Unit 1

Concepts of Management and Organization

Functions of Management: Management has been described as a social process involving

responsibility for economical and effective planning & regulation of operation of an enterprise in
the fulfillment of given purposes. It is a dynamic process consisting of various elements and
activities. These activities are different from operative functions like marketing, finance, purchase
etc. Rather these activities are common to each and every manger irrespective of his level or status.
According to Henry Fayol, “To manage is to forecast and plan, to organize, to command, & to
control”. Whereas Luther Gullick has given a keyword ’POSDCORB’ where P stands for
Planning, O for Organizing, S for Staffing, D for Directing, Co for Co-ordination, R for reporting
& B for Budgeting. But the most widely accepted are functions of management given by KOONTZ
and O’DONNEL i.e. Planning, Organizing, Staffing, Directing and Controlling. For theoretical
purposes, it may be convenient to separate the function of management but practically these
functions are overlapping in nature i.e. they are highly inseparable. Each function blends into the
other & each affects the performance of others. 1.Planning It is the basic function of management.
It deals with chalking out a future course of action & deciding in advance the most appropriate
course of actions for achievement of predetermined goals. According to KOONTZ, “Planning is
deciding in advance - what to do, when to do & how to do. It bridges the gap from where we are
& where we want to be”. A plan is a future course of actions. It is an exercise in problem solving
& decision making. Planning is determination of courses of action to achieve desired goals. Thus,
planning is a systematic thinking about ways & means for accomplishment of predetermined goals.
Planning is necessary to ensure proper utilization of human & non- human resources. It is all
pervasive, it is an intellectual activity and it also helps in avoiding confusion, uncertainties, risks,
wastages etc. 2.Organizing It is the process of bringing together physical, financial and human
resources and developing productive relationship amongst them for achievement of organizational
goals. According to Henry Fayol, “To organize a business is to provide it with everything useful
or its functioning i.e. raw material, tools, capital and personnel’s”. To organize a business
involves determining & providing human and non-human resources to the organizational structure.
Organizing as a process involves:

• Identification of activities.

• Classification of grouping of activities.

• Assignment of duties

.• Delegation of authority and creation of responsibility

. • Coordinating authority and responsibility relationships.

3.Staffing It is the function of manning the organization structure and keeping it manned. Staffing
has assumed greater importance in the recent years due to advancement of technology, increase in
size of business, complexity of human behavior etc. The main purpose o staffing is to put right
man on right job i.e. square pegs in square holes and round pegs in round holes. According to
Kootz & O’Donell, “Managerial function of staffing involves manning the organization structure
through proper and effective selection, appraisal & development of personnel to fill the roles
designed un the structure”. Staffing involves:

• Manpower Planning (estimating man power in terms of searching, choose the person and
giving the right place).
• Recruitment, Selection & Placement.
• Training• & Development.
• Remuneration
• Performance Appraisal.
• Promotions• & Transfer.
• 4.Directing It is that part of managerial function which actuates the organizational
methods to work efficiently for achievement of organizational purposes. It is considered
life-spark of the enterprise which sets it in motion the action of people because planning,
organizing and staffing are the mere preparations for doing the work. Direction is that
inert-personnel aspect of management which deals directly with influencing, guiding,
supervising, motivating sub-ordinate for the achievement of organizational goals.
Direction has following elements:
• Supervision
• Motivation
• Leadership
• Communication
• Supervision- implies overseeing the work of subordinates by their superiors. It is the act
of watching & directing work & workers. Motivation- means inspiring, stimulating or
encouraging the sub-ordinates with zeal to work. Positive, negative, monetary, non-
monetary incentives may be used for this purpose. Leadership- may be defined as a process
by which manager guides and influences the work of subordinates in desired direction.
Communications- is the process of passing information, experience, opinion etc from one
person to another. It is a bridge of understanding.

5.Controlling It implies measurement of accomplishment against the standards and correction

of deviation if any to ensure achievement of organizational goals. The purpose of controlling
is to ensure that everything occurs in conformities with the standards. An efficient system of
control helps to predict deviations before they actually occur. According to Theo Haimann,
“Controlling is the process of checking whether or not proper progress is being made towards
the objectives and goals and acting if necessary, to correct any deviation”. According to
Koontz & O’Donell “Controlling is the measurement & correction of performance activities
of subordinates in order to make sure that the enterprise objectives and plans desired to obtain
them as being accomplished”.

Therefore controlling has following steps:

a. Establishment of standard performance.

b. Measurement of actual performance.

c. Comparison of actual performance with the standards and finding out deviation if any.

d. Corrective action.

EVOLUTION OF MANAGEMENT THOUGHT

The practice of management is as old as human civilization. The ancient civilizations of

Egypt (the great pyramids), Greece (leadership and war tactics of Alexander the great) and
Rome displayed the marvelous results of good management practices. The origin of
management as a discipline was developed in the late 19th century. Over time, management
thinkers have sought ways to organize and classify the voluminous information about
management that has been collected and disseminated. These attempts at classification have
resulted in the identification of management approaches. The approaches of management are
theoretical frameworks for the study of management. Each of the approaches of management
are based on somewhat different assumptions about human beings and the organizations for
which they work.
Taylor's Scientific Management Frederick Winslow Taylor well-known as the founder of
scientific management was the first to recognize and emphasis the need for adopting a
scientific approach to the task of managing an enterprise. He tried to diagnose the causes of
low efficiency in industry and came to the conclusion that much of waste and inefficiency is
due to the lack of order and system in the methods of management. He found that the
management was usually ignorant of the amount of work that could be done by a worker in a
day as also the best method of doing the job. As a result, it remained largely at the mercy of
the workers who deliberately shirked work. He therefore, suggested that those responsible for
management should adopt a scientific approach in their work, and make use of "scientific
method" for achieving higher efficiency. The scientific method consists essentially of
Observation Measurement Experimentation and Inference.

Henry Fayol's 14 Principles of Management: The principles of management are given

below:

1.Division of work: Division of work or specialization alone can give maximum productivity
and efficiency. Both technical and managerial activities can be performed in the best manner
only through division of labour and specialization.

2.Authority and Responsibility: The right to give order is called authority. The obligation to
accomplish is called responsibility. Authority and Responsibility are the two sides of the
management coin. They exist together. They are complementary and mutually interdependent.

3.Discipline: The objectives, rules and regulations, the policies and procedures must be
honoured by each member of an organization. There must be clear and fair agreement on the
rules and objectives, on the policies and procedures. There must be penalties (punishment) for
nonobedience or indiscipline. No organization can work smoothly without discipline -
preferably voluntary discipline.

4.Unity of Command: In order to avoid any possible confusion and conflict, each member of
an organization must received orders and instructions only from one superior (boss). Unity of

5.Direction: All members of an organization must work together to accomplish common

objectives.

6. Emphasis on Subordination of Personal Interest to General or Common Interest: This is

also called principle of co-operation. Each shall work for all and all for each. General or
common interest must be supreme in any joint enterprise.
 7.Remuneration: Fair pay with non-financial rewards can act as the best incentive or motivator
for good performance. Exploitation of employees in any manner must be eliminated. Sound
scheme of remuneration includes adequate financial and nonfinancial incentives.

8.Centralization: There must be a good balance between centralization and decentralization

of authority and power. Extreme centralization and decentralization must be avoided.

9.Scalar Chain: The unity of command brings about a chain or hierarchy of command linking
all members of the organization from the top to the bottom. Scalar denotes steps. 10.Order:
Fayol suggested that there is a place for everything. Order or system alone can create a sound
organization and efficient management.

11.Equity: An organization consists of a group of people involved in joint effort. Hence, equity
(i.e., justice) must be there. Without equity, we cannot have sustained and adequate joint
collaboration.

12.Stability of Tenure: A person needs time to adjust himself with the new work and
demonstrate efficiency in due course. Hence, employees and managers must have job security.
Security of income and employment is a pre-requisite of sound organization and management.

13.Esprit of Co-operation: Esprit de corps is the foundation of a sound organization. Union is

strength. But unity demands co-operation. Pride, loyalty and sense of belonging are
responsible for good performance.

14.Initiative: Creative thinking and capacity to take initiative can give us sound managerial
planning and execution of predetermined plans. Espirit de corps: This means team work;
implying that there is unity in strength.

Systems Approach

Systems approach can be applied to all the business domains like administration, insurance,
banking, hospitality etc.

Though it defines system as a whole but it keeps focus on the subsystems and components as well
on their role in the entire system. It is linked closely to Systems Thinking. A defined system has a
clear boundary and is separate from the environment. This makes it stand apart to look at the
problem and its solution. Each subsystem contributes to making this system as a whole.

Factors in Systems Approach

1. Dependency
Each part of the system derives inputs and information from other system to achieve the business
goal. The parts do not exist in silos but are coupled with one another to work as part of an entire
working system.
2. Responsiveness
The system changes as per the environment and reacts to the changes in the environment. If the
external environment changes then systems responds as well by making changes in its
parameters to stay relevant and work as per expectations.
3. Results
Systems approach is focused on producing right results for the overall system. Each part needs to
work according to the requirement of the overall system and product expected results.
Leadership Styles

Leadership is the art of influencing people to attain group objectives willingly. What a minister
does in his State, a captain does on the playground, the manager has to do in his organisation.
Leaders in all walks of life should have some basic qualities. They should be able to establish
contact with their equals, deal with their subordinates and guide them, mediate in conflicts, resolve
issues by weighing various alternatives, allocate scarce resources properly and take risks and
initiatives.

The environment in which a leader is placed is important. The organisational culture, the economic
and social set-up, the extent of unionisation and other factors may demand different types of
leaders in different situations. A task-oriented leader, for instance, may be more successful in
situations which are either very favourable or very unfavourable to him, while a relations- oriented
leader may be more effective in intermediate situations. Leadership is essentially a continuous
process of influencing behaviour. It may be considered in context of mutual relations between a
leader and his followers. The leader tries to influence the behaviour of individuals or group of
individuals around him to achieve desired goals.

Definition : George R. Terry, “Leadership is a relationship in which one person influences others
to work together willingly on related tasks to attain what the leader desires.”

Koontz and O’Donnell, “Leadership is the process of influencing people so that they will strive
willingly towards the achievement of group goals.”

Hence, Leadership is a process by which a person influences others to accomplish an objective

and directs the organization in a way that makes it more cohesive and coherent. Leaders carry out
this process by applying their leadership attributes, such as – beliefs, values, ethics, character,
knowledge and skills.

Qualities of a Good Leader

The basis of good leadership is honorable character and selfless service to your organization. In
your employees’ eyes, your leadership is everything you do that affects the organization’s
objectives and their well-being. Respected leaders concentrate on what they are [be] (such as –
beliefs and character), what they know (such as – job, tasks, and human nature), and what they do
(such as – implementing, motivating and provide direction).

Based on the researchers, we’ve found that the best leaders consistently possess these 10 essential
leadership qualities:

• Integrity

• Ability to delegate

• Communication

• Self-awareness

• Gratitude

• Learning agility

• Influence
 • Empathy

• Courage

• Respect

Integrity

The importance of integrity should be obvious. Though it may not necessarily be a metric in
employee evaluations, integrity is an essential leadership trait for the individual and the
organization. It’s especially important for top-level executives who are charting the organization’s
course and making countless other significant decisions. Our research shows that integrity may
actually be a potential blind spot for organizations. Make sure your organization reinforces the
importance of honesty and integrity to leaders at various levels.

Ability to Delegate

Delegating is one of the core responsibilities of a leader, but it can be tricky to delegate effectively.
The goal isn’t just to free yourself up — it’s also to enable your direct reports to grow, facilitate
teamwork, provide autonomy, and lead to better decision-making. The best leaders build trust with
employees in order to delegate more effectively.

Communication

Effective leadership and effective communication are intertwined. The best leaders are skilled
communicators who are able to communicate in a variety of ways, from transmitting information
to inspiring others to coaching direct reports. And you must be able to listen to, and
communicate with, a wide range of people across roles, geographies, social identities, and more.
The quality and effectiveness of communication among leaders across your organization directly
affects the success of your business strategy, too. Learn how effective communication and better
conversations can actually improve your organizational culture.

Self-Awareness

While this is a more inwardly focused trait, self-awareness and humility are paramount for
leadership. The better you understand yourself and recognize your own strengths and weaknesses,
the more effective you can be as a leader.

Gratitude

Being thankful can lead to higher self-esteem, reduced depression and anxiety, and better sleep.
Gratitude can even make you a better leader. Yet few people regularly say “thank you” in work
settings, even though most people say they’d be willing to work harder for an appreciative boss.
The best leaders know how to demonstrate sincere gratitude in the workplace.

Learning Agility

Learning agility is the ability to know what to do when you don’t know what to do. If you’re a
“quick study” or are able to excel in unfamiliar circumstances, you might already be learning agile.
But anybody can foster learning agility through practice, experience, and effort.

Influence

For some people, “influence” feels like a dirty word. But being able to convince people through
logical, emotional, or cooperative appeals is an important trait of inspiring, effective leaders.
Influence is quite different from manipulation, and it needs to be done authentically and
transparently. It requires emotional intelligence and trust..

Empathy

Empathy is correlated with job performance and is a critical part of emotional intelligence and
leadership effectiveness. If you show more inclusive leadership and empathetic behaviors towards
your direct reports, our research shows you’re more likely to be viewed as a better performer by
your boss. Plus, empathy and inclusion are imperatives for improving workplace conditions for
those around you.

Courage

It can be hard to speak up at work, whether you want to voice a new idea, provide feedback to a
direct report, or flag a concern for someone above you. That’s part of the reason courage is a key
trait of good leaders. Rather than avoiding problems or allowing conflicts to fester, courage enables
leaders to step up and move things in the right direction. A workplace with high levels of
psychological safety and a strong coaching culture will further support truth and courage.

Respect

Treating people with respect on a daily basis is one of the most important things a leader can do.
It will ease tensions and conflict, create trust, and improve effectiveness. Respect is about more
than the absence of disrespect, and it can be shown in many different ways.

Putting It All Together: The Characteristics of a Good Leader

While successful leaders may exhibit these 10 leadership qualities to varying degrees, all good
leaders leverage at least some of these characteristics. Together, they make up the backbone of
strong leadership across organizations, industries, and continents. Without these qualities, true
leadership is impossible.

If you fear that you lack some of these characteristics of a good leader, don’t panic — there are
ways for you to improve on your leadership capabilities, including all 10 of these core traits. At
the outset, it is believed that leadership is a skill that can be developed and that leaders are
molded through experience, continued study, and adaptation.

In other words, you can strengthen any of these 10 characteristics of a good leader if you’re open
to growth and you put in the time and effort towards self-improvement. Similarly, organizations
can help their people hone these leadership qualities through development and real-world
experiences.

It’s also essential to realize that leadership is a social process. It’s less about a strong or
charismatic individual, and more about a group of people working collectively to achieve results
together. If you demonstrate several of the characteristics of a good leader but fail to grasp this,
chances are you won’t get very far on your own. You may be well-liked and respected, but it will
be challenging to accomplish team or organizational goals.

LEADERSHIP STYLES

1. Autocratic or Authoritarian leadership

An autocratic leader centralizes power and decision-making in himself. He gives orders,

assigns tasks and duties without consulting the employees. The leader takes full authority and
assumes full responsibility.

Autocratic leadership is negative, based on threats and punishment. Subordinates act as he directs.
He neither cares for their opinions nor permits them to influence the decision. He believes that
because of his authority he alone can decide what is best in a given situation.

Autocratic leadership is based upon close supervision, clear-cut direction and commanding order
of the superior. It facilitates quick decisions, prompt action and unity of direction. It depends on a
lesser degree of delegation. But too much use of authority might result in strikes and industrial
disputes. It is likely to produce frustration and retard the growth of the capacity of employees.

(A) The hard-boiled autocrat who relies mainly on negative influences uses the force of fear and
punishment in directing his subordinates towards the organisational goals. This is likely to result
in employees becoming resentful.
(B) The benevolent autocrat who relies mainly on positive influences uses the reward and
incentives in directing his subordinates towards the organisational goals. By using praise and pats
on the back he secures the loyalty of subordinates who accept his decisions.

(C) The manipulative autocrat who makes the employees feels that they are participating in
decision-making though the manager himself has taken the decision. McGregor labels this style as
Theory X.

2. Democratic or Participative leadership

Participative or democratic leaders decentralise authority. It is characterized by

consultation with the subordinates and their participation in the formulation of plans and policies.
He encourages participation in decision-making.He leads the subordinates mainly through
persuasion and example rather than fear and force. Sometimes the leader serves as a moderator of
the ideas and suggestions from his group. This will foster enthusiasm in them. The employees feel
that management is interested in them as well as in their ideas and suggestions. They will,
therefore, place their suggestions for improvement.

Advantages for democratic leadership are as follows: (i) higher motivation and improved morale;
(ii) increased co-operation with the management; (iii) improved job performance; (iv) reduction
of grievances and (v) reduction of absenteeism and employee turnover.

3. The Laissez-faire or Free-rein leadership

Free-rein leaders avoid power and responsibility. The laissez-faire or non-interfering type
of leader passes on the responsibility for decision-making to his subordinates and takes a minimum
of initiative in administration. He gives no direction and allows the group to establish its own goals
and work out its own problems.The leader plays only a minor role. His idea is that each member
of the group when left to himself will put forth his best effort and the maximum results can be
achieved in this way. The leader acts as an umpire. But as no direction or control is exercised over
the people, the organisation is likely to flounder.

Democratic leadership is more likely to win the loyalty of the group. The laissez-faire
groups also developed friendly approaches to the leader as in the democratic group. But
suggestions from the groups were very low and they were also less productive.

4. Paternalistic leadership

Under this management style the leader assumes that his function is fatherly or paternal.
Paternalism means papa knows best. The relationship between the leader and his group is the same
as the relationship between the head of the family and the members of the family. The leader guides
and protects his subordinates as members of his family.As the head of the family he provides his
subordinates with good working conditions and fringe benefits. It is assumed that workers will
work harder out of gratitude. This leadership style was admirably successful in Japan with her
peculiar social background.

This leadership style has still been widely prevalent in small firms in India. However, this
paternalistic approach is unlikely to work with mature adult employees, many of whom do not like
their interests to be looked after by a “godfather.” Instead of gratitude, it might generate
antagonism and resentment in the subordinates.

Designing organisational structures

Organization and Organising Very often, these terms are used interchangeably, which is not
correct. Organization is different from organising. Organising is one of the functions of
management whereas organization ", refers to the institution wherein the management functions
are performed. Organising is the means to achieve the plans. If planning involves making a road
map for the chosen destination, then organising is the means by which you reach your chosen
destination.

BASIC CONCEPTS RELATED TO ORGANISATION

The following concepts provide an insight into the functioning of organizations:

1.Organizational Hierarchy: The hierarchy in a business refers to the layers of management

from the top management down to managers or supervisors of the lowest rank. In small
businesses, usually, there are few layers of hierarchy. For instance, in sole trader type of
organization, the owner makes and implements all decisions. He acts as both the manager and
the worker. The top management comprises directors or chief executive. It is concerned with
formulating strategic, long term plans, and policy decisions within the organization. It is the
responsibility of the top management to ensure that the subordinates implement these plans
and decisions. A clear chain of command runs from the top level to the lowest level, through
each department, in the organization. Orders pass through this chain of command. The data
required for certain decisions such as sales, revenues, output, staff turnover, and the like is
forwarded to the top management through periodical reports. .. Employees in a hierarchy have
varying degrees of authority. Higher levels in the hierarchy are characterized by higher
responsibility and authority. Managers need to have authority over their subordinates in order
to implement decisions and policies. They have to direct their staff regarding what to do and
what is expected of them.

2.Authority and Responsibility: Authority is the power to give commands and to use discretion
vested in that particular position or job. If the person is removed from the job, he or she loses
the authority. Responsibility is the obligation on the part of the subordinate to complete the
given job. If a manager has only authority, he may misuse it. As a control measure, the
employee is held responsible for the results also. Authority can be transferred to lower
positions but not responsibility. The authority and responsibility should always be
commensurate and coexistent with each other. Otherwise, the performance of the managers
goes unchecked. Where the authority exceeds responsibility, it may lead to misutilization of
authority. The manager can get away with it. On the contrary, where the responsibility exceeds
authority, the manager feels frustrated. It is because he is held responsible for more tasks. The
authority delegated to him is not in proportion to the responsibility. He has no adequate
authority to get the tasks completed.

3.Delegation of Authority The process of transferring authority from the top to the lower levels
in the organization is called delegation. Although a task may be delegated or passed down the
chain of command from a manager to a subordinate, the manager continues to be responsible
for making sure that his/her instructions are carried out. The organization is said to be
centralized when the authority to take decisions is held by the corporate office. If the authority
is delegated to the regional offices, then the organization is said to be decentralized.

TYPES OF ORGANIZATIONAL STRUCTURE

1. Hierarchical structure

In a hierarchical organizational structure, employees are grouped and assigned a supervisor. It

is the most common type of organizational structure. Employees may be grouped together by
their role or function, geography or type of products or services they provide. This structure is
often depicted as a pyramid because there are multiple levels or authority with the highest level
of leadership at the top, their direct employees below them and so forth.
Benefits of this type of structure include:

• Establishing clearly defined levels of authority

• Promoting teamwork and department loyalty

• Fostering employee development and promotion opportunities

Potential disadvantages include:

• Limiting collaboration

• Restricting innovation

• Creating bureaucracy that must be managed

2. Functional structure

In a functional structure, the organization is divided into groups by roles, responsibilities or

specialties. For example, within an organization you may have a marketing department, finance
department and sales department with each overseen by a manager who also, has a supervisor
that oversees multiple departments. A functional structure can be beneficial because
departments can trust that their employees have the skills and expertise needed to support their
goals.

Benefits of this type of structure include:

• Establishing clearly defined roles and expectations

• Facilitating improved performance and productivity

• Allowing for skill development and specialization

Potential disadvantages include:

• Creating barriers, or silos, between functions

• Limiting employees’ communication and knowledge with other departments

• Inhibiting collaboration and innovation

3. Matrix structure

The matrix organizational structure resembles a grid in which employees with similar skills
are grouped together and report to more than one manager. This often includes a functional
manager who oversees projects and their progress and a product manager who is responsible
for the company's strategy and success regarding product offerings. The matrix structure is
typically used by large, multinational organizations and promotes the sharing of skills and
knowledge across departments to complete goals.

Benefits of this type of structure include:

• Enabling a flexible work environment

• Fostering a balanced decision-making process

• Promoting open communication and shared resources across the business

Potential disadvantages include:

• Creating confusion about authority

• Tracking budgets and resources can be difficult

• Limiting efficiency of key performance indicators (KPIs)

4. Flat structure

In a flat organizational structure, most levels of middle management are removed so there is
little separating staff-level employees from upper management. Employees are given more
responsibility and decision-making power without the usual hierarchical pressures or
supervision and can often be more productive. This type of structure is mostly used by small
companies and early-stage start-ups because they often have fewer employees and projects to
manage. It may also be referred to as a “horizontal structure.”

Benefits of this type of structure include:

• Reducing budget costs due to lack of middle management

• Building relationships between staff and superiors

• Facilitating a quicker, easier decision-making process

Potential disadvantages include:

• Requiring extensive planning to be effective

• Causing confusion over who makes decisions

• Requiring contingency plans to resolve conflicts

5. Divisional structure
In a divisional structure, organizations are split into divisions based on specific products,
services or geographies. For this reason, this structure is typically used by large companies that
operate in wide geographic areas or own separate, smaller companies. Each division has its
own executive leadership, departments and resources. For example, a large software company
may separate its organization based on product type, so there's a cloud software division,
corporate software division and a personal computing software division.

Benefits of this structure include:

• Allowing divisions to work independently

• Meeting individual divisions' needs more quickly and specifically

• Promoting focus of specific products or services

Potential disadvantages include:

• Scaling limitations

• Duplicating resources or activities

• Decentralizing decision-making

6. Network structure

In a network structure, managers at an organization will coordinate relationships with both

internal and external entities to deliver their products or services. For example, a retail
company will just focus on selling clothing items but will outsource the design and production
of these items in a partnership other companies. This structure focuses more on open
communication and relationships than hierarchy.

Benefits of this type of structure include:

• Giving the organization more agility and flexibility

• Allowing the core company to focus on what it's best at

• Helping lower costs through outsourcing

Potential disadvantages include:

• Duplicating services and resources

• Creating confusion about specific roles and job functions

• Growing too complex and difficult to manage

7. Line structure

In a line structure, authority within the organization flows from top to bottom and there are no
specialized or supportive services. It is one of the simplest types of organization structure. The
organization is typically divided into departments that are overseen and controlled by a general
manager, and each department has its own manager with authority over its staff. The
departments work independently to support the organization's primary goal.

Benefits of this type of structure include:

• Fostering effective communication and stable environment

• Providing clearly defined responsibilities and lines of authority

• Adapting easily to changing conditions or situations

Potential disadvantages include:

• Limiting specialization

• Becoming rigid and inflexible

• Giving too much power to a manager

8. Team-based structure

In a team-based organizational structure, employees are grouped into skills-based teams to

work on specific tasks while all working toward a common goal. Often, this is a flexible
structure that allows employees to move from team to team as they complete projects. This
structure focuses on problem-solving and employee cooperation.

Benefits of this type of structure include:

• Helping streamline an organization's processes by breaking down silos

• Enabling more decision-making power with minimal management

• Increasing flexibility by focusing on experience instead of seniority

Potential disadvantages include:

• Decreasing organization consistency

• Limiting contact with other functions

• Increasing potential for conflict

9. Circular structure

A circular organizational structure relies on hierarchy to depict higher-level employees within

the inner rings of a circle and the lower-level employees along the outer rings. Seated at the
center of the organization, leaders do not send orders down the chain of command, but rather
outward. While many of the other structure types contain different departments that work
independently with individual goals, this structure removes that strict separation and looks at
the bigger picture with all departments being part of the same whole.

Benefits of this type of structure include:

• Encouraging communication across all levels of staff

• Promoting free flow of information across the business

• Collaborating amongst departments, rather than separation

Potential disadvantages include:

• Causing confusion over who to report to

• Requiring more resources and training

• Causing slowdown in decision-making

10. Process-based structure

In a process-based structure, the organization is designed around the flow of its processes and
how the duties performed by its employees interact with one another. Instead of flowing from
top to bottom, this structure outline services from left to right.

An executive at the top of the structure oversees the departments below, which represents the
different processes, but each process cannot start until the one before it has finished. And each
department will have its own management and team working to fulfill their duties so that the
business can move onto the next task and eventually reach its ultimate goal, such as selling a
product to consumers.

Benefits of this type of structure include:

• Improving business' efficiency and speed

• Encouraging teamwork between departments

• Adapting easily to meet industry changes

Potential disadvantages include:

 • Erecting barriers, or silos, between groups

• Limiting communication

• Requiring more resources to achieve process optimization

DEPARTMENTATION

Departmentation is a part of the organisation process. It involves the grouping of common

activities under a single person’s control. The activities are grouped on the basis of a function of
the organisation. This work is done by a chief executive of the concerned organisation.

Departmentation means the process by which similar activities of the business are grouped
into units for the purpose of facilitating smooth administration at all levels.

Departmentation means the grouping of similar activities and employees of organisation

into various departments for the purpose of facilitating administration is called departmentation. It
implies the division of total work of an organisation into individual functions and sub functions. It
is the process of division of organisation into different parts known as departments.
The process of organising an enterprise consists of – (i) dividing and grouping the work to
be done, and (ii) assigning different duties and responsibilities to different people.
Departmentation is the process which is used to group activities into units for purposes of
administration at all levels. By this process, personnel and functions comprising an enterprise are
departmentalised by division into separate sub-units and by arrangements of groupings so as to
contribute to achievement of the organisation’s purposes.
Koontz and O’Donnell define a department as designating – “a distinct area, division, or
branch of an enterprise over which a manager has authority for the performance of specified
activities”
As per views of Koontz and O’Donnell, “departmentation is a process of dividing the large
monolithic functional organisation into smell and flexible administrative units.” The process of
departmentation takes place at all levels in the organisation. The chief executive groups activities
into major departments such as production, finance, marketing, and personnel.
These departments operate under the control of a manager known as departmental head
who report directly to the chief executive. The departmental head has adequate authority over the
activities and employees working there. He is ultimately responsible for the smooth functioning of
the department.
He further assign duties to their juniors, for example, the marketing manager may divide
his activities on the basis of activities like advertising, marketing research, customer service and
so on. At the lower level, there may be sales assistants and sales representatives etc.
Organisation involves dividing and grouping of activities to be done in an enterprise.
Division of work means the identification of activities which are to be done for the achievement
of organisational goals. After identifying various activities, these are grouped together on some
logical basis.
 Departmentation is the process of grouping various activities into separate units of
departments. A department is a distinct section of the business establishment concerned with a
particular group of business activities of like nature. The actual number of departments in which a
business house can be divided depends upon the size of establishment and its nature.

Departmentation is essential/important because of the following reasons:

1. Specialization:
Departmentation permits an organization to take advantage of specialization. It permits
people to work in individual departments and gain experience and expertise in handling things
over there. Jobs can be assigned to people who are best suited for delivering excellent results.
2. Expansion:
Organisations can cope with heavy work by simply dividing the same among a number of
smaller, flexible departments. Organisations can grow only when additional departments are
created to handle rush orders and specialized jobs demanding individual attention. In the absence
of Departmentation, managers can control only a small group of people under their command.
3. Autonomy:
Departmentation permits people to think and act independently while working in an
individual department. They have enough freedom to think and act on their own putting resources
at their command to best use. When people are empowered to act in an autonomous way, they get
enthused and begin to put their best foot forward.
4. Responsibility:
Departmentation helps people know their limitations. They know what to do and what not
to do. They also know what they are supposed to do in order to meet targets and deadlines. When
they fail to live up to expectations and go off the track it is easy to find out where things have gone
wrong. Where job assignments are clear and you know who is responsible for what, accountability
can be fixed fairly easily and quickly.
5. Appraisal:
The performance of people working in a department can be appraised easily against the
assigned goals and targets. When they fail to deliver results, you can put the finger on the problem
causing trouble. You can separate the wheat from the chaff easily.

6. Management Development:
Departmentation allows people to grow in a particular area or field. They can put in their
best while working in a department fairly independently. They can put their skills, capabilities and
talents to best use. Repeated operations in a micro area would help them gain mastery over the
discipline. Over the years, they can also offer guidance, assistance and help to the younger
executives reporting to them directly and thus, contribute to their growth.
7. Communication and Control:
Departmentation facilitates communication, coordination and control and contributes to
the organizational success. Working in a department permits people to interact freely and
communicate without any hurdles. They can coordinate their efforts with others in an attempt to
reach goals. It becomes easy to find out where things have gone wrong, who is not able to pick up
speed, how to plug the loopholes promptly. This, of course, would facilitate the control process.
Thus, for every organization or enterprise, there are three fundamental activities or
functions to be performed, namely:
1. Production,
2. Marketing and
3. Finance.
Thus, functional departmentation consists of grouping of common activities in the form of
an organizational unit. In short, units are formed around common functions. The term functional
departmentation is used at the higher organizational levels. In addition to the functional
departmentation on the basis of production, marketing and finance, it is possible to attempt
departmentation in different ways such as by product, by territory, by customer, by process and by
task force.
Departmentation is done through the following process:
1. Identification of work.
2. Analysis of details of each work.
3. Description of the function of the organisation.
4. Entrusting the functions to a separate person who has specialised in the respective field
and providing him with suitable staff.
5. Fixing the scope of authority and responsibility of the departmental heads.
The important fundamental points to be kept in mind at the time of drafting
departmentalized organisation plans are as follows:
(i) Specialisation – The benefit of specialisation can be secured if the total effect required
to be undertaken by the organisation is divided into functions and sub functions.
(ii) Coordination – The work is being carried on in a number of organisations. There must
be a proper mechanism for coordinating the activities of different departments so as to enable the
organisation to achieve its objectives successfully.
(iii) Control – The purpose of departmentation is to enable the organisations of function
efficiently and economically and hence, departmentation should provide for effective control of
activities performed in different departments.
(iv) Economy – The expenditure involved in producing departmentalised organisation is
also another point to be considered. Whatever the type of departmentation used, it should not result
in an excessive financial burden to the organisation.
(v) Ground work – The management should make certain preparations and prepare the
ground for decentralisation of authority, for enforcing adequate controls, for providing facilities
for management development, and for introducing effective communication network.

DECENTRALISATION
Decentralisation is referred to as a form of an organisational structure where there is the
delegation of authority by the top management to the middle and lower levels of management in
an organisation.
In this type of organisation 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 organisational
level, it is called decentralisation.

Example of Decentralisation

Good examples of decentralised business are Hotels, supermarket, Dress showrooms and etc.
Because it is not possible for one person to focus on more than 100 branches which have
branches throughout the world, take an example of a hotel. When a particular person holds a
chain of hotels as his business, he particularly focuses on using decentralised structures so that
local hotel managers and assistants are empowered to make on-the-spot decisions to handle
customers – problems, complaints and requirements.

Importance of Decentralisation

1. 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
organisation to function its operation quickly and effectively.
2. Administrative development – The decentralisation 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 organisation.
3. 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.
4. Promotes growth – Decentralisation 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.
5. 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 decentralisation and stabilised management and scorecard are being
developed.
Advantages of Decentralisation

1. Reduces the burden on top executives

2. Facilitates diversification
3. Executive Development
4. It promotes motivation
5. Better control and supervision

Disadvantages of Decentralisation

1. Uniform policies not Followed

2. Problem of Co-Ordination

MBO

The process of setting objectives in the organization to give a sense of direction to the
employees is called as Management by Objectives.

It refers to the process of setting goals for the employees so that they know what they are
supposed to do at the workplace.

Management by Objectives defines roles and responsibilities for the employees and help them
chalk out their future course of action in the organization.

Management by objectives guides the employees to deliver their level best and achieve the
targets within the stipulated time frame.

Need for Management by Objectives (MBO)

▪ The Management by Objectives process helps the employees to understand their duties at
the workplace.
▪ KRAs are designed for each employee as per their interest, specialization and educational
qualification.
▪ The employees are clear as to what is expected out of them.
▪ Management by Objectives process leads to satisfied employees. It avoids job mismatch
and unnecessary confusions later on.
▪ Employees in their own way contribute to the achievement of the goals and objectives of
the organization. Every employee has his own role at the workplace. Each one feels
indispensable for the organization and eventually develops a feeling of loyalty towards
 the organization. They tend to stick to the organization for a longer span of time and
contribute effectively. They enjoy at the workplace and do not treat work as a burden.
▪ Management by Objectives ensures effective communication amongst the employees. It
leads to a positive ambience at the workplace.
▪ Management by Objectives leads to well defined hierarchies at the workplace. It ensures
transparency at all levels. A supervisor of any organization would never directly interact
with the Managing Director in case of queries. He would first meet his reporting boss
who would then pass on the message to his senior and so on. Every one is clear about his
position in the organization.
▪ The MBO Process leads to highly motivated and committed employees.
▪ The MBO Process sets a benchmark for every employee. The superiors set targets for
each of the team members. Each employee is given a list of specific tasks.

MBO PROCESS

• Setting the Organizational Goal

• Planning the actions to perform
• Evaluation of the Performance done
• Providing feedback
• Take necessary actions

Limitations of Management by objectives Process

▪ It sometimes ignores the prevailing culture and working conditions of the organization.
▪ More emphasis is being laid on targets and objectives. It just expects the employees to
achieve their targets and meet the objectives of the organization without bothering much
about the existing circumstances at the workplace. Employees are just expected to
perform and meet the deadlines. The MBO Process sometimes do treat individuals as
mere machines.
▪ The MBO process increases comparisons between individuals at the workplace.
Employees tend to depend on nasty politics and other unproductive tasks to outshine their
fellow workers. Employees do only what their superiors ask them to do. Their work lacks
innovation, creativity and sometimes also becomes monotonous.