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 CBSE CLASS 12 BUSINESS STUDIES
CHAPTER – 5
ORGANISATION
REVISION NOTES

Meaning of Organizing
The organising function leads to the creation of an organisational structure which includes the
designing of roles to be filled by suitably skilled people and defining the inter relationship
between these roles so that ambiguity in performance of duties can be eliminated. The aim of
organizing is to enable people to work together for a common purpose.

STEPS IN THE PROCESS OF ORGANISING

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 Identification &
Division Of Work

Departmentalization

Assignment
Of Duties

Establishing
Reporting
Relationships

1. Identification & Division Of Work:

The first step in the process of organizing involves identifying and dividing the work in
accordance with the predetermined plans. The work is divided into manageable activities so that
duplication of work can be avoided and the burden of work can be shared among the employees.

2. Departmentalization:
• Once work is divided into small activities, similar and related jobs are grouped together.
This grouping is called departmentalization.
• E.g. departmentalization on the basis of territory, products etc.

3. Assignment Of Duties:
• It is important to state clearly the work of different job positions and allocate work
accordingly to employees.
• Once departments are formed, individual department heads are appointed for each
departments.
• The work must be assigned to those who are best fitted to perform it well.
• E.g. finance job should be assigned to persons having qualifications and experience in
finance e.g. C.A‘s or MBA finance.

4. Establishing Reporting Relationships:

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 • Establishing authority and responsibility relationship helps to create a hierarchal structure
and also helps in coordination amongst various departments.
• Superior subordinate relations between different people and job positions is to be created,
so that everybody knows from whom he/she is to taking orders and to whom he/she can
issue orders.

IMPORTANCE OF ORGANISING

Benefits of
specialization

Clarity in
Expansion and
working
growth
relationships

IMPORTANCE
OF
ORGANISING
Optimum
Development of
utilization of
Personnel
resources

Adaption to Effective
Change Administration

1. Benefits of specialization:
• Organising leads to a systematic allocation of jobs amongst the work force.
• The division of work into smaller jobs reduces workload and enhance productivity and
repetitive performance leads to specialization.

2. Clarity in working relationships:

• Organising helps in defining all the jobs and also clarifying the limits of authority and
responsibility of each job.

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 • 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 employee.

3. Optimum utilization of resources:

• Organisation leads to usage of all natural resources, financial resources and human
resources.
• The proper assignment of jobs avoids duplication of work and minimizes wastage of
resources.

4. Effective Administration:
• It provides a clear description of jobs and related duties, which helps to avoid confusion
and duplication of work.
• Clarity in working relationships enables proper execution of work, which results
ineffective administration.

5. Adaption to Change:
• The process of organising is flexible which allows a business enterprise to accommodate
changes in the business environment.
• It also provide stability to an enterprise.

6. Development of Personnel:
• A well designed organization structure encourages initiative and relative thinking on part
of the employees.
• When managers delegate their authority, it reduces their workload and thus can give time
on important areas of growth and opportunity to innovate thereby.

7. Expansion and growth:

• Organising helps in growth & diversification of an enterprise.
• By adding more job positions, departments, products lines, new geographical territories
etc. and thus will help to increase customer base, sales and profit.

ORGANISATIONAL STRUCTURE

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The organisation structure can be defined as the framework within which managerial and
operating tasks are performed. It specifies the relationships between people, work and resources
in an organisation.
Under the organizational structure, various posts are created to perform different activities for the
attainment of the predetermined objectives of the enterprise. The structure provides a basis or
framework for managers and other employees to perform their functions.
Span of management refers to the number of subordinates that can be effectively managed by a
superior. The Span of management largely gives shape to the organization structure. This
determines the levels of management in the structure.

1. FUNCTIONAL STRUCTURE:
In functional structure activities are grouped and departments are created on the basis of specific
functions to be performed. For example, all the jobs related to production are grouped under
production department, sales departments etc.

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 ADVANTAGES DISADVANTAGES SUITABILITY

• Functional structure • A Functional structure

leads to occupational gives more imortance • Organizations which
specialisation since to the objectives of require high degree of
emphasis is placed on functional head than functional
specific functions. the objectives of specialization with
• Promotes efficiency in organisation diversified activities.
the utilisation of man • Lack of coordination • Large organizations
power. among different producing one line of
• Promotes control and departments. product.
coordination within a • A conflict of interests
department. will arise within
• It helps in increasing different departments.
managerial and • It may lead to
operational efficiency. inflexibility due to
• it reduces duplication narrow perspective of
of work. employees.
• It helps in training
employees easily.
• It ensures that
different functions get
due attention.

2. DIVISIONAL ORGANIZATION STRUCTURE

Dividing the whole enterprise according to the major products to be manufactured (like metal,
plastic, cosmetics etc.) is known as divisional organization structure.

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 •Product specialisation helps in the overall development of the skills of
departmental heads.
•It helps in the fixation of responsibility and accountability of departmental heads
•provides a proper basis for assessing performance and results of each division.
ADVANTAGES •It facilitates expansion and growth, as new divisions can be added without
interupting existing divisions

•Conflicts may arise among different divisions on allocation of resources.

•It may lead to increase in costs since there may be a duplication of activities in
different product divisions.
•It provides managers with the authority to supervise all activities related to a
DISADVANTAGES particular division.

•This structure is suitable in organizations producing multi product or different lines of

products requiring product specialization.
•Growing companies which intend to add more lines of products in future adopt this
structure.
SUITABILITY

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Comparative view: Functional and Divisional Structure

Basis Functional Structure Divisional Structure

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

3. FORMAL ORGANISATION

Formal organisation refers to the organisation structure that is designed by the management to
accomplish organizational goals. In a formal organisation the boundaries of authority &
responsibility is clearly defined and there is a systematic coordination among the various
activities to achieve organizational objectives.

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 Features Advantages Disadvantages

• It clearly defines the • Easier to fix • May lead to

lines of authority and responsibility since procedural delays as
responsibility for mutual relationships chain of command has
every individual in an are clearly defined to be followed.
organisation. • It helps in avoiding • Rigid policies reduces
• It is a means to duplication of work creativity.
achieve the objectives • Unity of command is • More emphasis is on
specified in the plans. maintained structure and work
• It is impersonal and • Effective than on human
doesn’t take into accomplishment of relationships.
consideration goals.
emotional aspect of • Provides stability in
the employees. organisation.
• it is designed by the
top management.
• It is created with the
motive of achieving
organizational
objectives.

4. INFORMAL ORGANISATION
Interaction among people at work gives rise to a ‘network of social relationships among
employees’ called the informal organisation. The main purpose of this organization structure is
the psychological satisfaction of the employees with common interests. For example, employees
with similar interest in books, films, religion etc. may form their own informal groups.

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 FEATURES ADVANTAGES LIMITATIONS

• It originates from the • It leads to faster • Informal organisation

personal interaction of spread of information spread rumours,
employees within a and feedback as sometimes it goes
organisation. formal channels of aginst the interests of
• The standards of communication is not the organisation.
behaviour evolve from followed. • It resists change and
group norms. • It enhances job lays stress on adopting
• It doesnt have fixed satisfaction and a the old techniques.
channels of sense of • members of the
communication. belongingness in the group may give more
• It emerges organisation. priority to group
spontaniously and not • It provide quick interests over the
created by solutions to the organisational
management. problems. objectives.
• It is a complex
network of social
relationships among
members.

Difference between Formal Informal Organisation

Basis Formal organisation Informal Organsiation
Meaning It refers to the structure of It refers to the network of
well defined authority and social relationships arising
out of interaction among
employees
Origin As a result of company rules Arises as a result of social
and policies interaction
Authority Arises by virtues of positions Arises out of personal
in management qualities.
Adherence to rules Violations of rules may lead No such penalties and
to penalties and punishments. punishments.
Flow to Communication Communication takes place Not through a planned route,
through the scalar chain it can take place in any
direction.
Purpose To achieve planned To satisfy social and cultural
organizational objectives. needs and fulfill common
interests
Nature Rigid Flexible

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 Structure Well defined structure of No clear cut structure because
tasks and relationships. of complex network of
relationships.
Flow of Authority Authority flows from top to Authority flows vertically as
bottom i.e. downwards. well as horizontally.
Leadership Managers are leaders Leaders may or may not be
managers. They are chosen
by the group.

DELEGATION

“Delegation of authority merely means the granting of authority to subordinates to operate within
prescribed limits.”
Theo Haimman
Delegation refers to the downward transfer of authority from a superior to a subordinate
employees. It is a pre-requisite to the efficient functioning of an organisation because it enables a
manager to use his/ her time on high priority activities. Importance of delegation is that it helps
in effective management, employee development, motivation, growth and coordination.

ELEMENTS OF DELEGATION
1. Authority: Authority refers to the right to take decisions in order to guide the activities of
others. Authority determines the superior subordinate relationship. Laws and the rules and
regulations of the organisation restrict authority. Authority flows downward.

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

assigned duty. If the subordinate has the responsibility for a job, he/ she must be given necessary
authority to carry out that task.

3. Accountability: Accountability implies being accountable for the final outcome. When a
superior assigns a work to a subordinate, he/she is answerable to the superior for its outcome.

Difference between Authority, Responsibility and Accountability

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 Basis Authority Responsibility Accountability
Meaning Right to command Obligation to perform Answerable for the
an assigned task. outcome of the
assigned task.
Origin Arises from formal Arises from delegated Arises from
position authority responsibility
Delegation Can be delegated Cannot be entirely Cannot be delegated
delegated at all
Flow Downward flow from Upward flow from Upward flow from
superior to subordinate to subordinate to
subordinate. superior. superior.

IMPORTANCE OF DELEGATION

1. Reduction of Executives’ work load: It reduces the work load of officers. They can thus
utilize their time in more important and creative works instead of works of daily routine.

2. Employee development: Employees get more opportunities to utilize their talent which
allows them to develop those skills which will enable them to perform complex tasks.

3. Quick and better decision are possible: The subordinate are granted sufficient authority so
they need not to go to their superiors for taking decisions concerning the routine matters.

4. High Morale of subordinates: Because of delegation of authority to the subordinates they get
an opportunity to display their efficiency and capacity.

5. Better coordination: The elements of delegation – authority, responsibility and accountability

help to define the powers, duties and answer ability related to various job positions which results
in developing and maintaining effective coordination.

DECENTRALISATION

“Decentralisation refers to systematic efforts to delegate to the lowest level, all authority except
the one which can be exercised at central points”.

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 Louis Allen
Decentralisation means delegation of authority throughout all the levels of the organisation. This
empowers lower levels to take decisions regarding problems faced by them without having to go
to the upper levels. In other words decision making authority is given to all the employees at all
levels depending on the job each one of them are handling
An organisation is centralized when the decision making authority is retained by the top level
management.

IMPORTANCE OF DECENTRALISATION

1. Develops initiative among subordinates: It helps to promote confidence and self reliance in
the subordinates as they are given freedom to take their own decisions.
2. Develops managerial talent for future: Training given by the organisation and the
experience gained from handling the projects increases the talent of the managers and
employees.
3. Quick decision making: Since the managerial decisions are taken at all levels nearest to the
point of action helps them to take better and quick decisions.

4. Relieves the top management: By the delegation of work, the daily managerial jobs are
assigned to the subordinates, which leaves enough time with the superiors to look into priority
areas.

5. Facilitates growth: It allows the departmental heads and employees to perform in the best
possible manner considering all the aspects of their department, which in turn increases
productivity, efficiency and facilitates growth.

6. Better Control: Evaluation of performance is possible at each level, which results in

complete control over all the other activities.

Difference between Delegation and Decentralization

Basis Delegation Decentralisation
Nature It is a compulsory act. Decentralisation is an
optional policy decision.

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Freedom of action Less freedom to take Less control over executives
decisions due to more control hence greater freedom of
by the superiors. action.
Status It is a process followed to It is the result of the policy
share tasks. decision of the top
management.
Scope It has narrow scope, as it is It has wide scope as it implies
limited to superior and his extension of delegation to the
immediate subordinate. lowest level of management.
Purpose Narrow as it is confined to a To increase the role of the
superior and his immediate subordinates in the
and subordinate. organisation by giving them
more autonomy.

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