Chapter 5 Organising

Identifying and grouping different activities in the organisation and bringing together the physical, financial and human resources to establish the most productive relations for the achievement of specific goals is known as organising. We also get to know about the other topics in this chapter that are the concept of organising, Steps in the process of organising, Importance of organising, Organisation structure, Types of organisation structures, Formal and Informal organisation, Delegation, Importance of delegation, Decentralisation, Importance of decentralisation.

Download pdf of NCERT Solutions for Class Business Studies Chapter 5 Organising

Exercise 1 ( Page No. : 138 )

Exercise 2 ( Page No. : 138 )

  • Q1 What are the steps in the process of organising?

    The following steps are involved in the organising process:

    1. 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. Work is divided into managerial tasks, so that duplication can be avoided and workload can be shared among employees.

    2. Departmentalisation: In this step the activities which are similar in nature, are grouped together. And this process is known as departmentalisation. The departments are created on the basis of products, functions and territory. This provides specialisation in operations.

    3. Assignment of duties: Once the departments are created, each department is placed under the charge of an individual, called departmental head. Then, each job is allocated to an individual, according to his knowledge and skill.

    4. Establishing Reporting relationships: In the organisation, each employee has some authority as well as responsibility. It is necessary that every individual must know whom they have to take orders from and to whom they are answerable. This creates superior subordinate hierarchy and helps in coordinating various activities in the organisation.

    Q2 Discuss the elements of delegation.

    Following are the essential elements of Delegation:

    1. Authority: Authority refers to the right of an individual to take decisions and to command his subordinates. The concept of authority arises from the position in the scalar chain, which is highest at the top and declines as we move down the hierarchy. Thus, it flows from top to bottom. It helps to maintain order in the organisation and determine superior subordinate relationships.

    2. Responsibility: It is the obligation of a subordinate to perform properly the assigned duty. It arises from a superior subordinate relationship because the subordinates are bound to perform the duty assigned by their superior. Thus, it flows upward because a subordinate is always responsible to his superior. Granting authority is necessary to create responsibility and facilitate its fulfillment.

    3. Accountability: It refers to being answerable for the final outcome. Once authority has been delegated and responsibility accepted, one cannot deny accountability. It is the obligation to carry out responsibility and exercise authority. A subordinate is always accountable to his superior, generally enforced through regular feedback.

    Q3 How does informal organisation support the formal organisation?

    Informal organisation supports formal organisations in many ways, some of them are as follows:

    1. Quick feedback: Prescribed lines of communication are not followed. Thus, the informal organisation leads to faster spread of information as well as quick feedback.

    2. Social needs: It helps to fulfill social needs of the members. This enhances their job satisfaction, since it gives them a sense of belongingness in the organisation.

    3. Flexibility: In formal organisation, rules and policies are fixed, thus it is rigid in nature. On the other hand, in informal organisations, no such rules are there, thus it leads to flexibility.

    Q4 Can a large sized organisation be totally centralised of decentralised? Give your opinion.

    No, a large sized organisation cannot be totally centralised or decentralized because every organisation must have a blend of centralisation and decentralisation. While complete centralisation means concentration of authority in a few hands and complete decentralisation means greater autonomy to the lower levels of management. Therefore, an organisation cannot be completely centralised or decentralised. As an organisation grows, there is a tendency to move towards decentralisation. At the same time, decisions need to be centralised in priority and key result areas.

    Q5 Decentralisation is extending delegation to the lowest level. Comment.

    Decentralisation is extending delegation to the lowest level. Decentralisation explains the manner, in which decision-making responsibilities are divided among hierarchical levels. Decentralisation refers to delegation of authority throughout all the levels of the organisation.

    Decision-making authority is shared with lowest levels and is consequently placed nearest to the point of action.

    In other words, decision-making authority is pushed down the chain of command. Delegation is the process and decentralisation is the end result. For example, if the director gives the responsibility to the production head to complete the target of 32000 units and authorises him to hire the workers, the production head further shares his responsibility with the manager to select the workers. And the manager shares his responsibility with supervisors, who are dealing with workers, authorises them to select workers. Here, the responsibility is distributed at every level. That’s why we say systematic delegation leads to decentralisation.

    Q6 Neha runs a factory wherein she manufactures shoes. The business has been doing well and she intends to expand by diversifying into leather bags as well as western formal wear thereby making her company a complete provider of corporate wear. This will enable her to market her business unit as the one stop for working women. Which type of structure would you recommend for her expanded organisation and why?

    Divisional structure is recommended for Neha’s expanded organisation. Because it provides equal importance to all its products and other benefits are:

    1. It facilitates expansion and growth as new divisions can be added without interrupting the existing operation.
    2. It enables her to determine the profit margin of each product line and help her to plan accordingly.

    Q7 The production manager asked the foreman to achieve a target production of 200 units per day, but he doesn’t give him the authority to requisition tools and materials from the stores department. Can the production manager blame the foreman if he is not able to achieve the desired target? Give reasons.

    No, the production manager cannot blame the foreman, if he is not able to achieve the desired target, as the authority delegated to a subordinate should be equal to his responsibility. Authority and responsibility of a subordinate should go hand in hand.

    This principle suggests that if a subordinate is given the responsibility to perform a particular task in a proper manner, he should be given adequate authority to perform the task. Similarly, if a subordinate is given authority to do a particular task, he should be equally held responsible for doing the task in the proper manner.

    In the above case, the production manager has not given authority to the foreman for the requisition of tools and materials from the stores department. Therefore foreman cannot be held responsible for not achieving the desired result. But, the directors can blame the production manager for not achieving the target.

Exercise 3 ( Page No. : 139 )

  • Q1 Why delegation is considered essential for effective organising?

    Delegation refers to the transfer of authority from superior to subordinate for the completion of the tasks. It is a pre-requisite to the efficient functioning of an organisation because it enables a manager to use his time on high priority activities. It is essential for effective organising because of its benefits:

    1. Effective Management: By empowering the employees, the managers are able to function more efficiently as they get more time to concentrate on important matters.

    2. Employee Development: Delegation provides more opportunities to the employees to utilize their talent and develop their abilities. It helps to make them better leaders and decision makers, thus, creating future managers.

    3. Motivation of employees: Delegation provides a feeling of status and recognition to subordinates, as it is not only a process of sharing workload, but also involves trust of the superior on his subordinate. Entrustment of responsibility builds up the self-esteem of the employees and encourages them to perform better.

    4. Facilitation of growth: Delegation helps in the expansion of an organisation by providing a ready workforce to take up leading positions in new ventures. Trained and experienced employees are able to play a significant role in launching new projects of the organisation.

    5. Basis of management hierarchy: Delegation of authority establishes superior subordinate relationships, which are the basis of hierarchy of management. This helps employees to know ‘who has to report to whom’. Thus, duties and powers of each individual become clear.

    6. Better coordination: The elements of delegation namely authority, responsibility and accountability helps to define the powers, duties and responsibilities related to various positions in an organisation. This helps to avoid overlapping and duplication of work and facilities coordination, as it gives a clear picture of the work being done at various levels.

    Q2 What is a divisional structure? Discuss its advantages and limitations.

    An organisation structure in which various departments are created on the basis of products, territory or region, is called divisional structure.

    Each unit has a divisional manager, who is responsible for performance and has authority over their division. Each division is further divided into functional units like production, sales, finance, etc.

    Advantages of divisional structure

    Divisional structure has the following advantages:

    1. All the activities related to one type of product are grouped under one division, which brings integration and coordination in the activities.
    2. With more initiative and flexibility, decisions are taken much faster in divisional structure.
    3. Fixation of responsibility and accountability is easy, as divisional heads are responsible for the profits and losses of their division.
    4. It facilitates expansion and growth as new divisions can be added without interrupting the existing operations.
    5. It helps the managers to develop varied skills related to a product and facilitates managerial development.

    Limitations of divisional structure

    Divisional structure has the following limitations:

    1. There is a duplication of physical facilities and functions, which leads to increase in cost.
    2. Greater autonomy to divisional heads may lead to misuse of authority.
    3. Managers in each divisional focus on their own objectives, without thinking of the organisational goals.
    4. Conflict may arise between different divisions on allocation of funds and other resources.

    Q3 Decentralisation is an optional policy. Explain why an organisation would choose to be decentralised.

    Yes, decentralisation is an optional policy, yet it is important in the organisation. It refers to systematic delegation of authority at all levels of management and in all departments of organisation to take decisions.

    An organisation should choose to be decentralised because of its following importance:

    1. Develops initiative among subordinates: It helps to promote self-reliance and confidence amongst the subordinates. This is because, lower managerial levels have been given freedom to make their own decisions and they learn to depend on their own judgement. It also helps to identify those executives, who have the potential to become dynamic leaders.

    2. Develops managerial talent for the future: Formal training along with experience of handling independent assignments helps to create a reservoir of qualified and capable managers, who can take up more challenging positions in the upcoming ventures of the organisation.

    3. Quick Decision-making: Under decentralisation, authority to make decisions is placed in the hands of those, who are responsible for executing the decisions. Since decisions are taken at levels nearest to the point of execution, there is no delay or distortion of information.

    4. Relief to top management: It helps to reduce the amount of direct supervision over subordinates by giving them freedom to take decisions and act on their own. This reduces the workload of top executives and they can devote their time and attention to important policy matters.

    5. Facilitates Growth: It provides greater autonomy to lower level managers and departmental heads. This encourages them to function more efficiently to prove their supremacy, and facilitate expansion and growth of the organisation.

    6. Better Control: It makes it possible to evaluate performance at each level and make the departments accountable for their own results. Feedback is quick and leads to better control.

    Q4 Distinguish between centralisation and decentralisation.

    Difference between centralisation and decentralisation:

    Basis of Difference Centralisation Decentralisation
     Meaning  The retention of power and authority with the top level of management is known as centralisation. Dispersal of powers and authority to various levels of management is known as decentralisation.
     Communication Flow The flow of communication in centralisation is vertical. The flow of communication in decentralisation is open and free.
     Decision Making The decision making process is slow in centralisation. The decision making process in decentralisation is comparatively faster.
     Power of
     decision making
    Power of decision making lies in the hands of only the top level of management. Power of decision making lies in the hands of various level of management.
     Work load There is a higher workload on the top level managers. There is less workload. They share authority and responsibility.
     Suitable for It is suitable for small sized organisations. It is suitable for large sized organisations.
     Creativity It restricts the creativity of middle and lower level managers. It promotes creativity and innovation at all levels of management.


    Q5 How is a functional structure different from a divisional structure?

    Difference between a functional structure and a divisional structure:

    Basis of difference Functional Structure Divisional Structure
     Meaning An organisation structure in which departments are created on the basis of different functions performed in the organisation is called functional structure. An organisation structure in which various departments are created on the basis of products, territory or region is called a divisional structure.
     Formation It is formed on the basis of functions performed in the organisation. It is formed on the basis of product line territory or region.
     Specialisation It leads to functional specialisation. It leads to product specialisation.
     Managerial Development It does not help in managerial development as functional managers lack autonomy.

    It helps in managerial development, as they have autonomy and knowledge of varied aspects of a product.

     Cost It is economical as there is no duplication. It is costlier, as there is duplication of resources.
     Responsibility It is difficult to fix responsibility in one department. It is easier to fix responsibility in each division.
     Suitability It is suitable for organisations which deal with a single product category. It is suitable for diversified or multi product firms.


    Q6 A company, which manufactures a popular brand of toys, has been enjoying good market reputation. It has a functional organisational structure with separate departments for Production, Marketing, Finance, Human Resources and Research and Development. Lately to use its brand name and also to cash on to new business opportunities it is thinking to diversify into manufacture of new range of electronic toys for which a new market is emerging. Which organisation structure should be adopted in this situation? Give concrete reasons with regard to benefits the company will derive from the steps it should take.

    In the above situation, organisation should shift from functional structure to divisional structure as the company wants to diversify, by adding a new product line.

    The reasons and benefits are:

    1. The performance of each unit can be easily assessed.
    2. New product lines can be easily added without disturbing the existing units.
    3. Decision making is faster.
    4. Divisional structure maintains a short line of communication with customers and provides better services to them.

    Q7 A company manufacturing sewing machines set up in 1945 by the British promoters follows formal organisation culture in totality. It is facing lot of problems in delays in decision making. As the result it is not able to adapt to changing business environment. The work force is also not motivated since they cannot vent their grievances except through formal channels, which involve red tape. Employee turnover is high. Its market share is also declining due to changed circumstances and business environment. You are to advise the company with regard to change it should bring about in its organisation structure to overcome the problems faced by it. Give reasons in terms of benefits it will derive from the changes suggested by you.

    The suggestions are:

    1. To overcome the limitations of formal organisation, the management should encourage workers to interact and socialize with each other through get- togethers and outings. In this way, everyone will interact and like minded people will come closer. The net result will be a more satisfied workforce.

    2. The management should also introduce employee suggestion systems so that good suggestions can be implemented and rewarded. The communication channels should be open so that a sense of belongingness is created in the company.

    3. The management should try to decentralise organisation structure.

    4. The suggested area where the business can be diversified is textile machineries like embroidery units, sequencing units, buttoning units.

    Benefits the company will derive from these changes:

    1. Introduction of informal interaction between employees will help in fulfilling social needs of the employees. It will enhance their job satisfaction and give them a sense of belongingness in the organisation.
    2. Quick decision making will also take place since prescribed lines of communication will not be followed and faster spread of information will give quick feedback.
    3. Introduction of employee suggestion systems will result in increased motivation for those employees who make good suggestions. This also helps in reduction of labour turnover. Introduction of decentralisation will also help in this.
    4. All the above will help in fulfilling organisational objectives and eliminate the inadequacies of formal structure.

    Q8 A company X limited manufacturing cosmetics, which has enjoyed a pre-eminent position in business, has grown in size. Its business was very good till 1991. But after that, new liberalised environment has seen entry of many MNC’s in the sector. With the result the market share of X limited has declined. The company had followed a very centralised business model with Directors and divisional heads making even minor decisions. Before 1991 this business model had served the company very well as consumers had no choice. But now the company is under pressure to reform. What organisation structure changes should the company bring about in order to retain its market share? How will the changes suggested by you help the firm? Keep in mind that the sector in which the company is FMCG.

    The organisation structure changes should the company brings to retain its market share are:

    1. The company should increase delegation and decentralisation of authority to allow decision-making at all levels.
    2. Since, the company is dealing in FMCG (Fast Moving Consumer Goods Sector), the lower level staff should be given more power to clinch deals like giving them authority to give customers more discounts on bulk orders, etc. This is done because the FMCG sector characterises dynamic customer preferences and frequent change in taste which can be judged easily by people at action points.
    3. Development of a good communication system from lower levels to top level, to help top management take strategic decisions on changing situations.
    4. Suggestion systems should be initiated and good suggestions should be rewarded.
    5. Maximum participation in decision-making should be ensured to motivate staff and achieve good results for the company.

    Benefits that the company would derive from these changes are:

    1. Developing initiative among subordinates.
    2. Development of managerial talent for future.
    3. Quick decision-making.
    4. Relief to the top management.
    5. Better control, since each department or individual can be held accountable for his/her results, it would facilitate better control.

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