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5. Organising




Next sequence in function of management is inclusive of functional and divisional concept, formal and informal organisation concept. Delegation and organizing - with its concept, importance an organising process. We come to know, in detail, about the structure of organisation decentralization with their concepts, elements and importance are discussed elaborately.


Chapter at a Glance




Organising can be defined as a process that initiates implementation of plans by clarifying jobs and working relationships and effectively deploying resources for attainment of identified and desired results (goals).




(i) Identification and division of work:

(a) 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.

(b) The work is divided into manageable activities so that duplication can be avoided and the burden of work can be shared among the employees.


(ii) Departmentalisation:

(a) Once work has been divided into small and manageable activities then those activities which are similar in nature are grouped together. Such sets facilitate specialisation. This grouping process is called departmentalisation.

(b) Departments can be created using several criteria as a basis. Examples of some of the most popularly used basis are territory (north, south, west etc.) and products (appliances, clothes, cosmetics etc.).


(iii) Assignment of duties:

(a) It is necessary to allocate work to various employees. Once departments have been formed, each of them is placed under the charge of an individual.

(b) Jobs are then allocated to the members of each department in accordance to their skills and competencies.

(c) It is essential for effective performance that a proper match is made between the nature of a job and the ability of an individual. The work must be assigned to those who are best fitted to perform it well.


(iv) Establishing reporting relationships:

(a) Merely allocating work is not enough. Each individual should also know who he has to take orders from and to whom he is accountable.

(b) The establishment of such clear relationships helps to create a hierarchal structure and helps in coordination amongst various departments.




(i) Benefits of specialisation:

(a) Organising leads to a systematic allocation of jobs amongst the work force.

(b) This reduces the workload as well as enhances productivity because of the specific workers performing a specific job on a regular basis.

(c) Repetitive performance of a particular task allows a worker to gain experience in that area and leads to specialisation.


(ii) Clarity in working relationships:

(a) The establishment of working relationships clarifies lines of communication and specifies who is to report to whom.

(b) This removes ambiguity in transfer of information and instructions.

(c) It helps in creating a hierarchical order thereby enabling the fixation of responsibility and specification of the extent of authority to be exercised by an individual.


(iii) Optimum utilization of resources:

(a) Organising leads to the proper usage of all material, financial and human resources.

(b) The proper assignment of jobs avoids overlapping of work and also makes possible the best use of resources.

(c) Avoidance of duplication of work helps in preventing confusion and minimising the wastage of resources and efforts.


(iv) Adaptation to change:

(a) The process of organising allows a business enterprise to accommodate changes in the business environment.

(b) It allows the organisation structure to be suitably modified and the revision of inter-relationships amongst managerial levels to pave the way for a smooth transition.

(c) It also provides much needed stability to the enterprise as it can then continue to survive and grow in spite of changes.


(v) Effective administration:

(a) Organising provides a clear description of jobs and related duties. This helps to avoid confusion and duplication.

(b) Clarity in working relationships enables proper execution of work.

(c) Management of an enterprise thereby becomes easy and this brings effectiveness in administration.


(vi) Development of personnel:

(a) Effective delegation allows to reduce the workload of managers by assigning routine jobs to their subordinates.

(b) It allows the manager to develop new methods and ways of performing tasks. Manager get time to explore areas for growth and the opportunity to innovate thereby strengthening the company's competitive position.

(c) Through Delegation subordinates deal effectively with challenges and realise their full potential.


(vii) Expansion and growth:

(a) Organising helps in the growth and diversification of an enterprise by enabling it to deviate from existing norms and take up new challenges.

(b) It allows a business enterprise to add more job positions, departments and even diversity their product lines.

(c) New geographical territories can be added to current areas of operation which will help to increase customer base, sales and profit.  




(i) Organisation Structure is the outcome of the organising process.

(ii) Organisational structure can be defined as the framework within which managerial and operating tasks are performed.

(iii) Span of management refers to the number of subordinates that can be effectively managed by a superior. This determines the levels of management in the structure.

(iv) For example: Parul opened her own travel agency, sometime back. She assigned work to her three employees in the following manner ‘Tisha, you are in charge of air plane, train and bus reservations.’ ‘Rahul, you will take care of accommodation booking’ 'Amit, you will keep track of online queries and credit card payments'. I want regular reports from the three of you. Thus, in a few sentences an organisation structure has been created specifying lines of authority and areas of responsibility.


Importance of Organizational Structure


(i) When the activities performed by an organisation are very large in scale.

(ii) When an organization focuses on growth and expansion, it needs to pay attention to its organizational structure.

(iii) When an organisation grows and this activities require a high level of coordination, a proper organizational structure to ensure its smooth functioning becomes essential.





(i) Functional Structure                   (ii) Divisional Structure


(i) Functional Structure

(i) Functional Structure refers to that organisational structure which is formed by grouping of jobs of similar nature and organizing functions as separate departments.

(ii) All departments report to a coordinating head.

(iii) Departments like production, purchase, marketing, accounts and personnel are divided into sections.

Advantages of Functional Structure


(i) Occupational specialisation:

(a) A functional structure leads to occupational specialisation since emphasis is placed on specific functions.

(b) This promotes efficiency in utilisation of manpower as employees perform similar tasks within a department and are able to improve performance.

(iii) Control and coordination: It promotes control and coordination within a department because of similarity in the tasks being performed.

(iv) Increase in Efficiency: It helps in increasing managerial and operational efficiency and this results in increased profit.

(iv) Economies of scale: It leads to minimal duplication of effort which results in economies of scale and this reduces cost.

(v) Training of Employees: It makes training of employees easier as the focus is only on a limited range of skills.

(vi) Ensures attention: It ensures that different functions get due attention.


Disadvantages of Functional Structure


(i) Functional Empire:

(a) A functional structure places less emphasis on overall enterprise objectives than the objectives pursued by a functional head.

(b) Such practices may lead to functional emphasis wherein the importance of a particular function may be overemphasised.

(c) Pursuing departmental interests at the cost of organisational interests can also hinder the interaction between two or more departments.

(ii) Problems in coordination: It may lead to problems in coordination as information has to be exchanged across functionally differentiated departments.

(iii) Conflicts of Interests:

(a) Conflict of interests may arise when the interests of two or more departments are not compatible.

(b) For example, the sales department insisting on a customer friendly design which may cause production difficulties.

(iv) Inflexibility:

(i) 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.

(ii) Functional heads do not get training for top level management positions because they are unable to gather experience in diverse areas.


Suitability of Functional Structure

It is most suitable when

(i) The size of the organisation is large.

(ii) There are diversified activities.

(iii) operations require a high degree of specialisation.


(a) Divisional Structure                                                   

(i) In a divisional structure, the organisation structure comprises of separate business units or divisions,                                                                        

(ii) Each unit has a divisional manager responsible for performance and who has authority over the unit.                                                                 

(iii) Each division is multifunctional because within each division functions like production marketing, finance, purchase etc., are performed together to achieve a common goal. The top management is able to coordinate all activities efficiently.                      

(iv) Each division is self - contained as it develops expertise in all functions related to a product line.   


Advantages of Divisional Structure


(i) Product specialization:

(a) Divisional structure promotes Product specialization.

(b) It helps in the development of varied skills in a divisional head and this prepares him for higher positions.

(c) This is because he gains experience in all functions related to a particular product.

(ii) Accountability:

(a) Divisional heads are accountable for profits, as revenues and costs related to different departments can be easily identified and assigned to them.

(b) It also helps in fixation of responsibility in cases of poor performance of the division an appropriate remedial action can be taken.

(iii) Flexibility: 

(a) It promotes flexibility and initiative.

(b) Each division functions as an autonomous unit which leads to faster decision making.

(iv) Expansion and growth: 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 of Divisional Structure


(i) Conflicts:

(a) Conflict may arise among different divisions with reference to allocation of Funds.

(b) A division may also maximize its profits at the cost of other department.

(ii) Increases expenditure:

(a) It may lead to increase in costs since there may be a duplication of activities across products.

(b) Providing each division with separate set of similar functions increases expenditure.

(iii) Ignore Organisational interests:

(a) Managers have the authority to supervise all activities related to particular division.

(b) Such managers may gain power, assert his independence may ignore organizational interests.


Suitability of Divisional Structure


(i) Divisional structure is suitable for those business enterprises where a large variety of products are manufactured using different productive resources.

(ii) When an organisation grows and needs to add more employees, create more departments and introduce new levels of management,



Functional structure


Divisional structure

Formation is based on functions.


Formation based on product lines and is supported by is supported by function.

Functional specialisation.


Product specialisation.

Difficult to fix on a department.


Easy to fix responsibility for performance.

Difficult, as each functional manager has to report to the top management.

Managerial development

Easier, autonomy as well as the chance to perform multiple function helps in managerial development.

Functions are not duplicated hence economical.


Duplication of resources in various departments, hence costly.

Difficult for a multi-product company.


Easy, because all functions related to a particular product are integrated in one department.



(i) Formal Organisation,                (ii) Informal Organisation.


(i) Formal Organisation

(a) Formal organisation refers to the organisation structure which is designed by the management to accomplish a particular task.

(b) It specifies clearly the boundaries of authority and responsibility and there is a systematic coordination among the various activities to achieve organisational goals.


The Features of Formal Organisation


(i) Clarity in work relationship:

(a) It specifies the relationships among various job positions and the nature of their inter relationship.

(b) This clarifies who has to report to whom.

(ii) Rules and procedures:

(a) It is a means to achieve specified objectives.

(b) It lays down rules and procedures to achieve these goals.

(iii) Coordination: Formal organisation coordinates, interlinked and integrated the efforts of various departments.

(iv) Deliberately designed: It is deliberately designed by the top management to facilitate the smooth functioning of the organisation.

(v) Focus on work: It places more emphasis on work to be performed rather than interpersonal relationship among the employees.


Advantages of Formal Organisation


(i) Fixation of Responsibility: It is easier to fix responsibility since mutual relationships are clearly defined.

(ii) Clarity of role and duties: In this type of organization role and duties of each member are clearly specified. This also helps in avoiding duplication of effort.                 

(iii) Unity of command: Unity of command is maintained through an established chain of command.

(iv) Effective accomplishment of goals: It leads to effective accomplishment of goals by providing framework for operations to be performed and clarity of roles in the minds of employee.

(v) Stability to the organisation: It provides stability to the organisation. This is because behaviour of employees can be fairly predicted since there are specific rules to guide them.


Limitations/Disadvantages of Formal Organisation


(i) Procedural Delays: In formal organization there may be procedural delays. A chain of command has to be followed which increases the time taken for decision making.

(ii) Rigidity: Formal organization does not allow any deviations from rigidly laid down polices. The employees have to do what they are asked to do and they do not have a chance of some independent thinking. This kills intiative.

(iii) Ignore Human Relationship:

(a) It is difficult to understand all human relationships in an enterprise as it places more emphasis on structure and work.

(b) Hence, the formal organisation does not provide a complete picture of how an organisation works.


(ii) Informal Organisation

(a) Interaction among people at work gives rise to a ‘network of social relationships among employees’ called the informal organisation.

(b) When people have frequent contacts they cannot be forced into a rigid formal structure. Rather, based on their interaction and friendship they tend to form groups which show conformity in terms of interest.

(c) Examples of such groups formed with common interest may be those who take part in cricket matches on Sundays, meet in the cafeteria for coffee, are interested in dramatics etc.


Features of Informal Organisation


(i) Formation: An informal organisation originates from within the formal organisation as a result of personal interaction among employees.

(ii) Standards of behavior: The standards of behaviour evolve from group norms rather than officially laid down rules and regulations.

(iii) Independent Channel of Communication: In this organisation, relations among different people are not defined because a person at the lower level of rank can have direct contact with the person at the highest level of rank. So, the flow of communication cannot be specified.

(iv) Emerges Spontaneously: It emerges spontaneously and is not deliberately created by the management.

(v) No definite structure: It has no definite structure or form because it is a complex network of social relationships among members.


Advantages of Informal Organisation


(i) Faster communication and quick feedback: It follows the independent channels of communication as there is no prescribed lines of communication are not followed. Thus, the informal organisation leads to faster spread of information as well as quick feedback.

(ii) Fulfill social Needs: It helps to fulfill the social needs of the members and allows them to find likeminded people. This enhances their job satisfaction since it gives them a sense of belongingness in the organisation.

(iii) Fulfillment of organisational objectives: It contributes towards fulfillment of organisational objectives by compensating for inadequacies in the formal organisation. For example, employee's reactions towards plans and policies can be tested through the informal network.


Disadvantages of Informal Organisation

(i) Spreads Rumours: Informal organisation may become a disruptive force when it spreads rumours. This may work against the interest of the formal organisation.

(ii) Resistance to change: The management may not be successful in implementing changes if the informal organisation opposes them. Such resistance to change may delay or restrict growth.

(iii) Pressure of Group Norms: In case of informal organisation, people are under pressure to observe group norms. This can be harmful to the organisation if the norms set by the group are against organisational interests.


Differences between Formal and Informal Organisation


Formal organisation


Informal organisation

Structure of authority relationships created by the management.


Network of social relationships arising out of interaction among employees.

Arises as a result of company rules and policies.


Arises as a result of social interaction.

Arises by virtue of position in management.


Arises out of personal qualities.

It is directed by rules.


There is no set behavior.

Communication takes place through the scalar chain.

Flow of communication

Flow of communication is not through a planned route. It can take place in any direction.




Managers are leaders


Leaders may or may not be managers. They are chosen by the group.



(i) A manager, no matter how capable he is, cannot manage to do every task on his own. The volume of work makes it impractical for him to handle it all by himself. As a consequence if he desires to meet the organisational goals, focus on objectives and ensure that all work is accomplished, he must relegate authority.

(ii) Delegation refers to the downward transfer of authority from a superior to a subordinate.

(iii) According to Theo Haimman, Delegation of authority merely means the granting of authority to subordinates to operate within prescribed limits.

(iv) Delegation does not mean abdication. The manager shall still be accountable for the performance of the assigned tasks.

(v) Moreover, the authority granted to a subordinate can be taken back and redelegated to another person. Thus, irrespective of the extent of delegated authority, the manager shall still be accountable to the same extent as before delegation.


Elements of Delegation

(i) Authority:

(a) Authority refers to the right of an individual to command his subordinates and to take action within the scope of his position.

(b) The concept of authority arises from the established scalar chain which links the various job positions and levels of an organisation.

(c) Authority also refers to the right to take decisions inherent in a managerial position to tell people what to do and expect them to do it.

(d) Authority flows from top to bottom, i.e., the superior has authority over the subordinate.

(e) It arises by the virtue of an individual’s position. As we go higher up in the management hierarchy, the scope of authority increases.

(ii) Responsibility:

(a) Responsibility is the obligation of a subordinate to properly perform the assigned duty.

(b) 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.

(c) An important consideration to be kept in view with respect to both authority and responsibility is that when an employee is given responsibility for a job he must also be given the degree of authority necessary to carry it out.

(e) Thus, for effective delegation the authority granted must be complemented with the assigned responsibility. If authority granted is more than responsibility, it may lead to misuse of authority, and if responsibility assigned is more than authority it may make a person ineffective.

(iii) Accountability:

(a) Accountability is the obligation to carry out the assigned tasks, duties or responsibilities. It is the obligation of an individual to give an account of how much he has completed his responsibility to his superior. Accountability implies being answerable for the final outcome.

(b) 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.

(c) It indicates that the manger has to ensure the proper discharge of duties by his subordinates. It is generally enforced through regular feedback on the extent of work accomplished. The subordinate will be expected to explain the consequences of his actions or missions.

(d) In conclusion, it can be stated that while authority is delegated, responsibility is assumed, accountability is imposed. Responsibility is derived from authority and accountability is derived from responsibility.







Right to command.

Obligation to perform an assigned task.

Answerability for outcome of the assigned task.


Can be delegated.

Cannot be entirely delegated.

Cannot be delegated at all.


Arises from formal position.

Arises from delegated authority.

Arises from responsibility.


Flows downward from superior to subordinate.

Flows upward from subordinate to superior.

Flows upward from subordinate to superior.




(a) Effective management:

(i) By empowering the employees, the managers are able to function more efficiently as they get more time to concentrate on important matters.

(ii) Freedom from doing routine work provides them with opportunities to excel in new areas.

(b) Employee development:

(i) As a result of delegation, employees get more opportunities to utilise their talent and this may give rise to latent abilities in them.

(ii) It allows them to develop those skills which will enable them to perform complex tasks and assume those responsibilities which will improve their career prospects.

(iii) It makes them better leaders and decision makers. Thus, delegation helps by preparing better future managers.

(iv) Delegation empowers the employees by providing them with the chance to use their skills, gain experience and develop themselves for higher positions.

(c) Motivation of employees/motivate Subordinate:

(i) Delegation helps in developing the talents of the employees. It also has psychological benefits.

(ii) 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.

(iii) Responsibility for work builds the self-esteem of an employee and improves his confidence. He feels encouraged and tries to improve his performance further.

(d) Facilitation of growth:

(i) Delegation helps in the expansion of an organisation by providing a ready workforce to take up leading positions in new ventures.

(ii) Trained and experienced employees are able to play significant roles in the launch of new projects by replicating the work ethos they have absorbed from existing units, in the newly set up branches.

(e) Basis of management Hierarchy: Delegation of authority establishes superior-subordinate relationships, which are the basis of hierarchy of management. It is the degree and flow of authority which determines who has to report to whom.

The extent of delegated authority also decides the power that each job position enjoys in the organisation.

(f) Better coordination:

(i) 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.

(ii) This helps to avoid overlapping of duties and duplication of effort as it gives a clear picture of the work being done at various levels.

(iii) Such clarity in reporting relationships help in developing and maintaining effective coordination amongst the departments, levels and functions of management. Thus, delegation is a key element in effective organising.




(i) Those organisations in which decision making authority lies with the top management are termed as centralised organisations whereas, those in which such authority is shared with lower levels are decentralised organisations.

(ii) Decentralisation refers to delegation of authority throughout all the levels of the organisation.

(iii) Expert's Defination,

(a) LOUIS ALLEN, Decentralisation refers to systematic effort to delegate to the lowest level all authority except that which can be exercised at central points.

(b) HENRI FAYOL, Everything which goes to increase the importance of a subordinate's role is decentralisation; everything that goes to reduce it is centralisation.

(iv) Centralisation and decentralisation are relative terms, an organisation is centralized when decision making authority is retained by higher management levels whereas it is decentralised when such authority is delegated.

(v) An organisation can never be completely centralised or decentralised. As it grows in size and complexity, there is a tendency to move towards decentralised decision making.


Centralisation and Decentralisation




It is the transfer of authority from superior to subordinate.


It is delegation of authority throughout the organisation.

It is suitable for small organisations.


It is suitable for large organisations.


Importance of Decentralisation


An organisation should choose to be decentralised because it is important to the organisation.

(i) Develops initiative among subordinates:

(a) Decentralisation helps to promote self-reliance and confidence amongst the subordinates. This is because when lower managerial levels are given freedom to take their own decisions they learn to depend on their own judgment.

(b) It also keeps them in a state wherein they are constantly challenged and have to develop solutions for the various problems they encounter.

(ii) A decentralisation policy helps to identify those executives who have the necessary potential to become dynamic leaders.

Develops managerial talent for the future:

(a) Formal training plays an important part in equipping subordinates with skills that help them rise in the organisation but equally important is the experience gained by handling assignments independently.

(b) 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.

(c) It also helps to identify those who may not be successful in assuming greater responsibility. Thus, it is a means of management education as well as an opportunity for trained manpower to use its talent in real life situations.

(iii) Quick decision making:

(a) The management hierarchy can be looked upon as a chain of communication.

(b) In centralised organisation, every decision is taken by the top management, the flow of information is slow as it has to traverse many levels. Response also takes time. This reduces the speed of decision making and makes it difficult for an enterprise to adapt to dynamic operating conditions.

(c) In a decentralised organisation, however, 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.

(iv) Relief to top management:

(a) 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.

(b) 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.

(c) In fact decentralisation is greatest when checking required on decisions taken by lower levels of management is least.                                         


(v) Facilitates growth:                                                       

(a) 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.

(b) Consequently, with each department doing its best in a bid to outdo the other, the productivity levels increase and the organisation is able to generate more return which can be used for expansion purposes.


(vi) Better control:

(a) Decentralisation makes it possible to evaluate performance at each level and the departments can be individually held accountable for their results.

(b) Feedback from all levels helps to analyse variances and improve operations.

(c) In decentralisation, one of the challenges is the accountability of performance. In response to this challenge, better control systems are being evolved such as the balance score card and management information system.


Words that Matter

1.            Organising: Organising can be defined as a process that initiates implementation of plans by clarifying jobs and working relationships and effectively deploying resources for attainment of identified and desired results (goals).

2.            Departmentalisation: Once work has been divided into small and manageable activities then those activities which are similar in nature are grouped together. Such sets facilitate specialisation. This grouping process is called departmentalisation.

3.            Organisational structure: Organisational structure can be defined as the framework within which managerial and operating tasks are performed.

4.            Span of management: Span of management refers to the number of subordinates that can be effectively managed by a superior.

5.            Functional structure: Functional structure refers to that organisational structure which is formed by grouping of jobs of similar nature and organizing functions as separate departments.

6.            Divisional structure: In a divisional structure, the organisation structure comprises of separate business units or divisions.

7.            Formal organisation: Formal organisation refers to the organisation structure which is designed by the management to accomplish a particular task.

8.            Informal organisation: Interaction among people at work gives rise to a 'network of social and personal relationship among employees' is called informal organisation.

9.            Delegation: Delegation involves granting the necessary authority to subordinates to operate within prescribed limits.

10.          Decentralisation: It refers to the systematic delegation or dispersal of authority at all levels of management and in all departments of organisation.

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