CH 5 - Organising

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Chapter 5 Organising

INTRODUCTION
Once the plan has been laid down, the next step is to organize resources in a manner which
leads to the accomplishment of objectives. The activities of an enterprise must be organized
in such a manner that plans can be successfully implemented. The management function of
organizing ensures the efforts are directed towards attainment of goals laid down in the
planning function. Thus, it is a means for translating plans into action.

MEANING
Organizing is the process of identifying and grouping the work to be performed, defining and
delegating authority and responsibility and establishing relationships for the purpose of
enabling people to work most effectively together in accomplishing objectives.

DEINITION
According to Theo Haimann, “Organising is the process of defining and grouping the
activities of the enterprise and establishing authority relationships among them”
According to Henry Fayol, “To organize a business is to provide it with everything, useful
to its functioning - raw materials, machines, tools, capital and personnel.”

IMPORTANCE OF ORGANIZING: (8 MARKS)

1. BENEFITS OF SPECIALIZATION: Organizing leads to systematic allocation of


jobs among the workers. Right man is placed for the right job. It increases the efficiency of
workers and Repetitive performance of a specific job on regular basis helps the worker to
gain experience and thus leads to specialization.

2. CLARITY IN WORKING RELATIONSHIPS: Organizing helps in establishing


working relationship and clearly defines the lines of communication and also specifies who is
to report to whom. This further helps in fixation of responsibility and also specifies the
dimensions of authority which an individual can exercise.

3. OPTIMUM UTILIZATION OF RESOURCES: Organizing leads to proper use of


material, financial and human resources. Proper allocation of jobs helps in avoiding,
overlapping of work and ensures optimum use of resources without any wastage.

4. ADAPTATION TO CHANGE: Organising helps business enterprises to adjust to


the environmental changes. It allows the organistion structure to be suitably modified and the
revision of inter-relationships among managerial levels to pave the way for smoother
transition. It also provides stability in the enterprise so that it continues to survive and grow
in spite of changes.
5. EFFECTIVE ADMINISTRATION: Organising provides clear description of jobs
and related duties. This helps to avoid confusion and duplication. Clarity in the working
relationships enables proper execution of work. Thus, management of an enterprise becomes
easy and brings effectiveness in administration.

6. DEVELOPMENT OF PERSONNEL: Organising stimulates creativity among the


managers. Effective delegation allows the managers to reduce their workload by assigning
routine jobs to their subordinates. This reduced workload allows manager to develop new
methods and ways of performing the tasks for the growth of the organisation. This helps the
subordinates to grow and realize their full potential.

7. EXPANSION AND GROWTH: Organising promotes growth and diversification


of an enterprise. It enables the enterprise to take up new challenges.

STEPS IN ORGANIZING PROCESS:

1. IDENTIFICATION AND DIVISION OF WORK: The process of organizing starts


with the identification and division of work. The whole work is to be divided into
manageable activities so that duplication is avoided and completed as per pre-determined
goals.

2. DEPARTMENTALISATION: Departmentalisation refers to the process of grouping


the activities of similar nature under same departments. This facilitates specialisation and
co-ordination. Following are the ways of departmentalisation:

a. On the basis of function: The activities are grouped into different departments on
the basis of various functions. Example:
 Purchase department for purchase activity,
 Finance department for Finance activities.
b. On the basis of type of product manufactured: The activities we grouped into
different departments on the basis of products manufactured. Example:
 Textile Division
 Food Division

c. On the basis of territory: The activities are grouped on the basis of different
territory. E.g., North, South, East, West.

3. ASSIGNMENT OF DUTIES: It is necessary to assign the work to the employees


according to their skill and competencies. In order to ensure effective performance in an
organization.

4. ESTABLISHMENT OF REPORTING RELATIONSHIPS: Mere allocation of work


is not enough, each individual should know from whom he has to take orders and to
whom he is accountable. The establishment of such clear relationship helps to create a
hierarchal structure and helps in co-ordination among various departments.

ORGANISATION STRUCTURE
Organisation structure is a system which defines the frame work with in which
managerial and operating functions are performed in an enterprise. This frame work
enables the enterprise to work as an integrated unit. It denotes the pattern of relationships
among positions and jobs with the object of accomplishment of objectives of an
enterprise.

According to Theo Haimann” Organisation is the structural framework within which


the various efforts are co-ordinated and related to each other”.

TYPES OF ORGANISATION STRUCTURE:

The structure adopted by an organization will vary with the nature and type of activities
performed by an organisation. The organisational structure can be classified as follows:

1. FUNCTIONAL STRUCTURE: Grouping the jobs of similar nature and organising


these major functions as separate departments create a functional structure. All
departments report to a coordinating head.
Advantages:
1) It leads to occupational specialisation since emphasis is placed on specific functions.
2) It promotes efficiency in utilization of man power as employees perform similar kind
of tasks within a department.
3) It promotes control and co-ordination within a department.
4) It helps in increasing managerial and operational efficiency and this results in
increased profit.
5) It ensures that different functions get due attention.
6) It makes training of employees easier as the focus is only on a limited range of skills.

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

SUITABILITY: Functional Structure is suitable when:


 Size of the organisation is large.
 Operations of the firm need high degree of specialisation.
 Authority is decentralized.
2. DIVISIONAL STRUCTURE: Large organizations with diversified activities have
organized themselves towards a Divisional Structure. Grouping of activities on the basis
of product is known as Divisional Structure of Organisation. Under this
structure the top level delegates extensive authorities to the divisional heads. The
divisional head is in-charge of manufacturing, purchase, sales, engineering and other
departments of the division. He is also made responsible for the profit or loss of his
division.

Advantages:
1) Product specialisation helps in the development of varied skills in a divisional head and
this prepares him for higher positions.
2) Divisional heads are accountable for profits, as revenues and costs related to different
departments can be easily identified and assigned to them.
3) It promotes flexibility and initiative because each division functions as autonomous
unit which leads to faster decision making.
4) It facilitates expansion and growth as new divisions can be added without interrupting
the existing operations by merely adding another divisional head and staff for the new
product line.
Disadvantages:
1) Conflict may arise among different divisions with reference to allocation of funds and
further particular division may seek to maximize its profits at the cost of other
divisions.
2) It may lead to increase in costs. Providing each division with separate set of similar
functions increases expenditure.
SUITABILITY: Divisional Structure is suitable when:
 An organisation is involved in production of different line of products.
 Organisation needs product specialisation.
 Organisation plans to produce more line of products in future.

COMPARATIVE VIEW: FUNCTIONAL AND DIVISIONAL STRUCTURE

Basis Functional Structure Divisional Structure


Specialisation Functional specialisation. Product specialisation
Formation Formation is based on functions Formation is based on product lines
and is supported by functions.
Responsibility Difficult to fix on a department. Easy to fix responsibility for
performance.
Managerial Difficult, as each functional manager Easier, autonomy as well as the chance
Development has to report to the top management. to perform multiple functions helps in
managerial development.
Cost Functions are not duplicated hence Duplication of resources in various
economical departments, hence costly.
Difficult for a multiproduct Easy, because all functions related to a
Coordination company. particular product are integrated in one
department.

FORMAL AND INFORMAL ORGANISATION

A. FORMAL ORGANISATION
A formal organisation is one which has a system of well-defined positions, authority,
responsibility, policies, principles etc. Formal organizations are governed by rules and
regulations for its proper functioning. It results from planning and determined by top
management.
Definition
According to Louis Allen “The Formal Organisation is a system of well-defined jobs, each
bearing a definite measure of authority, responsibility and accountability”.
Features of Formal Organisation:
(a) It specifies the relationships among various job positions and the nature of their
interrelationship. This clarifies who has to report to whom.
(b) It is a means to achieve the objectives specified in the plans, as it lays down rules and
procedures essential for their achievement.
(c) Efforts of various departments are coordinated, interlinked and integrated through the
formal organisation.
(d) It is deliberately designed by the top management to facilitate the smooth functioning of
the organisation.
(e) It places more emphasis on work to be performed than interpersonal relationships among
the employees.

ADVANTAGES:(8MARKS)
Formal organisation offers many advantages. Some of the important ones are:
(a) It is easier to fix responsibility since mutual relationships are clearly defined.
(b) There is no ambiguity in the role that each member has to play as duties are specified.
This also helps in avoiding duplication of effort.

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


(d) It leads to effective accomplishment of goals by providing a framework for the
operations to be performed and ensuring that each employee knows the role he has to play.

(e) 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 :( 8MARKS)
The formal organisation suffers from the following limitations:

(a) The formal communication may lead to procedural delays as the established chain of
command has to be followed which increases the time taken for decision making.

(b) Poor organisation practices may not provide adequate recognition to creative talent, since
it does not allow any deviations from rigidly laid down polices.

(c) It is difficult to understand all human relationships in an enterprise as it places more


emphasis on structure and work. Hence, the formal organisation does not provide a complete
picture of how an organisation works.

B. Informal organisation
Informal organisation refers to the relationships between the people working in an
organisation, established not by any formal authority, and also, not based on procedures and
regulations, but on personal attitudes, emotions, whims, prejudices, likes, dislikes etc. They
are not pre-planned they develop automatically within the organisation.
Definition
According to Keith Davis “Informal Organisation refers to the relationship between the
people in the organisation based on the personal attitudes, prejudices, likes and dislikes etc.”
FEATURES:
(a) An informal organisation originates from within the formal organisation as a result of
personal interaction among employees.
(b) The standards of behaviour evolve from group norms rather than officially laid down
rules and regulations.
(c) Independent channels of communication without specified direction of flow of
information are developed by group members.
(d) It emerges spontaneously and is not deliberately created by the management.
(e) It has no definite structure or form because it is a complex network of social relationships
among members.
ADVANTAGES:
The informal organisation offers many benefits. Important among them are given below:
(a) Prescribed lines of communication are not followed. Thus, the informal organisation
leads to faster spread of information as well as quick feedback.
(b) It helps to fulfill the social needs of the members and allows them to find like minded
people. This enhances their job satisfaction since it gives them a sense of belongingness
in the organisation.
(c) It contributes towards fulfillment of organisational objectives by compensating for
inadequacies in the formal organisation. For example, employees reactions towards plans
and policies can be tested through the informal network
DISADVANTAGES:
The informal organisation has certain disadvantages. Some of them are as follows:
(a) When an informal organisation spreads rumours, it becomes a destructive force and
goes against the interest of the formal organisation.
(b) The management may not be successful in implementing changes if the informal
organisation opposes them. Such resistance to change may delay or restrict growth.
(c) It pressurises members to conform to group expectations. This can be harmful to the
organisation if the norms set by the group are against organisational interests.
FORMAL AND INFORMAL ORGANISATION: A COMPARATIVE VIEW

Basis Formal Organisation Informal Organisation


Structure of authority relationships Network of social relationships
Meaning created by the management arising out of interaction among
employees
Arises as a result of company rules Arises as a result of social interaction
Origin
and policies
Arises by virtue of position in Arises out of personal qualities
Authority
management
It is directed by rules There is no set behaviour pattern
Behaviour
Communication takes place through Flow of communication is not
Flow of
the scalar chain through a planned route. It can take
Communication
place in any direction
Nature Rigid Flexible
Managers are leaders. Leaders may or may not be
Leadership managers. They are chosen by the
group.

Delegation - Meaning, Elements and Importance Meaning:


Delegation is the process of transferring authority from a superior to his subordinate. It is
essential for smooth functioning of a business because any manager, no matter how capable
he is, cannot perform all the functions on his own. Thus the authority has to flow from top to
bottom i.e., Superior to Subordinate.
Definition
According to Theo Haimman, "Delegation of authority merely means the granting of
authority to subordinates to operate within prescribed limits.”
Elements of Authority
There are three elements of authority namely,
 Authority
 Responsibility
 Accountability

1. AUTHORITY: Authority is the power to command employees and instruct them to


perform a job. Authority determines the superior subordinate relationship. It flows from
top to bottom, i.e., the superior has authority over the subordinate, where in the superior
communicates his decision to the subordinate expecting to perform it.

2. RESPONSIBILITY: Responsibility is the obligation of a subordinate to perform the


assigned duty. It arises from a superior-subordinate relationship because the subordinate is
bound to perform the duty assigned to him. Thus, responsibility flow upwards i.e.,
subordinates is always responsible to his superior.
3. ACCOUNTABILITY: Accountability means being answerable for the final results. It
is an obligation to carry out responsibility and to give reports about ones performance to the
superior. Authority can be delegated by a superior to his subordinates but accountability can
never be delegated.

COMPARISON OF AUTHORITY, RESPONSIBILITY AND ACCOUNTABILITY

Basis Authority Responsibility Accountability


1 Meaning Right to give orders. Duty to perform a given Being answerable for
job the job performed
2 Delegation It can be delegated. It cannot be fully It cannot be
delegated Delegated at all.
3 Origin It arises from formal It arises from delegated It arises from
positions of Individuals Authority. Responsibility.
4 Flow Flows from superior to Flows from Flows upward from
subordinates. subordinates to subordinates to
superior. superior.
5 Nature Authority is a power Responsibility is duty Accountability is
answerability.

IMPORTANCE OF DELEGATION
Delegation of authority is necessary for the smooth functioning of a
business. It increases the working capacity of a manager. Effective delegation can lead to the
following benefits:
1. EFFECTIVE MANAGEMENT: Delegation helps superiors to assign the routine
activities to the subordinates and he can concentrate on other important functions. Thus,
a manager can increase his effectiveness by using skills of his subordinates.
2. EMPLOYEE DEVELOPMENT: The employees get more opportunities to utilize
their talent. It motivates them to motivate themselves for higher positions, as they are
given opportunities to utilize their skills and talents for gaining excellence in their job.
3. FACILITATION OF GROWTH: Delegation facilitates growth and expansion by
providing trained and experienced personnel for taking up leading positions in new
project.
4. BASIS OF MANAGEMENT HIERARCHY: Delegation of authority determines
who has to report to whom. It creates the chain of superior - subordinate relationship,
which is the basis for hierarchy of management.
5. BETTER CO-ORDINATION: The elements of delegation namely, Authority,
Responsibility and accountability clearly defines power, duties and answerability
related to various departments. This helps to avoid overlapping of duties and brings
better co-ordination among various departments and functions of management.
6. QUICK DECISION MAKING: The subordinates are given authority to take
decisions. They need not to go to their superiors for taking decisions on routine matters.
This increases the speed of decision making.

DECENTRALISATION - MEANING AND IMPORTANCE


Meaning: Decentralisation of authority means dispersal of authority to take decisions to
the lower levels of organisation. Decentralisation implies reservation of some authority
regarding planning, organizing, directing and controlling is retained at the top level
management and other functions are delegated at lower levels.
Definition: According to Louis Allen “Decentralisation refers to systematic effort to
delegate to the lowest level, all authority except that which can be exercised at central
points.”

IMPORTANCE OF DECENTRALISATION :(8MARKS)


1. DEVELOPS INITIATIVE AMONG SUBORDINATES: 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. A Decentralisation policy helps to identify those
executives who have the necessary potential to become dynamic leaders.
2. DEVELOPS MANAGERIAL TALENT FOR THE FUTURE: 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. Decentralisation gives them a chance to prove their abilities and
creates a reservoir of qualified manpower that can be considered to fill up more
challenging positions through promotions. It also helps to identify those who may not
be successful in assuming greater responsibility
3. QUICK DECISION MAKING: The management hierarchy can be looked upon as a
chain of communication. In centralised organisation because 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. 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.
4. RELIEF TO TOP MANAGEMENT: Decentralisation diminishes the amount of
direct supervision exercised by a superior over the activities of a subordinate
because theyare given the freedom to act and decide albeit within the limits set by the
superior. Also, personal supervision is generally replaced by other forms of control
such as return on investment etc. Decentralisation also leaves the top management
with more time which they can devote to important policy decisions rather than
occupying their time with both policy as well as operational decisions.
5. FACILITATES GROWTH: Decentralisation awards greater autonomy to the lower
levels of management as well as divisional or departmental heads. This allows them to
function in a manner best suited to their department and fosters a sense of competition
amongst the departments. 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 returns which can be used for expansion purposes.
6. BETTER CONTROL: Decentralisation makes it possible to evaluate performance at
each level and the departments can be individually held accountable for their results.
The extent of achievement of organisational objectives as well as the contribution of
each department in meeting the overall objectives can be ascertained. Feedback from
all levels helps to analyse variances and improve operations. In response to this
challenge, better control systems are being evolved such as the balance score card and
management information system. Decentralisation compels the management to
innovative performance measurement systems.

CENTRALISATION
MEANING
Concentration of authority at top level for decision making with one or few-managers is
known as centralisation of authority. Thus, under centralisation the top level management
only takes the decisions. The lower levels of management have to follow it and they do not
have decision making power.
Definition: According to Louis A. Allen, "Centralisation is the systematic and consistent
reservation of authority at central point in an organisation.
DELEGATION AND DECENTRALISATION: A COMPARATIVE VIEW

Basis Delegation Decentralisation


Nature Delegation is a compulsory act Decentralisation is an optional
because no individual can perform policy decision. It is done at the
all tasks on his own. discretion of the top management.
Freedom of action More control by superiors hence Less control over executives’
less freedom to take own hencegreater freedom of action.
decisions.
Status It is a process followed to share It is the result of the policy
tasks. decision of the top management.
Scope It has narrow scope as it is limited It has wide scope as it implies
to superior and his immediate extension of delegation to the
Subordinate. Lowest level of management.
Purpose To lessen the burden of the To increase the role of the
manager. subordinates in the organisation by
giving them more autonomy.
Section-D

1) Explain the importance of Organizing.

2) State the advantages and disadvantages of Formal Organization.

3) What is Decentralization? Explain its importance.

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