate unit and falls within the reporting structure of an executive who oversees
everything related to that particular product line. For example, in a retail business the structure would be grouped
according to product lines.

Geographic Organizational Structure

Organizations that cover a span of geographic regions structure the company according to the geographic regions
they operate in. This is typically found in organizations that go beyond a city or state limit and may have customers all
across the country or across the world.

Matrix Organizational Structure

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Course: BCA Class: I Subject Name: Principles of Management Unit No.: 03 Lecture No.: Topic:

A matrix structure is organized to manage multiple dimensions. It provides for reporting levels both horizontally as
well as vertically and uses cross-functional teams to contribute to functional expertise. As such employees may
belong to a particular functional group but may contribute to a team that supports another program.

ORGANIZATION CHARTS

Organization chart is a diagrammatical presentation of relationships in an enterprise. The functions and their
relationships, the channels of authority and relative authority of different managers etc. are depicted in an
organizational chart. An organization chart is a managerial tool. It helps in specifying authority and responsibility of
every position. As organization chart specifically defines authority and responsibility of people in the enterprise there
will be no duplication and overlapping of duties etc.

George Terry defines an organization chart as “a diagrammatical form which shows important aspects of an
organization, including the major functions and their respective relationships, the channel of supervision and the
relative authority of each employer who is in-charge of each respective function.” So a chart is a pictorial and
indicating functions and their relationship, clear lines of authority and responsibility, channels of communication and
span of control and supervision.

Org charts help to demonstrate clear reporting structures for all the employees in the organization. It creates a road-
map for how the work is to be done and the process required to ensure this information is shared throughout the
company, to the right individuals. Its purpose is to illustrate the reporting relationships and chains of command
within the organization.

Organization charts can be divided into:

(i) Master charts and

(ii) Supplementary charts.

The master chart shows the whole formal organizational structure while supplementary chart shows details of
relationships, authority and duties within the prescribed area of a department.

Types of Organization Charts:

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Course: BCA Class: I Subject Name: Principles of Management Unit No.: 03 Lecture No.: Topic:

There are three ways in which organization charts can be shown:

(i) Vertical

(ii) Horizontal

(iii) Circular

(i) Vertical or Top to Bottom:

In this chart major functions are shown at the top and subordinate functions in successive lower positions. In this
chart scalar levels run horizontally and functions run vertically. The supreme authority is shown at the top while
lowest authority at the bottom.

The vertical chart is shown in the following diagram. In this diagram Board of Directors is at the top of the
organization. The chief executive controls various functional managers, who in turn have downward staff as the
requirement of respective departments.

(ii) Horizontal or Left to Right:

In this chart highest positions are put on the left side and those with diminishing authority move towards the right.
The organizational levels are represented by vertical columns, the flow of authority from higher to lower levels being
represented by movement from left to right. In other words it presents scalar levels in a vertical position and
functions horizontally.

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Course: BCA Class: I Subject Name: Principles of Management Unit No.: 03 Lecture No.: Topic:

The same levels of authority as shown in vertical chart can be depicted in a left to right chart as follows:

In horizontal chart the supreme authority Le. Board of Directors is shown on the left and chief executive and
functional managers and other levels move towards right.

(iii) Circular:

In circular chart the centre of the circle represents the position of supreme authority and the functions radiate in all
directions from the centre. The higher the positions of authority, the nearer they are to the centre and the lesser the
positions of authority, more distant they are from the centre. The positions of relative equal importance are located
at the same distance from the centre. The lines forming different blocks of functions or positions indicate the
channels of formal authority, the same as in other arrangements. The circular chart depicts the actual condition of
outward flow of formal authority from the Chief Executive in many directions.

Principles of Organization Charts:

(i) The top management should faithfully follow the line of authority while dealing with subordinates. Any attempt to
buy pass the organization chart will make it meaningless.

(ii) The chart should define lines of position. The lines of different individuals should be so defined so that there is no
overlapping and no two persons should be given the same position.

(iii) The undue concentration of duty at any point should be avoided.

(iii) The organization chart should not be influenced by personalities. Balance of organization should be given more
importance than the individuals.

(v) The organization chart should be simple and flexible.

Advantages of Organization Charts:

1. An organization chart is a managerial tool. It helps in specifying authority and responsibility of every position.

The relationships among different persons are also established for smooth working of the organization.

2. As organization chart specifically defines authority and responsibility of people in the enterprise there will be no
duplication and overlapping of duties etc. Even if it happens in a particular instance it can be rectified immediately.

3. The organization chart will help in pointing out the faults, deficiencies, dual command etc. in the organization. The
management will be able to take prompt remedial action in case of certain lacuna.

4. The organization chart acts as an information centre to the new entrants and they can easily understand different
levels of authority and responsibility.

5. The charts are also helpful in decision-making process. They act as a guide to the decision makers.

Limitations of Organization Charts:

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Course: BCA Class: I Subject Name: Principles of Management Unit No.: 03 Lecture No.: Topic:

1. The organization charts show the relationship of different positions and not the degree of authority and
responsibility. The size of boxes or circles in the chart cannot show the level of authority, etc.

2. A chart only depicts formal organizational relationship whereas informal organization is ignored. Practically
informal organization is as useful as formal organization. Informal organization greatly helps management in knowing
the reactions of the people and is an important channel of communication.

3. A chart shows organizational position and status at different levels. It gives rise to superior-inferior feeling among
people and it retards the feeling of team work.

Centralization and Decentralization

1. Centralization:

 In a centralized organization, decision-making authority is concentrated at the top levels of management.


Lower levels have little autonomy and follow decisions made by senior management.

Advantages:

 Strong control over decisions.

 Uniformity and consistency across the organization.

 Efficient in small or less complex organizations.

Disadvantages:

 Delays in decision-making.

 Reduced motivation and innovation at lower levels.

 Overburdened top management.

2. Decentralization:

 In a decentralized organization, decision-making authority is distributed among various levels of


management, empowering lower-level managers.

Advantages:

 Faster decision-making.

 Increased motivation and innovation at all levels.

 Relieves top management of the burden of daily decisions.

Disadvantages:

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 Lack of uniformity in decisions.

 Risk of conflicts between departments or divisions.

 Difficult to control overall strategy.

Departmentation

DEPARTMENTATION

Departmentation or Departmentalisation is the process of grouping the activities of an enterprise into several units
for the purpose of administration at all levels. It also provides a basis on which the top managers can co-ordinate and
control the activities of the departmental units.

Departmentation can provide a necessary degree of specialisation of executive activity for efficient performance. It
can simplify the tasks of management within a workable span. It also provides a basis on which the top managers can
co-ordinate and control the activities of the departmental units.

Departmentation is a part of the organisation process. It involves the grouping of common activities under a single
person’s control. The activities are grouped on the basis of a function of the organisation. This work is done by a chief
executive of the concerned organisation.

Departmentation means the process by which similar activities of the business are grouped into units for the purpose
of facilitating smooth administration at all levels. It implies the division of total work of an organisation into individual
functions and sub functions. It is the process of division of organisation into different parts known as departments.

According to L. A. Allen – “Departmentation is the means of dividing a large and monolithic functional organisation
into smaller, flexible, administrative units.”

Need for and Importance of Departmentation:

The basic need for departmentation is to make the size of each departmental unit manageable and secure the
advantages of specialisation. Grouping of activities and, consequently, of personnel, into departments makes it
possible to expand an enterprise to any extent.

Departmentation is necessary on account of the following reasons:

1. Advantages of Specialisation:

Departmentation enables an enterprise to avail of the benefits of specialisation. When every department looks after
one major function, the enterprise is developed and efficiency of operations is increased.

2. Feeling of Autonomy:

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Normally departments are created in the enterprise with certain degree of autonomy and freedom. The manager in
charge of a department can take independent decisions within the overall framework of the organisation. The feeling
of autonomy provides job satisfaction and motivation which lead to higher efficiency of operations.

3. Expansion:

One manager can supervise and direct only a few subordinates. Grouping of activities and personnel into
departmentation makes it possible for the enterprise to expand and grow.

4. Fixation of Responsibility:

Departmentation enables each person to know the specific role he is to play in the total organisation. The
responsibility for results can be defined more clearly, precisely and accurately and an individual can be held
accountable for the performance of his responsibility.

5. Upliftment of Managerial Skill:

Departmentation helps in the development of managerial skill. Development is possible due to two factors. Firstly,
the managers focus their attention on some specific problems which provide them effective on-the-job training.
Secondly, managerial need for further training can be identified easily because the managers’ role is prescribed and
training can provide them opportunity to work better in their area of specialisation.

6. Facility in Appraisal:

Appraisal of managerial performance becomes easier when specific tasks are assigned to departmental personnel.
Managerial performance can be measured when the areas of activities are specified and the standards of
performance are fixed. Departmentation provides help in both these areas.

When a broader function is divided into small segments and a particular segment is assigned to each manager, the
area to be appraised is clearly known; and the factors affecting the performance can be pointed out more easily.
Similarly, the standards for performance can be fixed easily because the factors influencing the work performance
can be known clearly. Thus, performance appraisal becomes more effective.

7. Administrative Control:

Departmentation is a means of dividing the large and complex organisation into small administrative units. Grouping
of activities and personnel into manageable units facilitates administrative control. Standards of performance for
each and every department can be precisely determined.

Types of Departmentation:

There are several bases of Departmentation. The more commonly used bases are—function, product, territory,
process, customer, time etc.

These are explained below:

(A) Departmentation by Functions:

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The enterprise may be divided into departments on the basis of functions like production, purchasing, sales,
financing, personnel etc. This is the most popular basis of departmentation. If necessary, a major function may be
divided into sub-functions. For example, the activities in the production department may be classified into quality
control, processing of materials, and repairs and maintenance.

The organisation chart of functional departmentation may take the following form:

Advantages:

The advantages of functional departmentation include the following:

(a) It is the most logical and natural form of departmentation.

(b) It ensures the performance of all activities necessary for achieving the organisational objectives.

(c) It provides occupational specialisation which makes optimum utilization of man-power.

(d) It facilitates delegation of authority.

(e) It enables the top managers to exercise effective control over a limited number of functions.

(f) It eliminates duplication of activities.

(g) It simplifies training because the managers are to be experts only in a narrow range of skills.

Disadvantages:

There are some problems associated with functional departmentation. These are mentioned below:

(a) There may be conflicts between departments.

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(b) The scope for management development is limited. Functional managers do not get training for top management
positions. The responsibility for results cannot be fixed on any one functional head.

(c) There is too much emphasis on specialisation.

(d) There may be difficulties in coordinating the activities of different departments.

(e) There may be inflexibility and complexity of operations.

(B) Departmentation by Products:

In product departmentation, every major product is organised as a separate department. Each department looks
after the production, sales and financing of one product. Product departmentation is

useful when the expansion, diversification, manufacturing and marketing characteristics of each product are primarily
significant.

It is generally used when the production line is complex and diverse requiring specialised knowledge and huge capital
is required for plant, equipment and other facilities such as in automobile and electronic industries.

The organisation chart of product departmentation may take the following form:

Advantages:

Product departmentation provides several advantages which may be stated as follows:

(a) Product departmentation focuses individual attention to each product line which facilitates the expansion and
diversification of the products.

(b) It ensures full use of specialised production facilities. Personal skill and specialised knowledge of the production
managers can be fully utilised.

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(c) The production managers can be held accountable for the profitability of each product. Each product division is
semi-autonomous and contains different functions. So, product departmentation provides an excellent training
facility for the top managers.

(d) The performance of each product division and its contribution to total results can be easily evaluated.

(e) It is more flexible and adaptable to change.

Disadvantages:

Product departmentation presents some problems as follows:

(a) It creates the problem of effective control over the product divisions by the top managers.

(b) Each production manager asserts his autonomy disregarding the interests of the organisation.

(c) The advantages of centralisation of certain activities like financing, and accounting are not available.

(d) There is duplication of physical facilities and functions. Each product division maintains its own specialised
personnel due to which operating costs may be high.

(e) There may be under-utilisation of plant capacity when the demand for a particular product is not adequate.

(C) Departmentation by Territory:

Territorial or geographical departmentation is specially useful to large-scale enterprises whose activities are widely
dispersed. Banks, insurance companies, transport companies, distribution agencies etc. are some examples of such
enterprises, where all the activities of a given area of operations are grouped into zones, branches, divisions etc.

It is obviously not possible for one functional manager to manage efficiently such widely spread activities. This makes
it necessary to appoint regional managers for different regions.

The organisation chart of territorial departmentation may take the following form:

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Advantages:

Territorial departmentation offers certain facilities in operation. These are pointed out below:

(a) Every regional manager can specialise himself in the peculiar problems of his region.

(b) It facilitates the expansion of business to various regions.

(c) It helps in achieving the benefits of local operations. The local managers are more familiar with the local customs,
preferences, styles, fashion, etc. The enterprise can gain intimate knowledge of the conditions in the local markets.

(d) It results in savings in freight, rents, and labour costs. It also saves time.

(e) There is better co-ordination of activities in a locality through setting up regional divisions.

(f) It provides adequate autonomy to each regional manager and opportunity to train him as he looks after the entire
operation of a unit.

Disadvantages:

Territorial departmentation have the following problems:

(a) There is the problem of communication.

(b) It requires more managers with general managerial abilities. Such managers may not be always available.

(c) There may be conflict between the regional managers.

(d) Co-ordination and control of different branches from the head office become less effective.

(e) Owing to duplication of physical facilities, costs of operation are usually high.

(f) There is multiplication of personnel, accounting and other services at the regional level.

(D) Departmentation by Customers:

In such method of departmentation, the activities are grouped according to the type of customers. For example, a
large cloth store may be divided into wholesale, retail, and export divisions. This type of departmentation is useful for
the enterprises which sell a product or service to a number of clearly defined customer groups. For instance, a large
readymade garment store may have a separate

department each for men, women, and children. A bank may have separate loan departments for large-scale and
small- scale businessmen.

The organisation chart of customer-oriented departmentation may appear as follows:

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Advantages:

The important advantages of customer departmentation are the following:

(a) Special attention can be given to the particular tastes and preferences of each type of customer.

(b) Different types of customers can be satisfied, easily through specialised staff. Customers’ satisfaction enhances
the goodwill and sale of the enterprise.

(c) The benefits of specialisation can be gained.

(d) The enterprise may acquire intimate knowledge of the needs of each category of customers.

Disadvantages:

This method of departmentation may have certain disadvantages, specially when it is followed very rigidly. These
are as follows:

(a) Co-ordination between sales and other functions becomes difficult because this method can be followed only in
marketing division.

(b) There may be under-utilisation of facilities and manpower in some departments, particularly during the period of
low demand.

(c) It may lead to duplication of activities and heavy overheads,

(d) The managers of customer departments may put pressures for special benefits and facilities.

(E) Departmentation by Process or Equipment:

In such type or departmentation the activities are grouped on the basis of production processes involved or
equipment used. This is generally used in manufacturing and distribution enterprises and at lower levels of

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organisation. For instance, a textile mill may be organised into ginning, spinning, weaving, dyeing and finishing
departments. Similarly, a printing press may have composing, proof reading, printing and binding departments. Such
departmentation may also be employed in engineering and oil industries.

The organisation chart of process or equipment departmentation may appear as follows:

1. Definition:

 Departmentation is the process of dividing an organization into smaller units or departments based on similar
tasks, functions, or other criteria.

2. Types of Departmentation:

 Functional Departmentation: Based on functions such as marketing, finance, and production.

 Product Departmentation: Grouping by product lines.

 Geographical Departmentation: Based on the location or region served.

 Customer Departmentation: Based on customer segments, like retail or corporate.

 Process Departmentation: Organized by the steps in the production or service process.

3. Significance of Departmentation:

 Improves efficiency by focusing specialized expertise within a department.

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 Allows for better coordination within specialized areas.

 Facilitates management and performance tracking within departments.

Organizational Structure: Forms and Contingency Factors

1. Forms of Organizational Structure:

 Line Structure: Simple, with clear authority from top to bottom. Best for small organizations.

 Functional Structure: Organized by functions, with each department having a specialized area.

 Divisional Structure: Groups based on products, services, or geography. Each division operates as a semi-
independent unit.

 Matrix Structure: Combines functional and divisional structures, allowing employees to report to more than
one manager (project-based).

2. Contingency Factors Affecting Organizational Structure:

 Size of the Organization: Larger organizations require more complex structures.

 Technology: The nature of technology used can dictate whether a functional or project-based structure is
more efficient.

 Environment: Dynamic environments may favor decentralized and flexible structures.

 Strategy: Organizational goals and strategy, such as growth or diversification, influence structure.

 Human Resources: The skills and preferences of employees can also affect the structure.

 Factors to be Considered in Departmentation:


 A suitable basis of departmentation is one which facilitates the performance of organisational functions
efficiently and effectively so that the objectives of the organisation are achieved. Since each basis is suitable
to a particular type of organisation, often a combination of various basis is adopted.
 So, the determination of suitability of departmentation basis should be considered in the light of various
principles or factors affecting the functioning of an organisation.
 These factors or principles are described below:

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 1. Specialisation:
 The activities of an organisation should be grouped in such a way that it leads to specialisation of work.
Specialisation helps to improve efficiency and ensure economy of operations. It enables the personnel to
become experts.
 2. Co-ordination:
 Quite different activities may be grouped together under one executive because they need to be co-
ordinated. So, the basis of departmentation should ensure that the dissimilar activities are put together in
one department.
 3. Control:
 Departmentation should be such that it facilitates the measurement of performance and adoption of timely
corrective action. It should enable the managers to hold the employees accountable for results. Effective
control helps to achieve organisational objectives economically and efficiently.
 4. Proper Attention:
 All the activities which contribute to the achievement of subordinate results should be given adequate
attention. This will ensure that all necessary activities are performed and there is no unnecessary duplication
of activities. Key areas should be given special attention.
 5. Economy:
 Creation of departments involves extra cost of additional space, equipment and personnel. So, the pattern
and number of departments should be so decided that maximum possible economy is achieved in the
utilisation of physical facilities and personnel.
 6. Local Condition:
 While forming departments adequate attention to the local conditions should be given. This is more
important to the organisation which operates in different geographical areas. Departmentation should be
adjusted according to the available resources. It should aim at full utilisation of resources.
 7. Human Consideration:
 Departmentation should also consider the human aspect in the organisation. So, along with the technical
factors discussed above, departments should be created on the basis of availability of personnel, their
attitude, aspiration and value systems, informal work groups, cultural patterns, etc. Due attention to the
human factors will make departmentation more effective and more efficient.
 CENTRALIZATION
 Centralization refers to the process in which activities involving planning and decision-making within an
organization. In a centralized organization, the decision-making powers are retained in the head office, and
all other offices receive commands from the main office.
 Centralization refers to that organizational structure where decision-making power is confined to the top
management, and the subordinates need to follow the instructions of their seniors. Centralization of
authority is essential for the small-scale organizations which lack resources and finance.
 Centralization is said to be a process where the concentration of decision making is in a few hands. All the
important decision and actions at the lower level, all subjects and actions at the lower level are subject to the
approval of top management.
 According to Allen, “Centralization” is the systematic and consistent reservation of authority at central points
in the organization.

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 Centralization allows on the one hand an unified decision “from the center” on the other hand, limits the
autonomy of organizational units and may reduce flexibility of the decision. Centralization may concern all
decisions and powers, or may be centralized only selected managerial functions.
 When an organization follows a centralized management structure, it can focus on the fulfillment of its vision
with ease. There are clear lines of communication and the senior executive can communicate the
organization's vision to employees and guide them toward the achievement of the vision.
 In a centralized organization, decisions are made by a small group of people and then communicated to the
lower-level managers. If lower-level managers are involved in the decision-making process, the process will
take longer and conflicts will arise.

 Factors Determining Centralization of Authority


 In small organizations, the owner or the top management is responsible for making all the business decision
solely. Whereas, the delegation of work among the subordinates takes place; therefore, centralization
persists in these business units.
 The following factors result in the centralization of the organization:

Nature of Organization: When the organization is generally a sole proprietorship or partnership entity with less
number of employees to be managed, it can have a centralized system.

 Size of the Organization: The organization which are small in size and operating on a small scale can be
efficiently managed by the top management hence following a centralized system.

 Nature of Task: The organizations engaged in business operations which does not require much expertise or
specialization, can be managed through centralization.

 Delegation Ability: The capability of the management to delegate the responsibilities to the subordinates while
keeping the charge in their hand is another factor determining the organizational structure.

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 Employee’s Efficiency: If the employees lack skills and efficiency to take up the responsibility and accountability
of the work to be performed, the management will go for centralization of the organization.

DECENTRALIZATION

Decentralization refers to a specific form of organizational structure where the top management delegates
decision-making responsibilities and daily operations to middle and lower subordinates. The top management
can thus concentrate on taking major decisions with greater time abundance.

In a decentralized organization, lower level managers are given decision-making authority and the power to run
their own departments. Decentralization include better, more timely decisions and increased motivation.

Decentralisation implies the dispersal of decision-making power at lower levels of management. When the power
to take decisions and formulate policies does not lie with one person at the top but is passed on to different
persons at various levels, it will be a case of decentralisation.

The following are the main objectives which a decentralized system of organization seeks to achieve: To relieve
the burden of work on the chief executive. To develop the managerial faculties. To motivate the lower level of
workers.

Decentralisation is referred to as a form of an organisational structure where there is the delegation of authority
by the top management to the middle and lower levels of management in an organisation.

In this type of organisation structure, the duty of daily operations and minor decision-making capabilities are
transferred to the middle and lower levels which allow top-level management to focus more on major decisions
like business expansion, diversification etc.

Delegation refers to the assigning a portion of work and the associated responsibility by a superior to a
subordinate. In simple words, when delegation is expanded on an organisational level, it is called
decentralisation.

“Decentralisation refers to tire systematic effort to delegate to the lowest levels all authority except that which
can only be exercised at central points.” —Louis A. Allen

“Decentralisation means the division of a group of functions and activities into relatively autonomous units with
overall authority and responsibility for their operation delegate to time of cacti unit.’—Earl. P. Strong

Importance of Decentralisation

1. Rapid decision making – Most of the decisions are taken on the spot, and approval from the higher authority is
not required. The ability to make a prompt decision allows an organisation to function its operation quickly and
effectively.

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2. Administrative development – The decentralisation process questions the manager’s judgement and
techniques, when responsibility and challenges to develop solutions are given to them. This questioning method
grows confidence, encourages self-reliance, and make them a good decision-maker resulting in the development
of the organisation.

3. Development of executive skills – It allows the employee to perform task individually, giving them invaluable
exposure. This individual performance creates an environment where an individual can enhance their expertise,
take ownership & more significant responsibilities, and be suitable for promotion.

4. Promotes growth – Decentralisation also allows the heads of the department to work independently. This
independence helps the department to grow, have a healthy competition between other departments.
Ultimately, the competition will lead to an improvement and enhancement in productivity.

5. Higher control – It also evaluates and reviews the performances of each department and gives them a
comprehensive perspective of their work. However, controlling is the biggest challenge of decentralisation and
stabilised management and scorecard are being developed.

Objectives of Decentralization

Decentralization is an important strategical decision. It changes the whole organizational structure right from the
top management to the bottom level. Like other business strategies, decentralization is also purposeful.

Let us understand the various objectives for which organizations decentralize their operations :

Development of Managerial Personnel

Decentralization provides for self-learning of the managers by facing the problem, finding the solutions
themselves and taking the correct decisions. It adds on to the skills, experience and expertise of the managers in
their respective departments.

Effective Control and Supervision

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The managers exercise better control over the operations of the subordinates by taking disciplinary actions. They
can make decisions related to production schedules, promotions and leaves taken by the subordinates.

Flexibility

Decentralization leads to flexibility in business operations. It also provides authority to the managers to handle
unexpected situations independently. It allows them to manage their respective departments in the way they
want to.

Motivates and Boosts Morale

It creates self-dependant managers and drives them to enhance their performance, take the initiative and
develop a problem-solving attitude. Decision making also boosts their morale and confidence.

Prompt Decision Making

There are times when the managers have to take immediate and unplanned decisions at operational levels; it is
only possible in decentralized organizations.

On the contrary, in a centralized organization, the decision-making process is quite lengthy and complicated,
which is ineffective for handling unforeseen operational problems and issues.

Reduces the Burden of Top Management

The management has to take certain crucial strategical decisions which require a lot of analysis and planning.
Decentralization releases the management from operational decision making, facilitating them to engage
themselves in future strategic planning.

Advantages of Decentralisation

1. Reduces the burden on top executives

2. Facilitates diversification

3. Executive Development

4. It promotes motivation

5. Better control and supervision

Disadvantages of Decentralisation

1. Uniform policies not Followed

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2. Problem of Co-Ordination

Decision Making in Management

1. Factors Affecting Decision Making:

 Information Availability: Accurate and timely information is crucial.

 Risk and Uncertainty: Decision-making often involves risk, and the ability to assess uncertainty is essential.

 Organizational Culture: The culture of the organization can shape how decisions are made (e.g., collaborative
vs. top-down).

 Time Pressure: Deadlines can affect the thoroughness of decisions.

 Resources: Financial, human, and physical resources available can limit or enable certain decisions.

2. Role of Decision Making in Management:

 Decisions are central to management functions like planning, organizing, leading, and controlling.

 Strategic decisions help shape long-term direction, while operational decisions ensure smooth day-to-day
functioning.

3. Types of Managerial Decisions:

 Programmed Decisions: Routine decisions with established guidelines.

 Non-Programmed Decisions: Unique, unstructured decisions that require creative problem-solving.

 Strategic Decisions: Long-term decisions affecting the overall direction of the organization.

 Tactical Decisions: Short-term decisions that implement strategic plans.

 Operational Decisions: Daily decisions to manage routine operations.

4. Steps in the Decision-Making Process:

 Identifying the Problem: Recognize the need for a decision.

 Gathering Information: Collect relevant data and facts.

 Generating Alternatives: Brainstorm possible solutions.

 Evaluating Alternatives: Analyze the pros and cons of each option.

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 Making the Choice: Select the best alternative.

 Implementing the Decision: Put the decision into action.

 Reviewing the Decision: Assess the outcomes to ensure the problem was solved.

5. Decision Techniques:

 Cost-Benefit Analysis: Weighing the pros and cons in financial terms.

 SWOT Analysis: Assessing strengths, weaknesses, opportunities, and threats.

 Brainstorming: Generating ideas in a group setting.

 Delphi Technique: Using expert opinions for decision-making.

 Decision Trees: Mapping possible consequences of different decisions.

6. Principles in Decision Making:

 Rationality: Decisions should be logical and based on factual information.

 Flexibility: Decision-makers must be adaptable and open to change.

 Participation: Including others in the decision-making process can improve outcomes.

 Commitment to Action: Decision-makers must ensure that decisions are acted upon and monitored.

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