Organising 1

MEANING
Let us take an example to understand how organising takes place. Have
you ever paid attention to how, the school fete which you enjoy so much,
actually takes place? What goes on behind the scene to make it the
desired reality you want? The whole activity is divided into task groups
each dealing with a specific area like the food committee, the decoration
committee, the ticketing committee and so on. These are under the
overall supervision of the official in charge of the event. Coordinating
relationships are established among the various groups to enable smooth
interaction and clarity about each group’s contribution towards the
event. All the above activities are a part of the organising function.
Organising essentially implies a process which coordinates human
efforts, assembles resources and integrates both into a unified whole to
be utilized for achieving specified objectives. Organising can be defined
as a process that initiates implementation of plans by clarifying jobs and
working relationships and effectively deploying resources for attainment
of identified and desired results (goals).

StEPS IN the Process OF Organizing

Organising involves a series of steps that need to be taken in order to achieve
the desired goal. Let us try and understand how organising is carried out
with the help of an example.
Suppose twelve students work for the school library in the summer vacations.
One afternoon they are told to unload a shipment of new releases, stock the
bookshelves, and then dispose of all waste (packaging, paper etc). If all the
students decide to do it in their own way, it will result in mass confusion.
However, if one
Student supervises the work by grouping students, dividing the work,
assigning each group their quota and developing reporting relationships
among them, the job will be done faster and in a better manner.
From the above description, the following steps emerge in the process of
organising:
(i) Identification and division of work: The first step in the process of
organising involves identifying and dividing the work that has to be
done in accordance with previously determined plans. The work is
divided into manageable activities so that duplication can be avoided
and the burden of work can be shared among the employees.
(ii) Departmentalization: Once work has been divided into small and
manageable activities then those activities which are similar in nature
are grouped together. Such sets facilitate specialization. This grouping
process is
 2 Business Studies

Called departmentalization. Departments can be created using several criteria

as a basis. Examples of some of the most popularly used basis are territory
(north, south, west, etc.) and products (appliances, clothes, cosmetics etc).
(iii) Assignment of duties: It is necessary to define the work of different
job positions and accordingly a l l o c a t e w o r k to various
employees. Once departments have been formed, each of them is placed
under the charge of an individual. Jobs are then allocated to the members
of each department in accordance to their skills and competencies. It is
essential for effective performance that a proper match is made between
the nature of a job and the ability of an individual. The work must be
assigned to those who are best fitted to perform it well.
(iv)Establishing authority and reporting relationships: Merely
allocating work is not enough. Each individual should also know who
he has to take orders from and to whom he is accountable. The
establishment of such clear relationships helps to create a hierarchal
structure and helps in coordination amongst various departments.

Importance OF Organizing
Performance of the organising function can pave the way for a smooth
transition of the enterprise in accordance with the dynamic business
environment. The significance of the organising function mainly arises
from the fact that it helps in the survival and growth of an enterprise and
equips it to meet various challenges. In order for any business enterprise
to perform tasks and successfully meet goals, the organising function
must be properly performed. The following points highlight the crucial
role that organising plays in any business enterprise:
(i) Benefits of specialization: Organising leads to a systematic
allocation of jobs amongst the work force. This reduces the
workload as well as enhances productivity because of the specific
workers performing a specific job on a regular basis. Repetitive
performance of a particular task allows a worker to gain
experience in that area and leads to specialization.
(ii) Clarity in working relation ships: The establishment of working
relationships clarifies lines of communication and specifies who is to
report to whom. This removes ambiguity in transfer of information
and instructions. It helps in creating a hierarchical order thereby
enabling the fixation of responsibility and specification of the extent of
authority to be exercised by an individual.
(iii) Optimum utilization of resources: Organising leads to the proper
usage of all material, financial and human resources. The proper
 Organising 3
assignment of jobs avoids overlapping of work and also makes
possible the best use of resources. Avoidance of duplication of
work helps in preventing confusion and minimizing the wastage of
resources and efforts.
(iv) Adaptation to change: The process of organising allows a business
enterprise to accommodate changes in the business environment. It
allows the organization structure to be suitably modified and the revision
of interrelationships amongst managerial levels to pave the way for
a smooth transition. It also provides much needed stability to the
enterprise as it can then continue to survive and grow in spite of
changes.
(v) Effective administration: Organising provides a clear
description of jobs and related duties. This helps to avoid confusion and
duplication. Clarity in working relationships enables proper execution of
work. Management of an enterprise thereby becomes easy and this
brings effectiveness in administration.
(vi) Development of personnel: Organising stimulates creativity amongst
the managers. Effective delegation allows the managers to reduce their
workload by assigning routine jobs to their subordinates. The reduction
in workload by delegation is not just necessary because of limited
capacity of an individual but also allows the manager to develop new
methods and ways of performing tasks. It gives them the time to
explore areas for growth and the opportunity to innovate thereby
strengthening the company’s competitive position. Delegation also
develops in the subordinate the ability to deal effectively with
challenges and helps them to realize their full potential.
(vii)Expansion and growth: Organ icing helps in the growth and
diversification of an enterprise by enabling it to deviate from existing
norms and taking up new challenges.
It allows a business enterprise to add more job positions, departments and
even diversify their product lines. New geographical territories can be
added to current areas of operation and this will help to increase customer
base, sales and profit.
Thus, organising is a process by which the manager brings order out of
chaos, removes conflict among people over work or responsibility sharing and
creates an environment suitable for teamwork.

Organization Structure
Organization structure is the outcome of the organising process. An effective
structure will result in increased profitability of the enterprise. The need for
an adequate organization structure is felt by an enterprise whenever it
4 Business Studies
grows in size or complexity. It is only those enterprises which do not focus
on growth that can maintain a particular structure for a long period of time.
However, it is important to understand that such stagnancy may p r o v e t o
b e d e t r i m e n t a l t o an enterprise as those companies which do not change
at all will close down or cease to grow.
As an organization grows, cord nation becomes difficult due to the
emergence of new functions and increase in structural hierarchies. Thus,
for an organization to function smoothly and face environmental
changes, it becomes necessary to pay attention to its structure.
Peter Drucker emphasizes on the importance of having an appropriate
organization structure when he says, “organization structure is an
indispensable means; and the wrong structure will seriously impair busy
ness performance and even destroy it.” The organization structure can
be defined as the framework within which managerial and operating
tasks are performed. It specifies the relationships between people, work
and resources. It allows correlation and coordination among human,
physical and financial resources and this enables a business enterprise
to accomplish desired goals. The organization structure of a firm is
shown in an organization chart.
The span of management, to a large extent gives shape to
the
Organizational structure. Span of management refers to the number of
subordinates that can be effectively managed by a superior. This
determines the levels of management in the structure.
A proper organization structure is essential to ensure a smooth flow of
communication and better control over the operations of a business
enterprise.
An organization structure provides the framework which enables the
enterprise to function as an integrated unit by regulating and coordinating
the responsibilities of individuals and departments. Let us try and
understand this through an example.
For example: Suita opened her own travel agency. The success of her
travel agency depends on a harmonious relationship between the
customer and the employees of the travel agency. In order to achieve this
objective she has divided the entire work of the agency into three
subheads based on the functions namely Operations, sales and
administration. Operations include travel counsellor, reservation and
ticketing and customer care. Sales include the Accounts executive.
Administration includes Book Keeper, Cashier and utility personnel. This
division of work on the basis of functions has resulted into an
organizational structure specifying the line of authority and responsibility.
 Organising 5

Types OF Organization Structures

The type of structure adopted by an organization will vary with the nature
and types of activities performed by an origination. The organizational
structure can be classified under two categories which are as follows:
(i) Functional structure and
(ii) Divisional structure

Functional structure
Grouping of jobs of similar nature under functional and organising these
major functions as separate

Managing Director

Research
Human Resources Marketing and Purchasing
Development

Departments creates a functional structure. All departments report to a

coordinating head. For example, in a manufacturing concern division of work
into key functions will include production, purchase, marketing, accounts and
personnel. These departments may be further divided into sections. Thus, a
functional structure is an organizational design that groups similar or related
jobs together.
Advantages: The functional structure has many advantages to offer. Important
among them are as follows:
(a) A functional structure leads to occupational specialization since emphasis
is placed on specific functions. This promotes efficiency in utilization of
manpower as employees perform similar tasks within a department and
are able to improve performance.
(b) It promotes control and coordination within a department because of
similarity in the tasks being performed.
(c) It helps in increasing managerial and operational efficiency and this
 6 Business Studies
results in increased profit.
(d) It leads to minimal duplication of effort which results in economies of scale
and this lowers cost.
(e) It makes training of employees easier as the focus is only on a limited
range of skills.
(f) It ensures that different functions get due attention.
Disadvantages: The functional structure has certain disadvantages
which an organization must take into consideration before it adopts it.
Some of them are as follows:
(a) A functional structure places less emphasis on overall enterprise
objectives than the objectives pursued by a functional head. Such
practices may lead to functional empires wherein the importance of
a particular function may be overemphasized. Pursuing departmental
interests at the cost of organizational interests can also hinder the
interaction between two or more departments.
(b) It may lead to problems in coordination as information has to be
exchanged across functionally differentiated departments.
(c) A conflict of interests may arise when the interests of two or more
departments are not compatible. For example, the sales department
insisting on a customer friendly design may cause difficulties in
production. Such dissension can prove to be harmful in terms of
fulfillment of organizational interest. Inter departmental conflicts can
also arise in the absence of clear separation of responsibility.
(d) It may lead to inflexibility as people with same skills and knowledge
base may develop a narrow perspective and thus,
Have difficulty in appreciating by other point of view. Functional heads do not
get training for top management positions because they are unable to gather
experience in diverse areas.
Suitability: It is most suitable when the size of the organization is large,
has a diversified activities and operations require a high degree of
specialization.

Divisional Structure
Many large organizations with diversified activities have reorganized
themselves away from the simpler and basic functional structure towards
a divisional structure which is more suited to their activities. This is
particularly true of those enterprises which have more than one category
of products to offer. This is because although every organization performs
a set of homogenous functions, as it diversifies into varied product
categories, the need for a more evolved structural design is felt to cope
with the emerging complexity.
 Organising 7
In a d i v i s i o n a l s t r u c t u r e , t h e
Organization structure comprises of separate business units or divisions.
Each unit has a divisional manager responsible for performance and who has
authority over the unit. Generally, manpower is grouped on the basis of
different products manufactured. Each division is multifunctional because
within each division functions like production, marketing, finance, purchase,
etc., are performed together to achieve a common goal. Each division is
self-contained as it develops expertise in all functions related to a product line.
In other words, within each division, the functional structure tends to be
adopted. However, functions may vary across divisions in accordance with a
particular product line. Further, each division works as a profit center where
the divisional head is responsible for the profit or loss of his division. For
example, a large company may have divisions like cosmetics, clothing, etc.
Advantages: The divisional structure offers many benefits. Prominent
among these are as follows:
(a) Product specialization helps in the development of varied skills in a
divisional head and this prepares

Organization Chart Managing Director

Showing Divisional and
Functional Structure

Cosmetics Garments Footwear Skin care

Research
Human Resources Marketing and Purchasing
Developmen
 8 Business Studies

Him for higher positions. This is because he gains experience in all

functions related to a particular product.
(b) Divisional heads are accountable for profits, as revenues and costs related
to different departments can be easily identified and assigned to them. This
provides a proper basis for performance measurement. It also helps in
fixation of responsibility in cases of poor performance of the division and
appropriate remedial action can be taken.
(c) It promotes flexibility and initiative because each division functions as an
autonomous unit which leads to faster decision making.
(d) It facilitates expansion and growth as new divisions can be added without
interrupting the existing
Operations by merely adding another divisional head and staff for the new
product line.
Disadvantages: The divisional structure has certain disadvantages.
Some of them are as follows:
(a) Conflict may arise among different divisions with reference to
allocation of funds and further a particular division may seek to
maximize its profits at the cost of other divisions.
(b) It may lead to increase in costs since there may be a duplication of
activities across products. Providing each division with separate set of
similar functions increases expenditure.
(c) It provides managers with the authority to supervise all activities
related to a particular division. In course of time, such a manager

Comparative view: Functional and Divisional Structure

Basis Functional Structure Divisional Structure
Formation Formation is based on Formation is based on product
functions lines and is supported by
functions.
Specialization Functional specialization. Product specialization.
Responsibility Difficult to fix on a Easy to fix responsibility for
department. performance.
Managerial Difficult, as each Easier, autonomy as well as
Development functional manager the chance to perform
has to report to the multiple functions helps in
top management. managerial development.
Cost Functions are not Duplication of resources in
duplicated hence various departments, hence
economical costly.
 Organising 9
Coordination Difficult for a multi Easy, because all functions
product company. related to a particular
product are integrated in
one department.

May gain power and in a bid to assert his independence may ignore
organizational interests.
Suitability: Divisional structure is suitable for those business
enterprises where a large variety of products are manufactured using
different productive resources. When an organization grows and needs to
add more employees, create more departments and introduce new levels
of management, it will decide to adopt a divisional structure. Table 1
provides a comparison of functional and divisional structure to provide
further clarity on the topic.
Thus, it can be said that business operates in a dynamic environment and
those enterprises which fail to adapt to change are unable to survive.
Hence, management must continuously review its plans and objectives and
accordingly the organization structure of the enterprise should also be subjected
to periodic review to determine if modification is required. An organization
structure, at all times should contribute towards the achievement of the
enterprise’s objectives and should provide scope for initiative so that
contribution of personnel can be maximum and effective.
 Organization Chart of ONGC

120
GVK
Basin IRSwar
ONGC
Medical
Security
Legal
(Frontier)
Corporate
Karakul
Head, Regional
Offshore
Rajahmundry
&
Mehran
Comer-
Assam
Tripura
Ankles
Uren Plant
Academy
(Cauvery)
PSC Comma
Officer
- JV
Satellite
(KG)
coal
C & MD

 Company Secretary
 Corporate Affairs MD, ONGC Vides Ltd.
 Chief Vigilance Officer

Director Director
Director Director Director Director
Tech & ... To be filled...
Offshore Onshore Exploration HR Finance
Field
Services

Ahmedabad Western HRD Chief Drill. Internal

Mumbai Supply IDT Chief Infolog
Offshore Services Audit
High Bases
Western Functional IOGPT
Drilling Chief Planning
Onshore HR Planning
Projects & Cap.
IEOT
Assam & Cementing Budget
Assam-Abakan Employee
Hera & Hazer Relations Mud Explore. Perfor Chief MM
Neela a Cauvery & Dev m-
Plant Chief Well mince Chief Business
KG-PG Services mgmt. DEV., JVs &
& Marketing
Workover Bench-
WSS marking
KDIMPE Chief SHE
Regional Well IPSEM
Labs Completion
& Drilling Chief EM.
Technical Audit
Chief Logging & QA
GEOPIC Geophysical
Services Maine- Chief

Business Studies
Regional Geo- Nance Engineering
CBMMBP
physical Services
Design
Exploration
Directorate
EX COM Works
 11

Formal AND Informal Organization

In all organizations, employees are guided by rules and procedures. To
enable smooth functioning of the enterprise, job description and rules
and procedures related to work processes have to be laid down. This is
done through the formal organization. Formal organization refers to the
organization structure which is designed by the
management to accomplish a particular task. It specifies clearly the
boundaries of authority and responsibility and

There is a systematic coordination among the various activities to achieve

organizational goals.
The structure in a formal organ station can be functional or dives tonal. The
formal organization can be better understood by a study of its features which
are as follows:
(a) It specifies the relationships among various job positions and the nature
of their inter relationship. This clarifies who has to report to whom.
(b) It is a means to achieve the objectives specified in the plans, as it lays
down rules and procedures essential for their achievement.
(c) Efforts of various departments
Are coordinated, interlinked and integrated through the formal
organization.
(d) It is deliberately designed by the top management to facilitate the
smooth functioning of the organization.
(e) It places more emphasis on work to be performed than interpersonal
relationships among the employees.
Advantages: Formal organization offers many advantages. Some of the
important ones are:
(a) It is easier to fix responsibility since mutual relationships are clearly
defined.
(b) There is no ambiguity in the role that each member has to play as
duties are specified. This also helps in avoiding duplication of effort.
(c) Unity of command is maintained through an established chain of
command.
(d) It leads to effective accomplish mint of goals by providing a
framework for the operations to be performed and ensuring that each
employee knows the role he has to play.
(e) It provides stability to the organ station. This is because behavior of
employees can be fairly pre ducted since there are specific rules to
guide them.
Limitations: The formal organization suffers from the following
limitations:
(a) The formal communication may lead to procedural delays as the
established chain of command has
12 Business Studies
 13

To be followed which increases the time taken for decision making.

(b) Poor organization practices may not provide adequate recognition to
creative talent, since it does not allow any deviations from rigidly laid
down polices.
(c) It is difficult to understand all human relationships in an enterprise
as it places more emphasis on structure and work. Hence, the formal
organization does not provide a complete picture of how an organization
works.
Informal Organization
Interaction among people at work gives rise to a ‘network of social
relationships among employees’ called the informal organization.
Informal organization emerges from within the formal organization when
people interact beyond their officially defined roles. When people have
frequent contacts they cannot be forced into a rigid formal structure.
Rather, based on their interaction and friendship they tend to form groups
which show conformity in terms of interest. Examples of such groups
formed with common interest may be those who take part in cricket
matches on Sundays, meet in the cafeteria for coffee, are interested in
dramatics, etc. Informal organization has no written rules, is fluid in form
and scope and does not have fixed lines of communication. The Table in
the next page compares informal organization with the formal organization
to provide better understanding of both types.
Informal organization can be better understood with the help of the
following features:
(a) An informal organization originates from within the formal organization
as a result of personal interaction among employees.
(b) The standards of behavior evolve from group norms rather than officially
laid down rules and regulations.
(c) Independent channels of communication without specified direction of
flow of information are developed by group members.
(d) It emerges spontaneously and is not deliberately created by the
management.
(e) It has no definite structure or form because it is a complex network of
social relationships among members.
 14 Business Studies

Advantages: The informal organization offers many benefits. Important among

them are given below:
(a) Prescribed lines of communication are not followed. Thus, the informal
organization leads to faster spread of information as well as quick
feedback.
(b) It helps to fulfill the social needs of the members and allows them to find
likeminded people. This enhances their job satisfaction since it gives them a
sense of belongingness in the organization.
(c) It contributes towards fulfillment of organizational objectives by
compensating for inadequacies in the formal organization. For example,
employee’s reactions towards plans and policies can be tested through
the informal network.
Disadvantages: The informal organization has certain disadvantages.
Some of them are as follows:
(a) When an informal organization spreads rumors, it becomes a
destructive force and goes against the interest of the formal
organization.
(b) The management may not be successful in implementing Chan gas if
the informal organization opposes them. Such resistance to change
may delay or restrict growth.
Formal and informal organization: A Comparative view
Basis Formal organization Informal organization
Network of social
Structure of authority
relationships arising out
Meaning relationships created by
of interaction among
the management
employees
Arises as a result of companyArises as a result of social
Origin
rules and policies interaction
Arises by virtue of position inArises out of personal
Authority
management qualities
There is no set behavior
Behavior is directed by rules
pattern
Flow of communication is
Communication takes place not through a planned
Flow of Communication
through the scalar chain Route. It can take place in
any direction
Nature Rigid Flexible
Leaders may or may not be
Leadership Managers are leaders. managers. They are
chosen by the group.
 Organising 15

(c) It pressurizes members to conform to group expectations. This can be

harmful to the organization if the norms set by the group are against
organizational interests.
Informal o r g a n i z a t i o n c a n n o t be a l t o g e t h e r e l i m i n a t e d .
Thus, it would be in the best interest of the organization if the existence
of such groups is recognized and the roles that their members play are
identified. The knowledge of such groups can be used to gather their
support and consequently lead to improved organizational performance.
Such groups can also provide useful communication channels. Instead of
confronting them, the management should skillfully take advantage of both
the formal and informal organization so that work continues smoothly.

Delegation
A manager, no matter how capable he is, cannot manage to do every task
on his own. The volume of work makes it impractical for him to handle it
all by himself. As a consequence, if he desires to meet the organizational
goals, focus on objectives and ensure that all work is accomplished, he
must delegate authority.
Delegation refers to the downward transfer of authority from a superior to
a subordinate. It is a prerequisite to the efficient functioning of an
organization because it enables a manager to use his time on high
priority activities. It also satisfies the subordinate’s need for recognition and
provides them with opportunities to develop and exercise initiative.
Delegation helps a manager to extend his area of operations as without it,
his activities would be restricted to only what he himself can do. However,
delegation does not mean abdication. The manager shall still be
accountable for the performance of the assigned tasks. Moreover, the
authority granted to a subordinate can be taken back and relegated to
another person. Thus, irrespective of the extent of delegated authority, the
manager shall still be accountable to the same extent as before delegation.

Elements of Delegation
According to Louis Allen, delegation is the entrustment of responsibility and
authority to another and the creation of accountability for performance.
A detailed analysis of Louis Allen’s definition brings to light the following
essential elements of delegation:
(i) Authority: Authority refers to the right of an individual to command
his subordinates and to take action within the scope of his position.
The concept of authority arises from the established scalar
16 Business Studies
chain which links the various job positions and levels of an
organization. Authority also refers to the right to take decisions
inherent in a managerial position to tell people what to do and
expect them to do it.
In the formal organization authority originates by virtue of an
individual’s position and the extent of authority is highest at the top
management levels and reduces successively as we go down the
corporate ladder. Thus, authority flows from top to bottom, i.e., the
superior has authority over the subordinate.
Authority relationships helps to maintain order in the organization by
giving the managers the right to exact obedience and give directions to
the workforce under them.
Authority determines the superior subordinate relationship wherein the
superior communicates his decision to the subordinate, expecting
compliance from him and the subordinate executes the decision as per
the guidelines of the superior. The extent to which a superior can exact
compliance also depends on the personality of the superior. It must be
noted that authority is restricted by laws and the rules and regulation of
the organization, which limit its scope. However, as we go higher up in the
management hierarchy, the scope of authority increases.
(ii) Responsibility: Responsibility is the obligation of a subordinate to
properly perform the assigned duty. It arises from a superior–
subordinate relationship because the subordinate is bound to perform the
duty assigned to him by his superior. Thus, responsibility flows upwards,
i.e., a subordinate will always be responsible to his superior.

An important consideration to be kept in view with respect to both

authority and responsibility is that when an employee is given responsibility
for a job he must also be given the degree of authority necessary to carry it
out. Thus, for effective delegation the authority granted must be
commensurate with the assigned responsibility. If authority granted is
more than responsibility, it may lead to misuse of authority, and if
responsibility assigned is more than authority it may make a person
ineffective.
(iii) Accountability: Delegation of authority, undoubtedly empowers an
employee to act for his superior but the superior would still be accountable
for the outcome:
Accountability implies being answerable for the final outcome. Once
authority has been delegated and r e s p o n s i b i l i t y a c c e p t e d , o n e
cannot deny accountability. It cannot be delegated and flows upwards, i.e., a
 Organising 17
subordinate will be accountable to a superior for satisfactory performance of
work. It indicates that the manager has to ensure the proper discharge of
duties by his subordinates. It is generally enforced through regular feedback
on the extent of work accomplished. The subordinate will be expected to
explain the consequences of his actions or omissions.
In conclusion, it can be stated that
While authority is delegated, response ability is assumed, accountability is
imposed. Responsibility is derived from authority and accountability is
derived from responsibility.
Importance OF Delegation
Delegation ensures that the suborder antes perform tasks on behalf of
the manager thereby reducing his workload and providing him with more
time to concentrate on important

Overview of the elements of delegation

Basis Authority Responsibility Accountability
Meaning Right to command. Obligation to Answerability
perform an for outcome of
assigned task. the assigned
task.
Delegation Can be delegated. Cannot be entirely Cannot be delegated
delegated. at all.
Origin Arises from formal Arises from Arises from
position. delegated responsibility.
authority.
Flow Flows Flows upward from Flows upward from
downward from subordinate to subordinate to
superior to superior. superior
subordinate.
 18 Business Studies
Matters. Effective delegation leads to the following benefits:
(i) Effective management: By empowering the employees, the
managers are able to function more efficiently as they get more time
to concentrate on important matters. Freedom from doing routine
work provides them with opportunities to excel in new areas.
(ii) Employee development: As a result of delegation, employees get
more opportunities to utilize their talent and this may give rise to
latent abilities in them. It allows them to develop those skills which
will enable them to perform complex tasks and assume those
responsibilities which will improve their career prospects. It makes
them better leaders and decision makers. Thus, delegation helps
by preparing better future managers. Delegation empowers the
employees by providing them with the chance to use their skills,
gain experience and develop themselves for higher positions.
(iii) Motivation of employees: Delegation helps in developing the
talents of the employees. It also has psychological benefits. When a
superior entrusts a subordinate with a task, it is not merely the
sharing of work but involves trust on the superior’s part and
commitment on the part of the subordinate. Responsibility for work
builds the self-esteem of an employee and improves his confidence. He
feels encouraged and tries to improve his performance further.
(iv)Facilitation of growth: Delegation helps in the expansion of an
organization by providing a ready workforce to take up leading positions
in new ventures. Trained and experienced employees are able to play
significant roles in the launch of new projects by replicating the work
ethos they have absorbed from existing units, in the newly set up
branches.
(v) Basis of management hire arch: Delegation of authority establishes
superior subordinate relationships, which are the basis of hierarchy of
management. It is the degree and flow of authority which determines
who has to report to whom. The extent of delegated authority also
decides the power that each job position enjoys in the organization.
(vi) Better coordination: The elements of delegation, namely
authority, responsibility and accountability help to define the powers,
duties and answerability related to the various positions in an
organization. This helps to avoid overlapping of duties and duplication of
effort as it gives a clear picture of the work being done at various levels.
Such clarity in reporting relationships help in developing and maintaining
effective coordination amongst the departments, levels and functions
of management.
 Organising 19
Thus, delegation is a key element in effective organising.

Decentralization
In many organizations the top management plays an active role in taking all
decisions while there are others in which this power is given to even the lower
levels of management. Those organizations in which decision making
authority lies with the top management are termed as centralized
organizations whereas those in which such authority is shared with lower
levels are decentralized organizations.
Decentralization explains the manner in which decision making
responsibilities are divided among hierarchical levels. Put simply,
decentralization refers to delegation of authority throughout all the levels of
the organization. Decision making authority is shared with lower levels and is
consequently placed nearest to the points of action. In other words decision
making authority is pushed down the chain of command.
When decisions taken by the lower levels are numerous as well as
important an organization can be regarded as greatly decentralized.
Centralization and Decentralization
Centralization and decentralization are relative terms, as seen from the
existing status of various business enterprises.
An organization is centralized when decision-making authority is
retained by higher management levels whereas it is decentralized when
such authority is delegated.
Complete centralization would imply concentration of all decision
making functions at the apex of the management hierarchy. Such a
scenario would obviate the need for a management hierarchy. On the
other hand, c o m p l e t e d e c e n t r a l i z a t i o n would
imply the delegation of all decision making functions to the lower level of
the hierarchy and this would obviate the need for higher managerial
positions. Both the scenarios are unrealistic.
An organization can never be completely centralized or decent raised.
As it grows in size and comp laxity, there is a tendency to move towards
decentralized decision making. This is because in large organizations
those employees who are directly and closely involved with certain
operations tend to have more knowledge about them than the top
management which may only be indirectly associated with individual
operations.
20 Business Studies
Hence, there is a need for a balance between these coexisting forces.
Thus, it can be said that every organization will be characterized by both
centralization and decentralization.

Importance
Decentralization is much more than a mere transfer of authority to the
lower levels of management hierarchy. It is a philosophy that implies
selective dispersal of authority because it propagates the belief that
people are competent, capable and resourceful. They can assume the
responsibility for the effective implementation of their decisions. Thus this
philosophy recognizes the decision maker’s need for a u t o n o m y . The
m a n a g e m e n t , however, needs to carefully select those decisions which
will be pushed down to lower levels and those that will be retained for higher
levels. Table 4 provides a comparative look between delegation and
decentralization.
Decentralization is a fundamental step and its importance can be
understood from the following points:
(i) Develops initiative among subordinates: Decentralization helps to
promote self-reliance and confidence amongst the subordinates. This is
because when lower managerial levels are given freedom to take their
own decisions they learn to depend on their own judgment. It also keeps
them in a state wherein they are constantly challenged and have to
develop solutions for the various problems they encounter. A
decentralization policy helps to identify those executives who have the
necessary potential to become dynamic leaders.
(ii) Develops m a n a g e r i a l t a l e n t
for the future: Formal training plays an important part in equipping
subordinates with skills that help them rise in the organization but
equally important is the experience gained by handling assignments
independently. Decentralization gives them a chance to prove their
abilities and creates a reservoir of qualified manpower who can be
considered to fill up more challenging positions through promotions. It
also helps to identify those who may not be successful in assuming
greater responsibility. Thus, it is a means of management education as
well as an opportunity for trained manpower to use its talent in real life
situations.
(iii) Quick decision making: The management hierarchy can be looked
upon as a chain of communication. In centralized organization because
every decision is taken by the top management the flow of
information is slow as it has to traverse many levels. Response also takes
 Organising 21
time. This reduces the speed of decision making and makes it difficult for
an enterprise to adapt to dynamic operating conditions. In a decentralized
organization, however, since decisions are taken at levels which are
nearest to the points of action and there is no requirement for approval
from many levels, the process is much faster. There are also less chances
of information getting distorted because it doesn’t have to go through
long channels.
(iv) Relief t o t o p m a n a g e m e n t :
Decentralization diminishes the amount o f d i r e c t s u p e r v i s i o n
exercised by a superior over the activities of a subordinate because they
are given the freedom to act and decide albeit within the limits set by the
superior. Also, personal supervision is generally replaced by other forms
of control such as return on investment etc. Decentralization also leaves
the top management with more time which they can devote to important
policy decisions rather than occupying their time with both policy as well
as operational decisions. In fact decentralization is greatest when checking
required on decisions taken by lower levels of management is least.
(v) Facilitates growth: Decentral station awards greater autonomy to
the lower levels of management as well as divisional or departmental
heads. This allows them to function in a manner best suited to their
department and fosters a sense of competition amongst the
departments. Consequently, with each department doing its best in a
bid to outdo the other, the productivity levels increase and the
organization is able to generate more returns which can be used for
expansion purposes.
(vi) Better control: Decentralization makes it possible to evaluate
performance at each level and the departments can be individually
Held accountable for their results. The extent of achievement of
organizational objectives as well as the contribution of each
department in meeting the overall objectives can be ascertained.
Feedback from all levels helps to analyses variances and improve
operations. In decentralization, one of the challenges is the
accountability of performance. In response to this challenge, better
control systems are being evolved such as the balance score card and
management information system. Decentralization compels the
management to innovative performance measurement systems.
As a conclusion, it must be noted that in spite of its benefits
decentralization should be applied with caution as it can lead to
organizational disintegration if the departments start to operate on their
own guidelines which may be contrary to the interest of the organization.
22 Business Studies
Decentralization must always be balanced with centralization in areas of
major policy decisions.

Basis Delegation Decentralization

Nature Delegation is a compulsory Decentralization is an
act because no individual optional policy decision. It
can perform all tasks on his is done at the discretion of
own. the top management.
Freedom of action More control by superiors Less control over executive’s
hence less freedom to take hence greater freedom of
own decisions. action.
Status It is a process followed to It is the result of the
share tasks. policy decision of the top
management.
Scope It has narrow scope as it is It has wide scope as it implies
limited to superior and his extension of delegation to the
immediate subordinate. lowest level of management.
Purpose To lessen the burden of To i n c r e a s e t h e r o l e
the manager. o f the subordinates in the
organization by giving them
more autonomy.
 Organising 23
Interests, increase in requirements of general managers.
Formal organization is designed by the management to achieve organizational
goals. Its advantages are fixation of responsibility, clarity of roles, and unity of
command and effective accomplishment of goals. Its disadvantages are procedural
delays, inadequate recognition of creativity, limited in scope.
Informal organization arises out of interaction amongst people at work. Its
advantages are speed, fulfillment of social needs, fills inadequacies of formal
structure. Its disadvantages are: disruptive force, resistance to change and priority
to group interests.
Delegation is the transfer of authority from superior to subordinate. It has three
elements: Authority, Responsibility and Accountability.

Importance of delegation is that it helps in effective

management, employee development, motivation, growth and
coordination.
Decentralization is delegation of authority throughout the
organization.
Importance of decentralization is that it helps in development of
managerial talent, quick decision making reducing burden on
top management, development of initiative, growth and better
contra