OrganisingClass 12 Business Studies Part 1 NCERT Solutions
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Q1Exercises
Identify the network of social relationships which arises spontaneously due to interaction at work.
Solution
The network of social relationships that arises spontaneously due to interaction at work is known as the informal organisation.
Q2Exercises
What does the term 'Span of management' refer to?
Solution
The term 'Span of management' refers to the number of subordinates that can be effectively managed by a superior. This determines the levels of management in the organisational structure.
Q3Exercises
State any two circumstances under which the functional structure will prove to be an appropriate choice.
Solution
A functional structure is an appropriate choice under the following two circumstances:
- When the size of the organisation is large and it has diversified activities.
- When operations require a high degree of specialisation in specific functions.
Q4Exercises
Draw a diagram depicting a functional structure.
Solution
A diagram of a functional structure would show a coordinating head, such as a Managing Director, at the top. Reporting directly to the Managing Director would be several separate departments based on their functions. For example:
- Managing Director
- Human Resources Department
- Marketing Department
- Research and Development Department
- Purchasing Department
Each department head is a specialist in their respective function and manages all activities related to that function for the entire organisation.
Q5Exercises
A company has its registered office in Delhi, manufacturing unit at Gurgaon and marketing and sales department at Faridabad. The company manufactures the consumer products. Which type of organisational structure should it adopt to achieve its target?
Solution
The company should adopt a functional organisational structure. This is because the company is organised based on different functions like manufacturing and marketing, even though they are in different locations. It manufactures a single category of products (consumer products), and a functional structure groups jobs of a similar nature under one department. This structure promotes operational efficiency and specialisation within each function.
Q6Exercises
What are the steps in the process of organising?
Solution
The process of organising involves a series of steps to achieve the desired goals. These steps are:
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Identification and Division of Work: The first step is to identify the total work to be done and divide it into specific, manageable activities. This ensures that there is no duplication of work and the burden is shared among employees.
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Departmentalisation: Once the work is divided, activities of a similar nature are grouped together. This process is called departmentalisation. Departments can be created based on functions (e.g., production, marketing), products, territory, etc. This facilitates specialisation.
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Assignment of Duties: After creating departments, the work is allocated to various employees according to their skills and competencies. It involves defining the job for each position and ensuring a proper match between the nature of the job and the ability of the individual.
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Establishing Authority and Reporting Relationships: In the final step, clear reporting relationships are established. Each individual should know who they have to take orders from and to whom they are accountable. This creates a hierarchical structure and helps in coordination among various departments.
Q7Exercises
Discuss the elements of delegation.
Solution
Delegation is the downward transfer of authority from a superior to a subordinate. It consists of three essential elements:
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Authority: This refers to the right of an individual to command their subordinates and take action within the scope of their position. It flows downwards from a superior to a subordinate. Authority is necessary to perform the assigned job and gives a manager the right to exact obedience from the workforce.
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Responsibility: This is the obligation of a subordinate to properly perform the assigned duty. It arises from the superior-subordinate relationship and flows upwards, meaning a subordinate is always responsible to their superior. For effective delegation, the authority granted must be commensurate with the assigned responsibility.
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Accountability: This implies being answerable for the final outcome of the assigned task. Accountability cannot be delegated and flows upwards; a subordinate is accountable to a superior, and the superior remains accountable for the outcome of the task. It is the ultimate answerability for the performance of the job.
Q8Exercises
How does informal organisation support the formal organisation?
Solution
An informal organisation, which is a network of social relationships, can support the formal organisation in several ways:
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Faster Communication: The informal organisation does not follow prescribed lines of communication (scalar chain). This leads to a faster spread of information and quick feedback, which can be beneficial for timely decision-making.
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Fulfills Social Needs: It helps to fulfill the social needs of employees, allowing them to find like-minded people. This enhances their job satisfaction and gives them a sense of belongingness, which can lead to higher morale and productivity.
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Compensates for Inadequacies: The informal organisation can contribute to organisational objectives by compensating for weaknesses in the formal structure. For example, the management can test employee reactions to new plans and policies through the informal network before official implementation, allowing for adjustments.
Q9Exercises
Can a large sized organisation be totally centralised of decentralised? Give your opinion.
Solution
No, a large-sized organisation cannot be totally centralised or decentralised. Centralisation and decentralisation are relative terms, and an organisation must strike a balance between the two.
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Complete centralisation would mean that all decision-making authority is concentrated at the top of the management hierarchy. This is impractical in a large organisation as it would obviate the need for a management hierarchy and overwhelm top managers with routine decisions, leading to significant delays.
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Complete decentralisation would imply the delegation of all decision-making functions to the lower levels. This is also unrealistic as it would eliminate the need for higher managerial positions and could lead to organisational disintegration if departments operate without any central coordination or alignment with overall organisational goals.
Therefore, every large organisation will be characterised by both centralisation and decentralisation. As an organisation grows in size and complexity, there is a natural tendency to move towards more decentralised decision-making to promote efficiency and adaptability, while strategic and major policy decisions remain centralised.
Q10Exercises
Decentralisation is extending delegation to the lowest level. Comment.
Solution
Yes, the statement that 'Decentralisation is extending delegation to the lowest level' is correct. The two concepts are closely related but differ in scope.
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Delegation is the process of a manager entrusting authority and responsibility for a specific task to an immediate subordinate. It is a necessary act for any manager and is limited in scope, involving only the superior and their subordinate.
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Decentralisation is an optional policy decision by top management to systematically disperse decision-making authority throughout all levels of the organisation. It is a wider concept that implies the extension of delegation across the entire organisational structure, down to the lowest levels of management.
In essence, delegation is a tool, while decentralisation is a philosophy. When delegation is done systematically and repeatedly at all levels, it results in decentralisation. Therefore, decentralisation is the result of a conscious policy to delegate authority as far down the chain of command as possible, increasing the role and autonomy of subordinates throughout the organisation.
Q11Exercises
Neha runs a factory wherein she manufactures shoes. The business has been 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 the one stop for working women. Which type of structure would you recommend for her expanded organisation and why?
Solution
For Neha's expanded organisation, I would recommend a divisional structure.
Initially, with a single product line (shoes), a functional structure would have been suitable. However, as she diversifies into multiple product categories—leather bags and western formal wear—a divisional structure becomes more appropriate.
Reasons for recommending a divisional structure:
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Product Specialisation: This structure allows the company to create separate divisions for each product line (shoes, bags, formal wear). Each division can focus on its specific product, developing expertise in its production, marketing, and finance. This helps in the development of varied skills in the divisional head.
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Accountability: Each division can be treated as a profit centre. The divisional head would be responsible for the profits or losses of their division. This makes it easy to measure performance and fix responsibility in case of poor performance.
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Flexibility and Initiative: Each division functions as an autonomous unit, which leads to faster decision-making. It promotes flexibility and initiative as divisional managers have the authority to make decisions relevant to their product line without consulting top management on every issue.
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Facilitates Growth: A divisional structure makes it easier to expand further. New product lines can be added by simply creating a new division without disrupting the existing operations.
Q12Exercises
The production manager asked the foreman to achieve a target production of 200 units per day, but he doesn't give him the authority to requisition tools and materials from the stores department. Can the production manager blame the foreman if he is not able to achieve the desired target? Give reasons.
Solution
No, the production manager cannot blame the foreman for not achieving the desired target.
Reasons:
This situation violates a fundamental principle of delegation: the parity of authority and responsibility. This principle states that when an employee is given responsibility for a task, they must also be given the corresponding authority necessary to carry it out.
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Responsibility without Authority: The foreman was given the responsibility to produce 200 units per day. However, he was not given the authority to requisition the necessary tools and materials from the stores department. Without this authority, he cannot access the resources required to meet the production target.
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Ineffectiveness: As the text states, if the responsibility assigned is more than the authority granted, it may make a person ineffective. The foreman is in a position where he is obligated to perform a duty but lacks the power to ensure its successful completion.
Therefore, since the foreman was not empowered with the necessary authority to fulfill his responsibility, the production manager is at fault for the failure to achieve the target. The blame lies with the manager for improper delegation.
Q13Exercises
Why delegation is considered essential for effective organising?
Solution
Delegation is considered essential for effective organising because it is a prerequisite for the efficient functioning and growth of an organisation. Its importance can be understood from the following points:
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Effective Management: Delegation allows managers to reduce their workload by assigning routine tasks to subordinates. This frees up their time to concentrate on high-priority activities, such as planning, policy-making, and strategic decision-making, thereby making their management more effective.
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Employee Development: When employees are delegated authority, they get more opportunities to utilise their talent and develop new skills. It allows them to handle complex tasks, gain experience, and prepare themselves for higher positions. This creates a pool of capable future managers.
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Motivation of Employees: Delegation is a sign of trust and confidence in a subordinate's abilities. Being entrusted with responsibility builds an employee's self-esteem and confidence. This psychological benefit acts as a powerful motivator, encouraging employees to improve their performance.
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Facilitation of Growth: Delegation is crucial for organisational expansion. As an organisation grows, managers cannot handle all the work themselves. By delegating, they create a trained and experienced workforce ready to take up leading positions in new ventures or departments, facilitating smooth growth and diversification.
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Basis of Management Hierarchy: Delegation of authority establishes the superior-subordinate relationships that form the basis of the management hierarchy. The degree and flow of authority determine who reports to whom, creating a clear structure for the organisation.
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Better Coordination: The elements of delegation—authority, responsibility, and accountability—help to clearly define the powers, duties, and answerability of various job positions. This clarity helps to avoid overlapping of duties and duplication of effort, leading to effective coordination among departments and levels.
Q14Exercises
What is a divisional structure? Discuss its advantages and limitations.
Solution
A divisional structure is an organisational design where the organisation is composed of separate business units or divisions. These divisions are typically created on the basis of different products manufactured, but can also be based on geography or customer groups. Each division is multifunctional and operates as a semi-autonomous unit with its own divisional manager who is responsible for performance and has authority over the unit.
Advantages of Divisional Structure:
- Product Specialisation: It helps in the development of varied skills in a divisional head as they gain experience in all functions related to a particular product. This prepares them for higher management positions.
- Greater Accountability: Divisional heads are accountable for profits, as revenues and costs related to their division can be easily identified. This provides a proper basis for performance measurement and helps in fixing responsibility.
- Flexibility and Fast Decision Making: Each division functions as an autonomous unit, which promotes flexibility and initiative. Decision-making is faster because decisions are taken at the divisional level without needing approval from the top for every issue.
- Facilitates Expansion and Growth: It is easy to add new divisions for new product lines or geographical areas without interrupting the existing operations. This facilitates growth and diversification.
Limitations of Divisional Structure:
- Inter-divisional Conflicts: Conflicts may arise among different divisions regarding the allocation of funds and resources. A division may also seek to maximise its own profits at the cost of other divisions, harming overall organisational interests.
- Increased Costs: It may lead to an increase in costs because of the duplication of activities across divisions. For example, each division may have its own set of functions like marketing, finance, and personnel, which increases expenditure.
- Potential for Power Abuse: A divisional manager who has authority over all activities of their division may gain too much power. In a bid to assert independence, such a manager might ignore broader organisational interests.
Q15Exercises
Decentralisation is an optional policy. Explain why an organisation would choose to be decentralised.
Solution
Decentralisation is an optional policy because it is a conscious decision made by top management to delegate authority throughout the organisation. An organisation would choose to be decentralised to leverage its numerous benefits, which are essential for growth and efficiency in a dynamic environment. The reasons are as follows:
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Develops Initiative among Subordinates: Decentralisation promotes self-reliance and confidence. When lower-level managers are given the freedom to make their own decisions, they learn to depend on their judgment and develop solutions to problems they encounter. This identifies potential future leaders.
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Develops Managerial Talent for the Future: It provides subordinates with valuable experience in handling assignments independently. This real-life training helps create a reservoir of qualified manpower who can be promoted to more challenging positions, ensuring a pipeline of future leaders.
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Quick Decision Making: In a decentralised organisation, decisions are made at levels closest to the points of action. This avoids the long communication channels and approval processes of a centralised system, resulting in much faster decision-making and enabling the organisation to adapt quickly to changing conditions.
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Relief to Top Management: By delegating operational decision-making, decentralisation reduces the burden on top management. This allows senior executives to focus their time and energy on important strategic issues and policy decisions, rather than being involved in day-to-day operations.
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Facilitates Growth: Decentralisation grants greater autonomy to departmental heads. This fosters a sense of competition among departments, leading to increased productivity and returns, which can be used for expansion purposes.
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Better Control: It makes it possible to evaluate performance at each level, and departments can be held accountable for their results. This allows for better analysis of performance and helps in implementing corrective actions where needed.
Q16Exercises
Distinguish between centralisation and decentralisation.
Solution
Centralisation and decentralisation are opposite ends of the spectrum concerning the dispersal of decision-making authority within an organisation. They are relative terms, and no organisation is completely one or the other. The key distinctions are as follows:
| Basis | Centralisation | Decentralisation |
|---|---|---|
| Meaning | It refers to the concentration of decision-making authority at the top levels of the management hierarchy. | It refers to the systematic delegation of decision-making authority throughout all levels of the organisation. |
| Authority | Decision-making authority is retained by higher management levels. Subordinates have a minimal role in decision-making. | Decision-making authority is shared with lower levels of management. Subordinates have a significant role. |
| Decision Making Speed | Decision-making is generally slower as information has to flow up the hierarchy and decisions flow down. | Decision-making is faster because decisions are made at or near the point of action, without needing multiple approvals. |
| Role of Subordinates | The importance of a subordinate's role is reduced as they are mainly responsible for implementing decisions made by superiors. | The importance of a subordinate's role is increased as they are empowered to take initiative and make decisions. |
| Burden on Top Management | Top management is heavily burdened with both operational and strategic decisions. | Top management is relieved of routine operational decisions and can concentrate on strategic planning and policy-making. |
| Suitability | Suitable for small organisations or in situations where absolute control and uniformity are required. | Suitable for large, complex organisations operating in dynamic environments that require quick adaptation and flexibility. |
Q17Exercises
How is a functional structure different from a divisional structure?
Solution
A functional structure and a divisional structure are two different ways of designing an organisation. The key differences between them are as follows:
| Basis | Functional Structure | Divisional Structure |
|---|---|---|
| Formation | Formation is based on grouping jobs of a similar nature, i.e., based on functions like marketing, finance, and production. | Formation is based on creating separate divisions for different product lines. Each division is supported by its own set of functions. |
| Specialisation | It leads to occupational or functional specialisation, where employees become experts in their specific function. | It leads to product specialisation, where a divisional manager becomes an expert in all aspects related to a particular product. |
| Responsibility | It is difficult to fix responsibility for the overall performance or profit of the company on a single department. | It is easy to fix responsibility for performance, as each division acts as a profit centre and the divisional head is accountable for its results. |
| Managerial Development | Managerial development is difficult because functional managers focus only on their specific area and do not get exposure to diverse business functions. | Managerial development is easier. The autonomy and need to manage multiple functions within a division prepare divisional heads for top management positions. |
| Cost | It is generally more economical as functions are not duplicated across the organisation, leading to economies of scale. | It is generally more costly because there is a duplication of resources and activities (like marketing, personnel) in various divisions. |
| Coordination | Coordination can be difficult for a multi-product company, as information has to be exchanged across different functional departments. | Coordination is easier because all functions related to a particular product (e.g., production, sales, finance for 'Product A') are integrated within one division. |
Q18Exercises
A company, which manufactures a popular brand of toys, has been enjoying good market reputation. It has a functional organisational structure with separate departments for Production, Marketing, Finance, Human Resources and Research and Development. Lately to use its brand name and also to cash on to new business opportunities it is thinking to diversify into manufacture of new range of electronic toys for which a new market is emerging. Which organisation structure should be adopted in this situation? Give concrete reasons with regard to benefits the company will derive from the steps it should take.
Solution
In this situation, the company should adopt a divisional organisational structure.
The existing functional structure is suitable for a single-product company. However, with the diversification into a new and distinct product line (electronic toys), the complexity of operations will increase. A divisional structure is better suited for multi-product enterprises.
The company should create two separate divisions: one for its existing range of toys and a new one for the electronic toys. Each division would have its own functional departments (production, marketing, etc.).
Benefits the company will derive from adopting a divisional structure:
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Product Specialisation: A separate division for electronic toys will allow the company to focus on the unique requirements of this new product line. The divisional head and their team can develop specialised skills and knowledge related to the technology, manufacturing, and marketing of electronic toys, without being distracted by the existing toy business.
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Greater Accountability: The electronic toys division can be treated as a separate profit centre. This will make it easy to measure its performance and profitability independently. The divisional head can be held accountable for the division's results, which promotes responsibility.
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Flexibility and Faster Decision-Making: The new division will have the autonomy to make its own decisions regarding its operations. This will enable it to respond quickly to the emerging market trends and competitive pressures in the electronic toys sector, leading to greater flexibility and initiative.
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Clear Performance Measurement: It will be easier to identify the revenues and costs associated with the new product line. This provides a clear basis for evaluating its performance and deciding on future investments or strategic actions for that division.
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Facilitates Growth: This structure will allow for easy expansion in the future. If the company decides to diversify further, it can simply add another division without disrupting the existing ones.
Q19Exercises
A company manufacturing sewing machines set up in 1945 by the British promoters follows formal organisation culture in totality. It is facing lot of problems in delays in decision making. As the result it is not able to adapt to changing business environment. The work force is also not motivated since they cannot vent their grievances except through formal channels, which involve red tape. Employee turnover is high. Its market share is also declining due to changed circumstances and business environment. You are to advise the company with regard to change it should bring about in its organisation structure to overcome the problems faced by it. Give reasons in terms of benefits it will derive from the changes suggested by you.
Solution
The company is suffering from the limitations of a rigid and purely formal organisation structure. My advice would be for the management to recognise and encourage the emergence of an informal organisation and integrate it skillfully with the existing formal structure. The company should not eliminate the formal structure but should allow for more flexibility and social interaction.
Changes to be brought about:
- Encourage Open Communication: Management should foster an environment where employees can interact freely beyond their officially defined roles. This can be done through social events, open-door policies, and encouraging teamwork.
- Leverage Informal Networks: Managers should identify the informal groups and their leaders and use these networks to spread information quickly and gather feedback on policies and employee morale.
- Decentralise Decision-Making: To counter delays, the company should move towards decentralisation by delegating more authority to lower and middle-level managers. This will speed up decision-making and help the company adapt to changes faster.
Benefits of these changes:
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Faster Communication and Quick Feedback: An informal organisation does not follow the scalar chain. This will lead to a faster spread of information, overcoming the problem of procedural delays and red tape. It will also allow for quick feedback from employees, helping the company to adapt to the changing business environment.
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Fulfillment of Social Needs and Motivation: The informal structure will help fulfill the social needs of the employees. It will give them a platform to vent grievances and find like-minded people, which enhances job satisfaction and a sense of belongingness. This will boost morale, motivate the workforce, and likely reduce employee turnover.
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Support for the Formal Organisation: The informal network can be used to gain support for organisational objectives. For example, by testing employee reactions to proposed changes through the informal network, management can implement them more smoothly. It can compensate for the inadequacies of the formal structure, making the entire organisation more effective and responsive.
Q20Exercises
A company X limited manufacturing cosmetics, which has enjoyed a pre-eminent position in business, has grown in size. Its business was very good till 1991. But after that, new liberalised environment has seen entry of many MNC's in the sector. With the result the market share of X limited has declined. The company had followed a very centralised business model with Directors and divisional heads making even minor decisions. Before 1991 this business model had served the company very well as consumers had no choice. But now the company is under pressure to reform. What organisation structure changes should the company bring about in order to retain its market share? How will the changes suggested by you help the firm? Keep in mind that the sector in which the company is FMCG.
Solution
The primary organisational change that company X Limited should bring about is to shift from its highly centralised business model to a decentralised one.
The FMCG sector is highly dynamic and competitive, especially with the entry of MNCs. A centralised structure is too slow and rigid to respond effectively to rapid changes in consumer preferences, competitor strategies, and market conditions. Decentralisation will empower the organisation to become more agile and customer-focused.
How Decentralisation will help the firm:
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Quick Decision Making: In the FMCG sector, speed is critical. Decentralisation will allow decisions to be made at levels nearest to the points of action (e.g., by regional sales managers or brand managers). This will enable the company to respond swiftly to local market conditions and competitor moves without waiting for approval from the top, which is crucial for retaining market share.
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Develops Initiative and Managerial Talent: By giving lower-level managers the freedom to make decisions, the company will promote a culture of initiative and responsibility. This will not only lead to better, more informed decisions at the local level but also develop a pool of capable and dynamic managers who can lead the company in the future.
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Relief to Top Management: Shifting to a decentralised model will free the Directors and divisional heads from making minor, operational decisions. This will allow them to focus their time and energy on more critical strategic issues, such as long-term planning, brand building, and countering the strategic threats posed by MNCs.
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Facilitates Growth and Better Control: Decentralisation will grant greater autonomy to different product divisions or geographical units. This fosters a sense of competition and accountability, pushing each unit to perform better. The company can also implement better control systems (like Return on Investment) to evaluate the performance of each unit, leading to increased overall productivity and better market adaptation.
By adopting decentralisation, X Limited can transform itself from a slow, bureaucratic organisation into a flexible, market-responsive competitor capable of holding its own against MNCs in the liberalised environment.