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Business Studies Notes PDF

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Organising
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(Class – 12 / Chapter- 5)

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Identifying and grouping different activities in the organisation and bringing together the physical, financial and
human resources to establish most productive relations for the achievement of specific goals of the organisation.

According to Henry Fayol, “To organise a business is to provide it with everything useful to its functioning; raw
materials, machines and tools, capital and personnel.”

Process of Organising:
(i) Identification and division of work
(ii) Departmentalisation

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(iii) Assignment of duties
(iv) Establishing reporting relationships

Importance of Organising:

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● Benefits of specialization: Work is divided into smaller tasks and each task is performed by those
employees who possess the required skills. Performing similar tasks leads to specialization.
● Clarity in working relationships: It removes ambiguity and miscommunication as working relationships
are clearly stated.

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● Optimum utilization of resources: It avoids duplication and overlapping of work which leads to minimum
wastage of resources.
● Adaptation to change: It tries to incorporate the changes in the business environment by modifying

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organizational structures and revising interrelationship at managerial levels as and when required.
● Effective administration: Clarity in working relationships and proper execution of work brings effective
administration.
● Development of personnel: Proper delegation reduces employer’s burden, stimulates creativity and
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motivates them to complete tasks efficiently.
● Expansion and growth: It helps in growth and expansion by incorporating changes in the business
environment.
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ORGANISATION STRUCTURE
It can be defined as “Network of job positions, responsibilities and authority at different levels.” The considerations
to be kept in mind while farming the organisational structure are:
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● Job design
● Departmentation
● Span of management
● Delegation of authority
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Types of Organisation Structure:

1. Functional Structure: When the activities or jobs are grouped keeping in mind the functions or the job then it is
called functional structure.
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Advantages:
● Specialisation
● Easy supervision
● Easy co-ordination
● It helps in increasing managerial efficiency
● Effective training

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Disadvantages:
● The departments become specialised in their own way only.
● When departments become too large then the co-ordination decrease.
● When the organisational goals are not achieved then it becomes very difficult to make any one department
accountable.
● Employees get training in one function only i.e., the department to which they belong so they can not be
shifted to another department.

2. Divisional Structure: When the organisation is large in size and is producing more than one type of product

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then activities related to one product are grouped under one department.
Advantages:
● Product specialisation
● Fast decision making

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● Accountability
● Flexibility
● Expansion and growth

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Disadvantages:
● Each department will require all the resources as every division will be working as an independent unit.
● Conflict on allocation of resources.

organisation. C
● Each department focuses on their product only and they fail to keep themselves as a part of one common

Difference between Functional Structure and Divisional Structure:

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Basis of Difference Functional Structure Divisional Structure

Creation These are created based on functions. These are built on the basis of product lines
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as well as functions.

Cost It is cost-effective because duplication It is expensive because there is a higher rate

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of effort is avoided. of duplication of work and resources

between departments.
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Duplication of work Work overlapping is reduced as a result Because each product department performs
of functional specialization. the same functions, work overlapping is
increased.

Suitability More appropriate for businesses that More appropriate for multiproduct companies
focus on 'operational specialisation.' with a focus on 'differentiated products.'
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Functional The departments are divided into When departments are created on the basis
Hierarchy horizontal functional hierarchies based of product-line categories, a vertical
on key operations. functional hierarchy is formed.

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Decision making Decisions for various departments are Decisions are decentralized because each
made by the coordinating head, which division of the product line has its own
centralized decision making. decision-making authority.

Management Management is difficult because each Management is simplified because each

task must report to a coordinating head product has its own department.
at the highest level of management.

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FORMAL ORGANISATION
When the managers are carrying on the organising process then as a result of the organisation process an
organisational structure is created to achieve systematic- working and efficient utilisation of resources. This type of
structure is known as formal organisational structure.

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Advantages:
● Systematic working
● Achievement of organisational objectives

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● No overlapping of work
● Co-ordination
● Creation of chain of command
● More emphasis on work

Disadvantages:
● Delay in action
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● Ignores social needs of employees
● Emphasis on work only

INFORMAL ORGANISATION
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It is a network of personal and social relations not established or required by the formal organisation but arising
spontaneously as people associate with one another.
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Advantages:
● Fast communication
● Fulfills social needs
● Correct feedback
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Disadvantages:
● Spread rumors
● No systematic working
● May bring negative results
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● More emphasis to individual interest

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Difference between Formal and Informal Organisation:

Basis Formal Organisation Informal Organisation

Meaning Formal organisation lays down job Informal organisation is a structure formed as
descriptions, rules and procedures for each a result of a network of social relationships
task to be performed in an organisation. among employees.

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Relationships Formal Informal

Flexibility No, Rigid. Flexible in nature

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Authority Originates through formal structure Originates through interpersonal relationships

Communication In the form of a Scalar chain, that is a No formal route followed. It can flow in any
formal route followed. direction.

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DELEGATION OF AUTHORITY
“A process of entrusting responsibility and authority to the subordinates and creating accountability on those

Importance of Delegation:
(i) Effective management
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employees who are entrusted responsibility and authority.”
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(ii) Employee development
(iii) Motivation of employees
(iv) Facilitation of growth
(v) Basis of management hierarchy
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(vi) Better co-ordination

Elements of Delegation:
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● Responsibility: It means the work assigned to an individual. It includes all the physical and mental
activities to be performed by the employees at a particular job position.
● Authority: It means power to make decisions. To carry on the responsibility every employee needs to have
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some authority. Authority flows in a downward direction that is top to bottom, as the superior has authority
over his subordinate. Also the level of authority increases as one moves higher in the management
hierarchy.
● Accountability: It means subordinates will be answerable for the non-completion of the task. It flows from
bottom to top in upward direction, as a subordinate is accountable for his work and performance to his
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superior.

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Difference between Authority, Responsibility and Accountability:

BASIS AUTHORITY RESPONSIBILITY ACCOUNTABILITY

Concept It is the right to command. It is an obligation to perform It is the answerability for the
assigned work. performance.

Delegation It can be delegated. It cannot be delegated. It arises from responsibility.

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Origin It originates from formal It arises from authority It arises from the responsibility.
positions. delegated.

Flow Downward flow, from Upward flow, from subordinate Upward flow, from subordinate to

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superior to subordinate. to superior. superior.

CENTRALISATION
● All powers and authority of decision-making is retained with the top level management in this concept.

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● All the decisions are taken by the higher level management in a centralised firm.
● Though an organisation cannot be completely centralised, as it may disrupt the production efficiency as
well as discourage departments and employees to perform to the best of their abilities. Hence for this a

DECENTRALISATION
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balance between centralisation and decentralization is needed.

Decentralisation explains the manner in which decision-making responsibilities are divided among hierarchical
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levels.

Importance of Decentralisation:
● Develops initiative among subordinate
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● Develops managerial talent for the future

● Quick decision making
● Relief to top management
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● Facilitates growth
● Better control
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Difference between Delegation and Decentralisation:

Basis Delegation Decentralisation

Nature Delegation is a must as it is impossible It is the top management’s option or discretion

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for an individual to perform all the work. to share the powers of decision making with
lower level management.

Freedom of action Lesser freedom with the subordinate to Greater freedom to make decisions.
take own decisions.

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Status Aims to share burden of superiors Aims to involve lower level management in
decision making.

Scope Narrow scope, limited to superior and to Wide scope, extension of decision making
his/her immediate subordinate. authority from top to lower level management.

Purpose To allow superior to focus on high To increase the role of subordinates in decision

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priority. making.

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