Unit III

ORGANISING
Organizing is the function of management that involves developing an organizational structure and
allocating human resources to ensure the accomplishment of objectives. The structure of the
organization is the framework within which effort is coordinated.
Organising is the process of identifying and grouping the work to. be performed, defining and delegating
responsibility and authority, and establishing relationships for the purpose of enabling people to. work
most effectively together in accomplishing objectives.
Organising is that managerial process which seeks to define the role of each individual (manager and
operator) towards the attainment of enterprise objectives
Organising is that managerial process which seeks to define the role of each individual (manager and
operator) towards the attainment of enterprise objectives; with due regard to establishing authority-
responsibility relationships among all; and providing for co-ordination in the enterprise-as an in-built
device for obtaining harmonious groups action.
Organizing is the function of management which follows planning. It is a function in which the
synchronization and combination of human, physical and financial resources takes place. All the three
resources are important to get results. Therefore, organizational function helps in achievement of
results which in fact is important for the functioning of a concern.

Definition
“Organising is the establishment of authority relationships with provisions for co-ordination between
them, both vertically and horizontally in the enterprise structure”. -Koontz and O ‘Donnell
“Organising is the process of identifying and grouping the work to be performed, defining and
delegating the responsibility and authority and establishing a pattern of relationship for the purpose of
enabling people work most effectively to accomplish the objective”. – Louis A. Allen.
According to Chester Barnard, “Organizing is a function by which the concern is able to define the role
positions, the jobs related and the co-ordination between authority and responsibility. Hence, a
manager always has to organize in order to get results.

Importance of Organizing Function

1. Specialization - Organizational structure is a network of relationships in which the work is divided
into units and departments. This division of work is helping in bringing specialization in various activities
of concern.
2. Well defined jobs - Organizational structure helps in putting right men on right job which can be
done by selecting people for various departments according to their qualifications, skill and experience.
This is helping in defining the jobs properly which clarifies the role of every person.
3. Clarifies authority - Organizational structure helps in clarifying the role positions to every manager
(status quo). This can be done by clarifying the powers to every manager and the way he has to exercise
those powers should be clarified so that misuse of powers do not take place. Well defined jobs and
responsibilities attached helps in bringing efficiency into managers working. This helps in increasing
productivity.
4. Co-ordination - Organization is a means of creating co-ordination among different departments of
the enterprise. It creates clear cut relationships among positions and ensure mutual co-operation among
individuals. Harmony of work is brought by higher level managers exercising their authority over
interconnected activities of lower level manager.
Authority responsibility relationships can be fruitful only when there is a formal relationship between
the two. For smooth running of an organization, the co-ordination between authority- responsibility is
very important. There should be co-ordination between different relationships. Clarity should be made
for having an ultimate responsibility attached to every authority. There is a saying, “Authority without
responsibility leads to ineffective behaviour and responsibility without authority makes person
ineffective.” Therefore, co-ordination of authority- responsibility is very important.
5. Effective administration - The organization structure is helpful in defining the jobs positions. The
roles to be performed by different managers are clarified. Specialization is achieved through division of
work. This all leads to efficient and effective administration.
6. Growth and diversification - A company’s growth is totally dependant on how efficiently and
smoothly a concern works. Efficiency can be brought about by clarifying the role positions to the
managers, co-ordination between authority and responsibility and concentrating on specialization. In
addition to this, a company can diversify if its potential grow. This is possible only when the organization
structure is well- defined. This is possible through a set of formal structure.
7. Sense of security - Organizational structure clarifies the job positions. The roles assigned to every
manager is clear. Co-ordination is possible. Therefore, clarity of powers helps automatically in increasing
mental satisfaction and thereby a sense of security in a concern. This is very important for job-
satisfaction.
8. Scope for new changes - Where the roles and activities to be performed are clear and every person
gets independence in his working, this provides enough space to a manager to develop his talents and
flourish his knowledge. A manager gets ready for taking independent decisions which can be a road or
path to adoption of new techniques of production. This scope for bringing new changes into the running
of an enterprise is possible only through a set of organizational structure.

Principles of Organizing
The organizing process can be done efficiently if the managers have certain guidelines so that they can
take decisions and can act. To organize in an effective manner, the following principles of organization
can be used by a manager.
1. Principle of Specialization
According to the principle, the whole work of a concern should be divided amongst the subordinates on
the basis of qualifications, abilities and skills. It is through division of work specialization can be achieved
which results in effective organization.
2. Principle of Functional Definition
According to this principle, all the functions in a concern should be completely and clearly defined to the
managers and subordinates. This can be done by clearly defining the duties, responsibilities, authority
and relationships of people towards each other. Clarifications in authority-responsibility relationships
helps in achieving co-ordination and thereby organization can take place effectively. For example, the
primary functions of production, marketing and finance and the authority responsibility relationships in
 these departments shouldbe clearly defined to every person attached to that department. Clarification
in the authority-responsibility relationship helps in efficient organization.
3. Principles of Span of Control/Supervision
According to this principle, span of control is a span of supervision which depicts the number of
employees that can be handled and controlled effectively by a single manager. According to this
principle, a manager should be able to handle what number of employees under him should be decided.
This decision can be taken by choosing either froma wide or narrow span. There are two types of span of
control:-
a. Wide span of control- It is one in which a manager can supervise and control effectively a large group
of persons at one time. The features of this span are:-
i. Less overhead cost of supervision
ii. Prompt response from the employees
iii. Better communication
iv. Better supervision
v. Better co-ordination
vi. Suitable for repetitive jobs
According to this span, one manager can effectively and efficiently handle a large number of
subordinates at one time.
b. Narrow span of control- According to this span, the work and authority is divided amongst many
subordinates and a manager doesn't supervises and control a very big group of people under him. The
manager according to a narrow span supervises a selected number of employees at one time. The
features are:-
i. Work which requires tight control and supervision, for example, handicrafts, ivory work, etc. which
requires craftsmanship, there narrow span is more helpful.
ii. Co-ordination is difficult to be achieved.
iii. Communication gaps can come.
iv. Messages can be distorted.
v. Specialization work can be achieved.

Factors influencing Span of Control

1. Managerial abilities- In the concerns where managers are capable, qualified and experienced, wide
span of control is always helpful.
2. Competence of subordinates- Where the subordinates are capable and competent and their
understanding levels are proper, the subordinates tend to very frequently visit the superiors for solving
their problems. In such cases, the manager can handle large number of employees. Hence wide span is
suitable.
3. Nature of work- If the work is of repetitive nature, wide span of supervision is more helpful. On the
other hand, if work requires mental skill or craftsmanship, tight control and supervision is required in
which narrow span is more helpful.
4. Delegation of authority- When the work is delegated to lower levels in an efficient and proper way,
confusions are less and congeniality of the environment can be maintained. In such cases, wide span of
control is suitable and the supervisors can manage and control large number of sub- ordinates at one
time.
5. Degree of decentralization- Decentralization is done in order to achieve specialization in which
authority is shared by many people and managers at different levels. In such cases, a tall structure is
helpful. There are certain concerns where decentralization is done in very effective way which results in
direct and personal communication between superiors and sub- ordinates and there the superiors can
manage large number of subordinates very easily. In such cases, wide span again helps.
4. Principle of Scalar Chain
Scalar chain is a chain of command or authority which flows from top to bottom. With a chain of
authority available, wastages of resources are minimized, communication is affected, overlapping of
work is avoided and easy organization takes place. A scalar chain of command facilitates work flow in an
organization which helps in achievement of effective results. As the authority flows from top to bottom,
it clarifies the authority positions to managers at all level and that facilitates effective organization.
5. Principle of Unity of Command
It implies one subordinate-one superior relationship. Every subordinate is answerable and accountable
to one boss at one time. This helps in avoiding communication gaps and feedback and response is
prompt. Unity of command also helps in effective combination of resources, that is, physical, financial
resources which helps in easy co-ordination and, therefore, effective organization.
Authority Flows from Top to Bottom
Managing Director
↓
Marketing Manager
↓
Sales/ Media Manager
↓
Salesmen
According to the above diagram, the Managing Director has got the highest level of authority. This
authority is shared by the Marketing Manager who shares his authority with the Sales Manager. From
this chain of hierarchy, the official chain of communication becomes clear which is helpful in
achievement of results and which provides stability to a concern. This scalar chain of command always
flow from top to bottom and it defines the authority positions of different managers at different levels.

The Organization Process Chart

Following is a representation of organization process chart.
A well-defined organizing process leads to improved communication, transparency and efficiency in the
organization.
Classification of Organizations
Organizations are basically classified on the basis of relationships. There are two types of organizations
formed on the basis of relationships in an organization
1. Formal Organization - This is one which refers to a structure of well defined jobs each bearing a
measure of authority and responsibility. It is a conscious determination by which people accomplish
goals by adhering to the norms laid down by the structure. This kind of organization is an arbitrary set
up in which each person is responsible for his performance. Formal organization has a formal set up to
achieve pre- determined goals.
2. Informal Organization - It refers to a network of personal and social relationships which
spontaneously originates within the formal set up. Informal organizations develop relationships which
are built on likes, dislikes, feelings and emotions. Therefore, the network of social groups based on
friendships can be called as informal organizations. There is no conscious effort made to have informal
organization. It emerges from the formal organization and it is not based on any rules and regulations as
in case of formal organization.

Relationship between Formal and Informal Organizations

For a concerns working both formal and informal organization are important. Formal organization
originates from the set organizational structure and informal organization originates from formal
organization. For an efficient organization, both formal and informal organizations are required. They
are the two phase of a same concern.
Formal organization can work independently. But informal organization depends totally upon the formal
organization.
Formal and informal organization helps in bringing efficient working organization and smoothness in a
concern. Within the formal organization, the members undertake the assigned duties in co-operation
with each other. They interact and communicate amongst themselves. Therefore, both formal and
informal organizations are important. When several people work together for achievement of
organizational goals, social tie ups tends to built and therefore informal organization helps to secure co-
operation by which goals can be achieved smooth. Therefore, we can say that informal organization
emerges from formal organization.
LINE ORGANIZATION
Line organization is the most oldest and simplest method of administrative organization. According to
this type of organization, the authority flows from top to bottom in a concern. The line of command is
carried out from top to bottom. This is the reason for calling this organization as scalar organization
which means scalar chain of command is a part and parcel of this type of administrative organization. In
this type of organization, the line of command flows on an even basis without any gaps in
communication and co-ordination taking place.

Features of Line Organization

1. It is the most simplest form of organization.
2. Line of authority flows from top to bottom.
3. Specialized and supportive services do not take place in these organization.
4. Unified control by the line officers can be maintained since they can independently take decisions in
their areas and spheres.
5. This kind of organization always helps in bringing efficiency in communication and bringing stability
to a concern.

Merits of Line Organization

1. Simplest- It is the most simple and oldest method of administration.
2. Unity of Command- In these organizations, superior-subordinate relationship is maintained and
scalar chain of command flows from top to bottom.
3. Better discipline- The control is unified and concentrates on one person and therefore, he can
independently make decisions of his own. Unified control ensures better discipline.
4. Fixed responsibility- In this type of organization, every line executive has got fixed authority, power
and fixed responsibility attached to every authority.
5. Flexibility- There is a co-ordination between the top most authority and bottom line authority. Since
the authority relationships are clear, line officials are independent and can flexibly take the decision.
This flexibility gives satisfaction of line executives.
6. Prompt decision- Due to the factors of fixed responsibility and unity of command, the officials can
take prompt decision.

Demerits of Line Organization

1. Over reliance- The line executive’s decisions are implemented to the bottom. This results in over-
relying on the line officials.
2. Lack of specialization- A line organization flows in a scalar chain from top to bottom and there is no
scope for specialized functions. For example, expert advices whatever decisions are taken by line
managers are implemented in the same way.
3. Inadequate communication- The policies and strategies which are framed by the top authority are
carried out in the same way. This leaves no scope for communication from the other end. The
complaints and suggestions of lower authority are not communicated back to the top authority. So there
is one way communication.
4. Lack of Co-ordination- Whatever decisions are taken by the line officials, in certain situations wrong
decisions, are carried down and implemented in the same way. Therefore, the degree of effective co-
ordination is less.
5. Authority leadership- The line officials have tendency to misuse their authority positions. This leads
to autocratic leadership and monopoly in the concern.

Line and Staff Organization

Line and staff organization is a modification of line organization and it is more complex than line
organization. According to this administrative organization, specialized and supportive activities are
attached to the line of command by appointing staff supervisors and staff specialists who are attached
to the line authority. The power of command always remains with the line executives and staff
supervisors guide, advice and council the line executives. Personal Secretary to the Managing Director is
a staff official.
MANAGING
DIRECTOR
↓ ↓ ↓
Production Manager Marketing Manager Finance Manager
↓ ↓ ↓
Plant Supervisor Market Supervisor Chief Assisstant
↓ ↓ ↓
Foreman Salesman Accountant
Features of Line and Staff Organization
1. There are two types of staff :
a. Staff Assistants- P.A. to Managing Director, Secretary to Marketing Manager.
b. Staff Supervisor- Operation Control Manager, Quality Controller, PRO
2. Line and Staff Organization is a compromise of line organization. It is more complex than line
concern.
3. Division of work and specialization takes place in line and staff organization.
4. The whole organization is divided into different functional areas to which staff specialists are
attached.
5. Efficiency can be achieved through the features of specialization.
6. There are two lines of authority which flow at one time in a concern :
a. Line Authority
b. Staff Authority
7. Power of command remains with the line executive and staff serves only as counselors.

Merits of Line and Staff Organization

1. Relief to line of executives- In a line and staff organization, the advice and counseling which is
provided to the line executives divides the work between the two. The line executive can concentrate on
the execution of plans and they get relieved of dividing their attention to many areas.
2. Expert advice- The line and staff organization facilitates expert advice to the line executive at the
time of need. The planning and investigation which is related to different matters can be done by the
staff specialist and line officers can concentrate on execution of plans.
3. Benefit of Specialization- Line and staff through division of whole concern into two types of authority
divides the enterprise into parts and functional areas. This way every officer or official can concentrate
in its own area.
4. Better co-ordination- Line and staff organization through specialization is able to provide better
decision making and concentration remains in few hands. This feature helps in bringing co-ordination in
work as every official is concentrating in their own area.
5. Benefits of Research and Development- Through the advice of specialized staff, the line executives,
the line executives get time to execute plans by taking productive decisions which are helpful for a
concern. This gives a wide scope to the line executive to bring innovations and go for research work in
those areas. This is possible due to the presence of staff specialists.
6. Training- Due to the presence of staff specialists and their expert advice serves as ground for training
to line officials. Line executives can give due concentration to their decision making. This in itself is a
training ground for them.
7. Balanced decisions- The factor of specialization which is achieved by line staff helps in bringing co-
ordination. This relationship automatically ends up the line official to take better and balanced decision.
8. Unity of action- Unity of action is a result of unified control. Control and its effectivity take place
when co-ordination is present in the concern. In the line and staff authority all the officials have got
independence to make decisions. This serves as effective control in the whole enterprise.

Demerits of Line and Staff Organization

1. Lack of understanding- In a line and staff organization, there are two authority flowing at one time.
This results in the confusion between the two. As a result, the workers are not able to understand as to
who is their commanding authority. Hence the problem of understanding can be a hurdle in effective
running.
2. Lack of sound advice- The line official get used to the expertise advice of the staff. At times the staff
specialist also provide wrong decisions which the line executive have to consider. This can affect the
efficient running of the enterprise.
3. Line and staff conflicts- Line and staff are two authorities which are flowing at the same time. The
factors of designations, status influence sentiments which are related to their relation, can pose a
distress on the minds of the employees. This leads to minimizing of co-ordination which hampers a
concern’s working.
4. Costly- In line and staff concern, the concerns have to maintain the high remuneration of staff
specialist. This proves to be costly for a concern with limited finance.
5. Assumption of authority- The power of concern is with the line official but the staff dislikes it as they
are the one more in mental work.
6. Staff steals the show- In a line and staff concern, the higher returns are considered to be a product of
staff advice and counseling. The line officials feel dissatisfied and a feeling of distress enters a concern.
The satisfaction of line officials is very important for effective results.
DELEGATION OF AUTHORITY
A manager alone cannot perform all the tasks assigned to him. In order to meet the targets, the
manager should delegate authority. Delegation of Authority means division of authority and powers
downwards to the subordinate. Delegation is about entrusting someone else to do parts of your job.
Delegation of authority can be defined as subdivision and sub-allocation of powers to the subordinates
in order to achieve effective results.
Delegation is the assignment of authority to another person (normally from a manager to a subordinate)
to carry out specific activities. It is the process of distributing and entrusting work to another
person. Delegation is one of the core concepts of management leadership.
Delegation means devolution of authority on subordinates to make them to perform the assigned duties
or tasks. It is that part of the process of organization by which managers make it possible for others to
share the work of accomplishing organizational objectives.
Delegation consists of granting authority or the right to decision-making in certain defined areas and
charging the subordinate with responsibility for carrying through the assigned tasks.
Delegation refers to the assignment of work to others and confer them the requisite authority to
accomplish the job assigned.
Through delegation, a manager is able to divide the work and allocate it to the subordinates. This helps
in reducing his work load so that he can work on important areas such as - planning, business analysis
etc. Through delegating powers, the subordinates get a feeling of importance.

Elements of Delegation
1. Authority - in context of a business organization, authority can be defined as the power and right of a
person to use and allocate the resources efficiently, to take decisions and to give orders so as to achieve
the organizational objectives. Authority must be well- defined. All people who have the authority should
know what is the scope of their authority is and they shouldn’t misutilize it. Authority is the right to give
commands, orders and get the things done. The top level management has greatest authority.
Authority always flows from top to bottom. It explains how a superior gets work done from his
subordinate by clearly explaining what is expected of him and how he should go about it. Authority
should be accompanied with an equal amount of responsibility. Delegating the authority to someone
else doesn’t imply escaping from accountability. Accountability still rest with the person having the
utmost authority.
2. Responsibility - is the duty of the person to complete the task assigned to him. A person who is given
the responsibility should ensure that he accomplishes the tasks assigned to him. If the tasks for which he
was held responsible are not completed, then he should not give explanations or excuses. Responsibility
without adequate authority leads to discontent and dissatisfaction among the person. Responsibility
flows from bottom to top. The middle level and lower level management holds more responsibility. The
person held responsible for a job is answerable for it. If he performs the tasks assigned as expected, he
is bound for praises. While if he doesn’t accomplish tasks assigned as expected, then also he is
answerable for that.
3. Accountability - means giving explanations for any variance in the actual performance from the
expectations set. Accountability cannot be delegated. For example, if ’A’ is given a task with sufficient
authority, and ’A’ delegates this task to B and asks him to ensure that task is done well, responsibility
rest with ’B’, but accountability still rest with ’A’. The top level management is most accountable. Being
accountable means being innovative as the person will think beyond his scope of job. Accountability, in
short, means being answerable for the end result. Accountability can’t be escaped. It arises from
responsibility.

Relationship between Authority and Responsibility

Authority is the legal right of person or superior to command his subordinates while accountability is the
obligation of individual to carry out his duties as per standards of performance Authority flows from the
superiors to subordinates, in which orders and instructions are given to subordinates to complete the
task. It is only through authority, a manager exercises control. In a way through exercising the control
the superior is demanding accountability from subordinates. If the marketing manager directs the sales
supervisor for 50 units of sale to be undertaken in a month. If the above standards are not
accomplished, it is the marketing manager who will be accountable to the chief executive officer.
Therefore, we can say that authority flows from top to bottom and responsibility flows from bottom to
top. Accountability is a result of responsibility and responsibility is result of authority. Therefore, for
every authority an equal accountability is attached.

Differences between Authority and Responsibility

Authority Responsibility

It is the legal right of a person or a It is the obligation of subordinate to

superior to command his perform the work assigned to him.
subordinates.

Authority is attached to the position Responsibility arises out of superior-

of a superior in concern. subordinate relationship in which
subordinate agrees to carry out duty
given to him.

Authority can be delegated by a Responsibility cannot be shifted and is

superior to a subordinate absolute

It flows from top to bottom. It flows from bottom to top.

Barriers to Delegation
Delegation appears to be a simple process, but in practice, many difficulties come in the way of effective
delegation.
These difficulties may be grouped into three categories which are discussed below:
1. On the Part of the Superior:
Managerial failure in delegation may result because of the following limitations:
(i) Resistance – A manger may think that he can do the job better himself and so he will be reluctant to
delegate authority. “I can do it better myself” fallacy obstructs delegation of authority. Such executives
often oppose the idea of sharing authority with the others.
(ii) Lack of ability to plan and direct – Lack of ability of the manager to correctly plan and issue suitable
instructions in guiding the subordinates, though he is willing to delegate, creates hurdles in the way of
effective delegation.
(iii) Lack of willingness to let go – The desire of dominance over the work of subordinates at each step
hampers the delegation. Moreover, a manager may be afraid that if he lets the subordinate make
decisions, he may outshine him.
(iv) Lack of willingness to trust subordinates – Delegation implies a trustful attitude between the
superior and the subordinate. Lack of confidence in the capacity, ability and dependability of the
subordinate obstructs the superior to delegate authority. Since a manager lacks confidence in the
subordinate, he will not delegate authority to give him any chance to make mistakes and learn how to
take correct decisions.
(v) Lack of controls – While delegating authority, the superior must find means of assuring himself that
the authority is being used to accomplish the given assignments. Where the manager does not set up
adequate controls or has no means of knowing the use of authority, he may hesitate to delegate the
authority.
2. On the Part of the Subordinates:
The subordinates may avoid shouldering responsibilities even though there is no fault of the part of the
superior.
They may be reluctant to accept authority because of the following reasons:
(i) Subordinates may lack self-confidence because of incompetence or fear of failure.
(ii) Subordinates may fear criticism or may have been victims of undue criticism for committing mistakes
in the past.
(iii) Some people prefer to depend upon the boss for decision making.
(iv) Subordinates may be unwilling to accept delegation where required information and facilities are
not available or when effective communication is lacking.
(v) There may not be sufficient incentives for accepting additional responsibility.
(vi) Subordinates will not accept delegation when they are already over-worked or when they feel that
delegation will merely increase burden on them.
3. On the Part of the Organisation:
The faults contributing to the weakness of delegation in practice may also lie with the organisation.
They may include the following:
(i) Defective organisation structure and non-clarity of authority responsibility relationships.
(ii) Inadequate planning.
(iii) Splintered authority.
(iv) Infringement of the principle of unity of command.
(v) Lack of effective control.

Overcoming the Barriers:

Several of the barriers to delegation mostly relate to the behavioural aspects of individuals. Insecurity,
aversion to risk, lack of self-confidence, inability to trust- another to perform a task are all different
dimensions of human behavior. Among the various barriers, psychological barriers are the most difficult
ones to overcome. To overcome many of these barriers, both superiors and subordinates must take a
hard look at them, recognize their own fears and try to come out of the inhibitions.

ORGANISATION STRUCTURE
An organization that is well structured achieves effective coordination, as the structure delineates
formal communication channels, and describes how separate actions of individuals are linked together.
Organizational structure defines the manner in which the roles, power, authority, and responsibilities
are assigned and governed, and depicts how information flows between the different levels of hierarchy
in an organization.
The structure an organization designs depends greatly on its objectives and the strategy it adopts in
achieving those objectives.
An organizational chart is the visual representation of this vertical structure. It is therefore very
important for an organization to take utmost care while creating the organizational structure. The
structure should clearly determine the reporting relationships and the flow of authority as this will
support good communication – resulting in efficient and effective work process flow.
An organizational structure is a system that outlines how certain activities are directed in order to
achieve the goals of an organization. These activities can include rules, roles, and responsibilities.
The organizational structure also determines how information flows between levels within the
company.
The key principle of an organizational structure is how authority is passed down and around the
company. Understanding what everyone's roles and responsibilities are helps to
create accountability for individuals, teams and departments.

Common Organization Structures

Managements need to seriously consider how they wish to structure the organization. Some of the
critical factors that need to be considered are −
 The size of the organization
 Nature of the business
 The objectives and the business strategy to achieve them
 The organization environment

Functional Organization Structure

The functional structure is the most common model found in most organizations. Organizations with
such a structure are divided into smaller groups based on specialized functional areas, such as
operations, finance, marketing, Human Resources, IT, etc.
The organization’s top management team consists of several functional heads (such as the VP
Operations, VP Sales/Marketing). Communication generally occurs within each functional department
and is communicated across departments through the department heads.
This structure provides greater operational efficiency as employees are functionally grouped based on
expertise and shared functions performed. It allows increased specialization as each group of specialists
can operate independently.
In spite of the above benefits there are some issues that arise with this structure. When different
functional areas turn into silos they focus only on their area of responsibility and do not support other
functional departments. Also expertise is limited to a single functional area allowing limited scope for
learning and growth.
Product Organizational Structure
This is another commonly used structure, where organizations are organized by a specific product type.
Each product category is considered a separate unit and falls within the reporting structure of an
executive who oversees everything related to that particular product line. For example, in a retail
business the structure would be grouped according to product lines.

Organization structured by product category facilitates autonomy by creating completely separate

processes from other product lines within the organization. It promotes depth of understanding within a
particular product area and also promotes innovation. It enables clear focus with accountability for
program results.
As with every model, this model also has a few downsides like requirement of strong skills specializing in
the particular product. It could lead to functional duplication and potential loss of control; each product
group becomes a heterogeneous unit in itself.
Geographic Organizational Structure
Organizations that cover a span of geographic regions structure the company according to the
geographic regions they operate in. This is typically found in organizations that go beyond a city or state
limit and may have customers all across the country or across the world.

It brings together employees from different functional specialties and allows geographical division. The
organization responds more quickly and efficiently to market needs, and focuses efforts solely on the
objectives of each business unit, increasing results.
Though this structure increases efficiency within each business unit, it reduces the overall efficiency of
the organization, since geographical divisions duplicate both activities and infrastructure. Another main
challenge with this model is that it tends to be resource intensive as it is spread across and also leads to
duplication of processes and efforts.
Matrix Organizational Structure
A matrix structure is organized to manage multiple dimensions. It provides for reporting levels both
horizontally as well as vertically and uses cross-functional teams to contribute to functional expertise. As
such employees may belong to a particular functional group but may contribute to a team that supports
another program.

This type of structure brings together employees and managers across departments to work toward
accomplishing common organizational objectives. It leads to efficient information exchange and flow as
departments work closely together and communicate with each other frequently to solve issues.
This structure promotes motivation among employees and encourages a democratic management style
where inputs from team members are sought before managers make decisions.
However, the matrix structure often increases the internal complexity in organizations. As reporting is
not limited to a single supervisor, employees tend to get confused as to who their direct supervisor is
and whose direction to follow. Such dual authority and communication leads to communication gaps,
and division among employees and managers.

ORGANIZATION CHARTS
Organization chart is a diagrammatical presentation of relationships in an enterprise. The functions and
their relationships, the channels of authority and relative authority of different managers etc. are
depicted in an organizational chart. An organization chart is a managerial tool. It helps in specifying
authority and responsibility of every position. As organization chart specifically defines authority and
responsibility of people in the enterprise there will be no duplication and overlapping of duties etc.

George Terry defines an organization chart as “a diagrammatical form which shows important aspects of
an organization, including the major functions and their respective relationships, the channel of
supervision and the relative authority of each employer who is in-charge of each respective function.”
So a chart is a pictorial and indicating functions and their relationship, clear lines of authority and
responsibility, channels of communication and span of control and supervision.

Org charts help to demonstrate clear reporting structures for all the employees in the organization. It
creates a road-map for how the work is to be done and the process required to ensure this information
is shared throughout the company, to the right individuals. Its purpose is to illustrate the reporting
relationships and chains of command within the organization.

Organization charts can be divided into:

(i) Master charts and
(ii) Supplementary charts.
The master chart shows the whole formal organizational structure while supplementary chart shows
details of relationships, authority and duties within the prescribed area of a department.

Types of Organization Charts:

There are three ways in which organization charts can be shown:
(i) Vertical
(ii) Horizontal
(iii) Circular
(i) Vertical or Top to Bottom:
In this chart major functions are shown at the top and subordinate functions in successive lower
positions. In this chart scalar levels run horizontally and functions run vertically. The supreme authority
is shown at the top while lowest authority at the bottom.
The vertical chart is shown in the following diagram. In this diagram Board of Directors is at the top of
the organization. The chief executive controls various functional managers, who in turn have downward
staff as the requirement of respective departments.

(ii) Horizontal or Left to Right:

In this chart highest positions are put on the left side and those with diminishing authority move
towards the right. The organizational levels are represented by vertical columns, the flow of authority
from higher to lower levels being represented by movement from left to right. In other words it presents
scalar levels in a vertical position and functions horizontally.
The same levels of authority as shown in vertical chart can be depicted in a left to right chart as
follows:
In horizontal chart the supreme authority Le. Board of Directors is shown on the left and chief executive
and functional managers and other levels move towards right.

(iii) Circular:
In circular chart the centre of the circle represents the position of supreme authority and the functions
radiate in all directions from the centre. The higher the positions of authority, the nearer they are to the
centre and the lesser the positions of authority, more distant they are from the centre. The positions of
relative equal importance are located at the same distance from the centre. The lines forming different
blocks of functions or positions indicate the channels of formal authority, the same as in other
arrangements. The circular chart depicts the actual condition of outward flow of formal authority from
the Chief Executive in many directions.

Principles of Organization Charts:

 (i) The top management should faithfully follow the line of authority while dealing with subordinates.
Any attempt to buy pass the organization chart will make it meaningless.
(ii) The chart should define lines of position. The lines of different individuals should be so defined so
that there is no overlapping and no two persons should be given the same position.
(iii) The undue concentration of duty at any point should be avoided.
(iii) The organization chart should not be influenced by personalities. Balance of organization should be
given more importance than the individuals.
(v) The organization chart should be simple and flexible.

Advantages of Organization Charts:

1. An organization chart is a managerial tool. It helps in specifying authority and responsibility of every
position.
The relationships among different persons are also established for smooth working of the organization.
2. As organization chart specifically defines authority and responsibility of people in the enterprise there
will be no duplication and overlapping of duties etc. Even if it happens in a particular instance it can be
rectified immediately.
3. The organization chart will help in pointing out the faults, deficiencies, dual command etc. in the
organization. The management will be able to take prompt remedial action in case of certain lacuna.
4. The organization chart acts as an information centre to the new entrants and they can easily
understand different levels of authority and responsibility.
5. The charts are also helpful in decision-making process. They act as a guide to the decision makers.

Limitations of Organization Charts:

1. The organization charts show the relationship of different positions and not the degree of authority
and responsibility. The size of boxes or circles in the chart cannot show the level of authority, etc.
2. A chart only depicts formal organizational relationship whereas informal organization is ignored.
Practically informal organization is as useful as formal organization. Informal organization greatly helps
management in knowing the reactions of the people and is an important channel of communication.
3. A chart shows organizational position and status at different levels. It gives rise to superior-inferior
feeling among people and it retards the feeling of team work.

ORGANISATION MANUAL
Organisation manual is a handbook maintained in hard cover, in loose-leaf form containing information
about policies, operations, rules and regulations, objectives, procedures, departmental details etc.
An organizational manual provides and supplements additional details to the information supplied
by organization chart. It provides information on pertinent matters about each position. It provides
uniformity and consistency in the procedures and practices. It also provides written record of every
important policy, decision and procedure. There will be no confusion about authority and responsibility.
There will not be any scope for misunderstanding about anything.
The office manuals purpose is to save time, create standard guidelines for everyone, and provide a solid
foundation of knowledge. Manuals can be used for policies, organizational means, departments,
procedures, or any combination of the above.
Manuals are kept ready for reference by every functional head and his employees so that they do not
have to approach their superiors to obtain information for decision-making.

Contents of Organization Manual:

It is particularly important to include all pertinent material related directly to the company organization
in the manual, so that managers at all levels can use it as a convenient source of reference.
The manual should contain the following data:
1. Statement of Company Objectives and Policies:
Organization objectives and policies, in particular, should be spelled out. These state, the Company
organization aims and specify those management decisions related to organization which are binding on
all managers in the Company.
The Company organization objectives may be as follows:
(a) To arrange functions so that personnel can perform their job most effectively.
(b) To create an organization which will offer the greatest opportunity for individual development.
(c) To organize each unit so that the corporation may take full advantage of growth and expansion
opportunities.
2. Glossary of Terms:
To establish a common nomenclature for administrative terms used in the manual, it is advisable to
establish a glossary of management terms such as Accountability, Executive, Supervise, Work etc.
3. Organization Procedures:
What standard methods will the Company require of all managers in organization matters? What
organization work must be done the same in all units so that it will fit the pattern of overall company
organization activity? Organization procedures prescribe such uniformity. They may be prepared to
include such matters as reporting organization changes and similar matters.
Reporting Organization Changes:
If effective organization control is 10 be maintained, there should be clear channels for reporting
organization changes.
In most cases, changes should be approved by the accountable manager but cleared through the
organization planning specialized staff.
Types of Organization Manual:
(i) Policy manual states the policies of the enterprise. It describes the overall limitations within which
activities are to take place.
(ii) Operations manual informs employees of established methods, procedures and standards of doing
work.
(iii) Organization manual explains the duties and responsibilities of various departments and their
respective sub-divisions, responsibilities and authorities of different employees, etc.
(iv) Rules and regulations manual informs about the operating rules and employment regulations such
as hours of work, procedure for taking leave etc.
(v) Departmental practice manual deals in detail with the internal policies, organization and procedures
of a particular department.

Advantages of Organization Manual:

(i) Since it contains rules, regulations and various instructions, it enables the employees to learn the
various procedures and practices in short time.
(ii) Since instructions and policies are clearly stated, it is easy and quick to take decisions.

Drawbacks of Organization Manual:

(i) Manual preparation is costly and time-consuming.
(ii) Since rules, regulations etc., are all pre-decided, it leaves little scope for individual’s initiative and
discretion.

DEPARTMENTATION
Departmentation or Departmentalisation is the process of grouping the activities of an enterprise into
several units for the purpose of administration at all levels. It also provides a basis on which the
top managers can co-ordinate and control the activities of the departmental units.
Departmentation can provide a necessary degree of specialisation of executive activity for efficient
performance. It can simplify the tasks of management within a workable span. It also provides a basis on
which the top managers can co-ordinate and control the activities of the departmental units.
Departmentation is a part of the organisation process. It involves the grouping of common activities
under a single person’s control. The activities are grouped on the basis of a function of the organisation.
This work is done by a chief executive of the concerned organisation.
Departmentation means the process by which similar activities of the business are grouped into units for
the purpose of facilitating smooth administration at all levels. It implies the division of total work of an
organisation into individual functions and sub functions. It is the process of division of organisation into
different parts known as departments.

According to L. A. Allen – “Departmentation is the means of dividing a large and monolithic functional
organisation into smaller, flexible, administrative units.”

Need for and Importance of Departmentation:

The basic need for departmentation is to make the size of each departmental unit manageable and
secure the advantages of specialisation. Grouping of activities and, consequently, of personnel, into
departments makes it possible to expand an enterprise to any extent.

Departmentation is necessary on account of the following reasons:

1. Advantages of Specialisation:
Departmentation enables an enterprise to avail of the benefits of specialisation. When every
department looks after one major function, the enterprise is developed and efficiency of operations is
increased.
2. Feeling of Autonomy:
Normally departments are created in the enterprise with certain degree of autonomy and freedom. The
manager in charge of a department can take independent decisions within the overall framework of the
organisation. The feeling of autonomy provides job satisfaction and motivation which lead to higher
efficiency of operations.
3. Expansion:
One manager can supervise and direct only a few subordinates. Grouping of activities and personnel
into departmentation makes it possible for the enterprise to expand and grow.
4. Fixation of Responsibility:
Departmentation enables each person to know the specific role he is to play in the total organisation.
The responsibility for results can be defined more clearly, precisely and accurately and an individual can
be held accountable for the performance of his responsibility.
5. Upliftment of Managerial Skill:
Departmentation helps in the development of managerial skill. Development is possible due to two
factors. Firstly, the managers focus their attention on some specific problems which provide them
effective on-the-job training. Secondly, managerial need for further training can be identified easily
because the managers’ role is prescribed and training can provide them opportunity to work better in
their area of specialisation.
6. Facility in Appraisal:
Appraisal of managerial performance becomes easier when specific tasks are assigned to departmental
personnel. Managerial performance can be measured when the areas of activities are specified and the
standards of performance are fixed. Departmentation provides help in both these areas.
When a broader function is divided into small segments and a particular segment is assigned to each
manager, the area to be appraised is clearly known; and the factors affecting the performance can be
pointed out more easily. Similarly, the standards for performance can be fixed easily because the factors
influencing the work performance can be known clearly. Thus, performance appraisal becomes more
effective.
7. Administrative Control:
Departmentation is a means of dividing the large and complex organisation into small administrative
units. Grouping of activities and personnel into manageable units facilitates administrative control.
Standards of performance for each and every department can be precisely determined.

Types of Departmentation:
There are several bases of Departmentation. The more commonly used bases are—function, product,
territory, process, customer, time etc.
These are explained below:
(A) Departmentation by Functions:
The enterprise may be divided into departments on the basis of functions like production, purchasing,
sales, financing, personnel etc. This is the most popular basis of departmentation. If necessary, a major
function may be divided into sub-functions. For example, the activities in the production department
may be classified into quality control, processing of materials, and repairs and maintenance.
The organisation chart of functional departmentation may take the following form:

Advantages:
The advantages of functional departmentation include the following:
(a) It is the most logical and natural form of departmentation.
(b) It ensures the performance of all activities necessary for achieving the organisational objectives.
(c) It provides occupational specialisation which makes optimum utilization of man-power.
(d) It facilitates delegation of authority.
(e) It enables the top managers to exercise effective control over a limited number of functions.
(f) It eliminates duplication of activities.
(g) It simplifies training because the managers are to be experts only in a narrow range of skills.

Disadvantages:
There are some problems associated with functional departmentation. These are mentioned below:
(a) There may be conflicts between departments.
(b) The scope for management development is limited. Functional managers do not get training for top
management positions. The responsibility for results cannot be fixed on any one functional head.
(c) There is too much emphasis on specialisation.
(d) There may be difficulties in coordinating the activities of different departments.
(e) There may be inflexibility and complexity of operations.
(B) Departmentation by Products:
In product departmentation, every major product is organised as a separate department. Each
department looks after the production, sales and financing of one product. Product departmentation is
useful when the expansion, diversification, manufacturing and marketing characteristics of each product
are primarily significant.
It is generally used when the production line is complex and diverse requiring specialised knowledge and
huge capital is required for plant, equipment and other facilities such as in automobile and electronic
industries.
In fact, many large companies are diversifying in different fields and they prefer product
departmentation. For example, a big company with a diversified product line may have three product
divisions, one each for plastics, chemicals, and metals. Each division may be sub-divided into production,
sales, financing, and personnel activities.
The organisation chart of product departmentation may take the following form:

Advantages:
Product departmentation provides several advantages which may be stated as follows:
(a) Product departmentation focuses individual attention to each product line which facilitates the
expansion and diversification of the products.
(b) It ensures full use of specialised production facilities. Personal skill and specialised knowledge of the
production managers can be fully utilised.
(c) The production managers can be held accountable for the profitability of each product. Each product
division is semi-autonomous and contains different functions. So, product departmentation provides an
excellent training facility for the top managers.
(d) The performance of each product division and its contribution to total results can be easily
evaluated.
(e) It is more flexible and adaptable to change.

Disadvantages:
Product departmentation presents some problems as follows:
(a) It creates the problem of effective control over the product divisions by the top managers.
(b) Each production manager asserts his autonomy disregarding the interests of the organisation.
(c) The advantages of centralisation of certain activities like financing, and accounting are not available.
(d) There is duplication of physical facilities and functions. Each product division maintains its own
specialised personnel due to which operating costs may be high.
(e) There may be under-utilisation of plant capacity when the demand for a particular product is not
adequate.
(C) Departmentation by Territory:
Territorial or geographical departmentation is specially useful to large-scale enterprises whose activities
are widely dispersed. Banks, insurance companies, transport companies, distribution agencies etc. are
some examples of such enterprises, where all the activities of a given area of operations are grouped
into zones, branches, divisions etc.
It is obviously not possible for one functional manager to manage efficiently such widely spread
activities. This makes it necessary to appoint regional managers for different regions.
The organisation chart of territorial departmentation may take the following form:

Advantages:
Territorial departmentation offers certain facilities in operation. These are pointed out below:
(a) Every regional manager can specialise himself in the peculiar problems of his region.
(b) It facilitates the expansion of business to various regions.
(c) It helps in achieving the benefits of local operations. The local managers are more familiar with the
local customs, preferences, styles, fashion, etc. The enterprise can gain intimate knowledge of the
conditions in the local markets.
(d) It results in savings in freight, rents, and labour costs. It also saves time.
(e) There is better co-ordination of activities in a locality through setting up regional divisions.
(f) It provides adequate autonomy to each regional manager and opportunity to train him as he looks
after the entire operation of a unit.

Disadvantages:
Territorial departmentation have the following problems:
(a) There is the problem of communication.
(b) It requires more managers with general managerial abilities. Such managers may not be always
available.
(c) There may be conflict between the regional managers.
(d) Co-ordination and control of different branches from the head office become less effective.
(e) Owing to duplication of physical facilities, costs of operation are usually high.
(f) There is multiplication of personnel, accounting and other services at the regional level.
(D) Departmentation by Customers:
In such method of departmentation, the activities are grouped according to the type of customers. For
example, a large cloth store may be divided into wholesale, retail, and export divisions. This type of
departmentation is useful for the enterprises which sell a product or service to a number of clearly
defined customer groups. For instance, a large readymade garment store may have a separate
department each for men, women, and children. A bank may have separate loan departments for large-
scale and small- scale businessmen.
The organisation chart of customer-oriented departmentation may appear as follows:

Advantages:
The important advantages of customer departmentation are the following:
(a) Special attention can be given to the particular tastes and preferences of each type of customer.
(b) Different types of customers can be satisfied, easily through specialised staff. Customers’ satisfaction
enhances the goodwill and sale of the enterprise.
(c) The benefits of specialisation can be gained.
(d) The enterprise may acquire intimate knowledge of the needs of each category of customers.

Disadvantages:
This method of departmentation may have certain disadvantages, specially when it is followed very
rigidly. These are as follows:
(a) Co-ordination between sales and other functions becomes difficult because this method can be
followed only in marketing division.
(b) There may be under-utilisation of facilities and manpower in some departments, particularly during
the period of low demand.
(c) It may lead to duplication of activities and heavy overheads,
(d) The managers of customer departments may put pressures for special benefits and facilities.
(E) Departmentation by Process or Equipment:
In such type or departmentation the activities are grouped on the basis of production processes
involved or equipment used. This is generally used in manufacturing and distribution enterprises and at
lower levels of organisation. For instance, a textile mill may be organised into ginning, spinning,
weaving, dyeing and finishing departments. Similarly, a printing press may have composing, proof
reading, printing and binding departments. Such departmentation may also be employed in engineering
and oil industries.
The organisation chart of process or equipment departmentation may appear as follows:
Advantages:
The basic object of such departmentation is to achieve efficiency and economy of operations. The
processes are set in such a way that a series of operations is feasible making operations economic.
Efficiency can be achieved if departments are created for each process as each one has its peculiarities.
It provides the advantages of specialisation required at each level of the total processes. The
maintenance of plant can be done in better way and manpower can be utilised effectively.

Disadvantages:
In such departmentation, there may be difficulty in coordinating the different process-departments,
because the work of each process depends fully on the preceding process. So, there are chances of
conflicts among the managers looking after the different processes. It cannot be used where
manufacturing activity does not involve distinct processes.
(F) Departmentation by Time and Numbers:
Under this method of departmentation the activities are grouped on the basis of the time of their
performance. For instance, a factory operating 24 hours may have three departments for three shifts—
one for the morning, the second for the day, and the third for the night.
In the case of departmentation by numbers, the activities are grouped on the basis of their performance
by a certain number of persons. For instance, in the army, the soldiers are grouped into squads,
companies, battalions, regiments and brigades on the basis of the number prescribed for each unit.
Such type of departmentation is useful where the work is repetitive, manpower is an important factor,
group efforts are more significant than individual efforts, and group performance can be measured. It is
used at the lowest level of organisation.

Factors to be Considered in Departmentation:

A suitable basis of departmentation is one which facilitates the performance of organisational functions
efficiently and effectively so that the objectives of the organisation are achieved. Since each basis is
suitable to a particular type of organisation, often a combination of various basis is adopted.
So, the determination of suitability of departmentation basis should be considered in the light of various
principles or factors affecting the functioning of an organisation.
These factors or principles are described below:
1. Specialisation:
The activities of an organisation should be grouped in such a way that it leads to specialisation of work.
Specialisation helps to improve efficiency and ensure economy of operations. It enables the personnel
to become experts.
2. Co-ordination:
Quite different activities may be grouped together under one executive because they need to be co-
ordinated. So, the basis of departmentation should ensure that the dissimilar activities are put together
in one department.
3. Control:
Departmentation should be such that it facilitates the measurement of performance and adoption of
timely corrective action. It should enable the managers to hold the employees accountable for results.
Effective control helps to achieve organisational objectives economically and efficiently.
4. Proper Attention:
All the activities which contribute to the achievement of subordinate results should be given adequate
attention. This will ensure that all necessary activities are performed and there is no unnecessary
duplication of activities. Key areas should be given special attention.
5. Economy:
Creation of departments involves extra cost of additional space, equipment and personnel. So, the
pattern and number of departments should be so decided that maximum possible economy is achieved
in the utilisation of physical facilities and personnel.
6. Local Condition:
While forming departments adequate attention to the local conditions should be given. This is more
important to the organisation which operates in different geographical areas. Departmentation should
be adjusted according to the available resources. It should aim at full utilisation of resources.
7. Human Consideration:
Departmentation should also consider the human aspect in the organisation. So, along with the
technical factors discussed above, departments should be created on the basis of availability of
personnel, their attitude, aspiration and value systems, informal work groups, cultural patterns, etc. Due
attention to the human factors will make departmentation more effective and more efficient.

CENTRALIZATION
Centralization refers to the process in which activities involving planning and decision-making within an
organization. In a centralized organization, the decision-making powers are retained in the head office,
and all other offices receive commands from the main office.
Centralization refers to that organizational structure where decision-making power is confined to the
top management, and the subordinates need to follow the instructions of their seniors. Centralization of
authority is essential for the small-scale organizations which lack resources and finance.
Centralization is said to be a process where the concentration of decision making is in a few hands. All
the important decision and actions at the lower level, all subjects and actions at the lower level are
subject to the approval of top management.
According to Allen, “Centralization” is the systematic and consistent reservation of authority at central
points in the organization.
Centralization allows on the one hand an unified decision “from the center” on the other hand, limits
the autonomy of organizational units and may reduce flexibility of the decision. Centralization may
concern all decisions and powers, or may be centralized only selected managerial functions.

When an organization follows a centralized management structure, it can focus on the fulfillment of its
vision with ease. There are clear lines of communication and the senior executive can communicate the
organization's vision to employees and guide them toward the achievement of the vision.

In a centralized organization, decisions are made by a small group of people and then communicated to
the lower-level managers. If lower-level managers are involved in the decision-making process, the
process will take longer and conflicts will arise.

Factors Determining Centralization of Authority

In small organizations, the owner or the top management is responsible for making all the business
decision solely. Whereas, the delegation of work among the subordinates takes place; therefore,
centralization persists in these business units.
The following factors result in the centralization of the organization:

 Nature of Organization: When the organization is generally a sole proprietorship or partnership

entity with less number of employees to be managed, it can have a centralized system.
 Size of the Organization: The organization which are small in size and operating on a small scale can
be efficiently managed by the top management hence following a centralized system.
 Nature of Task: The organizations engaged in business operations which does not require much
expertise or specialization, can be managed through centralization.
 Delegation Ability: The capability of the management to delegate the responsibilities to the
subordinates while keeping the charge in their hand is another factor determining the organizational
structure.
 Employee’s Efficiency: If the employees lack skills and efficiency to take up the responsibility and
accountability of the work to be performed, the management will go for centralization of the
organization.

Advantages of Centralization
Centralization and decentralization are equally crucial for a business. The reasons for which some
organizations mainly centralizes its structure are as follows:

Cost Efficient: The management need not spend much on the office and administrative expenses in a
centralized organization. Even the cost of hiring experts and highly experienced personnel at each level
is saved due to the centralized decision-making process.
Better Command: The management can hold a better command over the subordinates and the
subordinates also clearly know whom to follow. There is proper control over the subordinate actions,
and the management is well aware of the strengths and weaknesses of the subordinates.
Enhances Work Quality: The subordinates are answerable directly to the top management, and
therefore they continuously aim at improving the work quality. It also leads to standardization of the
process and reduces the wastage.
Uniformity in Action: When the control lies in the hands of few, the methods and techniques used are
usually the same throughout all the levels and departments, thus encouraging the subordinates to
perform uniformly.
Focus on Vision: The top management clearly defines and better understand the organizational vision.
Therefore, it aligns all the resources, subordinates, activities and strategies towards the achievement of
the vision.
Proper Coordination: The top management frames a uniform policy for subordinates at different levels,
integrate their course of action and ensures coordination among all the subordinates.

Disadvantages of Centralization
Centralization is not suitable for all type of business organizations.
Slows Down Operations: The top management directs the day to day operations, and the subordinates
have to report directly to the senior management. At times when there is no managerial staff, the
subordinates are unable to take immediate decisions. Thus, resulting in slowing down of business
operations.
Delays Decision Making: In centralization, the decision-making process slows down since all the
decisions are to be taken by the top management. It is not suitable for handling emergencies or
unexpected circumstances.
Reduces Scope for Specialization: A person cannot specialize in all the activities alone. Therefore, in a
centralized structure where all decisions are taken by the top management, the organization lacks
specialized supervision and management.
Discourages Initiative: The subordinates are given instructions which they need to follow without
questioning the decisions of the top management. In centralization, the subordinates are intimidated
from giving their input or suggestions.
Lacks Adaptability to Change: The centralized organization runs in a conventional manner where the
top management is somewhat rigid with its policies, methods and techniques. Thus, it creates a barrier
to adopting modern and improved practices for organizational growth.
Overburden on Top Management: All the planning and decision-making work is done at the topmost
level of management, they control even the day to day operations. Due to this reason, management
becomes overburdened and is unable to concentrate on business expansion and growth.
Bureaucratic Leadership: Centralization can be seen as a dictatorship by some, where the top
management plans every course of action and the subordinates follow the instructions. Problem-solving
becomes quite difficult in such circumstances since the decision-maker, and the implementer is two
different individuals.
Poor Upward Communication: The subordinates are supposed to follow instructions while the least
attention is paid towards their suggestions and feedback. All this hinders the upward communication in
the organization.

DECENTRALIZATION
Decentralization refers to a specific form of organizational structure where the top
management delegates decision-making responsibilities and daily operations to middle and lower
subordinates. The top management can thus concentrate on taking major decisions with greater time
abundance.
In a decentralized organization, lower level managers are given decision-making authority and the
power to run their own departments. Decentralization include better, more timely decisions and
increased motivation.
Decentralisation implies the dispersal of decision-making power at lower levels of management. When
the power to take decisions and formulate policies does not lie with one person at the top but is passed
on to different persons at various levels, it will be a case of decentralisation.
The following are the main objectives which a decentralized system of organization seeks to achieve: To
relieve the burden of work on the chief executive. To develop the managerial faculties. To motivate the
lower level of workers.
Decentralisation is referred to as a form of an organisational structure where there is the delegation of
authority by the top management to the middle and lower levels of management in an organisation.
In this type of organisation structure, the duty of daily operations and minor decision-making
capabilities are transferred to the middle and lower levels which allow top-level management to focus
more on major decisions like business expansion, diversification etc.
Delegation refers to the assigning a portion of work and the associated responsibility by a superior to a
subordinate. In simple words, when delegation is expanded on an organisational level, it is called
decentralisation.
“Decentralisation refers to tire systematic effort to delegate to the lowest levels all authority except that
which can only be exercised at central points.” —Louis A. Allen
“Decentralisation means the division of a group of functions and activities into relatively autonomous
units with overall authority and responsibility for their operation delegate to time of cacti unit.’—Earl. P.
Strong

Importance of Decentralisation
1. Rapid decision making – Most of the decisions are taken on the spot, and approval from the higher
authority is not required. The ability to make a prompt decision allows an organisation to function its
operation quickly and effectively.
2. Administrative development – The decentralisation process questions the manager’s judgement and
techniques, when responsibility and challenges to develop solutions are given to them. This questioning
method grows confidence, encourages self-reliance, and make them a good decision-maker resulting in
the development of the organisation.
3. Development of executive skills – It allows the employee to perform task individually, giving them
invaluable exposure. This individual performance creates an environment where an individual can
enhance their expertise, take ownership & more significant responsibilities, and be suitable for
promotion.
4. Promotes growth – Decentralisation also allows the heads of the department to work independently.
This independence helps the department to grow, have a healthy competition between other
departments. Ultimately, the competition will lead to an improvement and enhancement in
productivity.
5. Higher control – It also evaluates and reviews the performances of each department and gives them
a comprehensive perspective of their work. However, controlling is the biggest challenge of
decentralisation and stabilised management and scorecard are being developed.
Objectives of Decentralization
Decentralization is an important strategical decision. It changes the whole organizational structure right
from the top management to the bottom level. Like other business strategies, decentralization is also
purposeful.
Let us understand the various objectives for which organizations decentralize their operations :

Development of Managerial Personnel

Decentralization provides for self-learning of the managers by facing the problem, finding the solutions
themselves and taking the correct decisions. It adds on to the skills, experience and expertise of the
managers in their respective departments.
Effective Control and Supervision
The managers exercise better control over the operations of the subordinates by taking disciplinary
actions. They can make decisions related to production schedules, promotions and leaves taken by the
subordinates.
Flexibility
Decentralization leads to flexibility in business operations. It also provides authority to the managers to
handle unexpected situations independently. It allows them to manage their respective departments in
the way they want to.
Motivates and Boosts Morale
It creates self-dependant managers and drives them to enhance their performance, take the initiative
and develop a problem-solving attitude. Decision making also boosts their morale and confidence.
Prompt Decision Making
There are times when the managers have to take immediate and unplanned decisions at operational
levels; it is only possible in decentralized organizations.
On the contrary, in a centralized organization, the decision-making process is quite lengthy and
complicated, which is ineffective for handling unforeseen operational problems and issues.
Reduces the Burden of Top Management
The management has to take certain crucial strategical decisions which require a lot of analysis and
planning. Decentralization releases the management from operational decision making, facilitating them
to engage themselves in future strategic planning.

Advantages of Decentralisation
1. Reduces the burden on top executives
2. Facilitates diversification
3. Executive Development
4. It promotes motivation
5. Better control and supervision

Disadvantages of Decentralisation
1. Uniform policies not Followed
2. Problem of Co-Ordination