Class 12 Business Studies Notes Chapter 5 (Organising) – Business Studies-I Book

Detailed Notes with MCQs of Chapter 5: Organising. This is a crucial function of management, laying the groundwork for how work actually gets done in an enterprise. For your government exam preparation, understanding the concepts, processes, and structures discussed here is vital.

Chapter 5: Organising - Detailed Notes

1. Meaning of Organising

• 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.
• Essentially, it involves translating plans into a structure of roles and relationships. It determines what activities are required, how they are grouped, who reports to whom, and where decisions are made.

2. Steps in the Process of Organising

The organising process involves the following logical steps:

• (a) Identification and Division of Work:
  • The first step is to identify the total work required to achieve organisational objectives as per the plans.
  • This total work is then divided into specific, manageable activities (jobs).
  • Division of work leads to specialisation and avoids duplication.
  • Example: In a bank, activities can be divided into cash handling, loans, customer service, etc.
• (b) Departmentalisation:
  • Once work is divided, related and similar jobs are grouped together under one unit, called a department or division.
  • This grouping facilitates specialisation and coordination.
  • Basis for grouping can be:
    • Functions: Grouping activities based on functions performed (e.g., Production, Marketing, Finance, HR departments). This is Functional Departmentalisation.
    • Products: Grouping activities based on major products manufactured (e.g., Cosmetics division, Garments division, Footwear division). This is Divisional Departmentalisation.
    • Territory (Geography), Customers, etc., can also be bases, but Functional and Divisional are primary.
• (c) Assignment of Duties:
  • After creating departments, specific jobs are allocated to individuals based on their skills and competencies.
  • It's crucial to clearly define the work expected of each individual and match the job with the most suitable person.
  • A job description document often clarifies the contents and responsibilities associated with a job.
• (d) Establishing Reporting Relationships:
  • Simply allocating work isn't enough. Each individual must know who they take orders from (superior) and to whom they are accountable (subordinate).
  • This creates a clear hierarchy or chain of command.
  • It helps in coordination and establishes clear lines of communication and authority.
  • The outcome of the organising process is the Organisation Structure.

3. Importance of Organising

Effective organising contributes significantly to business success:

• (a) Benefits of Specialisation: Systematic allocation of jobs leads to specialisation as individuals perform specific tasks repeatedly, increasing efficiency and productivity.
• (b) Clarity in Working Relationships: Clearly defines lines of authority and responsibility, specifying who reports to whom. This removes ambiguity and confusion.
• (c) Optimum Utilisation of Resources: Proper assignment of jobs avoids overlapping and duplication of work. This leads to better use of human, financial, and physical resources.
• (d) Adaptation to Change: A well-designed organisation structure is flexible and allows the enterprise to adjust and adapt to changes in the business environment.
• (e) Effective Administration: Clarity in roles and relationships allows for effective execution of management functions and smooth operations.
• (f) Development of Personnel: Delegation (a key part of organising) allows subordinates to exercise initiative, develop skills, and realise their potential. It reduces the workload of managers, allowing them to focus on strategic issues.
• (g) Expansion and Growth: Organising provides the framework within which an enterprise can grow and expand its activities. New departments or divisions can be added, and new roles created without disrupting existing operations.

4. Organisation Structure

• It refers to the framework within which managerial and operating tasks are performed.
• It specifies the relationships between people, work, and resources.
• The Span of Management (number of subordinates a superior can effectively manage) influences the shape (tall or flat) of the structure.

Types of Organisation Structure:

• (a) Functional Structure:
  • Meaning: Grouping of jobs of similar nature under major functions and organising these major functions as separate departments (e.g., Production, Marketing, Finance, HR).
  • Suitability: Large organisations producing a single product line or limited range of products, requiring high degree of functional specialisation.
  • Advantages:
    • Leads to occupational specialisation and efficiency.
    • Promotes control and coordination within a department.
    • Increases managerial efficiency.
    • Easy to train employees.
    • Ensures due attention to different functions.
  • Disadvantages:
    • Can lead to functional empires; less focus on overall organisational objectives.
    • Problems in coordination between departments.
    • Conflict of interests may arise between departments.
    • May lead to inflexibility as people lack broader organisational perspective.
• (b) Divisional Structure:
  • Meaning: Organisation is divided into separate business units or divisions, each covering one product or territory. Each division generally has its own functional departments (e.g., Production, Marketing, Finance within Division A; similar departments within Division B). Each division head is responsible for profits/losses of their division.
  • Suitability: Large enterprises producing multiple products or operating in different geographical areas, requiring product/territory specialisation.
  • Advantages:
    • Develops product/division specific skills.
    • Fixation of responsibility and accountability for divisional performance is easy.
    • Promotes flexibility and initiative as divisions function autonomously.
    • Facilitates expansion and growth as new divisions can be added easily.
  • Disadvantages:
    • Conflicts may arise between divisions over resource allocation.
    • Duplication of activities (e.g., separate marketing for each division) increases costs.
    • Divisional managers may focus solely on their product/division, ignoring overall organisational interests.
    • Requires more managers with generalist skills.

5. Formal and Informal Organisation

• (a) Formal Organisation:
  • Meaning: The structure of authority-responsibility relationships deliberately designed by management to achieve organisational objectives. It specifies roles, rules, procedures, and communication channels. The organisation chart depicts this structure.
  • Features: Deliberately created, based on rules/procedures, impersonal, clearly defined authority/responsibility, focuses on work performance.
  • Advantages: Systematic working, achievement of objectives, no ambiguity in roles, coordination, clear chain of command.
  • Disadvantages: Procedural delays (red tape), ignores social/psychological needs, emphasis only on work.
• (b) Informal Organisation:
  • Meaning: The network of social relationships among employees that arises spontaneously due to interaction at work (based on common interests, friendship, etc.). It is not designed by management.
  • Features: Spontaneous origin, based on personal interaction, no written rules, independent channels of communication (grapevine), no definite structure.
  • Advantages: Faster communication (grapevine), fulfills social needs, provides feedback to managers, supports the formal organisation (if managed well).
  • Disadvantages: Spreads rumours (if grapevine is uncontrolled), resists change, prioritises group interests over organisational interests.
  • Note: Effective managers leverage the informal organisation to support formal goals.

6. Delegation

• Meaning: The downward transfer of authority from a superior to a subordinate. It is essential for managers to get work done through others. It does not mean abdication of responsibility.
• Elements of Delegation:
  • (i) Authority: The right of an individual to command subordinates, take action, and make decisions within the scope of their position. It arises from the formal position and flows downwards.
  • (ii) Responsibility: The obligation of a subordinate to properly perform the assigned duty. It arises from the superior-subordinate relationship and flows upwards. Authority must be commensurate with responsibility.
  • (iii) Accountability: Being answerable for the final outcome of the assigned task. It cannot be delegated. The subordinate is accountable to the superior for satisfactory performance, but the superior remains accountable to their own boss for the overall task. Accountability flows upwards.
• Principle of Absoluteness of Accountability: Accountability cannot be delegated. A manager remains accountable for the work they delegate to subordinates.
• Importance of Delegation:
  • Effective management (reduces manager's workload).
  • Employee development (provides learning opportunities).
  • Motivation of employees (builds trust and commitment).
  • Facilitation of growth (trains future managers).
  • Basis of management hierarchy.
  • Better coordination.

7. Decentralisation

• Meaning: Refers to the systematic delegation of authority throughout all levels of management and in all departments, except for that which can only be exercised at central points. It signifies the dispersal of decision-making authority to lower levels.
• Concept: An organisation is centralised when decision-making authority is retained by top management. It is decentralised when such authority is delegated down the chain of command. It's a matter of degree; complete centralisation or decentralisation is rare.
• Relationship with Delegation: Decentralisation is an extension of delegation. Delegation can occur without decentralisation (manager delegates to one subordinate), but decentralisation cannot occur without delegation (it involves systematic delegation across levels). Delegation is a process/tool; decentralisation is the result/philosophy.
• Importance of Decentralisation:
  • Develops initiative among subordinates.
  • Develops managerial talent for the future.
  • Facilitates quick decision-making.
  • Relief to top management (allows focus on strategy).
  • Facilitates growth.
  • Better control (evaluating performance at each level).

Key Differences: Delegation vs Decentralisation

Multiple Choice Questions (MCQs)

1. Grouping activities on the basis of product lines is a part of:
   (a) Functional Structure
   (b) Divisional Structure
   (c) Informal Organisation
   (d) Delegation

2. Which of the following is NOT an element of delegation?
   (a) Authority
   (b) Responsibility
   (c) Accountability
   (d) Decentralisation

3. The form of organisation known for giving rise to rumours is called:
   (a) Centralised organisation
   (b) Functional organisation
   (c) Formal organisation
   (d) Informal organisation

4. The step in the organising process which involves grouping similar and related jobs into larger units is called:
   (a) Identification and Division of Work
   (b) Assignment of Duties
   (c) Departmentalisation
   (d) Establishing Reporting Relationships

5. A tall structure has a:
   (a) Narrow span of management
   (b) Wide span of management
   (c) No span of management
   (d) Less levels of management

6. Which type of organisation structure is most suitable for a large enterprise having diverse activities and operations that require a high degree of specialisation in operations?
   (a) Divisional Structure
   (b) Functional Structure
   (c) Formal Structure
   (d) Informal Structure

7. "Authority granted to an employee should be commensurate with the responsibility assigned." This statement relates to which element of delegation?
   (a) Accountability
   (b) Authority
   (c) Responsibility
   (d) Centralisation

8. Which importance of organising suggests that it helps in reducing the workload of managers and provides subordinates opportunities to develop?
   (a) Benefits of Specialisation
   (b) Clarity in Working Relationships
   (c) Development of Personnel
   (d) Adaptation to Change

9. Decentralisation refers to:
   (a) Retention of decision-making authority with top management.
   (b) Dispersal of decision-making authority among all levels.
   (c) Creating divisions based on products.
   (d) Grouping activities based on functions.

10. A company manufacturing garments, cosmetics, and footwear has decided to group activities related to each product into separate units. This represents:
    (a) Functional Structure
    (b) Divisional Structure
    (c) Formal Structure
    (d) Informal Structure

Answer Key for MCQs:

1. (b) Divisional Structure
2. (d) Decentralisation
3. (d) Informal organisation
4. (c) Departmentalisation
5. (a) Narrow span of management
6. (b) Functional Structure (Note: High degree of operational specialisation points to Functional)
7. (c) Responsibility (The principle links authority and responsibility)
8. (c) Development of Personnel
9. (b) Dispersal of decision-making authority among all levels.
10. (b) Divisional Structure

Remember to revise these concepts thoroughly. Focus on the differences between key terms like Functional vs Divisional structure, Formal vs Informal organisation, and Delegation vs Decentralisation. Understanding the process and importance of organising is key. Good luck with your preparation!