Organising: CBSE Class 12 Business Studies Chapter 5

What is Organising? Meaning and Importance

Organising is the second key function of management. It is the process of defining and grouping activities, and establishing authority relationships among them. In essence, it involves creating a structural framework to coordinate the efforts of all personnel for the achievement of organisational goals. A good organisational structure is not an end in itself but a means to improve administration and stimulate creative thinking.

The importance of organising can be understood through these key benefits:

1. Benefits of Specialisation: Organising involves dividing work into smaller, manageable tasks. When employees perform a specific task repeatedly, they gain experience and expertise, leading to specialisation and increased efficiency.
2. Clarity in Working Relationships: It clearly defines lines of authority and responsibility. Every employee knows who their superior is and who they can give orders to. This helps in creating a hierarchical structure and smooth flow of communication.
3. Optimum Utilisation of Resources: Organising helps in avoiding duplication of work and overlapping of responsibilities, ensuring that all resources (human, material, financial) are used in the most effective and efficient manner.
4. Adaptation to Change: A well-designed organisational structure is flexible and can be modified to adapt to changes in the business environment, such as new technology or market conditions.
5. Effective Administration: By clearly defining jobs and working relationships, it becomes easier for management to supervise, coordinate activities, and ensure accountability, leading to effective administration.

The Process of Organising: A Step-by-Step Guide

1. Step 1: Identification and Division of Work — The first step is to identify the total work required to achieve the organisational goals and divide it into specific, manageable activities. The aim is to avoid duplication and ensure that the burden of work is shared among employees. For example, in a bank, the total work includes accepting deposits, granting loans, processing cheques, etc. These are divided into individual jobs.
2. Step 2: Departmentalisation — Once work has been divided into small jobs, related and similar jobs are grouped together. This grouping process is called departmentalisation. Departments can be created based on functions (e.g., production, marketing, finance), or based on products (e.g., electronics division, home goods division). This facilitates specialisation.
3. Step 3: Assignment of Duties — After creating departments, the work is allocated to individuals. It is essential to define the work of different job positions and assign the corresponding duties. The work should be assigned to those who are best fitted to perform it well, matching the job to the skills and qualifications of the individual.
4. Step 4: Establishing Reporting Relationships — Merely assigning work is not enough. Each individual should also know who they have to take orders from and to whom they are accountable. This step involves establishing clear authority-responsibility relationships, creating a managerial hierarchy. This creates a clear chain of command and helps in coordination among various departments.

Organisational Structure: Functional vs. Divisional

Exam Tip: Don't Confuse Delegation with Decentralisation

Students often use 'delegation' and 'decentralisation' interchangeably, which is a major error in exams. Remember this core difference: Delegation is a process, while decentralisation is the result of a policy.

• Delegation is the transfer of authority from a superior to an immediate subordinate for a specific task. It's a one-to-one interaction and is essential for any manager to function. You cannot run a department without delegating tasks. The manager remains accountable.

• Decentralisation is the systematic, large-scale delegation of authority throughout all levels of the organisation. It's a philosophical decision by top management to empower lower-level managers. For example, giving a branch manager the power to decide local marketing strategy is decentralisation.

Key Takeaway: All decentralisation involves delegation, but not all delegation leads to decentralisation. Delegation is a compulsory act, whereas decentralisation is an optional policy decision.

Practice Questions with Solutions

• Q: 'Shrey Ltd.' is a company manufacturing cosmetics. It has enjoyed a pre-eminent position in the business and has grown in size. Now it has diversified its business to include other product lines like toiletries and healthcare products. Which type of organisational structure would you recommend for 'Shrey Ltd.'? Give three reasons in support of your answer.
  A: Step 1: Identify the key change in the company's operations. The company has diversified from a single product line (cosmetics) to multiple product lines (toiletries, healthcare).
  Step 2: Recall the types of organisational structures and their suitability. A functional structure is suitable for single-product companies, while a divisional structure is suitable for multi-product companies.
  Step 3: Recommend the appropriate structure and provide supporting reasons. I would recommend a Divisional Structure for 'Shrey Ltd.'.
  The reasons are:

  1. Product Specialisation: It will help in the development of varied skills in a divisional head, and he can be prepared for higher positions. All activities related to one product type can be grouped under one department.
  2. Accountability: It is easier to fix responsibility and measure the performance of each division. The divisional head is responsible for the profits and losses of their division.
  3. Flexibility and Initiative: It promotes flexibility and initiative because each division functions as an autonomous unit, which leads to faster decision-making.

  Final answer: A Divisional Structure is recommended due to benefits like product specialisation, clear accountability, and greater flexibility for a multi-product company like Shrey Ltd.

• Q: Neha runs a factory manufacturing shoes. The business is doing well and she intends to expand by diversifying into leather bags as well as western formal wear, thereby making her company a complete provider of corporate wear. This will enable her to market her business unit as a one-stop-shop. Briefly explain the steps she should follow in the organising process.
  A: Step 1: Recall the four steps of the organising process.
  Step 2: Apply each step to Neha's situation of expanding her business.
  Final answer: Neha should follow these four steps in the organising process:

  1. Identification and Division of Work: She needs to identify all the activities required for manufacturing shoes, leather bags, and formal wear. Then, she must divide the total work into smaller, specific jobs like purchasing raw materials, manufacturing, quality control, marketing, finance, etc. for each product line.
  2. Departmentalisation: She should group similar and related jobs into departments. Since she is diversifying into multiple products, she could create three main divisions: 'Shoes', 'Leather Bags', and 'Formal Wear'. Within each division, she could have functional departments like production, marketing, and finance.
  3. Assignment of Duties: Neha must then define the roles and responsibilities for each job position and assign these duties to employees based on their skills and qualifications. For example, a person with a fashion design background would be assigned to the design department of the formal wear division.
  4. Establishing Reporting Relationships: Finally, she must create a clear hierarchy. Each employee must know who their superior is (authority) and to whom they are answerable (accountability). This will create a chain of command from the top management down to the workers in all three divisions.

• Q: Explain the three elements of Delegation: Authority, Responsibility, and Accountability.
  A: Step 1: Define each of the three elements of delegation.
  Step 2: Explain the relationship between them, particularly how they flow (downwards or upwards) and the principle of parity.
  Final answer: The three elements of Delegation are:

  1. Authority: This refers to the right of an individual to command their subordinates and to take action within the scope of their position. Authority flows downwards from a superior to a subordinate. It is the key to a manager's job, as it empowers them to get work done.
  2. Responsibility: This is the obligation of a subordinate to properly perform the assigned duty. It arises from a superior-subordinate relationship. Responsibility flows upwards, as the subordinate is always responsible to their superior.
  3. Accountability: This implies being answerable for the final outcome of the assigned task. While authority and responsibility can be delegated, accountability cannot. It flows upwards; the subordinate is accountable to the superior, and the superior, in turn, is accountable to their own manager. Ultimately, the manager who delegates the task remains accountable for its successful completion. The principle of parity states that authority granted must be equal to the responsibility assigned.

• Q: "Decentralisation is an optional policy. Explain why an organisation would choose to be decentralised."
  A: Step 1: Briefly define decentralisation as the systematic dispersal of authority.
  Step 2: List and explain the key reasons or importance of decentralisation that would motivate an organisation to adopt this policy.
  Final answer: An organisation would choose to adopt a policy of decentralisation for the following reasons:

  1. Develops Initiative among Subordinates: Decentralisation helps to promote self-reliance and confidence amongst subordinates, as they are given the freedom to make their own decisions.
  2. Develops Managerial Talent for the Future: It serves as a training ground for future managers. When lower-level managers learn to make decisions and manage their units, they gain valuable experience and become qualified for promotion to higher-level positions.
  3. Quick Decision Making: In a decentralised structure, decisions are made at the levels where they are to be implemented. This makes the decision-making process much faster as there is no need to wait for approvals from top management.
  4. Relief to Top Management: Top management is relieved from the burden of day-to-day operational decisions. This allows them to concentrate on more important strategic functions like policy-making and long-term planning.
  5. Facilitates Growth: It grants greater autonomy to lower-level divisions, which allows them to function more efficiently and productively, thereby facilitating the growth and diversification of the organisation.

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