NCERT Class 12 Business Studies Chapter 5 PDF

Way To Go, Wipro! ORGANISING 5 CHAPTER...

Way To Go, Wipro! ORGANISING 5 CHAPTER L E A R N I N G It’s not quite there yet, but the goal is certainly within reach. One of India’s largest IT solutions providers, OBJECTIVES Wipro Technologies, is taking on the likes of IBM and Accenture in its effort to be included among the largest After studying this chapter you should be able to: and most successful technology services companies in the world. n Explain the concept of Restructuring Wipro was considered the organising; most important step in becoming a global giant, n Explain the process of driven by the goal towards improved customer- organising; orientation. n Describe the importance of During the past few months, Wipro separated organising; itself into several subsidiaries by product line: n Explain the meaning, advantages telecommunications, engineering, financial and disadvantages of functional services, etc. Each subsidiary brings in about $300 organisation; million in annual earnings and is self-sufficient n Explain the meaning, advantages with their own accounting books, personnel and and disadvantages of divisional administrative functions. organisation; Wipro shifted from a centralised to n Explain the meaning, advantages decentralised management system. All and disadvantages of formal and responsibilities for growth lay with the informal organisation; management of each entity. n Distinguish between formal and “We tried to de-layer the organisation and informal organisation; empower our business leaders with a much higher n Explain the concept of degree of growth responsibility,” said Premji. “We delegation and decentralisation; removed an entire layer [of executives]”. n Describe the importance of delegation and decentralisation; Adapted from an article by Heide B. Malhotra and for Epoch Times Washington D.C. n Distinguish between delegation and decentralisation. Once the plans have been laid down critical issue in accomplishing the and objectives specified therein, the goals specified in the planning next step is to organise resources process is structuring the work of an in a manner which leads to the organisation to adapt to the dynamic accomplishment of objectives. A business environment. The activities 2020-21 Ch_05.indd 111 04-10-2019 12:17:33 PM  112 Business Studies of an enterprise must be organised The organising function leads to the in such a manner that plans can be creation of an organisational structure successfully implemented. which includes the designing of roles For planning to be fruitful a number to be filled by suitably skilled people of considerations like resources that and defining the inter relationship will be needed, optimum utilisation between these roles so that ambi­ of the same translation of work into guity in performance of duties attainable tasks, empowering the can be eliminated. Not only is this workforce to accomplish these tasks important for productive cooperation etc., need to be understood and dealt between the personnel but also for with properly. clarification of extent of authority, It is evident from the way Wipro as well as responsibility for results has moved towards reaching for and logical grouping of activities. it’s goal of becoming a globally successful technology company, Meaning that organising plays a significant Let us take an example to understand role in implementation of plans. how organising takes place. Have What has Wipro done to become a you ever paid attention to how, the contending force among other global school fete which you enjoy so much, giants? Are there lessons to be learnt actually takes place? What goes on from Wipro’s approach? behind the scene to make it the Wipro organised itself in a manner desired reality you want? The whole that allowed customer orientation to activity is divided into task groups dominate over other goals and diversified each dealing with a specific area like on the basis of product lines. It also the food committee, the decoration modified the relationships within the committee, the ticketing committee management hierarchy to suit the goals. and so on. These are under the The management function of overall supervision of the official in organising ensures that efforts are charge of the event. Coordinating directed towards the attainment of goals laid down in the planning relationships are established among function in such a manner that the various groups to enable smooth resources are used optimally and interaction and clarity about each people are able to work collectively group’s contribution towards the and effectively for a common purpose. event. All the above activities are a Thus, it is in the context of effective part of the organising function. management that the organisation Organising essentially implies a function earns due importance. It is process which coordinates human a means for translating plans into efforts, assembles resources and action. integrates both into a unified whole 2020-21 Ch_05.indd 112 04-10-2019 12:17:33 PM  Organising 113 to be utilised for achieving specified student supervises the work by objectives. grouping students, dividing the work, Organising can be defined as a assigning each group their quota and process that initiates implementation developing reporting relationships of plans by clarifying jobs and among them, the job will be done working relationships and effectively faster and in a better manner. deploying resources for attainment From the above description, the of identified and desired results following steps emerge in the process (goals). of organising: (i) Identification and division Steps in the Process of of work: The first step in the process of organising involves Organising identifying and dividing the Organising involves a series of steps work that has to be done in that need to be taken in order to accordance with previously achieve the desired goal. Let us try determined plans. The work and understand how organising is divided into manageable is carried out with the help of an activities so that duplication example. can be avoided and the burden Suppose twelve students work for of work can be shared among the school library in the summer the employees. vacations. One afternoon they are (ii) Departmentalisation: Once told to unload a shipment of new work has been divided into small releases, stock the bookshelves, and and manageable activities then then dispose of all waste (packaging, those activities which are similar paper etc). If all the students decide in nature are grouped together. to do it in their own way, it will result Such sets facilitate specialisation. in mass confusion. However, if one This grouping process is Definition 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. Louis Allen Organising is the process of defining and grouping the activities of the enterprise and establishing authority relationships among them. Theo Haimman 2020-21 Ch_05.indd 113 04-10-2019 12:17:33 PM  114 Business Studies Think About It Your school must have various societies for extra-curricular activities like the dramatics society, the quiz club, the economics society, the debating society and so on. Observe and list the way they have organised their activities using division of labour, chain of communication and the levels they have adopted for reporting on work. How far is this similar to the process you have read about? called departmentalisation. The establishment of such clear Departments can be created relationships helps to create a using several criteria as a basis. hierarchal structure and helps Examples of some of the most in coordination amongst various popularly used basis are territory departments. (north, south, west, etc.) and products (appliances, clothes, Importance of Organising cosmetics etc). Performance of the organising (iii) Assignment of duties: It is function can pave the way for a necessary to define the work smooth transition of the enterprise of different job positions and accordingly allocate work in accordance with the dynamic to various employees. Once business environment. The departments have been formed, significance of the organising each of them is placed under function mainly arises from the fact the charge of an individual. that it helps in the survival and Jobs are then allocated to the growth of an enterprise and equips members of each department in it to meet various challenges. In accordance to their skills and order for any business enterprise to competencies. It is essential perform tasks and successfully meet for effective performance that a goals, the organising function must proper match is made between be properly performed. The following the nature of a job and the points highlight the crucial role that ability of an individual. The work organising plays in any business must be assigned to those who enterprise: are best fitted to perform it well. (i) Benefits of specialisation: (iv) Establishing authority and Organising leads to a systematic reporting relationships: Merely allocation of jobs amongst the allocating work is not enough. work force. This reduces the Each individual should also know workload as well as enhances who he has to take orders from productivity because of the and to whom he is accountable. specific workers performing a 2020-21 Ch_05.indd 114 25-11-2019 12:38:34 PM  Organising 115 specific job on a regular basis. way for a smooth transition. Repetitive performance of a It also provides much needed particular task allows a worker stability to the enterprise as it to gain experience in that area can then continue to survive and leads to specialisation. and grow inspite of changes. (ii) Clarity in working relation­ (v) E f f e c t i v e a d m i n i s t r a t i o n : ships: The establishment of Organising provides a clear working relationships clarifies description of jobs and related lines of communication and duties. This helps to avoid confusion specifies who is to report to and duplication. Clarity in working whom. This removes ambiguity relationships enables proper in transfer of information execution of work. Management and instructions. It helps in of an enterprise thereby becomes creating a hierarchical order easy and this brings effectiveness thereby enabling the fixation of in administration. responsibility and specification (vi) Development of personnel: of the extent of authority to be Organising stimulates creativity exercised by an individual. amongst the managers. Effective (iii) Optimum utilisation of delegation allows the managers resources: Organising leads to to reduce their workload by the proper usage of all material, assigning routine jobs to their fin­ancial and human resources. subordinates. The reduction in The proper assignment of jobs workload by delegation is not avoids overlapping of work and just necessary because of limited also makes possible the best capacity of an individual but also use of resources. Avoidance allows the manager to develop new of duplication of work helps methods and ways of performing in preventing confusion and tasks. It gives them the time to minimising the wastage of explore areas for growth and the resources and efforts. opportunity to innovate thereby (iv) Adaptation to change: The strengthening the company’s process of organising allows competitive position. Delegation a business enterprise to also develops in the subordinate accommodate changes in the the ability to deal effectively with business environment. It allows challenges and helps them to the organisation structure to be realise their full potential. suitably modified and the revision (vii) Expansion and growth: Organ­ of inter-relationships amongst ising helps in the growth and managerial levels to pave the diversification of an enterprise 2020-21 Ch_05.indd 115 04-10-2019 12:17:33 PM  116 Business Studies Think About It Organising leads to specialisation in work. A pitfall of this is that repetitive performance of the same job may lead to monotony, stress, boredom and absenteeism. What can managers do to improve the scenario? by enabling it to deviate from an enterprise as those companies existing norms and taking up which do not change at all will close new challenges. down or cease to grow. It allows a business enterprise to As an organisation grows, coordi­ add more job positions, departments nation becomes difficult due to the and even diversify their product emergence of new functions and lines. New geographical territories increase in structural hierarchies. can be added to current areas Thus, for an organisation to function of operation and this will help to smoothly and face environmental increase customer base, sales and changes, it becomes necessary to profit. pay attention to its structure. Thus, organising is a process by Peter Drucker emphasises on the which the manager brings order out importance of having an appropriate of chaos, removes conflict among organisation structure when he people over work or responsibility sharing and creates an environment says, “organisation structure is an suitable for teamwork. indispensable means; and the wrong structure will seriously impair busi­ Organisation Structure ness performance and even destroy it.” Organisation structure is the The organisation structure can outcome of the organising process. be defined as the framework within An effective structure will result which managerial and operating in increased profitability of the tasks are performed. It specifies the enterprise. The need for an adequate relationships between people, work organisation structure is felt by and resources. It allows correlation an enterprise whenever it grows in and coordination among human, size or complexity. It is only those physical and financial resources and enterprises which do not focus this enables a business enterprise on growth that can maintain a to accomplish desired goals. The particular structure for a long period organisation structure of a firm is of time. However, it is important to shown in an organisation chart. understand that such stagnancy The span of management, to may prove to be detrimental to a large extent gives shape to the 2020-21 Ch_05.indd 116 04-10-2019 12:17:33 PM  Organising 117 organisational structure. Span of sales and administration. Operations management refers to the number of include travel counsellor, reservation subordinates that can be effectively and ticketing and customer care. managed by a superior. This Sales include the Accounts executive. determines the levels of management Administration includes Book Keeper, in the structure. Cashier and utility personnel. A proper organisation structure is This division of work on the basis essential to ensure a smooth flow of of functions has resulted into an communication and better control organisational structure specifying the over the operations of a business line of authority and responsibility. enterprise. An organisation structure provides Types of Organisation the framework which enables the Structures enterprise to function as an integrated unit by regulating and coordinating The type of structure adopted by an the responsibilities of individuals organisation will vary with the nature and departments. Let us try and and types of activities performed by understand this through an example. an organsation. The organisational For example:  Sunita opened her own structure can be classified under two travel agency. The success of her travel categories which are as follows: agency depends on a harmonious (i) Functional structure and relationship between the customer (ii) Divisional structure and the employees of the travel agency. In order to achieve this objective she Functional structure has divided the entire work of the Grouping of jobs of similar nature agency into three subheads based under functional and organising on the functions namely operations, these major functions as separate Functional Structure Managing Director Research and Human Resources Marketing Development Purchasing 2020-21 Ch_05.indd 117 04-10-2019 12:17:33 PM  118 Business Studies departments creates a functional Disadvantages: The functional structure. All departments report to structure has certain disadvantages a coordinating head. For example, in which an organisation must take a manufacturing concern division of into consideration before it adopts it. work into key functions will include Some of them are as follows: production, purchase, marketing, (a) A functional structure places less accounts and personnel. These emphasis on overall enterprise departments may be further divided objectives than the objectives into sections. Thus, a functional pursued by a functional head. structure is an organisational design Such practices may lead to that groups similar or related jobs functional empires wherein together. the importance of a particular Advantages: The functional structure function may be overemphasised. has many advantages to offer. Pursuing departmental interests Important among them are as follows: at the cost of organisational (a) A functional structure leads to interests can also hinder the interaction between two or more occupational specialisation since departments. emphasis is placed on specific (b) It may lead to problems in functions. This promotes efficiency coordination as information has to in utilisation of manpower as be exchanged across functionally employees perform similar tasks differentiated departments. within a department and are able (c) A conflict of interests may to improve performance. arise when the interests of two (b) It promotes control and or more departments are not coordination within a department compatible. For example, the because of similarity in the tasks sales department insisting on being performed. a customer friendly design may (c) It helps in increasing managerial cause difficulties in production. and operational efficiency and Such dissension can prove to be this results in increased profit. harmful in terms of fulfillment (d) It leads to minimal duplication of of organisational interest. Inter- effort which results in economies departmental conflicts can also of scale and this lowers cost. arise in the absence of clear (e) It makes training of employees separation of responsibility. easier as the focus is only on a (d) It may lead to inflexibility as limited range of skills. people with same skills and (f) It ensures that different functions knowledge base may develop a get due attention. narrow perspective and thus, 2020-21 Ch_05.indd 118 04-10-2019 12:17:33 PM  Organising 119 Think About It Read newspapers regularly and try to identify the structures various business organisations being mentioned in the news have adopted. Have their structures led to improved and desired results in any way? have difficulty in appreciating by Each unit has a divisional manager other point of view. Functional responsible for performance and heads do not get training for top who has authority over the unit. management positions because Generally, manpower is grouped they are unable to gather on the basis of different products experience in diverse areas. manufactured. Each division is Suitability: It is most suitable when multifunctional because within each the size of the organisation is large, has division functions like production, a diversified activities and operations marketing, finance, purchase, etc., require a high degree of specialisation. are performed together to achieve a common goal. Each division is Divisional Structure self-contained as it develops expertise Many large organisations with in all functions related to a product diversified activities have reorganised line. themselves away from the simpler and In other words, within each division, basic functional structure towards the functional structure tends to be a divisional structure which is more adopted. However, functions may vary suited to their activities. This is across divisions in accordance with a particularly true of those enterprises particular product line. Further, each which have more than one category division works as a profit center where of products to offer. This is because the divisional head is responsible for although every organisation performs the profit or loss of his division. For a set of homogenous functions, as example, a large company may have it diversifies into varied product divisions like cosmetics, clothing, etc. categories, the need for a more evolved Advantages: The divisional structure structural design is felt to cope with offers many benefits. Prominent the emerging complexity. among these are as follows: In a divisional structure, the (a) Product specialisation helps in the organisation structure comprises of development of varied skills in a separate business units or divisions. divisional head and this prepares 2020-21 Ch_05.indd 119 04-10-2019 12:17:33 PM  120 Business Studies Organisation Chart Managing Director Showing Divisional and Functional Structure Cosmetics Garments Footwear Skin care Research and Human Resources Marketing Development Purchasing him for higher positions. This is operations by merely adding because he gains experience in all another divisional head and staff functions related to a particular for the new product line. product. Disadvantages: The divisional (b) Divisional heads are accountable structure has certain disadvantages. for profits, as revenues and costs Some of them are as follows: related to different departments can (a) Conflict may arise among different divisions with reference be easily identified and assigned to to allocation of funds and further them. This provides a proper basis a particular division may seek to for performance measurement. It maximise its profits at the cost of also helps in fixation of responsibility other divisions. in cases of poor performance of the (b) It may lead to increase in costs division and appropriate remedial since there may be a duplication action can be taken. of activities across products. (c) It promotes flexibility and initiative Providing each division with because each division functions as separate set of similar functions an autonomous unit which leads increases expenditure. to faster decision making. (c) It provides managers with the (d) It facilitates expansion and growth authority to supervise all activities as new divisions can be added related to a particular division. In without interrupting the existing course of time, such a manager 2020-21 Ch_05.indd 120 19-11-2019 5:12:46 PM  Organising 121 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. Specialisation Functional specialisation. Product specialisation. Responsibility Difficult to fix on a Easy to fix responsiblity for department. performance. Managerial Difficult, as each Easier, autonomy as well as Development functional manager the chance to perform multiple has to report to the top functions helps in managerial management. development. Cost Functions are not Duplication of resources in duplicated hence various departments, hence economical costly. 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 Thus, it can be said that business to assert his independence may operates in a dynamic environment ignore organisational interests. and those enterprises which fail Suitability: Divisional structure to adapt to change are unable to is suitable for those business survive. Hence, management must enterprises where a large variety of continuously review its plans and objectives and accordingly the pro­ducts are manufactured using organisation structure of the enterprise diffe­rent productive resources. When should also be subjected to periodic an organisation grows and needs to review to determine if modification is add more employees, create more required. An organisation structure, depar­ tments and introduce new at all times should contribute towards levels of management, it will decide the achievement of the enterprise’s to adopt a divisional structure. Table objectives and should provide scope 1 provides a comparison of functional for initiative so that contribution and divisional structure to provide of personnel can be maximum and further clarity on the topic. effective. 2020-21 Ch_05.indd 121 04-10-2019 12:17:34 PM  Organisation Chart of ONGC 122 C & MD Ch_05.indd 122 l Company Secretary l Corporate Affairs MD, ONGC Videsh Ltd. l Chief Vigilance Officer Director Director Director Director Director Director Onshore Tech & Field... To be filled... Offshore Exploration HR Finance Services Ahmedabad Western HRD Chief Drill. Internal Mumbai Supply IDT Chief Infocom Offshore Services Audit High Bases Ankleshwar Western Functional IOGPT Drilling Commer- Chief Planning Bassein & Onshore HR Planning Uran Plant cial Projects & Cap. Satellite Mehsana IEOT Assam & Cementing Budget Assam-Arakan Employee Heera & Hazira Assam Relations Mud Explor. & Perfor- Chief MM Neelam Plant Cauvery Dev Tech mance Karaikal ONGC Chief Well mgmt & Chief Business 2020-21 Offshore (Cauvery) KG-PG Academy Services Bench- Devp., JVs & PSC - JV marking Marketing GVK (Frontier) Security Workover Rajamundhry (KG) KDIMPE WSS Chief SHE Legal Regional IPSEM Tripura Medical Well Labs Completion Chief EM. IRS Corporate & Drilling Technical Audit Comm & QA GEOPIC Geophysical Services Chief Logging Mainte- Chief Regional Geo- nance Engineering CBMMBP physical Services Design Head, Regional Exploration Officer Directorate Works EX COM Business Studies Adapted from www.ongc.com/archives1 04-10-2019 12:17:34 PM  Organising 123 Structural Transformation at ONGC Since its inception, ONGC has been instrumental in transforming the country’s limited upstream sector into a large viable playing field, with its activities spread throughout India and significantly in overseas territories. The 1990s had begun on a grim note for ONGC. It took almost a decade for the Corporation to sort things out in most uncertain of times. Among many problems, the Corporation was also suffering from the organisational atrophy. In order to survive ONGC sought help from Mc Kinsey. Mc Kinsey’s mandate was to evolve an organisational structure that was far more responsive to its business needs than that based on business groups. The ONGC system run by functional heads often meant delays exceeding a year in matters requiring urgent decisions on fields. Also, since responsibilities were shared at production platforms between different business groups, the system degenerated into wrangling over responsibilities. Similarly, group loyalties often took precedence over the requirements of tasks. But, most importantly, it was found that the performance evaluation criteria based on business group yardstick were completely at loggerheads with requirements on fields. Mc Kinsey recommended an asset- based approach with clearly-defined responsibilities in its presentation titled ‘Organisation Transformation Project’ Though Mc Kinsey recommendations were broadly accepted, coordination issues concerning commonly-shared services needed to be sorted out. Finally, the first control over all service personnel working with asset teams was vested in asset managers, on grounds that being responsible for the performance of their strategic business units they must rightfully exercise control over all personnel working with them. Even procurement powers were devolved. Finally, a new structure made up of 14 assets and 11 centralised services was rolled out. Do It Yourself You have seen the structure of ONGC as an illustration in this text. Browse the websites of other business organisations and study their organisational chart. Try to identify the structure they are using. Formal and Informal processes have to be laid down. This is done through the formal organisation. Organisation Formal organisation refers to In all organisations, employees are the organisation structure which guided by rules and procedures. is designed by the management To enable smooth functioning of to accomplish a particular task. It the enterprise, job description and specifies clearly the boundaries of rules and procedures related to work authority and responsibility and 2020-21 Ch_05.indd 123 04-10-2019 12:17:34 PM  124 Business Studies there is a systematic coordination Advantages: Formal organisation among the various activities to offers many advantages. Some of the achieve organisational goals. important ones are: The structure in a formal organ­ (a) It is easier to fix responsibility isation can be functional or divis­ since mutual relationships are ional. The formal organisation can clearly defined. be better understood by a study of its (b) There is no ambiguity in the role features which are as follows: that each member has to play (a) It specifies the relationships as duties are specified. This also among various job positions helps in avoiding duplication of and the nature of their inter- effort. relationship. This clarifies who (c) Unity of command is maintained has to report to whom. through an established chain of (b) It is a means to achieve the command. objectives specified in the (d) It leads to effective accomplish­ plans, as it lays down rules and ment of goals by providing a procedures essential for their framework for the operations to achievement. be performed and ensuring that (c) Efforts of various departments each employee knows the role he are coordinated, interlinked and has to play. integrated through the formal (e) It provides stability to the organ­ organisation. isation. This is because behaviour (d) It is deliberately designed by the of employees can be fairly pre­ top management to facilitate dicted since there are specific the smooth functioning of the rules to guide them. organisation. Limitations: The formal organisation (e) It places more emphasis on suffers from the following limitations: work to be performed than (a) The formal communication may interpersonal relationships lead to procedural delays as the among the employees. established chain of command has Formal Organisation The formal organisation is a system of well-defined jobs, each bearing a definite measure of authority, responsibility and accountability. Louis Allen Formal organisation is a system of consciously coordinated activities of two or more persons toward a common objective. Chester Barnand 2020-21 Ch_05.indd 124 04-10-2019 12:17:34 PM  Organising 125 to be followed which increases the those who take part in cricket matches time taken for decision making. on Sundays, meet in the cafeteria for (b) Poor organisation practices may coffee, are interested in dramatics, not provide adequate recognition etc. Informal organisation has no to creative talent, since it does not written rules, is fluid in form and allow any deviations from rigidly scope and does not have fixed lines of laid down polices. communication. The Table in the next (c) It is difficult to understand page compares informal organisation all human relationships in an with the formal organisation to provide enterprise as it places more better understanding of both types. emphasis on structure and work. Informal organisation can be Hence, the formal organisation better understood with the help of the following features: does not provide a complete picture (a) An informal organisation of how an organisation works. originates from within the formal Informal Organisation orga­nisation as a result of personal Interaction among people at work interaction among employees. gives rise to a ‘network of social (b) The standards of behaviour evolve from group norms rather relationships among employees’ called than officially laid down rules the informal organisation. and regulations. Informal organisation emerges (c) Independent channels of from within the formal organisation communication without specified when people interact beyond their direction of flow of information officially defined roles. When people are developed by group members. have frequent contacts they cannot (d) It emerges spontaneously and is be forced into a rigid formal structure. not deliberately created by the Rather, based on their interaction and management. friendship they tend to form groups (e) It has no definite strucure or form which show conformity in terms of because it is a complex network interest. Examples of such groups of social relationships among formed with common interest may be members. Informal Organisation An informal organisation is an aggregate of interpersonal relationships without any conscious purpose but which may contribute to joint results. Chester Barnand Informal organisation is a network of personal and social relations not established or required by the formal organisation but arising spontaneously as people associate with one another. Keith Davis 2020-21 Ch_05.indd 125 04-10-2019 12:17:34 PM  126 Business Studies Advantages: The informal organisation the formal organisation. For example, offers many benefits. Important among employees reactions towards plans them are given below: and policies can be tested through (a) Prescribed lines of communication the informal network. are not followed. Thus, the Disadvantages: The informal informal organisation leads to organisation has certain disadvantages. faster spread of information as Some of them are as follows: (a) When an informal organisation well as quick feedback. spreads rumours, it becomes (b) It helps to fulfill the social needs a destructive force and goes of the members and allows against the interest of the formal them to find like minded people. organisation. This enhances their job satisfaction (b) The management may not be since it gives them a sense of successful in implementing chan­ belongingness in the organisation. ges if the informal organisation (c) It contributes towards fulfillment opposes them. Such resistance of organisational objectives by to change may delay or restrict compensating for inadequacies in growth. Formal and informal organisation: A Comparative view Basis Formal organisation Informal organisation Network of social Structure of authority relationships arising out Meaning relationships created by the of interaction among management employees Arises as a result of Arises as a result of social Origin company rules and policies interaction Arises by virtue of position Arises out of personal Authority in management qualities There is no set behaviour Behavior It is directed by rules pattern Flow of communication Communication takes place is 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 Leadership Managers are leaders. be managers. They are chosen by the group. 2020-21 Ch_05.indd 126 04-10-2019 12:17:34 PM  Organising 127 (c) It pressurises members to conform desires to meet the organisational to group expectations. This can goals, focus on objectives and ensure be harmful to the organisation if that all work is accomplished, he the norms set by the group are must delegate authority. against organisational interests. Delegation refers to the downward Informal organisation cannot transfer of authority from a superior be altogether eliminated. Thus, to a subordinate. It is a pre-requisite it would be in the best interest of to the efficient functioning of an the organisation if the existence of organisation because it enables such groups is recognised and the a manager to use his time on high roles that their members play are priority activities. It also satisfies the identified. The knowledge of such subordinate’s need for recognition groups can be used to gather their and provides them with opportunities to develop and exercise initiative. support and consequently lead to Delegation helps a manager to improved organisational performance. extend his area of operations as Such groups can also provide useful without it, his activities would be communication channels. Instead of restricted to only what he himself confronting them, the management can do. However, delegation does should skillfully take advantage of both not mean abdication. The manager the formal and informal organisation shall still be accountable for the so that work continues smoothly. performance of the assigned tasks. Moreover, the authority granted to a Delegation subordinate can be taken back and A manager, no matter how capable he redelegated to another person. Thus, is, cannot manage to do every task on irrespective of the extent of delegated his own. The volume of work makes authority ,the manager shall still be it impractical for him to handle it all accountable to the same extent as by himself. As a consequence, if he before delegation. Delegation Delegation is the process a manager follows in dividing the work assigned to him so that he performs that part which only he because of his unique organisational placement, can perform effectively and so that he can get others to help with what remains. Louis Allen Delegation of authority merely means the granting of authority to subordinates to operate within prescribed limits. Theo Haimman 2020-21 Ch_05.indd 127 04-10-2019 12:17:34 PM  128 Business Studies Elements of Delegation established scalar chain which links the various job positions According to Louis Allen, delegation is and levels of an organisation. the entrustment of responsibility and Authority also refers to the right authority to another and the creation to take decisions inherent in a of accountability for performance. managerial position to tell people A detailed analysis of Louis Allen’s what to do and expect them to definition brings to light the following do it. essential elements of delegation: In the formal organisation authority (i) Authority: Authority refers to originates by virtue of an individual’s the right of an individual to position and the extent of authority command his subordinates and is highest at the top management to take action within the scope levels and reduces successively as we of his position. The concept go down the corporate ladder. Thus, of authority arises from the authority flows from top to bottom, No delegation leads to delays in decision-making 2020-21 Ch_05.indd 128 04-10-2019 12:17:41 PM  Organising 129 Creation of accountability for performance i.e., the superior has authority over It must be noted that authority the subordinate. is restricted by laws and the rules Authority relationships helps to and regulation of the organisation, maintain order in the organisation which limit its scope. However, as by giving the managers the right to we go higher up in the management exact obedience and give directions hierarchy, the scope of authority increases. to the workforce under them. (ii) Responsibility: Responsibility is Authority determines the superior the obligation of a subor-dinate subordinate relationship wherein the to properly perform the assigned superior communicates his decision duty. It arises from a superior– to the subordinate, expecting subordinate relationship because compliance from him and the the subor-dinate is bound to subordinate executes the decision perform the duty assigned to as per the guidelines of the superior. him by his superior. Thus, The extent to which a superior can responsibility flows upwards, exact compliance also depends on i.e., a subordinate will always the personality of the superior. be responsible to his superior. 2020-21 Ch_05.indd 129 31-10-2019 10:12:06 AM  130 Business Studies An important consideration to cannot deny accountability. It cannot be kept in view with respect to be delegated and flows upwards, i.e., a both authority and responsibility subordinate will be accountable to a is that when an employee is given superior for satisfactory performance responsibility for a job he must also of work. It indicates that the manager be given the degree of authority has to ensure the proper discharge necessary to carry it out. Thus, for of duties by his subordinates. It is effective delegation the authority generally enforced through regular granted must be commensurate feedback on the extent of work with the assigned responsibility. accomplished. The subordinate will be If authority granted is more than expected to explain the consequences responsibility, it may lead to misuse of his actions or omissions. of authority, and if responsibility In conclusion, it can be stated that assigned is more than authority it while authority is delegated, responsi­ bility is assumed, accountability is may make a person ineffective. imposed. Responsibility is derived (iii) Accountability: Delegation of from authority and accountability is authority, undoubtedly empowers derived from responsibility. an employee to act for his superior but the superior would still be Importance of Delegation accountable for the outcome: Delegation ensures that the subordi­ Accountability implies being nates perform tasks on behalf of the answerable for the final outcome. manager thereby reducing his Once authority has been delegated workload and providing him with more and responsibility accepted, one time to concentrate on important Overview of the elements of delegation Basis Authority Responsibility Accountability Meaning Right to command. Obligation to Answerability for perform an assigned outcome of the task. 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 authority. responsibility. Flow Flows downward Flows upward from Flows upward from from superior to subordinate to subordinate to subordinate. superior. superior 2020-21 Ch_05.indd 130 31-10-2019 10:12:22 AM  Organising 131 matters. Effective delegation leads to on the part of the subordinate. the following benefits: Responsibility for work builds (i) Effective management: By the self-esteem of an employee empowering the employees, the and improves his confidence. managers are able to function He feels encouraged and tries more efficiently as they get more to improve his per for mance time to concentrate on important further. matters. Freedom from doing (iv) Facilitation of growth: Delegation routine work provides them with helps in the expansion of an opportunities to excel in new organisation by providing a ready areas. workforce to take up leading (ii) Employee development: As a positions in new ventures. Trained result of delegation, employees and experienced employees are get more opportunities to utilise able to play significant roles in their talent and this may give the launch of new projects by rise to latent abilities in them. replicating the work ethos they It allows them to develop those have absorbed from existing units, skills which will enable them in the newly set up branches. to perform complex tasks and (v) Basis of management hier­ assume those responsibilities archy: Delegation of authority which will improve their career establishes superior-subordinate prospects. It makes them relationships, which are the basis better leaders and decision of hierarchy of management. It is makers. Thus, delegation helps the degree and flow of authority by preparing better future which determines who has to managers. Delegation empowers report to whom. The extent of the employees by providing delegated authority also decides them with the chance to use the power that each job position their skills, gain experience and enjoys in the organisation. develop themselves for higher (vi) B e t t e r c o o r d i n a t i o n : The positions. elements of delegation, namely (iii) Motivation of employees: authority, responsibility and Delegation helps in developing the talents of the employees. It accountability help to define the also has psychological benefits. powers, duties and answerability When a superior entrusts a related to the various positions subordinate with a task, it in an organisation. This helps to is not merely the sharing of avoid overlapping of duties and work but involves trust on the duplication of effort as it gives a superior’s part and commitment clear picture of the work being 2020-21 Ch_05.indd 131 04-10-2019 12:17:45 PM  132 Business Studies done at various levels. Such clarity of the organisation. Decision making in reporting relationships help authority is shared with lower levels in developing and maintaining and is consequently placed nearest effective coordination amongst to the points of action. In other words the departments, levels and decision making authority is pushed functions of management. down the chain of command. Thus, delegation is a key element When decisions taken by the in effective organising. lower levels are numerous as well as important an organisation can be Decentralisation regarded as greatly decentralised. In many organisations the top Centralisation and management plays an active role Decentralisation in taking all decisions while there Centralisation and decentralisation are others in which this power is are relative terms, as seen from the given to even the lower levels of existing status of various business management. Those organisations enterprises. in which decision making authority An organisation is centralised lies with the top management are when decision-making authority termed as centralised organisations is retained by higher management whereas those in which such levels whereas it is decentralised authority is shared with lower levels when such authority is delegated. are decentralised organisations. Complete centralisation would Decentralisation explains the imply concentration of all decision manner in which decision making making functions at the apex of responsibilities are divided among the management hierarchy. Such a hierarchical levels. Put simply, scenario would obviate the need for a decentralisation refers to delegation management hierarchy. On the other of authority throughout all the levels hand, complete decentralisation Decentralisation Decentralisation refers to systematic effort to delegate to the lowest level all authority except that which can be exercised at central points. Louis Allen Everything which goes to increase the importance of a subordinate’s role is decentralisation, everything that goes to reduce it is centralisation. Henri Fayol 2020-21 Ch_05.indd 132 04-10-2019 12:17:45 PM  Organising 133 would imply the delegation of all however, needs to carefully select decision making functions to the those decisions which will be pushed lower level of the hierarchy and this down to lower levels and those that will would obviate the need for higher be retained for higher levels. Table 4 managerial positions. Both the provides a comparative look between scenarios are unrealistic. delegation and decentralisation. An organisation can never be Decentralisation is a fundamental completely centralised or decent­ step and its importance can be ralised. As it grows in size and comp­ understood from the following points: lexity , there is a tendency to move (i) Develops initiative among towards decentralised decision subordinates: Decentralisation making. This is because in large helps to promote self-reliance organisations those employees who and confidence amongst the are directly and closely involved with subordinates. This is because certain operations tend to have more when lower managerial levels are knowledge about them than the top given freedom to take their own management which may only be decisions they learn to depend indirectly associated with individual on their own judgment. It also operations. keeps them in a state wherein Hence, there is a need for a they are constantly challenged balance between these co-existing and have to develop solutions forces. Thus, it can be said that every for the various problems they organisation will be characterised encounter. A decentralisation by both centralisation and policy helps to identify those decentralisation. executives who have the necessary potential to become Importance dynamic leaders. Decentralisation is much more than a (ii) Develops managerial talent mere transfer of authority to the lower for the future: Formal training levels of management hierarchy. It is plays an important part in a philosophy that implies selective equipping subordinates with dispersal of authority because it skills that help them rise in propagates the belief that people are the organisation but equally competent, capable and resourceful. important is the experience They can assume the responsibility gained by handling assignments for the effective implementation of independently. Decentralisation their decisions. Thus this philosophy gives them a chance to prove recognises the decision maker’s need their abilities and creates a for autonomy. The management, reservoir of qualified manpower 2020-21 Ch_05.indd 133 21-11-2019 10:19:39 AM  134 Business Studies who can be considered to fill exercised by a superior over the up more challenging positions activities of a subordinate because through promotions. It also helps they are given the freedom to to identify those who may not be act and decide albeit within the successful in assuming greater limits set by the superior. Also, responsibility. Thus, it is a means personal supervision is generally of management education as well replaced by other forms of control as an opportunity for trained such as return on investment manpower to use its talent in real etc. Decentralisation also leaves life situations. the top management with more (iii) Quick decision making: The time which they can devote to management hierarchy can important policy decisions rather be looked upon as a chain of than occupying their time with communication. In centralised both policy as well as operational organisation because every decisions. In fact decentralisation decision is taken by the top is greatest when checking required management the flow of on decisions taken by lower levels information is slow as it has to of management is least. traverse many levels. Response (v) Facilitates growth: Decentrali­ also takes time. This reduces the sation awards greater autonomy to speed of decision making and the lower levels of management as makes it difficult for an enterprise well as divisional or departmental to adapt to dynamic operating heads. This allows them to conditions. In a decentralised function in a manner best suited organisation, however ,since to their department and fosters decisions are taken at levels which a sense of competition amongst are nearest to the points of action the departments. Consequently, and there is no requirement for with each department doing its approval from many levels, the best in a bid to outdo the other, the process is much faster. There are productivity levels increase and also less chances of information the organisation is able to generate getting distorted because it more returns which can be used doesn’t have to go through long for expansion purposes. channels. (vi) Better control: Decentralisation (iv) Relief to top management: makes it possible to evaluate Decentralisation diminishes the performance at each level and the amount of direct supervision departments can be individually 2020-21 Ch_05.indd 134 04-10-2019 12:17:46 PM  Organising 135 held accountable for their mation system. Decentralisation results. The extent of achievement compels the management of organisational objectives as to innovative per formance well as the contribution of each measur­ement systems. department in meeting the overall As a conclusion, it must be objectives can be ascertained. noted that in spite of its benefits Feedback from all levels helps to decentralisation should be applied analyse variances and improve with caution as it can lead to operations. In decentralisation, organisational disintegration if the one of the challenges is the departments start to operate on their accountability of performance. own guidelines which may be contrary In response to this challenge, to the interest of the organisation. better control systems are Decentralisation must always be being evolved such as the balance balanced with centralisation in areas score card and management infor­ of major policy decisions. Decentralisation : A Strength The McNeil name has been associated with the manufacturing and sale of pharmaceutical products since 1879, when Robert McNeil opened his first retail drug outlet in Pennsylvania. Growing as a producer of prescription pharmaceuticals, McNeil Laboratories, Inc. was incorporated in the U.S. in 1933, and became a member of the Johnson & Johnson family of companies in 1959. Mcneil Consumer Healthcare began operations in Canada in an existing administrative Johnson & Johnson facility in Guelph, Ontario in 1980. McNeil Consumer Healthcare (nonprescription pharmaceutical products) in Guelph, Ontario is member of the Johnson & Johnson family of companies in Canada. An important difference between Johnson & Johnson and most other companies — is the concept of decentralised management. Instead of operating as one large multi-billion dollar corporation, Johnson & Johnson is operated as 190 smaller companies, each focused on a specific medical or product franchise and/or geographic area, with each affiliate generating multiple options for growth. Through decentralisation we combine the advantages of being big with the agility and focus of smaller firms. Decentralisation enables each company to sty close to its customer, maintain short lines of communication with customers and employees, and accelerate the development of talent. The Johnson & Johnson - Merck Consumer Pharmaceuticals company also operates from our Woodlawn Road facility in Guelph. http://www.mcneilcanada.com/eng/eco07pgl.shtm 2020-21 Ch_05.indd 135 04-10-2019 12:17:46 PM  136 Business Studies Think About It If you were a manager, would you decentralise, knowing that it would mean dispersal of decision making authority? Delegation and Decentralisation: A Comparative view Basis Delegation Decentralisation Nature Delegation is a compulsory Decentralisation is an optional act because no individual can policy decision. It is done perform all tasks on his own. at the discretion of the top management. Freedom of action More control by superiors Less control over executives 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 the To increase the role of manager. the subordinates in the organisation by giving them more autonomy. Key Terms Organising Organisational structure Departmentalisation Delegation Authority Responsibility Accountability Functional structure Divisional structure Formal organisation Informal organisation Span of management Centralisation Decentralisation 2020-21 Ch_05.indd 136 04-10-2019 12:17:46 PM  Organising 137 Summary Organising is the process of defining and grouping activities and establishing authority relationships among them. Process: the process of organising consists of the following steps: (a) Identification and division of work (b) Departmentalisation (c) Assignment of Duties (d) Establishing reporting relationships Importance: Organising is considered important because it leads to division of work, clarity in reporting relationships, optimum utilization of resources, growth, better administration and greater creativity. Organisational structure is the framework within which managerial and operating tasks are performed. It can be functional or divisional. Span of management is the number of subordinates under a superior. Functional structure groups activities on the basis of functions. The advantages of such a structure are specialisation, better control, managerial efficiency and ease in training employees. The disadvantages are functional empires, conflict of interest, inflexibility, and restriction in managerial development. Divisional structure groups activities on the basis of products. The advantages are integration, product specialisation, greater accountability, flexibility, better coordination and more initiative. The disadvantages are departmental conflicts, costly process, ignoring of organisational interests, increase in requirements of general managers. Formal organisation is designed by the management to achieve organisational goals. Its advantages are fixation of responsibility, clarity of roles, unity of command and effective accomplishment of goals. Its disadvantages are procedural delays, inadequate recognition of creativity, limited in scope. Informal organisation 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.