MANAGEMENT PRINCIPLES AND APPLICATIONS (UNIT 3: ORGANIZING)

PART 1: CONCEPT AND PROCESS OF ORGANIZING

Concept of Organizing

According to Koontz O’Donnel, organizing involves the establishment of an international structure of roles
through determination and enumeration of the activities required to achieve the goals of an enterprise and
each part of it; the grouping of these activities, the assignment of such groups of activities to the manager,
the delegation of authority to carry them out and provision for co-ordination of authority and informational
relationship, horizontally and vertically, in the organization structure.

Some of the common features of an organization are as follows:

 Division of Labour: When total work involved in achievement of goals and objectives are divided into
activities and functions and allocated to an individual or a group of people, as whole work may be too
heavy for and individual or a group of people, the organization structure comes into existence.
 Coordination: Once the functions are decided and allocated to group of people or an individual next
is to see that all the activities of the groups or individuals must be directed towards the organizational
goals.
 Accomplishment of Goals or Objectives: The organization structure has no meaning, if it does not
serve in its mission of achieving the objectives, it is because the structure is framed in such a way that
the works are allocated to different goals in such a way that they are unified and harmonized towards
the achievement of a common goal or objective.
 Authority-Responsibility Structure: An organization structure consists of various positions arranged
in a hierarchy with a clear definition of the authority and responsibility associated with each of these.
In fact, an organization structure is quite often defined as a structure of authority-responsibility
relationships.

Principles of Organizing

 Principle of Specialization: According to the principle, the whole work of a concern should be divided
amongst the subordinates based on qualifications, abilities, and skills. It is through division of work
specialization can be achieved which results in effective organization.
 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.
 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 from a wide or
narrow span.
 Principle of Scalar Chain: Scalar chain is a chain of command or authority which flows from top to bottom.
With a chain of authority available, wastages of resources are minimized, communication is affected,
overlapping of work is avoided and easy organization takes place. As the authority flows from top to
bottom, it clarifies the authority positions to managers at all levels and that facilitates effective
organization.
 Principle of Unity of Command: It implies one subordinate-one superior relationship. Every subordinate
is answerable and accountable to one boss at one time. This helps in avoiding communication gaps and
feedback and response is prompt. Unity of command also helps in effective combination of resources,
 that is, physical, financial resources which helps in easy co-ordination and, therefore, effective
organization.

Concept of Departmentation

Departmentation refers to grouping of jobs, identified earlier, into work units on some logical basis. Every
level in the hierarchy below the apex (the Board of Directors and the (EO) is departmentalized and each
succeeding lower level involves departmental differentiate Different systems use different words to denote
departmentation. In the military organization, group, company, and battalion are used; in the government,
department, branch, and section are used; and in the private sector department, divisions, sections, cells or
projects are used.

Types of Departmentation

 Functional Departmentation: In this form of departmentation, similar activities or functional areas are
grouped together. The directors of operations, marketing, finance, and human resources report to the
Chief Executive Officer (CEO). A major advantage of this kind of departmentation is that the principle of
specialization is utilized to bring about efficiency in the organization. A major drawback is that the
complete focus upon functional areas at lower level of the hierarchy leaves the responsibility of the overall
performance of the organization on the higher level.

 Product Departmentation: An organization which is into manufacturing many products may find the
functional departmentation too slow to respond to the market changes for various products. A major
advantage of this kind of departmentation is that the managers responsible for their products get the
opportunity of managing all the facets and functional areas in totality. Later, it becomes easier for them to
don the role of the organizational head, as they have experience of managing complete entities rather
than only a functional area. A major disadvantage of this form of departmentation is the duplication of
resources in the various product divisions.

 Geographical Departmentation: Geographical departmentation is the grouping of the organization

according to the territorial areas, nationally or internationally. This kind of departmentation is suitable for
 organizations operating in various markets scattered geographically. A major advantage of geographical
departmentation is that the managers can focus upon the unique requirements of their region. The
challenge however is for the top management to coordinate and control the managers in geographi-cally
dispersed regions.

 Customer Departmentation: The focus in customer departmentation, as the name implies, is upon the
customer. Here, managers are assigned different types of customers to service. The biggest advantage
of such a departmentation is that the managers can address their customer’s needs promptly and as per
their unique requirements, while building long-term relations with them. The drawback however is under-
utilization or duplication of resources for various types of customer divisions.

 Process or Equipment Departmentation: Process or equipment departmentation is found in

manufacturing organizations in which parts of the production process are segregated to improve
efficiency in the system. This kind of departmentation can be done based on the equipment types as well.
For example, welding, drilling, lathe machining, etc. Such a departmentation is especially useful when the
variety of products manufactured in the plant is large. However, when the variety of products produced
is relatively less and the products can be grouped into similar processing requirements and sequence,
this departmentation would be rendered less useful. The manufacturing cells (based upon a cellular
layout) containing different machines organized in the processing sequence of a product group have
been found to be more efficient in that scenario.
 Project or Matrix Departmentation: Project or matrix departmentation is a form of hybrid
departmentation in which any two types of departmentation are conjoined to address a unique
requirement. The personnel are either assigned to the projects on a full-time or part-time basis depending
upon the extent of their involvement/requirement in the projects. During the period of their involvement
in projects, such employees have dual reporting—to their functional head and the project head. The extent
of authority vested in the project head on such personnel deputed from functional departments can vary
on a case-to-case basis. After the culmination of the project, such personnel are sent back to their
respective departments to perform their routine duties. A major advantage of this departmentation is the
congregation of people with varied expertise in the project team to facilitate the cause of the project
within a specified time frame. The disadvantage is difficulty in Control mechanisms and performance
appraisals due to dual reporting of such employees.

 Team Structures: In contemporary organizations, informal and formal teams have become
com-monplace. The phenomenon of quality circles and TPM (Total Productive Maintenance) circles were
instrumental in the creation of informal voluntary teams of workers in organizations during the 1980s and
1990s. These teams were formed voluntarily by workers to find workable solutions to problems faced in
their work domains/machinery or to find better ways of doing things. This structure is suitable when the
environment is stable, i.e., problems can be predicted and the need for change and innovation are
limited.

Span of Management

Span of control (or management) is defined by Dimock as the number and range of direct, habitual
communication exchanges between an enterprise's top executive and his principal fellow executives. Span
of management refers to the number of subordinates that a manager can efficiently handle. It is the
determining factor for the nature and structure of an organization.

Types of Span of Management

Span of management can be classified into the following two categories:

 Narrow Span of Management: If the number of subordinates reporting to a particular manager is

small, the span of management is said to be narrow. Narrow span of management leads to tall
organizational structures that have multiple levels of management.
 Advantages Disadvantages
 Smaller teams can communicate more  Excessive control over employees may stifle
quickly their inherent skills and inventiveness
 Small groups are easier to govern and  Decision-making takes a long time when
manage the hierarchy of control is extended
 Has a high level of specialization and labor  The limited breadth of control inhibits
division cross-functional issue resolution
 Increased and improved prospects for staff  As more managers are recruited, the
advancement expense rises
 The manager has direct supervision over  Increased organizational management
each of his subordinates layers

 Wide Span of Management: Span of management is said to be wide if, there are large number of
subordinated reporting to a manager. Wide span of management leads to flatter organizational
structures with only a few levels of management.
Advantages Disadvantages
 More Delegation of Authority  Supervisors are overburdened
 Better Manager Development  Risk of superiors losing control
 Requirement for highly qualified managing
 Clear Policies
employees
 Subordinates are more autonomous when
 Decision-making hindered
there is a wide span of control
 There are fewer levels in the managerial
 Inefficient management
structure

Span of management depends on various factors such as ability of the manager in terms of leadership,
control, etc., extent of decentralization followed in the organization, working ability of the subordinates,
nature of work, etc.

Factors deciding the nature of Span

 Qualification and Qualities: If the superiors and subordinates are well-qualified, trained, experienced,
and if they are experts in their jobs then the span of control will be wide and vice-versa.
 Level of Management: If the superiors are working at the top-level of management, then they have more
responsibilities. Therefore, their span of control will be narrow and vice-versa.
 Nature of Work: If the work is difficult then the span of control is narrow and vice-versa.
 Superior - Subordinates Relationship: If there are good relations between the superior and
subordinates, then the span of control will be wide and vice-versa.
 Degree of Centralization: Under decentralization, the superior must take fewer decisions. Therefore, he
can have a wide span of control. However, under centralization, the superior must take many decisions.
Therefore, he should have a narrow span of control.
 Use of Communication Technology: If face-to-face communication is used, then the span of control will
be narrow. However, if electronic devices are used for communication, then the span of control will be
wide.
 Financial position of the Organization: If the organization has a good financial position, then it can have
a narrow span of control. This is because a narrow span requires more managers. More managers will
increase the compensation or wage bill of the organization. However, if the organization has a bad
financial position, then it will be forced to have a wide span of control.
 Clarity of Plans and Responsibilities: If the plans are clear and if the responsibilities are well-defined,
then the span of control will be wide. This is because the subordinates will not have to go and consult
their superior repeatedly for getting orders and guidance.
 Time available for Subordinates: If the superior is busy with another work, and if he has less time for his
subordinates then his span of control will be narrow and vice-versa.
 Faith and Trust in Subordinates: If the superior has good faith, trust, and confidence in his subordinates
then the span of control can be wider.

Relationship between Authority, Responsibility, and Accountability

 Authority: Authority is all about rights or powers with the managers which the organization empowers
them for achieving a common organizational goal. Thus, it involves the power of assigning duties to
workers and asking them to accept and pursue the assigned work. An organization can never stand
without ethical assignment and detailing Authority. According to Henry Fayol, authority is the power to
give orders and garner obedience. Authority streams downwards as the board of directors provides it to
executives and managers at various management levels.
 Responsibility: According to McFarland, Responsibility is the duties or responsibilities allocated to a
position or executive. Responsibility is the obligation that comes with a job. It simply means the person
needs to commit to the job and complete it. It is their Responsibility to finish the task in each time frame.
Also, it shows that the Authority was well implemented, and the task is completed accordingly. Beneath
this, an individual is qualified to delegate the task to associates but not to definitive Accountability. This
means that even if the person has the power to transition the work, he/she will still be held responsible
for the task. Responsibility flows from bottom to top and is in the form of constant obligation.
 Accountability: McFarland defines Accountability as, the obligation of a person to register formally to
their senior executives about the task to discharge the Responsibility. Accountability is all about the
liability created to handover the Authority. Accountability makes an individual answerable about the task
or job he/she has done. Hence, it makes an employee answerable for the performance of the assigned
work. An individual who has accepted Authority, he/she deems to approve Accountability and
Responsibility at that time itself.

Can be delegated? Can be shared?

Authority Yes No
Responsibility No Yes
Accountability No No

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.
Different types of Authority

 Line Organization: Line organization is the simplest and the oldest type of organization. It is also known
as scalar organization or military type of organization. In the words of J.M. Lundy, it is characterized by
direct lines of authority flowing from the top to the bottom of the organizational hierarchy and lines of
responsibility flowing in an opposite but equally direct manner. Line organization is of two types:
o Simple or Pure Line Organization: In the ‘Pure Line organization’ the activities (at any level of
management) are the same with each man performing the same type of work and the divisions
primarily exist for the purpose of control and direction. In practice, such type of organization rarely
exists.

o Departmental line organization: Here, an organization is divided into various departments

headed by different departmental heads. All the departments operate under the ultimate control
of general manager. The orders flow directly from the general manager to all the departmental
heads that in turn pass on to their respective subordinates.

Advantages of Line Organization Disadvantages of Line Organization

 Simplicity: It is quite simple to  Overloading: The main disadvantage of this system is
establish and operate. It can be that it tends to overload the existing executive with too
easily understood by the many responsibilities. The work may not be performed
employees. effectively on account of innumerable tasks before the
 Fixed responsibility: Duties and single executive.
responsibilities are clearly  Lack of specialization: Absence of managerial
defined for everyone with specialization is the major drawback of this system.
reference to the work assigned to Because of many functions and complexities, it is
him. Resultantly, everybody difficult for a single individual to control all the matters
effectively.
 knows to whom he is responsible  Scope for favoritism: There may be a good deal of
and who are responsible to him. favoritism and nepotism under this type of organization.
 Discipline: This type of As the concerned officer will judge the performance of
organization ensures better the persons at work according to his own norms, it is
discipline in the enterprise. possible that efficient people may be left behind and
Singleness of responsibilities inefficient or ‘yes men’ may get higher and better posts.
facilitates discipline in the  Lack of coordination: It is difficult to achieve proper
organization. co-ordination among various departments operating in
 Flexibility: It is flexible in the an organization. This is because each departmental
sense that it is subject to quick manager or head carries the functioning of his
adjustments to suit to changing department in accordance with the ways and means
conditions. suitable to him.
 Coordination: It helps to achieve  Lack of initiative: Under line organization, ultimate
effective co- ordination. All the authority lies in the hands of top management and
activities pertaining to single departmental managers, or heads have little powers.
department are controlled by This adversely affects their initiative and enthusiasm to
one person. motivate the subordinates working under them.

 Line and Staff Organization: The line and staff organization are an improvement over the above
mentioned two systems viz, line organization and functional organization. The line organization
concentrates too much on control whereas the functional system divides the control too much. The need
was, therefore, for a system that will ensure a proper balance between the two. The need has been fulfilled
by line and staff organization. The system like line organization also owes its birth to army. The
commanders in the field who are line officers are assisted by the staff that helps them in formulating
strategies and plans by supplying valuable information. Similarly in organization, line officers get the
advice of the staff which is helpful in carrying on the task in an efficient manner. However, staff’s role is
advisory in nature. Line officers are usually assisted by staff officers in effectively solving various business
problems. The staff is usually of three types viz:
o Personal Staff: This includes the personal staff attached to Line Officers. For example, personal
assistant to general manager, secretary to manager etc. The personal staff renders valuable advice
and assistance to Line Officers.
o Specialized Staff: This category includes various experts possessing specialized knowledge in
different fields like accounting, personnel, law, marketing, etc. They render specialized service to
the organization. For example, a company may engage a lawyer for rendering legal advice on
different legal matters. Similarly, it may engage a chartered accountant and a cost accountant for
tackling accounting problems.
o General Staff: This comprises of various experts in different areas who render valuable advice to
the top management on different matters requiring expert advice.
Advantages of Line and Staff Organization Disadvantages of Line and Staff Organization
 Specialization: This type of organization is  Conflict between line and staff authorities:
based on planned specialization and brings There may be chances of conflict between line
about the expert knowledge for the benefit of and staff authorities. Line Officers resent the
the management. activities of staff members on the plea that
 Better decisions: Staff specialists help the they do not always give correct advice. On
line manager in taking better decisions by other hand staff officials complain that their
providing them adequate information of right advice is not properly carried out.
type at right time.  Problems of line and staff authority: There
 Lesser Burden on the Line Officers: The may be confusion on the relationship of line
work of the line officers is considerably and staff authorities. Line Officers consider
reduced with the help of staff officers. themselves superior to Staff Officers. The Staff
Technical problems and specialized matters Officers object to it.
are handled by the Staff and the routine and
 administrative matters are the concern of Line  Lack of responsibility: As the staff specialists
Officers. are not accountable for the results, they may
 Advancement of research: As the work not perform their duties well.
under this type of organization is carried out  Quite expensive system: The appointment
by experts, they constantly undertake the of experts involves a heavy expenditure. Small
research and experimentation for the and medium size organizations cannot afford
improvement of the product. such a system.
 Training for line officer: Staff services have  More reliance on staff: Some of the line
proved to be an excellent training medium for officers excessively rely on the staff. This may
Line Officers. considerably reduce the line control.
 Functional Organization: F.W. Taylor, who is better known as the father of scientific management
developed the concept of Functional Organization. As the very name suggests, functional organization
implies that the organization should be based on various functions. Taylor’s functional approach is mainly
based on principle of specialization and tries to bring about organizational balance. The principle of
specialization embodies the concept that both the workers and the supervisors can develop a higher
degree of proficiency by separating the manual from the mental requirements. Taylor recommended that
there should be functionalization even at the shop level where workers must produce goods. He felt that
the usual practice of putting one foreman in charge of some 40 to 50 workers should be avoided. Taylor’s
concept of Functional Foremanship (as he puts it), is a system comprising of eight different foremen
discharging different functions. Every worker in the organization is directly connected with these foremen.

The eight specialist foremen are:

o Route clerk: He lays down the exact path or route to be followed by raw material transforming it
into finished product.
o Instruction card clerk: He prepares detailed instructions to be followed in doing the work as per
the route laid down by the route clerk.
o Time and cost clerk: He determines the total time to be taken in the completion of a product and
works out the cost of production per unit and total cost. He prepares various work schedules and
cost sheets to have proper control over time and cost incurred in producing goods.
o Shop disciplinarian: He is responsible for maintaining proper discipline in the organization. In
fact, he is the guardian of orderliness in the factory. He is helpful in resolving minor disputes
regarding wages, holidays, working conditions and hours of work etc. He initiates a proper code
of conduct in the organization.
o Gang boss: He makes the availability of different machines and tools required by workers to carry
out their work. He also provides various production designs, drawings, raw materials etc.
 o Speed boss: He controls the speed of different machines operating in the organization. He
sometimes demonstrates the workers the proper speed with which the machines should operate.
He undertakes proper supervision over speed of machines.
o Repair boss: He is concerned with proper maintenance and repairs of machines for keeping them
in working order. His main task is to undertake immediate repair of the defective machines so that
the work may not suffer.
o Inspector: He checks and certifies the quality of work i.e., whether it is up to pre-determined
standards. Achievement of pre-set standards is confirmed by the inspector. He develops the
feeling of quality consciousness among the workers. To carry out his job effectively, an inspector
must possess proper knowledge and the technicalities involved in quality control.
Advantages of Functional Organization Disadvantages of Functional Organization
 Specialization: This system derives the  Conflict in authority: The authority relationship
benefits of specialization. As every violates the principle of ‘unity of command.’ It
functional in charge is an expert in his creates several bosses instead of one line
area, he will guide using his specialization authority. It leads to conflict and confusion in
and with the help of the subordinates, try the minds of the workers to whom they should
to attain the specified objectives. obey and whom they should ignore.
 Increased efficiency: This type of  Difficulty in pinpointing responsibility:
organization ensures enhanced efficiency Because of the non-application of the principle
as the workers operate under the expert of ‘unity of control,’ it is difficult for the top
and competent personnel and perform management to fix the responsibility of a
limited operations. particular foreman. There arises a tendency for
 Limited duties: The functional foremen shirking of responsibility.
must carry out the limited number of  Expensive: This pattern of organization is quite
duties concerning their area of work. This impracticable and expensive. Multiplicity of
considerably reduces the burden of work experts increases the overhead expenditure.
and makes possible for the foreman to The small organizations cannot afford to install
carry out the work in the best possible such a system.
manner.  Discipline is slackened: Discipline among the
 Scope for expansion: Functional workers as well as lower supervisory staff is
organization offers a great scope for difficult to maintain as they are required to work
expansion of business enterprise without under different bosses, and this may hamper
any dislocation and loss of efficiency as the progress of the organization.
each man grows on account of his own  Lack of coordination: Appointment of several
specialty. experts in the co-ordination and delay in
 Flexibility: A change in organization can decision-making especially when a decision
be made without disturbing the whole requires the involvement of more than one
organization. specialist.

Conflict between Line and Staff Organization

Line and staff distinctions are made based on two viewpoints—functional viewpoint and authority relationships
viewpoint. Allen defined line and staff functions thus—” Line functions are those which have direct
responsibility for accomplishing the objectives of the enterprise and staff refers to those elements of the
organizations that help the line to work more effectively in accomplishing the primary objectives of the
enterprise.” Since organizational objectives determine the line and staff functions, any change in objectives
may result in changes in the line and staff functions.

CONFLICTS DUE TO LINE VIEWPOINT:

 Lack of accountability: Line managers generally perceive that staff managers are not accountable for
their actions. Such lack of account-ability on the part of staff leads to ignoring of the overall organizational
 objectives. Staff takes the credit for achieving the results, which is actu-ally achieved by the line people.
But if anything goes wrong, they blame the line. Such perception among the line managers is one of the
most important sources of line and staff conflict.
 Encroachment on the Line authority: Line managers often allege that staff managers encroach upon
their authority by giving recommendations on matters that come within their purview. Such
encroachments influ-ence the working of their departments and often lead to hostility, resent-ment, and
reluctance to accept staff recommendations.
 Dilution of authority: Staff managers often dilute the authority and be- little the responsibilities of line
managers. Line managers fear that their responsibilities may be reduced, and they even suffer from a
feeling of insecurity.
 Theoretical basis: Staff being specialists, they generally think within the ambit of their specialization. They
fail to relate their suggestions to the actual reality and are unable to understand the actual dimensions of
the problems. This is because staff is cut-off” from the day-to-day opera-tions. This results in impractical
suggestions, making it difficult to achieve organizational goals.

CONFLICTS DUE TO STAFF VIEWPOINT:

 Lack of proper use of staff: Staff managers allege that line managers often take decisions without any
input from them. Line just informs staff after taking decisions. This makes staff managers feel that line do
not need staff. But even in such cases (where line takes its own decisions without consulting staff), if
anything goes wrong, staff is made respon-sible.
 Resistance to new ideas: Line managers resist new ideas as they feel implementing new ideas means
something is wrong with the present way of working. Such rigidity of line managers dissuades staff from
implementing new ideas in the organization and adds to their frustra-tion.
 Lack of proper authority: Staff often alleges that despite having the best solutions to the problems being
faced in their areas of specialization, they fail to contribute to organizational goals. This is because the
staff lack the authority to implement the solutions and are unable to persuade the line managers (who
have the authority) to implement them.

CONFLICTS DUE TO THE VERY NATURE OF LINE AND STAFF RELATIONSHIPS:

 Different backgrounds: Line and staff managers are usually from dif-ferent backgrounds. Normally line
managers are seniors to staff in terms of organizational hierarchy and levels. On the contrary, staff
managers are relatively younger and better educated. Staff often looks down upon the line. Such
complexes create an atmosphere of mistrust and hatred between the line and staff.
 Lack of demarcation between line and staff authority: In practice it is difficult to make a distinction
between line and staff authority. Overlap-ping and duplication of work creates a gap between the
authority and responsibility of line and staff. Each tries to shift the blame to the other.
 Lack of proper understanding of authority: Failure to understand au-thority causes misunderstandings
between the line and staff. This leads to encroachment and creates conflict.

To overcome the line and staff conflict, it is necessary for an organization to follow certain approaches:

 Clarity in relationships: Duties and responsibilities of both line and staff should be clearly laid down.
Relationships of staff with the line and their scope of authority need to be clearly defined. Similarly, line
man-agers should also be made responsible for decision making and they should have corresponding
authority for the same. Line should enjoy the freedom to modify, accept, or reject the recommendations
or advice of the staff.
 Proper use of staff: Line managers must know how to maximize orga-nizational efficacy by optimizing
the expertise of staff managers. They need to be trained on the same. Similarly, staff managers should
also help the line to understand how they can improve their activities.
 Completed staff work: Completed staff work denotes careful study of the problem, identifying possible
alternatives for the problem, and pro-viding recommendations based on the compiled facts. This will
result in more staff work and pragmatic suggestions.
 Holding staff accountable for results: Once staff becomes accountable, they would be cautious about
their recommendations. Line also would have confidence on staff recommendations, as staff is
accountable for the results.

Concept of Decentralization

According to Earl. P. Strong, decentralization 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. Decentralization is referred to as a form of an organizational structure where there is the delegation
of authority by the top management to the middle and lower levels of management in an organization.

In this type of organization 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 organizational level, it is called decentralization.

IMPORTANCE OF DECENTRALIZATION

 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 organization to function its
operation quickly and effectively.
 Administrative development: The decentralization 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 organization.
 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.
 Promotes growth: Decentralization 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.
 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
decentralization and stabilized management, and scorecard are being developed.

CENTRALIZATION VS DECENTRALIZATION

Decentralization Centralization
Decision-making capabilities Decision-making capability rests with
Definition
delegated across multiple levels the top management
Flow of Information Open and free Vertical
Decentralization is ideal for large- Centralization is ideal for small-sized
Ideal for
sized organizations organizations
Decision-making speed Significantly faster Comparatively slow
In decentralization, a higher
In centralization, only a few
number of people from each level
People Involved handpicked people are involved in the
are involved in the decision-
decision-making process
making process
 Employee Motivation Highly motivated employee Demotivated employee
Conflict in Decision Most likely to occur Least likely to occur
The burden gets shared among
Burden Only one group is carrying the burden
many levels
Relatively stable as decisions are made
Prone to instability due to multiple
Stability by a central authority sharing a
conflicting decisions
common ideology

The difference between centralization and decentralization is one of the most popular topics. Some people
favor centralization, while others favor decentralization. People used to conduct their businesses in a
centralized fashion in ancient times, but due to increased competition, which necessitates swift decision-
making, many businesses have adopted decentralization. Due to the impossibility of achieving complete
centralization or decentralization, most organizations currently have both. Complete centralization is
impossible in an organization since it implies that the top echelon makes all decisions. On the other hand,
complete decentralization implies no control over subordinates’ actions. Hence, maintaining a balance
between the two is equally important.

Concept of Delegation of 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 to achieve effective results.

There are three elements to a delegation of authority (discussed earlier):

 Authority: Authority is the power a manager must delegate tasks, allocate resources efficiently, make
decisions, and have the right to give orders to others to meet company goals. It flows from top to bottom
and managers have it more.
 Responsibility: Responsibility is the duty of an individual to complete the tasks given to them. It should
be given with adequate authority, or it will lead to dissatisfaction and frustration. It goes from bottom to
top with middle and lower-level management having more.
 Accountability: This is the process of providing explanations for not achieving the desired outcomes.
Unlike responsibility and authority, accountability cannot be delegated. In fact, it comes hand in hand with
responsibility. An employee responsible for a certain task automatically becomes accountable for the
results.

PRINCIPLES OF DELEGATION OF AUTHORITY

Delegation of responsibility can be highly effective once you understand how to delegate properly. Here are
some constructive principles of delegation in management you can follow for successful performance:

 Functional Definition: When delegating authority, there should be clarity regarding the tasks to
complete, the methods of operation and the expected results. Further, goals and targets should be clearly
defined. For example, if the marketing team is expected to prepare two social media posts every day, the
team leader should communicate and allocate responsibility to every person on the team.
 Unity of Command: According to this principle, every individual should be solely accountable to
someone. This gives a sense of personal responsibility because that individual is ultimately answerable to
someone. Although it is possible for someone to be accountable to multiple people, it is best to avoid
that as it can create complications and conflict.
 Absoluteness of Responsibility: This principle states that a person can delegate authority but not
responsibility. If a manager has delegated their authority to someone on their team, the manager cannot
 turn a blind eye to mishaps or hurdles later. The ultimate responsibility remains with the manager. For
example, if one has taken some time off and his employees make some changes to an ongoing project,
he should validate those changes to finalize them.
 Authority and Responsibility: There should be a balance between authority and responsibility. If
someone is given the responsibility to carry out a task, then one should give them enough independence
to carry out the task effectively.
 Authority Level: Authority should always be well-defined. To avoid any overlaps, there should be a clear
indication of everybody’s roles. Moreover, one cannot delegate authority unless that person is clear about
the scope of their own authority. For example, if one is responsible for shortlisting new candidates for his
team, he cannot ask others to perform that task for him.
 Scalar Principle: The scalar principle emphasizes the need for a chain of direct authority relationships
throughout an organization. It helps to understand where everyone stands in the organization in relation
to another. This principle is especially useful in places with flat organizational structures, where hierarchy
is not very prominent.
 Principle of Proper Motivation: When one motivates someone through rewards and recognition, they
are bound to push themselves harder and perform better. This process is called ‘positive reinforcement’
in psychology.

OBSTACLES OF DELEGATION OF AUTHORITY

Though delegation increases efficiency of the organization by dividing work amongst the organizational
members (according to their capabilities), it is not free from obstacles. Various barriers to delegation can be
grouped into three main headings.

1. Barriers related to superiors or delegator

2. Barriers related to subordinates or delegate
3. Barriers related to organization

Barriers Related to Superiors: Despite knowing how important it is to delegate, superiors, sometimes, do
not delegate responsibility to subordinates because of the following reasons:

 Wanting to do things personally: Some managers do not delegate because they feel they can work
better than others. Since ultimate responsibility is of the delegator, they prefer doing the work themselves
rather than getting it done through others.
 Insecurity: If managers feel subordinates can perform better than them, they avoid delegation. Their
inabilities to take decisions creates a feeling of insecurity and, therefore, they fear to delegate.
 Retention of power: Some managers like to take added responsibility, make their importance felt in the
organization and want subordinates to approach them to get their problems solved. The desire to retain
power affects the efficiency of delegation process.
 Lack of confidence in subordinates: The reward for risk is return. Unless managers take the risk of
subordinates not performing well, they cannot develop skilled managers in future. A manager who does
not take risk in subordinates and lacks confidence in them will not be able to delegate effectively.
 Unwillingness to set standards of control: Having delegated the duties, managers remain accountable
for overall performance of the work. They supervise activities of subordinates to ensure that actual
performance is not against planned performance. A manager who fails to establish standards of control
will not be able to effectively delegate work to subordinates.

Barriers Related to Subordinates: The following barriers arise on account of the subordinates:
 Lack of confidence: Some subordinates do not want to take responsibility for the fear of not being able
to perform well. They lack confidence and do not want to take any risk. They prefer to depend on the
superiors to make decisions.
 Fear of making mistakes: If the subordinate’s fear that they will make mistakes in carrying out the
delegated responsibilities, this fear dissuades them from taking added responsibility.
 Lack of incentives: Motivation, through financial and non-financial incentives, makes delegation
effective. Subordinates are reluctant to accept delegation in the absence of incentives.
 Absence of Access to Resources: If subordinates do not have access to resources (financial and non-
financial) to carry out the assigned work, they do not accept delegation of responsibilities. This happens
when there is delegation of responsibility without commensurate authority.
 Convenience: Sometimes, subordinates prefer that work is done by superiors for the sake of convenience
rather than assuming responsibility for the same. They simply want their superiors to make the decisions.

Barriers Related to Organization: The organization structure provides the following barriers to the effective
process of delegation:

 Size of the organization: A small-sized organization does not have too many jobs to delegate to
subordinates.
 No precedent of delegation: Merely because organizations have not earlier been following the practice
of delegation, sometimes, they continue with the practice of not delegating the jobs.
 Degree of centralization or decentralization: Efficient delegation is affected by the degree to which
organization distributes the decision-making power to various organizational units. A highly centralized
organization is obstructive to the process of effective delegation.

PART 2: FORMAL AND INFORMAL STRUCTURE OF ORGANIZATION

Formal and Informal Structure of organization

 Formal Organization: In every organization, employees are guided by rules, policies, and procedures,
and the structure of jobs and positions of employees are clearly defined for achieving smooth functioning
of the organization. Such a structure is known as Formal Organization. In a formal organization, the
position, responsibility, authority, and accountability of each employee is defined for achieving
organizational goals. It is stable, rigid and coordinates the effort of every department.
 Informal Organization: Interaction amongst employees at the workplace gives rise to networks of
informal communication and employees cut the official channels and form their own social groups, which
are known as Informal Organizations. Such informal organizations emerge from within the formal
organization. It arises out of frequent contact of people with each other based on common interests. It
has no definite structure as it comprises a network of social relationships. It has no specific direction for
the flow of information and is flexible. It is helpful in faster communication and fulfils the social needs of
employees at the workplace.

Basis Formal Organization Informal Organization

The structure of jobs and positions, which The network of social relationships arising
Meaning is created by management is known as out of interaction among employees is
Formal Organization. known as Informal Organization.
It is formed deliberately as a part of the It is not formed deliberately and is a result
Formation
organization’s rules and policies. of social interaction.
Authority arises by virtue of position in Authority arises out of personal qualities.
Authority
management.
Behaviour Behaviour is prescribed by the managers. There is no set pattern for behaviour.
 Flow of Communication takes place through Communication takes place through
Communica formal channels only. informal channels having no fixed path.
tion
Nature It is rigid in nature. It is flexible in nature.
Person with maximum authority is the Person who has greater acceptance by the
Leadership
leader. group is the leader.
Flow of Authority flows from top to bottom. Authority can flow in all the direction.
Authority
It is more stable as it exists till the survival It is relatively less stable as employees can
Stability of the organization. change their social group based on their
desire.
It is created to work systematically and It is created to provide social satisfaction to
Purpose
achieve organizational goals. employees.

Network Organization

A network organization is a business structure where employees form small, multidisciplinary teams that work
independently to achieve common goals. In this type of model, the organization does not rely on the
traditional top-to-bottom supervisory mechanisms. Rather, the organization creates groups specifically to
handle problems or tasks as they occur without direct supervision. In a network structure, an organization's
units comprise teams that work together to achieve an overarching organizational goal, and the teams use
an iterative approach to accomplish their tasks. When management creates a team to solve a problem, the
team:

 Assesses the task

 Creates a specific strategy
 Creates or adjusts its action plan for optimal efficiency
 Executes the plan until it meets its goals

When the team in a network organization achieves its goals, the company can disband or reorganize it for a
new strategic need. Regardless of the size, structure or history of a company, the network model can help
improve productivity and efficiency. Examples of areas where the network model can deliver results include:

 Creating new product development teams

 Forming new sales/marketing units to compete favorably with new products
 Driving innovation in a fast-moving market
 Increasing competition among different companies or departments owned by the same organization

Following is an example of a network organization structure: