OrganisingClass 12 Business Studies Part 1 Notes

Meaning of Organising

Once a company has its plans and objectives set, the next crucial step is organising. Think of it as creating a blueprint for how work will get done. Organising is the management function that arranges and structures work to accomplish the organisation's goals. It involves coordinating human efforts, assembling resources (like money, materials, and people), and integrating them into a unified system to achieve specific objectives.

In simple terms, organising is the process that puts plans into action by:

• Clarifying jobs and roles.
• Establishing working relationships.
• Deploying resources effectively to achieve desired results.

The result of the organising process is the creation of an organisational structure, which defines roles, responsibilities, and the flow of authority, ensuring everyone can work together effectively towards a common purpose.

Steps in the Process of Organising

To build an effective organisational structure, managers follow a series of logical steps. Imagine a group of students asked to manage a new shipment of library books; without a clear process, there would be chaos. A structured approach ensures the job is done quickly and efficiently.

1. Identification and Division of Work: The first step is to identify all the work that needs to be done according to the plan and then divide it into smaller, manageable tasks. This division of work prevents duplication of effort and ensures that the workload is shared among employees, rather than burdening one person.

2. Departmentalisation: After dividing the work, activities that are similar in nature are grouped together. This process is called departmentalisation. Grouping similar jobs creates specialised departments. For example, a company might create departments based on functions (like marketing, finance, production) or products (cosmetics, clothing, appliances).

3. Assignment of Duties: Once departments are formed, specific jobs are allocated to individuals based on their skills and competencies. It's crucial to match the right person with the right job. Each department is placed under the charge of a manager, who then assigns tasks to their team members.

4. Establishing Authority and Reporting Relationships: Simply assigning work isn't enough. Every employee must know who they take orders from and who they are accountable to. This step involves creating a clear hierarchy and defining who reports to whom. This clarity helps in creating a well-defined structure and ensures smooth coordination between different departments.

Importance of Organising

Properly performing the organising function is vital for the survival and growth of any business. It helps an enterprise navigate a dynamic business environment and meet challenges effectively. Here’s why organising is so important:

• Benefits of specialisation: By systematically allocating jobs, employees perform specific tasks repeatedly. This repetition allows them to gain experience and become experts in their area, leading to specialisation, which enhances productivity.
• Clarity in working relationships: Organising clarifies the lines of communication and specifies who reports to whom. This removes confusion, helps in fixing responsibility, and clearly defines the authority of each individual.
• Optimum utilisation of resources: Proper assignment of jobs prevents the overlapping of work and duplication of effort. This ensures that all resources—material, financial, and human—are used in the best possible way, minimising waste.
• Adaptation to change: A well-designed organisation structure is flexible. It can be modified to accommodate changes in the business environment, allowing the company to survive and grow despite new challenges.
• Effective administration: Organising provides a clear description of jobs and duties, which avoids confusion and duplication. This clarity leads to the proper execution of work and makes the overall management of the enterprise more efficient.
• Development of personnel: When managers delegate routine tasks, they free up their time to focus on innovation and growth. Delegation also empowers subordinates, giving them opportunities to develop new skills, handle challenges, and realise their full potential, preparing them for future leadership roles.
• Expansion and growth: Organising provides the framework that allows a business to grow. It enables an enterprise to add more job positions, departments, product lines, and even expand into new geographical territories, helping to increase its customer base, sales, and profit.

Organisation Structure

The organisation structure is the outcome of the organising process. It is the framework within which all managerial and operational tasks are performed. Think of it as the skeleton of the company, showing the relationships between people, work, and resources. This structure is often visualized in an organisation chart.

A key factor that shapes the organisation structure is the span of management, which refers to the number of subordinates a superior can effectively manage. A wider span of management results in fewer levels of management (a flatter structure), while a narrow span results in more levels (a taller structure).

An effective organisation structure is essential for a smooth flow of communication and better control over business operations. It helps a company function as an integrated unit by coordinating the responsibilities of individuals and departments.

Types of Organisation Structures

The choice of an organisation structure depends on the nature and types of activities the company performs. The two main categories are:

1. Functional structure
2. Divisional structure

Functional Structure

A functional structure is created by grouping jobs of a similar nature under major functions and organising them as separate departments. For instance, a manufacturing company might have departments for production, marketing, finance, and human resources. All these departments report to a single coordinating head, like a CEO or Managing Director.

Advantages of Functional Structure

• Occupational Specialisation: It promotes expertise because employees focus on a specific function, improving their performance and efficiency.
• Control and Coordination: It's easier to manage and coordinate activities within a department because everyone is performing similar tasks.
• Managerial Efficiency: Focusing on specific functions increases operational efficiency, which can lead to higher profits.
• Economies of Scale: It minimises duplication of effort, which reduces costs.
• Easier Training: Training employees is simpler as it focuses on a limited range of skills required for that specific function.
• Due Attention to Functions: It ensures that all key business functions receive the attention they deserve.

Disadvantages of Functional Structure

• Functional Empires: It can lead to a situation where a department places its own objectives above the overall goals of the organisation. This can hinder interaction and cooperation between departments.
• Coordination Problems: Coordinating between functionally different departments can be difficult, especially in a large organisation.
• Conflict of Interests: Conflicts can arise when the interests of different departments are not compatible. For example, the sales department might want a customer-friendly design that is difficult for the production department to manufacture.
• Inflexibility: People with similar skills and knowledge may develop a narrow perspective, making it hard for them to appreciate other points of view. Functional heads also don't get broad experience, which limits their training for top management positions.

Suitability

The functional structure is most suitable for large organisations that have diversified activities and require a high degree of specialisation.

Divisional Structure

For large organisations with multiple product lines, a divisional structure is often more suitable. In this structure, the organisation is divided into separate business units or divisions, each focused on a different product.

Each division operates as a self-contained unit with its own divisional manager, who is responsible for its performance and has authority over it. Within each division, functions like production, marketing, and finance are performed to achieve a common goal for that specific product. Each division acts as a profit center, and the divisional head is accountable for its profits or losses.

Advantages of Divisional Structure

• Product Specialisation: It helps develop varied skills in a divisional head, as they gain experience in all functions related to a particular product, preparing them for higher management positions.
• Greater Accountability: It is easy to fix responsibility for performance. Divisional heads are accountable for profits, as revenues and costs can be easily assigned to their division.
• Flexibility and Initiative: Each division functions as an autonomous unit, which leads to faster decision-making and promotes initiative.
• Facilitates Growth: Expansion is easier because new divisions can be added for new product lines without disrupting existing operations.

Disadvantages of Divisional Structure

• Conflicts between Divisions: Conflicts may arise between divisions over the allocation of funds or when one division tries to maximise its profits at the expense of others.
• Increased Costs: It can be costly because it may lead to the duplication of activities and resources across different divisions (e.g., each division having its own marketing department).
• Potential for Abuse of Power: A divisional manager who supervises all activities for their division may gain too much power and could ignore overall organisational interests to assert their independence.

Suitability

The divisional structure is suitable for businesses that manufacture a large variety of products using different resources. It is often adopted when an organisation grows and needs to add more employees, departments, and levels of management.

Formal and Informal Organisation

Within any company, two types of organisations exist simultaneously: the formal and the informal.

Formal Organisation

The formal organisation refers to the official structure designed by management to accomplish organisational goals. It clearly specifies authority, responsibility, jobs, and rules. The structure can be either functional or divisional.

Features of Formal Organisation

• It clearly specifies relationships between job positions, clarifying who reports to whom.
• It is created to achieve the objectives laid down in the plans.
• It coordinates and integrates the efforts of various departments.
• It is deliberately designed by top management.
• It places more emphasis on the work to be performed than on interpersonal relationships.

Advantages of Formal Organisation

• Easier to fix responsibility because roles and relationships are clearly defined.
• No ambiguity in roles, which helps avoid duplication of effort.
• Unity of command is maintained through an established chain of command.
• Effective accomplishment of goals by providing a clear framework for operations.
• Provides stability to the organisation, as employee behaviour is guided by specific rules.

Limitations of Formal Organisation

• Procedural delays can occur because the established chain of command must be followed for all communication.
• Lack of recognition for creativity, as it doesn't allow for deviation from rigid policies.
• It provides an incomplete picture of how an organisation works because it ignores the human and social aspects of employee relationships.

Informal Organisation

The informal organisation is the network of social relationships that emerges spontaneously as people interact at work. It is not designed by management but arises from friendships and common interests among employees.

Features of Informal Organisation

• It originates from within the formal organisation due to personal interaction.
• Standards of behaviour are based on group norms, not official rules.
• It has its own independent channels of communication (the "grapevine").
• It emerges spontaneously and is not created by management.
• It has no definite structure; it is a complex network of social relationships.

Advantages of Informal Organisation

• Faster communication as it doesn't follow prescribed channels, allowing for the quick spread of information and feedback.
• Fulfills social needs of employees, giving them a sense of belonging and enhancing job satisfaction.
• Supports the formal organisation by compensating for its inadequacies. For example, managers can test employee reactions to new policies through the informal network.

Disadvantages of Informal Organisation

• Spreads rumours, which can be destructive and work against the interests of the formal organisation.
• Resists change, as the informal group might oppose new policies, delaying or restricting growth.
• Pressurises members to conform to group norms, which can be harmful if those norms are against organisational interests.

Delegation

No matter how capable a manager is, they cannot do every task alone. To function effectively, a manager must practice delegation, which is the downward transfer of authority from a superior to a subordinate.

Delegation is essential for efficient management. It allows a manager to focus on high-priority activities while empowering subordinates and giving them opportunities to develop their skills.

However, delegation does not mean abdication. The manager remains accountable for the final outcome of the assigned task.

Elements of Delegation

Delegation involves three interdependent elements:

1. Authority: This is the right of an individual to command their subordinates and take action within the scope of their position. Authority flows downward from a superior to a subordinate. It gives managers the right to give orders and expect obedience.

2. Responsibility: This is the obligation of a subordinate to properly perform the assigned duty. Responsibility arises from the superior-subordinate relationship and flows upward—a subordinate is always responsible to their superior.

3. Accountability: This means being answerable for the final outcome. Once authority is delegated and responsibility is accepted, the subordinate becomes accountable to their superior for their performance. Accountability cannot be delegated and flows upward. Even after delegating a task, the superior remains accountable for the outcome.

Importance of Delegation

Effective delegation offers several key benefits:

• Effective management: It frees up managers from routine work, allowing them to concentrate on more important matters and new areas for growth.
• Employee development: It provides subordinates with opportunities to use their talents, develop new skills, and gain experience, preparing them for higher positions.
• Motivation of employees: Entrusting a subordinate with a task builds their self-esteem and confidence. This sense of responsibility encourages them to improve their performance.
• Facilitation of growth: Delegation helps in expansion by creating a ready workforce of trained and experienced employees who can take up leading roles in new projects or branches.
• Basis of management hierarchy: Delegation establishes the superior-subordinate relationships that form the basis of the management hierarchy. It defines who reports to whom.
• Better coordination: By clearly defining powers, duties, and answerability for various positions, delegation helps avoid overlapping duties and duplication of effort, leading to effective coordination.

Decentralisation

Decentralisation refers to the systematic delegation of authority throughout all levels of the organisation. It involves pushing down decision-making authority to the lower levels of management, placing it nearest to the points of action. An organisation is considered highly decentralised when the lower levels make a large number of important decisions.

In contrast, centralisation is the concentration of decision-making authority at the top management levels.

Centralisation and Decentralisation

An organisation can never be completely centralised or completely decentralised.

• Complete centralisation would mean all decisions are made at the top, which would make a management hierarchy unnecessary.
• Complete decentralisation would mean all decisions are made at the lower levels, which would make top management positions unnecessary.

Both scenarios are unrealistic. Therefore, every organisation is characterised by a balance of both. As organisations grow larger and more complex, they tend to move towards greater decentralisation.

Importance of Decentralisation

Decentralisation is a philosophy that trusts employees to be competent and resourceful. It provides them with the autonomy to make decisions and take responsibility for them.

• Develops initiative among subordinates: When lower-level managers are given the freedom to make their own decisions, they become more self-reliant and confident. It challenges them to solve problems, identifying those with the potential to become dynamic leaders.
• Develops managerial talent for the future: Decentralisation gives subordinates hands-on experience in decision-making, creating a pool of qualified managers who can be promoted to more challenging positions.
• Quick decision making: In a decentralised organisation, decisions are made at the levels closest to the action, without needing approval from multiple higher levels. This makes the process much faster and allows the company to adapt quickly to changing conditions.
• Relief to top management: It reduces the amount of direct supervision required, freeing up top managers to focus on important policy decisions rather than getting bogged down in daily operational matters.
• Facilitates growth: Decentralisation gives more autonomy to divisional heads, fostering a sense of competition among departments. As each department strives to perform its best, overall productivity increases, generating more returns that can be used for expansion.
• Better control: It makes it possible to evaluate the performance of each department individually. Departments can be held accountable for their results, and feedback from all levels helps to analyse performance and improve operations.