INTRODUCTION

An organization is a group of people working together to achieve the specified goal. A manager
play a central role in grouping the people and activities, establishing authority and responsibility
and interacting with people for the achievement of the organizational goal. He performs the
functions of planning, organizing, directing and controlling for smooth functioning of the
organization. Moreover, continuous influence of dynamic environment on the organization
requires new managerial techniques to manage these changes. The detailed study of various
aspects of organization and management may provide proper techniques for managing them
effectively. In this unit, you will learn the concept of organization and management. You will
further learn the functions and roles of managers. You will be acquainted with the types of
organization and the features of the modern organization.

CONCEPT OF ORGANIZATION
To understand basic concept of organisation, let us learn it through following dimensions of enquiry:
• What? - What do we mean by an organisation?
• Why? - Why is study of organisation needed?
• When? - When are organisations able to serve its purpose (or otherwise fail)?
• How? - How are organisations formed?
• Where? - Where to find people who can manage organisations well?
• Who? - Who are the people having ability to create excellent organisation?

What do we mean by an organisation?

Stoner, Freeman, and Gilbert describe that at an organisation, two or more people work together
in a structured way to achieve a specific goal or set of goals. Through this description, certain salient
features of an organisation emerge. These are:
• Organisation is a conglomerate of multiple number of persons;
• Relationship among people working together is defined through a structure. Through
structure, communications take place among persons working in the organisation. Such
 structure may be relatively rigid, as in the case of formal structure, or the structure may be
relatively loose, as in the case of informal structure;
• Organisation strives to achieve planned goal. The goal(s) may be singular or plural. Goal is
one of the fundamental elements of an organisation.

Robbins describes an organisation as a consciously coordinated social entity, with a relatively

identifiable boundary, that functions on a relatively continuous basis to achieve a common goal or
set of goals. The additional salient features of this description of organisation are following:
• The activities at an organisation are consciously coordinated. It means affairs at organisation
are properly managed. It implies importance of management in organisation;
• The term relatively identifiable boundary implies that organisation works within a flexible
yet definable boundary. Any organisation with a significant size has three layers of
boundaries. The innermost boundary contains of the internal stakeholders i.e. employees,
shareholders, and board of directors. The next layer consists of external stakeholders i.e.
customers, competitors, financial institutions, suppliers, government, labour unions, media,
and special-interest group. The outermost boundary consists of major macro variables like
economic variables, technological variables, political variables, legal variables, and social
variables.

Brown and Moburg describe organisations as relatively permanent social entities characterised by
goal oriented behaviour, specialisation, and structure. This description of organisation suggests that
organisations have four basic features:
• Organisations are relatively permanent social entities though many changes which might be
taking place within the organisation- thus continuity is at the core of existence of any
organisation;
• Goals remain an integral part of any organisation;
• Organisations need highly specialised skills to attain goals,
• In order to bring together various work activities, organisations need to have structures.
Hicks describes an organisation as a structured process in which persons interact for objectives. This
description indicates five facts that are common to all organisations:
• An organisation always include persons;
• These persons are involved with one another in some way;
• The interactions among persons can always be ordered or described by some sort of structure;
• Each person in the organisation tries to meet personal objectives also through organisational
activities;
• These interactions can also help to achieve compatible joint objectives, i.e. organisational
objectives and personal objectives.

Schein describes organisation as the planned coordination of the activities of a number of people for
the achievement of some common, explicit purpose or goal, through division of labour and function,
and through hierarchy of authority and responsibility. According to this definition, Organisations
have following characteristics:
• Coordination of efforts;
• Common goal;
• Division of labour;
• Hierarchy of authority.

Necessity of Organization
An organisation is necessary with the increase in size of the manufacturing plant, introduction of
most complex methods of production, tough competitions between the enterprises, and labour
problems for every industry so as to produce required quantity of products of required quantity, at
required time with minimum production cost.
A well designed organisation structure with qualified personnel in all key positions achieves
execution, coordination and control of all functions and policies of the company.
A good organisation is necessary due to following reasons:
1. It enables the use of large size industrial units, introduction of modern techniques, and modern
machines.
2. It ensures the success in competitive market due to production of quality products economically.
3. By having good organisation structure, it is possible to have optimum utilization of resources.
4. With clearly defined responsibilities and authorities the individuals strive hard to achieve results.
5. A well organised industry is able to maintain good employer-employee relations.
6. A good organisation makes it possible to direct and coordinate the efforts of individuals,
departments etc.
Characteristics of Organisation:
1. Organisation is a group of persons.
(а) It represents cooperative relationships between them.
(b) Organisation is created to achieve certain common objectives.
(c) The group members are in a position to communicate with each other.
(d) It lays down rules and regulations to regulate the behaviour of group members.
2. Organisation is a structure of relationships.
3. Organisation is a function of management.
4. Organisation specifies how the duties are to be divided among the departments and the employees.
Process of Organisation:
1. Determination of Objectives:
Identification of the objectives before starting any activity, help the management in selecting the men
and materials. Objectives serve as the guidelines for the management and the workers.
2. Identification and Grouping of Activities:
Each job should be properly classified and grouped to enable the people to know what is expected
of them as members of the group and help in avoiding duplication of efforts.
3. Assignment of Duties:
Each individual is given a specific job to be performed according to his ability and made responsible
for that. He should also be given adequate authority to do the job assigned to him.
4. Developing Authority. Responsibility Relationship:
It is necessary that everybody should clearly know to whom he is accountable. Authority is the right
given to superior for directing the action of his subordinates to extract the work given to them
(smoothly and efficiently). Responsibility is the obligation and accountability for the performance
of delegated duties. A superior is always accountable for the acts of his subordinates, and therefore
responsibility is always flows from subordinates to superiors.
5. To Establish Inter-Relationships:
Various groups of activities are integrated:
(a) Through authority relationship horizontally, vertically, and laterally, and
(b) Through organised information or communication system. The integration of activities is
necessary to have unity of objectives, team work, and team spirit. It establishes harmony of efforts
of different individuals and group avoiding conflicts arising out of it.
6. Providing Physical Facilities and Proper Environment:
Physical facilities include tools, equipment, machinery, plant, infrastructure etc.; whereas right
environment means proper lighting, ventilation, cooling/heating arrangement at the workplace,
reasonable hours of work and rest pauses, house-keeping, safety arrangement, job security, job
satisfaction etc.
7. Preparation of Organisation Chart:
Organisation chart shows the formal organisation structure. It shows the formal superior-subordinate
relationships, i.e., who supervises and controls whom and how the various units/departments or
sections are inter-related.

Principles of an Organization
Some of those principles of an organization are as follows:
1. Principle of Objective:
The enterprise should set up certain aims for the achievement of which various departments should
work. A common goal so devised for the business as a whole and the organization is set up to achieve
that goal. In the absence of a common aim, various departments will set up their own goals and there
is a possibility of conflicting objectives for different departments. So there must be an objective for
the organization.
2. Principle of Specialisation:
The organization should be set up in such a way that every individual should be assigned a duty
according to his skill and qualification. The person should continue the same work so that he
specialises in his work. This helps in increasing production in the concern.
3. Principles of Co-ordination:
The co-ordination of different activities is an important principle of the organization. There should
be some agency to co-ordinate the activities of various departments. In the absence of co-ordination
there is a possibility of setting up different goals by different departments. The ultimate aim of the
concern can be achieved only if proper co-ordination is done for different activities.
4. Principle of Authority and Responsibility:
The authority flows downward in the line. Every individual is given authority to get the work done.
Though authority can be delegated but responsibility lies with the man who has been given the work.
If a superior delegates his authority to his subordinate, the superior is not absolved of his
responsibility, though the subordinate becomes liable to his superior. The responsibility cannot be
delegated under any circumstances.
5. Principle of Definition:
The scope of authority and responsibility should be clearly defined. Every person should know his
work with definiteness. If the duties are not clearly assigned, then it will not be possible to fix
responsibility also. Everybody’s responsibility will become nobody’s responsibility. The relationship
between different departments should also be clearly defined to make the work efficient and smooth.
6. Span of Control:
Span of control means how many subordinates can be supervised by a supervisor. The number of
subordinates should be such that the supervisor should be able to control their work effectively.
Moreover, the work to be supervised should be of the same nature. If the span of control is
disproportionate, it is bound to affect the efficiency of the workers because of slow communication
with the supervisors.
7. Principle of Balance:
The principle means that assignment of work should be such that every person should be given only
that much work which he can perform well. Some person is over worked and the other is under-
worked, then the work will suffer in both the situations. The work should be divided in such a way
that everybody should be able to give his maximum.
8. Principle of Continuity:
The organization should be amendable according to the changing situations. Everyday there are
changes in methods of production and marketing systems. The organization should be dynamic and
not static. There should always be a possibility of making necessary adjustments.
9. Principle of Uniformity:
The organization should provide for the distribution of work in such a manner that the uniformity is
maintained. Each officer should be in-charge of his respective area so as to avoid dual subordination
and conflicts.
10. Principle of Unity of Command:
There should be a unity of command in the organization. A person should be answerable to one boss
only. If a person is under the control of more than one person then there is a like-hood of confusion
and conflict. He gets contradictory orders from different superiors. This principle creates a sense of
responsibility to one person. The command should be from top to bottom for making the organization
sound and clear. It also leads to consistency in directing, coordinating and controlling.
11. Principle of Exception:
This principle states that top management should interfere only when something goes wrong. If the
things are done as per plans then there is no need for the interference of top management. The
management should leave routine things to be supervised by lower cadres. It is only the exceptional
situations when attention of top management is drawn. This principle relieves top management of
many botherations and routine things. Principle of exception allows top management to concentrate
on planning and policy formulation. Important time of management is not wasted on avoidable
supervision.
12. Principle of Simplicity:
The organizational structure should be simple so that it is easily understood by each and every person.
The authority, responsibility and position of every person should be made clear so that there is no
confusion about these things. A complex organizational structure will create doubts and conflicts
among persons. There may also be over-lapping’s and duplication of efforts which may otherwise
be avoided. It helps in smooth running of the organization.
13. Principle of Efficiency:
The organization should be able to achieve enterprise objectives at a minimum cost. The standards
of costs and revenue are pre-determined and performance should be according to these goals. The
organization should also enable the attainment of job satisfaction to various employees.
14. Scalar Principle:
This principle refers to the vertical placement of supervisors starting from top and going to the lower
level. The scalar chain is a pre-requisite for effective and efficient organization.
Why is study of organization needed?
Arguing in favour of rationale for the creation of organizations, Chris Argyris states:
Organizations are usually created to achieve objectives that can best be met collectively. This means
that the sequences of activity necessary to achieve objectives are too much for one individual and
they must be cut up into sequential units that are manageable by human beings. At the individual
level the unit are roles; at the group level the units are departments. These units are integrated or
organized in a particular sequence or pattern designed to achieve the objectives, and the resulting
pattern constitutes the organization structure.
Organizations have become cornerstone of our basic existence. Organizations pursue goals and
objectives that can be more efficiently and effectively achieved by the concerted actions of
individuals. Hospitals, educational institutions, production units, service centres are nothing but
organizations. Our civilized life would perhaps collapse without various organizations around us.
Therefore there is need for us to know how does an organization work ? Further it is more
important to make organizations around us healthier and more effective for better future.

When are organizations able to serve its purpose (or they otherwise fail)?
Organizations are able to serve its purpose when they are well managed. In fact study of organization
and study of management of organization go hand in hand. A well managed organization is able to
utilize human input and its resources like money, material, machine, motivation of employees,
market etc. in an integrated manner. Organizations are able to survive and excel if they utilize their
all resources in tune with the market needs. Successful organizations also orient themselves towards
external factors like economic environment, political environment, legal environment, social
environment, environment of international market etc.

Who are the people having ability to create excellent organization?

In fact employees are the greatest assets of an organization. In modern organizations, employees are
expected to possess multiple skills. In order to perform various activities in an organization, different
persons are expected to possess different skills, so that organization has an appropriate skills-basket.
Normally people who can create excellent organization have many desirable skills and traits. Some
important skills and traits are:
• Integrative values i.e., ability to generate faith and trust;
• Organising ability;
• Ability to see further i.e., ability to perceive future trend;
• Ability to put adequate effort;
• Up-to-date skills to perform ever changing nature of task;
• Skills to establish effective human relations with insiders and outsiders;
• Ability to generate adequate resources.

ORGANIZATION AS A PROCESS OF MANAGEMENT

Out of various functions of management, organizing is one of them. However before organizing
various activities within the organization, the organization itself needs to be organized through
defined structure. In this light organizing the organization itself becomes an important process of
management.
McFarland describes management as the process by which manager create, direct, maintain and
operate purposive organizations through systematic, coordinated and cooperative human efforts. In
order to achieve desired results in an organization, process of management should be such that it
should lead to effective achievements of the objectives.
The process of planning, organizing, staffing, directing, and controlling need to continue
effectively, as long as organization needs to achieve its objectives.

Types of Organization
There exist two types of organization:

• Formal Organization
• Informal Organization
Formal Organization
In every enterprise, there are certain rules and procedures that establish work relationships among
the employees. These facilitate the smooth functioning of the enterprise. Further, they introduce a
systematic flow of interactions among the employees. Effectively, all of this is done through a formal
organization.
Notably, the management is responsible for designing the formal organization in such a way that it
specifies a clear boundary of authority and responsibility. Coupled with systematic
coordination among various activities, it ensures achievement of organizational goals.
Again, the management builds the formal organisation. It ensures smooth functioning of the
enterprise as it defines the nature of interrelationships among the diverse job positions. Additionally,
these ensure that the organisational goals are collectively achieved. Also, formal
organisation facilitates coordination, interlinking and integration of the diverse departments within
an enterprise. Lastly, it lays more emphasis on the work to be done without stressing much on
interpersonal relationships.
Advantages
• The formal organisation clearly outlines the relationships among employees. Hence, it
becomes easier to rack responsibilities.
• An established chain of commands maintains the unity of command.
• As the duties of each member is clearly defined, there is no ambiguity or confusion in
individual roles whatsoever. Further, there is no duplication of efforts which eliminates any
wastage.
• In a formal organisation, there is a clear definition of rules and procedures. This means that
behaviours and relationships among the members are predictable. Consequently, there is
stability and no chaos existing in the enterprise.
• Finally, it leads to the achievement of organisational goals and objectives. This is because
there exist systematic and well thought out work cultures and relationships.
Disadvantages
• Decision making is slow in a formal organisation. It is important to realise that any
organizational need has to flow through the respective chain of commands before being
addressed.
 • Formal organization is very rigid in nature. This means that there prevails perfect discipline
coupled with no deviations from the procedures. Hence, this can lead to low recognition of
talent.
• Lastly, the formal organization does not take into account the social nature of humans as it
talks about only structure and work. Interestingly, we cannot eliminate this integral part of
our nature. Hence, it does not entirely display the functioning of the organisation.
Informal Organization
It’s easy to understand that if we interact with certain people regularly we tend to get more informal
with them. This is because we develop interpersonal relationships with them which are not based
solely on work purposes. Rather, these relationships might arise because of shared interests, like if
you get to know that your colleague likes the same football club of which you’re a fan of.
As a matter of fact, informal organisation arises out of the formal organisation. This is because when
people frequently contact each other we cannot force them into a rigid and completely formal
structure. Instead, they bond over common interests and form groups, based upon friendship and
social interactions.
Unlike formal organisation, informal organisation is fluid and there are no written or predefined rules
for it. Essentially, it is a complex web of social relationships among members which are born
spontaneously. Further, unlike the formal organisation, it cannot be forced or controlled by the
management.
Also, the standards of behaviour evolve from group norms and not predefined rules and norms.
Lastly, as there are no defined structures or lines of communication, the interactions can be
completely random and independent lines of communication tend to emerge in informal organisation.
Advantages
• In this type of organisation, communication does not need to follow the defined chain.
Instead, it can flow through various routes. This implies that communication in an informal
organisation is much faster relative to formal organisation.
• Again, humans are social animals. The needs to socialize exists deep within our existence.
The informal organisation ensures that there is socialization within the enterprise.
Consequently, members experience the sense of belongingness and job satisfaction.
• Informal organisation, getting true feedbacks and reactions is not easy. Hence, in informal
organisation, various limitations of formal organisation is covered up.
Disadvantages
• The informal organisation is random and can result in the spread of rumours. Again, we
cannot manage and control informal organisation. Consequently, this may result in chaos
within the enterprise.
• It is important to realise that it is not possible to effect changes and grow without the support
of the informal organisation. This can work in both ways, for growth or decline of the
enterprise.
• To point out again, informal organisation conforms to group standards and behaviours. If
such behaviours are against the organisational interests, they can eventually lead to disruption
of the organisation.

Organization Structure

What is an Organisation Structure?

First and foremost we must remember that an organisation structure is a result of the organising
process. The organisation structure consists of the various jobs, departments and responsibilities in
the enterprise coupled with the definition of the extent of control, management and authority.
It also consists of the relationships between various members of the enterprise. All in all, an
organisation structure is a framework within which managerial and operating tasks are performed.
This is because it defines the extent of management or the span of management.
In other words, it specifies authority by clearly stating the subordinates to a superior and to whom
the superior is a subordinate himself. In effect, this highlights the levels of management in an
enterprise and allows for correlation and coordination among individuals.
Talking about the significance of an organisation structure, it facilitates growth and changes within
an enterprise. As a matter of fact, an enterprise with a static structure and thus resistance to change
can soon go out of fashion in the dynamic business world. Thus it is important to realise that an
enterprise needs a change in the organisation structure whenever it expands and grows in complexity
Also, an efficient organisational structure facilitates smooth business operations. Lastly, it also
facilitates coordination and regulation of responsibilities within the enterprise. Consequently, this
enables the enterprise to function as an integrated unit.
Types of Organisation Structure
On the basis of nature of activities performed, the organisation structure is classified into two:
• Functional Structure
• Divisional Structure
Functional Structure
As the name suggests, in a functional structure grouping is based on functions. This means that
similar jobs are integrated into functions and major functions are further categorised as departments
which are handled by respective coordinating heads. These departments can further consist of
sections. Note that functional structure is a basic and simple organisational structure.
Advantages
• Since functional structure revolves around functions, the division is such that an employee
performs a specific set of tasks as a part of his routine. Effectively, this creates room for job
specialisation and efficient use of manpower.
• Again, as similar tasks are grouped together into a function and emphasis is laid on specific
functions, this structure facilitates coordination and control.
 • In a functional structure, we keep similar tasks together and different tasks away. This implies
that there is no scope for duplication. Effectively, this lowers cost.
• As the focus is mostly on a specific and limited range of skills, training of employees becomes
easier.
• This also leads to an increase in managerial efficient which in turn increases profit margins.
• Lastly, it ensures that all the diverse tasks get a fair amount of attention.
Disadvantages
• A major drawback of the functional structure lies in its definition itself. As stated already, it
puts emphasis on division based on functions of an enterprise. Now as it stresses on the
diverse functions, it generally leads to an increased concern on interests of departmental
interests rather than the interests of the organisation as a whole. Technically, this can lead to
the emergence of functional empires and even dwindling levels of concern for organisational
objectives.
• Again, as the departments are completely different in operations from each other, there is a
big barrier to communication between them.
• There may arise a conflict of interests among these departments which are profusely looking
to fulfil the individual departmental interests. Such conflicts can hinder the growth of an
enterprise. Further, such conflicts can further arise in the absence of clear separation of
responsibility.
• When individuals always deal with specific tasks their perception narrows down and they
don’t appreciate the varying point of views. Consequently, they remain fixated on specific
ideas and fail to develop as individuals. All in all, this leads to inflexibility.
In the light of above-mentioned facts, we can observe that functional structure is suitable for an
enterprise which is large, has a large number of activities to perform and looks for a high degree of
specialisation.
Divisional Structure
Divisional structure, as the name suggests percieves an enterprise as the integration of independent
divisions. We must note that such a structure is adopted in large and complex enterprises which
handle diverse products. This is because although an organisation produces a homogeneous set of
products, it can deal in a wide variety of differentiated products. Again, the organisation does this to
deal with complexity.
In such a structure, the organisation is divided into separate business units or divisions which are a
bit independent and multifunctional in their operations. Each unit has a divisional manager at the
apex who looks after all the operations within a division.
Further, each division performs most of the functions like production, finance etc. to achieve a
common goal. In a nutshell, each enterprise is divided into various divisions which further adapt the
functional structure. For example, the Reliance group has various product lines like clothing,
communications, electronics etc.
Advantages
• Here each divisional head looks after all the aspects of the division which is his responsibility.
As a result of this, instead of fixation on specialisation the divisional head develop various
skill sets which ultimately make him a suitable candidate for higher job positions.
• Again each division is the complete responsibility of the division head. Consequently, the
division head looks after all the operations within the division. Hence, this helps in
performance measurement. Additionally, the division head is responsible for the poor
performance of a division. This also facilitates quick remedial actions.
• Each division functions as a self-sustaining and autonomous unit. Accordingly, it promotes
flexibility, initiative and faster decision making.
• A notable advantage of the divisional structure is that it promotes expansion. Evidently, if an
enterprise tries to step into a new product’s market, it can simply do so by adding a new
division for that product line without interfering with the existing structure.
Disadvantages
• Divisional structure promotes the emergence of autonomous divisions within an enterprise.
Consequently, a division might try to compete with other divisions to maximise it’s profits
and hence cause hindrance to the growth of the bigger entity that is the organisation.
• Similar sets of functions are performed across all units. In that case, there is a duplication of
functions which lead to an overall increase in expenditure.
• Lastly, this structure gives a lot of power to a divisional manager. This may result in the rise
of an independent manager who might hold the division’s interests in higher regard than the
organisational interests.