Notes on Organising and Organizational Structures - Comprehensive Summary (Ashwin's Commerce World)

Meaning of Organising

  • Organising is the process of identifying and grouping various activities, bringing together physical, financial and other resources, and establishing authority relationships among job positions.

  • The organising function results in creation of organisational structure which serves as the framework within which the enterprise functions.

  • Specialisation: In the process of organising, work is divided and sub-divided into compact and convenient jobs.

Importance of Organising

  • 1) Specialisation promotes efficient and speedy performance of tasks by grouping similar jobs into departments or divisions.
  • 2) Optimum Use of Human Resources: All jobs are clearly defined and differentiated, aiding selection of employees and fitting the right person to the right job; matching jobs and people enables better use of talent and provides job satisfaction; helps avoid duplication of work and overlapping responsibilities.
  • 3) Coordination and Cooperation: The organisation structure serves as a mechanism for unifying and harmonising efforts; clear authority and responsibility definitions minimize confusion about powers; lines of authority serve as channels of communication.
  • 4) Security and Support: A sound structure provides security, support and satisfaction to managers and workers; it gives a definite status and position to each person.
  • 5) Growth and Diversification: Organisation provides a framework for expansion; management can multiply its strength; a sound structure helps keep activities under control and increases capacity to undertake more work without dislocation; many small firms grow into larger ones through sound organisation.
  • 6) Adaptation to Change: A flexible structure facilitates adjustment to changes in workload due to external environment; new methods and technology can be introduced without disrupting work; the system accommodates turnover and new entrants.
  • 7) Training and Development of Personnel: Encourages initiative and creative thinking; enables development of managerial talent at lower levels through adequate delegation; recognises merit for rewards and promotion.

Steps of Organising

  1. Division of Work
  • The total work is divided into specific jobs because one person cannot do everything.
  • Each job consists of related tasks that can be performed by an individual; division facilitates specialisation.
  • Consider enterprise nature and size; examples include manufacturing firms with production, marketing, finance; schools with teaching, library, sports, office administration, and sub-functions like Business Studies, Mathematics, English, Economics, Accountancy, etc.
  1. Grouping Jobs or Activities (Departmentation)
  • After defining jobs, group related activities into manageable units under a manager; similar activities are combined into departments, divisions or sections.
  • Grouping can be based on functions (manufacturing, marketing, financing), products (foods, textiles, cosmetics), territories, customers, production processes, etc.
  • Factors to consider when grouping:
    • Adequate specialisation for efficiency
    • Facilitate coordination among departments
    • Economy in administrative expenditure
    • Easy to exercise control
    • Adequate attention to each activity
  1. Assigning Duties
  • Each group of activities is assigned to the best-suited individual; consider qualifications, experience, and aptitudes.
  • Example: Manufacturing activities to engineers; Finance activities to chartered accountants.
  1. Delegation of Authority
  • After duties are assigned, appropriate authority is delegated to each individual.
  • The delegating manager remains responsible for the performance of the tasks.
  • Creates a chain of command from top to bottom; forms a hierarchy with decreasing authority content down the line.
  1. Coordinating Activities
  • Synchronise activities and efforts of different individuals; coordination is necessary for teamwork and efficient performance.
  • Interrelationships between positions are defined; there are two types of relationships: formal (official) and informal (social).
  • Two types of organisations emerge: (a) Formal Organisation, (b) Informal Organisation.

Formal Organisation

  • Meaning: Structure of well-defined jobs, each with definite authority and responsibility; designed to enable people to work together effectively toward common objectives; official lines of communication; chain of superior-subordinate relationships.
  • Basic characteristics:
    • (a) Deliberately created by the top management
    • (b) Based on specialisation or division of labour
    • (c) Clearly defines authority and responsibility
    • (d) Developed through delegation of authority
    • (e) Written rules and procedures
    • (f) Official lines of communication and official relationships
    • (g) Created to achieve organisational objectives
  • Advantages:
    • (i) Duties and roles clearly defined, reducing duplication
    • (ii) Unity of command via scalar chain
    • (iii) Clear basis to fix responsibility
    • (iv) Provides stability with specific rules
    • (v) Framework for performing all activities
  • Disadvantages:
    • (i) Can become rigid due to policies and rules; may stifle creativity
    • (ii) Formal communication may cause procedural delays
    • (iii) Human relationships may be under-emphasised in favour of structure
    • (iv) May not provide a complete picture of organisational dynamics

Informal Organisation

  • Definition: Interaction and communication beyond formal structure; arises from social interactions, friendships, and common interests.
  • Salient features:
    • (a) Unplanned and spontaneous
    • (b) Reflects human/social relationships
    • (c) Based on common tastes, language, culture, etc.
    • (d) Membership is voluntary
    • (e) No written rules; group norms guide behaviour
    • (f) May cut across departments (e.g., accounts clerk, salesman, factory supervisor in one informal group)
  • Advantages/Functions:
    • (1) Sense of Belonging: Provides personal worth and recognition; boosts self-image
    • (2) Relief from Monotony: Socialisation reduces routine boredom
    • (3) Solution of Work Problems: Members share knowledge and assist each other
    • (4) Protection from Outside Pressure: Acts as a check on arbitrariness of management
    • (5) Communication Channel: Outlet for tensions, joys, frustrations; may provide information not available through formal channels
  • Limitations / Disadvantages:
    • (1) Conflicting Norms: May conflict with formal standards, hindering goal achievement
    • (2) Resistance to Change: Prefers status quo; may resist new work methods
    • (3) Role Conflict: Members of both formal and informal groups may face conflicting expectations
    • (4) Conformity: May impose norms unfavourable to formal objectives
    • (5) Rumour: Can spread where policies are ambiguous

Formal Organisation vs Informal Organisation (Summary Comparison)

  • Formation: Formal = deliberately planned; Informal = emerges spontaneously from social interactions
  • Structure: Formal = well-defined; Informal = no clear-cut structure
  • Relationship/Network: Formal = official lines of communication and authority; Informal = social relations alongside formal links
  • Leadership: Formal = guided by position within the hierarchy; Informal = leadership can emerge from individuals due to relationships and influence
  • Purpose: Formal = to achieve planned organisational goals; Informal = to satisfy social and cultural needs of members

Functional Structure

  • Definition: Each major/basic function is organised as a separate department; based on functional specialization; common in most organisations at some level.
  • Advantages:
    • (a) Logical, time-proven, natural form
    • (b) Occupational specialisation enhances efficiency
    • (c) Ensures all necessary activities are performed and focused attention to each function
    • (d) Facilitates supervision and delegation; suitable for high-specialisation needs; good where broad product variety exists
    • (e) Enables effective control over performance
    • (f) Reduces duplication of effort
  • Disadvantages:
    • (a) Specialists may lose sight of the organisation as a whole; objectives may become hard to achieve
    • (b) Hard to assign responsibility for cross-functional problems (e.g., sales vs production)
    • (c) Functional heads may lack experience for top-management roles; narrow perspectives can lead to inflexibility
    • (d) As organisations grow, departments can become large, delaying decisions; coordination across functions becomes harder
    • (e) Potential for inter-departmental rivalry and conflicts
  • Use: Most useful for large organisations with high specialization; top-level structure often functional, with other bases used at lower levels

Divisional Structure

  • Definition: Activities grouped into divisions; each division is typically organized around a product line and manages its own production, sales, and finance for that product.
  • When used: Suitable for product expansion/diversification; important where product characteristics and capital needs are significant (e.g., automobile and electronic industries).
  • Advantages:
    • (a) Product departmentation reduces cross-functional coordination problems within product lines
    • (b) Focus on each product line facilitates expansion and diversification
    • (c) Encourages specialization of physical facilities and talent for each product
    • (d) Performance of each division can be evaluated; division heads bear responsibility for results
    • (e) Easier to expand by adding new divisions without disrupting existing operations
  • Disadvantages:
    • (a) Duplication of facilities and functions across divisions; higher operating costs
    • (b) Centralised functions like financing, accounting, distribution may be lost
    • (c) Underutilisation of plant capacity if demand for a product is low
    • (d) Divisional managers may focus on their own product rather than total organisation
    • (e) Potential conflicts between divisions over funds and resource allocation

Comparison: Functional vs Divisional Organization (At a Glance)

  • Functional Organization: major functions become departments; product or market focus is secondary; simple coordination but potential for inter-departmental rivalry; cost-effective at scale; better for uniform products or processes.
  • Divisional Organization: major product lines become divisions; product- and market-specific focus; higher autonomy and accountability; easier expansion and diversification; higher duplication of facilities and higher costs.
  • Key trade-offs: coordination vs. specialization; economies of scale vs. product-focused flexibility; central control vs. local autonomy.

Delegation of Authority

  • Definition: A manager assigns a part of his work to others and gives them the authority to perform the assigned tasks; the delegating manager remains responsible for correct performance.
  • Process: Assign duties -> Entrust authority -> Impose responsibility; authority flows down the hierarchy; accountability remains with the delegator.
  • Importance of Delegation:
    • (1) Relief to Top Executives: reduces workload; allows focus on important policy matters
    • (2) Scalar Chain: creates a meaningful chain of superior-subordinate relationships and clarifies authority flow
    • (3) Specialisation: assigns tasks based on abilities; improves utilisation of resources
    • (4) Quick Decisions: lowers decision-making time; subordinates closer to local conditions
    • (5) Motivation of Subordinates: provides status and recognition; increases initiative
    • (6) Executive Development: enables lower-level staff to practice decision-making and leadership; builds future managers
    • (7) Growth and Diversification: as managerial talent improves across levels, the organisation can grow and take on new activities

Centralisation

  • Centralisation of authority means systematic retention/concentration of decision-making at the top levels of management.
  • In a centralised organisation, top management makes almost all decisions; middle and lower levels have little delegated authority and rely on instructions from above.
  • Example: A medium-sized stationery manufacturer where the owner and his two sons decide on purchases, production, and marketing; department managers implement the top-level decisions.

Decentralisation

  • Decentralisation means dispersal of authority across all departments and levels for decisions appropriate to each area.
  • Top management retains authority for major policy decisions and overall coordination, but middle and lower-level managers are empowered to decide within their areas.
  • Example: A large steel manufacturer where the board defines overall objectives and policies, while heads of departments decide on product lines, capital investment, marketing methods; top management does not micromanage these decisions.

Merits and Demerits of Decentralisation

  • Merits:
    • (1) Reduction in burden on top executives; more time for policy matters
    • (2) Motivation of subordinates; greater independence, participation and recognition
    • (3) Better decisions; closer to realities; faster and less red tape
    • (4) Innovation and creativity; autonomy encourages new ideas across divisions
    • (5) Development of managers; individuals exercise judgement, aiding succession planning
  • Demerits:
    • (1) Lack of coordination across units; semi-autonomous divisions may prioritise their own interests
    • (2) Lack of uniformity; inconsistent policies and procedures across units
    • (3) Higher overheads; needs more managers and duplicated support functions
    • (4) May be unsuitable for small firms; large product lines needed for effectiveness; emergencies may require central action
    • (5) External constraints; market, labour, and regulatory pressures may constrain decentralised decisions

Centralisation vs Decentralisation: Quick Reference

  • Centralisation: concentration of authority at top; aimed at control and coordination; heavy burden on top executives; more suitable for small organisations.
  • Decentralisation: dispersal of authority at all levels; aimed at speed and empowerment; supports subordinates; suitable for large organisations.
  • Overall consideration: choose a balance based on organisation size, complexity, environment, and strategic goals.

Connections to Practice and Implications

  • Practical: Align organisation design with product complexity, market diversity, and strategic goals; use functional structures for efficiency and divisional structures for growth and autonomy.
  • Ethical/philosophical: Decentralisation tends to empower employees and can improve morale and fairness; excessive central control can stifle innovation and reduce job satisfaction.
  • Real-world relevance: Different industries (e.g., manufacturing vs services) and scales (SMEs vs multinationals) benefit from different organisational forms; adaptability and change readiness hinge on the chosen structure and delegation practices.