KL EF

ORGANIZATION MANGEMENT
II ECE/IV SEM
DR .G.V. Madhavi KLUBS

UNIT-2
ORGANIZATION STRUCTURE
Organization Structure : Principles of organization,
organizational theories, departmentalism, authority, power,
organizing, organizational effectiveness, structuring the
organization, organizational change, organization charts; types of
organizations—line , functional and line and staff relations,
Organizational manuals.
 ORGANIZING
Organizing is the second function of management. It is dependent on the type of plan. It is aimed at preparing a formal
structure or design of the organization, consisting of people , tasks responsibility authority, communication network,
and a scheme for arranging all these aspects. The structure so prepared facilitates implementation of the plan. The
structure is presented in the form of an organizational chart. Organizing ensures provision for all activities
necessary for accomplishment of desired objectives. As a result of organizing , various positions come into
existence, different departments and divisions are created, communication network is prepared, various levels of
management are created, and superior-subordinate relations are established.

The process of organizing includes the following steps:

1. Determining activities necessary for achieving objectives.

2.Classifying and grouping of activities into units.

3.Assigning the tasks and duties.

4.Delegating Authority.

5.Establishing relationships among several position holders.

6.Preparing organization charts and manuals.

 DEFINITIONS OF ORGANIZING AND
ORGANIZATION
The term Organizing can be defined as:
1. Louis Allen: “ Organizing is the process of identifying and
grouping of the work to be performed, defining and
delegating responsibility and authority, and establishing
relationships for the purpose of enabling the people to work
effectively together in accomplishments of objectives. ”
2. George R Terry: “ Organizing is establishing of effective
authority relationships among selected works, persons, and
work places in order to make group work together
efficiently.”
Thus it can be defined as: To organize means to harmonize ,
coordinate, or to arrange activities in a logical and orderly
manner. It is an act/process of systematically arranging and
grouping of interdependent parts and activities.
 ORGANIZATION

Organization is the end result of the organizing process.

1. John Finer and Frank P. Sherwood: “ Organization is
essentially a matter of relationships of man-to-man, job-to-
job, and department-to-department .”
2. Koontz and O’ Donnell: “ Organization is a structural
relationship by which an enterprise is bound together, and the
framework in which individual effort is coordinated.”
3. Chester Bernard: “ Organization is a system of cooperative
activity of two or more persons.”
Organization is a structure , mechanism, setup, arrangement or
frame work made of men, tasks, authority, and responsibility
to facilitate coordination necessary to achieve specific
purposes. It is matter of formal relations among people, jobs
and departments.
CHARACTERISTICS OF ORGANIZING
Organizing is a process. It consists of steps to be followed to prepare
the structure of the organization.
1. It is goal-oriented.
2. It includes grouping of activities and division of work.
3. It involves assignment of responsibility and delegation of authority.
4. It is aimed at creation of structure, framework or setup that
facilitates managerial actions.
5. It is act of establishing formal relationships and defining status and
positions of each of the employees.
6. It is coordinated and integrated activity.
7. It creates a stable structure.
8. Human Being is in the centre of organizing.
9. It can be applied to the whole organization, or part thereof.
 ORGANIZATION PROCESS
Organizing process consists of sequence of steps to be followed
to prepare a formal structure of the organization. The process
depends on a variety of variables, like size of the organization,
objectives, type of people, type of work, etc. Ideally, the
organizing process contains seven steps, as follows:
1.Specifying of Objectives
2. Enumerating of Activities(or Determining of activities to be
performed)
3. Classifying or grouping of Activities
4.Assigning of responsibility(or fitting Individual with Function)
5. Delegation of Authority
6. Establishing Interrelationships
7. Preparing Organization Charts and Manuals
 ORGANIZATIONAL PROCESS

1.Specifying of Objectives
Organisation is deliberate and conscious creation of structure for a specific purpose. The organization
process starts with specification of objectives. A manager who is in charge of formulation of the
organization structure needs to have knowledge of the objectives to be achieved. He must known the
long-term and short-term objectives as well as individual, departmental, and general objectives.
Clarity of objectives gives the direction to work.
2. Enumerating of Activities
The next step is to prepare a list of activities required to achieve these goals. A list of activities prepared
comprising of main functions of the organization. For example, Production activities, marketing
activities, personnel activities, and financial activities are main activities of a business enterprise.
While determining activities to be performed, care should be taken so that the list of activities becomes
exhaustive or complete. Similarly, there should be clear and precise definition of each activity.
3. Classifying or Grouping of Activities

In the third stage of the organizing process, the activities listed are classified or grouped on the basis of
specialization (i.e., on the basis of nature).Grouping of activities is based on similarity, functions,
and common purpose. The group of activities is also called function, each function comprises of
similar activities. Hence, similar activities are performed only in a particular department under a
specific function. The manager should be careful to avoid unnecessary duplication or repetition of
activities in more than one group.

4. Assigning of Responsibility(or Fitting Individual with Function): Once department or groups are
prepared, the next step is to assign each department to a person. Thus, a person is fitted wit a
function. A qualified and experienced person is assigned the duty of performing each group of
activities. Thus, job is assigned and responsibility is created. Moreover, designation is also defined,
and role and position are clarified. As a result of assignment of Job, various positions come into
existence, like marketing manager, sales officer, financial manger, and so forth.
5.Delegating of Authority

When assignment of task is over, respective superiors delegate authority to different position holders to
enable them to carry out activities. This is a vital step. Delegation of authority creates various levels
and positions. In fact, assignment of duties and delegation of authority go hand to hand. Delegations
refers to granting or offering of legitimate power to subordinates to enable them to take decisions
independently. It is an authorization to make decision, to order, or to command the people working
under him. While delegating authority, care should be taken that there is balance between
responsibility and authority. Authority must be equal to responsibility.

6. Establishing Interrelationships

This step is concerned with establishing relationships among various position holders. These
relationships are established in both directions- horizontally and vertically. At this stage , the
relationship and line of authority between the superior and subordinate is made clear. Statuses are
fixed to facilitate higher and lower positions. The entire network is defined in terms of functions,
positions, levels, communication, and interrelationships among various positions.
7. Preparing Organization Chart and Manuals:

The structure so prepared is now depicted in the form of a chart or a diagram that shows various relations,

positions, and levels in the organization. An organizational chart can be defined as: “A diagrammatic

presentation of formal relationships among the people in the organization. The chart shows detail

regarding number and type of functions, levels of management, various positions and designations,

direction of communication and so forth. The chart is prepared either on function basis or job title

basis.”

Organization chart can be prepared in three forms- Vertical Chart, Horizontal Chart and Circular chart.

Among three, vertical chart is the most popular and widely used chart. Organization chart is a useful

tool for many purposes.

Along with the Organization chart, Organization manual is also prepared to guide the interrelations.

An Organization Manual is a small booklet that describes objectives, authority, status, and responsibility

of each of the positions. It also explains the nature of work, powers , position, status, etc., of each

position holder.
PRINCIPLES OF ORGANIZATION
 INTRODUCTION OF ORGANIZATION
STRUCTURE

Organization Structure is a specific design or blueprint that the business

enterprise uses to perform a relevant task in pursuit of goals. The
structure, in the sense, is an effective mechanism that helps
coordinate employees efforts for accomplishing goals. Note that
organization structure is a means, not an end; it serves as the base
for achieving objectives. Organisation structure reflects top
management’s philosophy . Organizational design, structure,
arrangement, blueprint, constitution, formation, plan, chart, diagram,
etc., are closely related terms and are used interchangeably.
 KEY CONSTITUENTS OF ORGANIZATION
STRUCTURE
While organizing structure, following constituents(factors, aspects, or considerations) should be duly considered:

1. Company’s broad vision and goals

2. Objectives or targets

3. Main activities or operations

4. Decision – making

5. Formal relationships(both vertical and horizontal)

6. Communication Pattern

7.Delegation and decentralization

8. Formal organization structure(span of management and management levels)

9. Organization climate (including organizational culture)

10.Mangement(or leadership) styles

11. Physical facilities

12. Human resources(type and number of employees)

An organization structure may be either vertical or horizontal.

 VERTICAL v/s HORIZONTAL
ORGANIZATION
Formal organization structure shows vertical and horizontal relations among members.
In a vertical or tall structure organizations hierarchical chain of command is longer.
Vertical organization has its merits and demerits over the horizontal organization. In
a changed environment, vertical environment is not suitable. Particularly, advanced
information technology, wide acceptance of employee empowerment, multi-
professionalization, and fast globalization environment demand horizontal
structure.
Horizontal structure facilitates cooperation, processes, teamwork, and customer
orientation. In this structure, authority tends to be more decentralized and span of
control expands. Modern business enterprises prefer horizontal structure due to
several advantages it offers, like quick decisions, low administrative costs, more
freedom or autonomy, high employee morale, employees strong commitment to
goals, improved performance, use of multiple competences, openness, speedy
feedback, etc.
Horizontal organization is customer driven modern form of organization characterized
by reduced hierarchy, direct information link with participants, team based
performance evaluation and reward, emphasis on multiple competencies, openness
in dealing, and end-result process based organization that enables the firm to
facilities speed in action, flexibility with situation, and comfortable cooperation.
 TYPES OF ORGANIZATION STRUCTURE

On the basis of size, functions, needs of specializations, and

distribution of authority, various types of organization
structures are possible. Most popular forms of organization
include:
1. Entrepreneurial organization
2. Line Organization
3. Line and Staff Organization
4. Functional Organization
5. Committee Organization
6. Project Organization
7. Matrix Organization
8. Other Modern Organization Designs
 LINE ORGANIZATION
Line organization is the simplest and oldest form of organization. It is generally used in
the army. Therefore it is also known as military organization. Other names of line
organization are departmental organization, scalar organization, and vertical
organization. Note that this is the basic structure of organization and other
forms/types of organization are created by modifying this structure.
In a line organization, every person has a clear and well-defined role. Through
delegation and redelegation, superior-subordinates are established from the top to
the bottom. Direct relationships between superiors and subordinates are called line
relations. Naturally, in line organization, there is vertical line of authority. The unity
of command is an essential condition in this organization.
There are two types of line organizations-pure line organization and departmental line
organization.
In Pure line organization, all individuals perform same type of activities. Divisions are
made only for facilitating effective supervision and control.
In departmental line organization, the chief executive is at the top. Under him, there are
various departments performs different functions/activities. Pure line organization
has limited applicability, but departmental line organization is popular.
LINE ORGANIZATION OF PRODUCTION
DEPARTMENT
 Merits of Line Organization

Line organization has following merits:

1. It is much simple to understand and practice.
2.Clear division and definition of authority and responsibility.
3.It follows the unity of command principle. It facilitates effective
supervision and control.
4.It facilities prompt decisions and speedy actions.
5.It is an economical(i.e., cost effective) structure. There is no need of
specialist staff.
6. It permits a greater degree of flexibility.
7.It offers better discipline
8.It provides opportunity for development of skills. Executives can be
made all-rounders and they have to perform a variety of functions.
9.It permits preservation of secrecy.
10. It is easy to fix the ultimate responsibility.
 Demerits of Line organization
There are some problems in applying line organization. Main demerit have been listed below:
1. There is lack of specialization; each executive is responsible for both planning and
implementing of work.
2. Results in over burdening of a key man as one has to performed many functions. He may
not perform all activities effectively.
3. It may lead to biased or subjective approach. It may result into autocratic control.
4. It has limited applicability
5. It permits limited and one-way communication. Subordinates have no scope to express their
views, suggestions, or problems. Their creative abilities may not be adequately utilized.
6. There is possibility of conflict among departments and difficulty in cooperation and
coordination.
7. It may promote corruption, favouritism, neoptism, and misuse of authority.
8. There is possibility of complication in promotion and transfer cases. Shifiting or promoting
any position holder leads to severe disturbance as he has been managing many activities.
9. Line organization may lead to instability as a few competent executives mange the entire
organization. To get the right successor is always an acute problem.
10. Planning and research works are neglected. Virtually, the manager is very busy with routine
work and cannot spare time for planning and research.\
 Suitability of line organisation
1. When organisation is small in size
2. When work is simple and routine
3. When strict discipline and close control are required
4. When top secret is to be preserved
5. When there is no need for specialization
6. When a number of subordinates is small.

Line and Staff Organisation

Line and staff organisation is an extensive , expansion or improvement of line
organisation . In a large and expanding organisation , pure line organisation is not
suitable. Expert’s services are required to carry out activities effectively . This
structure is based on F. W. Taylor’s ‘Functional Foremanship’ concept. Here, line
of authority remains unbroken, but, at the same time , staff is also appointed to
facilitate line persons. Staff means a team of experts . The staffs assists line
executives to perform their respective functions effectively.
 Line and Staff Relationship
Line positions in organisation structure are responsible for accomplishing primary objectives. They are closely
related to main functions and objectives of the organisation. Line managers are empowered to take and
implement decisions. However, they cannot work effectively with out staff. Staff advice, assistance,
counseling , and information help managers in attainting goals. The staff analysis the problems, collects and
analyses information, develops alternatives, and helps line manages make the right decisions in time.
The concept of line and staff relationship can be analyzed by two approaches-authority approach and function
approach.
Merits of line and staff organisation
Line and staff organisation has following merits
1. Use of expert staff leads to better decision-making.
2. It is simple to understand and apply; involvement of staff does not complicate the structure.
3. Scale of economy can be achieved as a few experts perform a large no of activities for the entire organisation.
4. Provide relief to line executives so that they can concentrate more on their line functions.
5. This type of organisation promotes coordination because the staff experts acts as a line to establish
coordination among various departments and employees throughout the organisation.
6. Speedy decisions and actions can be taken. Staff provides necessary information, but does not interfere in
decisions. Line executive can take decisions promptly.
7. It permits greater degree of flexibility. Additional experts can be added or reduced easily.
8. By employing different types of staff (concurring, compulsory consultation, project , etc.), multipurpose use
of staff is possible.
9. It is easy to fix the ultimate responsibility because line manager can be held responsible for the final result.
10. It leads to clarity and order/discipline.
 Demerits of line and staff organisation
However, line and staff organisation suffers from following demerits
1. Line and staff organisation is an expensive form of organisation , hence it is not
applicable to small and medium size organizations.
2. There is possibility of evading responsibility by blaming the staff. It promotes
escapism mentality.
3. It may result in confusion. Practically, it is difficult to clearly determine line and
staff authority. Jurisdiction, authority, and responsibility are difficult to decide.
Similarly, line and staff functions depend on type and nature of business.
4. Line and staff conflict spoils healthy relations in the organization. Sometimes, old-
senior line executives and junior dynamic staff officers face difficulty in working
together.
5. Staff is not granted authority to influence decision-making. Sometimes, service of
staff is not adequately utilized. They may also not work effectively as they are not
responsible for the results.
6. Line and staff organization may make line executive careless, dependent, and
thoughtless because of the expert services of the staff.
7. Since departmental head is authorized to act independently within his department, it
encourages departmental centralization of authority.
 Applicability of line and staff organisation
Generally, line and staff organisation is applicable in the following situations:
1. When the organisation is large or medium in size
2. When expert knowledge is considered to be important
3. When company wants to utilize expert knowledge without violating line of
authority and unity of command.
LINE AND STAFF ORGANIZATION FOR A MANUFACTURING
UNIT(with extension of only marketing department)
FUNCTIONAL ORGANIZATION(with
extension of production function)
COMMITTEE ORGANIZATION
PROJECT ORGANIZATION
 MATRIX ORGANIZATION STRUCTURE
Matrix organization = Matrix structure + Matrix system + Matrix culture + Matrix behaviour
ORGANIZATION STRUCTURE
 ORGANIZATION CHARTS AND MANUALS
Organisation charts and manuals are prepared for the purpose of describing the organisation structure. These are
used as tools management control. They give full information on a particular organisation. An executive finds
out his exact place in the organisation structure from the chart and manuals. It shows the responsibility and
authority of executive. He knows his superior for whom he is responsible and his subordinates whom he has to
supervise. Organisation charts and manuals are devices showing the organizational relationships and within an
organisation. An organisation chart is diagrammatical form which shows the important aspects of organisation
including the major functions and their respective relationship, the channels of supervision and the relative
authority of each employee who is in charge of each respective function.

• Names of the components of organisation Positions of the various officer personnel.

• The relationships between the line and staff officers.

• Authority and responsibilities of various executives.

• Basic organisation structure and flow of authority.

• The requirements of management development.

• Ways of promotion.

• The present and proposed organisation structure.

• Number of persons working in an organisation.

 OVERVIEW OF ORGANIZATIONAL CHART
The organization chart is a diagram showing graphically the relation of one official to
another, or others, of a company. It is also used to show the relation of one
department to another, or others, or of one function of an organization to another, or
others. This chart is valuable in that it enables one to visualize a complete
organization, by means of the picture it presents.
A company's organizational chart typically illustrates relations between people within an
organization. Such relations might include managers to sub-workers, directors to
managing directors, chief executive officer to various departments, and so forth.
When an organization chart grows too large it can be split into smaller charts for
separate departments within the organization. The different types of organization
charts include:
• Hierarchical
• Matrix
• Flat (also known as Horizontal)
There is no accepted form for making organization charts other than putting the principal
official, department or function first, or at the head of the sheet, and the others below,
in the order of their rank. The titles of officials and sometimes their names are
enclosed in boxes or circles. Lines are generally drawn from one box or circle to
another to show the relation of one official or department to the others
The strengths and weakness of an organisation are evaluated with the help organisation
charts.

• Organisation chart is a starting point for planning organisation changes.

• Instructing work is simplified
• They show the levels of authority of relationships prevailing among employees at a
glance.
• They give a clear picture organisation charts

Organizational disputes can be solved with the help of organisation charts

• The outsiders of the organisation can have a quick understanding of each department
in an organisation.
• The lines of the primary function of the management. Organisation charts help
planning.
• The lines of authority and responsibility given in the organisation chart are definite
and formal.
• Organisation charts act as authoritative sources of information.
The organisation charts do not show the informal relationship existing among
the organisation staff members.
It is very difficult to maintain and ensure that the organisation charts are up-
to-date.
• The organisation charts create more rigidity or relationships prevailing
among the employees of the organisation.
• Most of the organisation charts are just like photos taken instant
The word and lines used in an organisation charts give different meaning to
different persons.
• The relationship shown in an organisation chart does not actually prevail
among organisation the employees.
• The organisation charts produce a psychological complex such as superiors,
inferiors
• There is no differentiation between line officers and staff officers in an
organisation
 ORGANIZATION MANUAL
This type of organisation manual is prepared for the purpose of evolving for the
organisation and providing guidance to control the development of the organisation
structure.

• A small book which contains the information regarding the organisation structure,
duties and responsibilities of each position, job, description, salaries, prevailing
relationships among members including organisation procedures and methods is
called organization manual.

• Information regarding leave, promotion, Transfer Contents Rules regarding leave,

leaving promotion, transfer.

A brief explanation Specimen forms :

• Name and address of the top executive

• Telephone of the organisation Address of the branch office
• Important sections
• Address of the showrooms
• Duties and responsibilities
• Full name address of the organisation
•
Organisation manual helps the personnel to know their
duties, responsibilities and relationship with others
within a short period
• The decisions taken by the management are given in an
elaborate manner. Organisation manual contains the
demanded method and procedures to be followed in nag
organisation. Then the organisation goals are easily
achieved.
• The blueprint rules and regulations are followed by the
employees and the controlling work is minimized.
• The employee of the organisation can get a clear picture
of the organisation.
Advantage of organisation manual :

1. The human relationships are defined and describes in the

organisation manual but they could not be practically followed in an
organisation.
2. Organisation manual will has some become outdated very soon. It is
due to continuous changes of the business, behavior of the
employees and the like.

Disadvantages of organisation manual:

1. Much time is necessary to keep the organisation manual up-to-date.

2. The preparation of organisation manual increases the administrative
expenses of the organisation.
3.The organisation manuals are not reviewed periodically. So the
relevant changes are not incorporated in the organisation manual.
AUTHORITY , POWER AND DEPARTMENTALISM
The term authority may be defined as:
Herbert Simon defines term as : “Authority may be defines as the power to
make decisions which guide the actions of others. It is relationship between
two individuals, one is superior and the other is subordinate. The superior
frames and transmits decisions with the expectations that the subordinate will
accept the decisions. The subordinate executes such decisions and his
conduct is determined by them.”
Authority is the right to make decisions and order others. In this reference, the
term authority, can be defined as: Authority is the special rights granted (by
superior) to position holder in the organization. Such rights enable him to
decide, to get the decision executed, to command (direct), and to allocate
resources.
Authority is the authtorization to decide. Authority enables a manager to
function effectively and independently. He can get the work done by virtue
of authority. A person is a manger due to possession of authority; authority
enables a man to be manger.
 FEATURES OF AUTHORITY

The basic features of authority has been listed below:

1.Authority is legitimate or legal(i.e., position – related and granted by superior) power
or the right to decide and / or to order.
2. The limit of authority( i.e., how much and in what way he can use authority) is
determined in advance. One has the authority doesn’t mean he is authorized to do
anything. He has to use the authority as per policies, rules, regulations, and norms
prescribed.
3. Authority is based on responsibility or assignment of work. Along with authority,
responsibility is also given. One can use authority to carry out responsibility.
4. It is position-bound. The right is given to a specific position holder. He enjoys
authority as long as he occupies that position.
5. It is a relationship between superior and subordinates, in which the superior can
exercise authority over the subordinates.
6. Authority is offered or given by ones superior. No one can be authorized without
superior’s consent.
7. Authority is a key to managerial action. Without it, superior cannot direct
and control subordinates’ actions.
8.The primary purpose of use of authority is to get the work done through
others. It is basic element of management.
9. Authority is also a link to integrate several parts/levels in the organization.
All parts in the organization are connected via authority. It is also a means
(or tool) for coordination.
10. Authority is given objectively but can be used subjectively. Use of
authority depends upon personality factors of authority holder.
11. Authority, in the context of organization, can be permanent or temporary,
and it can be increased, decreased, or even withdraw.
12. Authority is meaningless (i.e., has no value) if it is not exercised. It must be
exercised by making decisions, taking action, and controlling behavior of
subordinates.
AUTHORITY AND POWER
 DEPARTMNETATION

Departmentation as is defined follows:

Louis A. Allen:
“Divisionalisation is a means of dividing the large and monolithic
functional organisation into smaller, flexible administrative
units”.
Pearce and Robinson:
“Departmentalisation is the grouping of jobs, processes and
resources into logical units to perform some organisational
task.”
Terry and Franklin:
“Departmentalisation is the clustering of individuals into units
and of units into departments and larger units in order to
facilitate achieving organisational goals.”
According to Koontz and O’Donnell, “A department is a distinct area, division or branch
of an enterprise over which a manager has authority for the performance of specified
activities.”‘
In simple words, departmentation is the process of classifying and grouping all the
activities of an enterprise into different units and sub-units. The aim is to facilitate the
carrying out of the activities efficiently for achieving overall results.
Importance of Departmentation:
The following points highlight the importance of departmentation:
1. Organisation structure:
Division of work into units and sub-units creates departments. Supervisors and managers
are appointed to manage these departments. People are placed in different
departments according to their specialised skills. The departmental heads ensure
efficient functioning of their departments within the broad principles of organisation
(scalar chain, unity of command, unity of direction etc.).
Thus, organisation structure is facilitated through departmentation. If there are no
departments, it will be difficult to keep track of who is doing what and who is
accountable to whom.
Departmentation creates departments, assigns tasks to people, fixes their responsibility
and accountability to their departmental heads, creates a span of management so that
work can be easily supervised. This network of authority- responsibility relationships
is the basis of designing a sound organisation structure.
2. Flexibility:
In large organisations, one person cannot look after all the managerial
functions (planning, organising etc.) for all the departments. He cannot
adapt the organisation to its internal and external environment. Such an
organisation would become an inflexible organisation. Creating
departments and departmental heads makes an organisation flexible and
adaptive to environment. Environmental changes can be incorporated
which strengthen the organisation’s competitiveness in the market.
3. Specialisation: Division of work into departments leads to specialisation as
people of one department perform activities related to that department only.
They focus on a narrow set of activities and repeatedly performing the
same task increases their ability to perform more speedily and efficiently.
Specialisation promotes efficiency, lowers the cost of production and
makes the products competitive.
4. Sharing of resources:
If there are no departments, organisational resources; physical, financial and
human, will be commonly shared by different work units. Departmentation
helps in sharing resources according to departmental needs. Priorities are
set and resources are allocated according to the need, importance and
urgency regarding their use by different department.
6. Control:
Managers cannot control organisational activities if they have to be
collectively supervised. Departmentation facilitates control by
departmental manager over the activities of his department only.
Activities are divided into smaller segments, standards of
performance can be framed, factors affecting performance can be
identified and control can be more objective in nature.
7. Efficiency:
Flow of work from one level to another and for every department, i.e.,
vertical and horizontal flow of work in the organisation increases
organisational efficiency.
8. Scope for growth and diversification:
In the absence of departmentation, managers can supervise a limited
number of activities, depending upon their skills and abilities.
Departmentation enables them to expand their area of operation into
new product lines and geographical divisions. Departmentation
provides scope for organisational growth (along the same product
lines) and expansion (adding new product lines).
9. Responsibility:
Since similar activities are grouped in one department headed by
departmental managers, it becomes easy for top managers to fix
responsibility of respective managers for achieving the desired results.
If planned performance is not achieved, the department responsible
becomes answerable. When responsibility is clear, authority can also be
delegated to managers. Clear identification of responsibility and
authority increases efficiency of the departmental activities.
10. Development of managers:
Departmentation enables departmental heads to be creative in making
decisions with respect to their departmental activities. Training needs
can also be identified because manager’s task is clear and specific.
There are opportunities to improve performance in their area of
specialisation.
This develops their potential to be promoted to higher managerial positions
in the organisation. It also facilitates recruitment and selection of top
managers from within the organisation rather than depending on
outside sources.
Basis of Departmentation:
The form of organisation structure depends upon the basis of departmentation. Creating
departments and sub-dividing the work of departments into smaller units creates
organisation structure. With growing size of organisations, departments are created
for activities of similar nature.
There are two broad forms of departmentation:
• a. Functional departmentation, and
• b. Divisional departmentation.
a. Functional Departmentation:
Functional organisation creates departments along activities or functions of the
undertaking (functions do not refer to managerial functions of planning, organising ,
staffing, directing and controlling). It is grouping of activities on the basis of
similarities of functions.
The nature of activities performed by different organisations is different. For example,
activities carried by a manufacturing organisation are production, finance, personnel
and sales. For a trader, the major activities are buying and selling, a bank performs
borrowing and lending functions. Functional departmentation is, “the grouping of
jobs and resources within the company in such a way that employees who perform
the same or similar activities are in the same department”.
It is the simplest, logical and most widely accepted form of
creating departments. It is suitable for organizations where
limited number of products are produced. The major
functional departments further have derivative departments.
Production department, for example, has sub-departments to
manage purchase, production planning and control,
manufacturing etc. Finance department creates departments
to look into capital budgeting (fixed assets) and current
assets, cash management and budgets.
Personnel department has sub-departments to take care of
appointments, training, placement and promotion of
employees. These sub-departments can be further sub-
divided if needed. Advertising department (sub-department
of marketing department), for example, can further have
sub-departments like advertising in Newspapers, Radio, TV
etc.
Organisation Chart Showing Functional
Departmentation
 Merits of Functional Departmentation:

It has the following merits:

1. Simple and logical basis of creating departments:
Production, marketing, finance and personnel are widely accepted and
recognised functions of a manufacturing organisation and, therefore, it
is a simple basis of departmentation.
2. Specialisation:
Since workers in one functional area focus on that area only, they acquire
expertise and specialised skills in performing their duties. This offers
the benefits of specialisation; efficiency and speed.
3. Co-ordination:
People working in one department are closely knitted and work
collectively towards achievement of departmental goals. The
departmental manager can co-ordinate various derivative activities.
4. Training and control:
The departmental manager is accountable for functions performed by his
department. He ensures that activities are performed strictly according to
rules and procedures laid down for the department. He can, thus, exercise
control over his departmental activities. If workers are not able to carry out
the activities efficiently, managers can train them to do so.
5. Supervision:
It is easy for managers to supervise the departmental activities as they have to
supervise a narrow set of functional skills.
6. Suitable for stable organisations:
Organisations which do not frequently change their work units and work force
are suitable for creating departments on the basis of functional activities.
7. Suitable for small organisations:
This basis of departmentation is suitable for small sized organisations which
produce a limited line of products. Even for large organisations, it is
suitable only for top levels. Thereafter, some other basis of departmentation
has to be used. Marketing department, for instance, can be further branched
out on the basis of territorial or geographical departmentation.
 Limitations of Functional Departmentation
This form of departmentation suffers from the
following limitations:
1. Overall organisational goals:
The employees become so focused on departmental goals
that they lose sight of the overall organisational goals.
2. Delayed decisions:
Since decisions are made by departmental heads for their
respective departments, it may delay decision-making
for the organisation as a whole.
3. Co-ordination:
Water-tight compartments are sometimes created amongst
departments as people show loyalty towards their
departmental managers. Top manager finds it difficult
to co-ordinate various functional activities
4. Accountability:
Top managers find it difficult to hold accountability of any one department for
failure of the product in the market. For example, if the product does not
earn profits, top managers cannot say with assertion whether the problem
lies with production department or sales department.
5. Unsuitable for dynamic organisations:
As this is a suitable form of departmentation for stable organisations,
organisations operating in the dynamic environment do not accept
functional activities as the basis of departmentation. They use other basis of
departmentation also to remain competitive in the market; either customer
or product or territorial departmentation depending upon where and how
they want to reach, grow and expand their business.
6. Complexity:
As organisations grow complex in terms of size and operations, they add more
products to their line of products and expand into new geographical areas
for marketing the existing products. Functional departmentation is not
suitable in such cases.
b. Divisional Departmentation

Divisional structures are created on the basis of smaller

divisions where each division has its own functional
activities (production, finance, personnel and marketing).
Major divisions that determine the organisation structure are as
follows:
1. Product Departmentation:
This form of departmentation is suitable for companies that
produce multiple products. Product departmentation is
grouping of jobs and resources around the products or
product lines that a company sells. With increase in
operations of a company, it adds more products to its line of
products which require various functional activities
(production, marketing etc.). Product departmentation is
suitable for product diversification where marketing
characteristics of each product are different from others.
 Organisation Chart Showing Product Departmentation:
Product departmentation, along with various functional areas appear on the
organisation chart as follows
There could be further extension of this basis of departmentation. For
instance, if product C is a car, the department can be branched out
for commercial car, luxury car, special utility vehicle etc.
Merits of Product Departmentation:
Departmentation on the basis of product has the following merits:
(i) Better performance: One manager may not have skills to carry out
all operations for different product lines. By creating departments
where each product department looks after one product or product
line only, decision-making, fixing responsibilities and assessment of
performance can be done efficiently. Sales people for one product
will concentrate on sales promotion of that product only. This
ensures better performance of employees of each department.
(ii) Flexibility: Firms operating in the dynamic environment are well
suited for this form of departmentation as it helps them respond to
environmental changes, analyze competitors’ products and change
their product line, if necessary. The focus is completely on one
product and all functional activities related to that product rather
than one functional activity related to all products. This promotes
product specialization which helps in product growth.
(iii) Fast decisions: Since all decisions related to a product are taken by
product manager (under the guidance of General Managers of different
functional areas), decisions are taken quickly.
(iv) Co-ordination: All the primary and auxiliary activities are managed by
one manager. He can co-ordinate the efforts of people working under him.
(v) Control: Every product manager wants to maximize profits of his product,
for which he delegates authority to people of his department and establishes
authority-responsibility relationships amongst them. Subordinates are
trained to carry out functions related to each product. He, thus, controls
activities of his department to ensure that the product contributes to the
organisational goals.
(vi) Responsibility: Product managers are accountable for results of their
product departments. This promotes performance and profitability of
different product departments.
(vii) Efficiency: The costs and revenues of all the products can be compared.
This helps in eliminating the unprofitable products and promoting the
profitable ones thereby increasing organisational efficiency.
 Limitations of Process Departmentation
Process departmentation suffers from the following limitations:
(i) Co-ordination
(ii) Boredom
(iii)Customer Departmentation

Organisation Chart Showing Customer Departmentation:

The organisation chart for customer departmentation (for a lending company)
appears as follows:
 Merits of Customer Departmentation

Customer departmentation has the following merits:

(i) Competitive advantage: Contemporary marketing world revolves

around customers. ‘Consumer is the king.’ By catering to varied
customer needs, companies have an edge over competitors and,
therefore, better chances of survival and growth.
(ii) Customer orientation: The goal of an organisation is to earn
profits by customer satisfaction. An organisation where the basis of
departmentation is to sell goods according to customer needs
justifies its existence.
(iii) Specialization: A department created for satisfying customer
requirements becomes specialized in that area resulting in cost
efficiency. Sales people understand consumer behaviour and provide
them the desired services. They develop understanding with the
consumers and build clientele for the organisation.
 Limitations of Customer Departmentation
Customer departmentation has the following limitations:

(i) Co-ordination: Excessive involvement of employees in their respective

departments makes it difficult for top managers to co-ordinate the functions
of different departments.
(ii) Identification of consumer groups: It is not easy to identify various
consumer groups. A large industrial buyer for one product, for example,
may be a small buyer for another product. The same product may be of
industrial use for one buyer and personal use for another. Identifying buyers
as industrial and non-industrial is not very easy.
(iii) Change in consumer behaviour: Consumer department managers cannot
easily frame policies for their departments because of changing consumer
behaviour. Demand for the same product for same set of consumers differs
during different times. Marketing managers have to balance the time and
money spent in framing policies so that organisation can adapt to the
changing customer environment.
(iv) Specialised staff: Change in consumer behaviour, their demand for
different goods at different times cannot be easily predicted. The
departmental managers, therefore, must have specialised skills to determine
the consumer needs.
An organisation selling stationery, for example, also starts
selling cosmetics and pharmaceuticals. While marketing
strategies for cosmetics need to be intensive, it is not so in
case of stationery or pharmaceuticals. Similarly, funds
required for each product line are different.
The focus is on the product line and all functional activities
associated with the product line. Departments are created on
the basis of products and product manager has the authority
to carry out functional activities for his department. Each
product manager is in charge of his product line though
general managers of various functional areas provide them
the necessary support. It helps in coordinating the activities
of different products.
 4. Territory or Geographic Departmentation
In territorial departmentation, organisation creates departments:
(i) Close to its customers because they are geographically dispersed
over different areas, or
(ii) Near the sources of deposits.
Each geographic unit has resources to cater to the needs of consumers
of that area. The production, purchase, personnel and marketing
activities are looked after by departmental managers but finance is
vested at the headquarters. General Manager of every department
looks after functional activities of his geographical area but overall
functional managers provide supporting services to the managers of
different areas.
Thus, customers of different regions with different tastes and
preferences for the same product are looked after by geographical
departments set up in their territories. The product or customer
differentiation, both can be the basis of geographic or territorial
departmentation. This basis is suitable for large-sized organisations
which have activities dispersed over different geographical areas.
 Organisation Chart Showing Geographic Departmentation:
Division of organisation on the basis of geographic dispersal of activities
appears on the organisation chart as follows:
 Merits of Geographic Departmentation:
It has the following merits:
(i) Training and development:
Employees are trained to sell goods in specific areas according to customer
needs.
(ii) Customer orientation:
The emphasis is on selling in different regions according to customer needs.
‘Consumer is the king’ is duly recognised by departmental managers as they
develop their skills to know the customs, styles and preferences of
customers of different regions. Managers are able to promote sales as they
are aware of the local conditions of the area where they are operating.
(iii) Low cost of production:
If firms establish their areas of operation near the sources of raw material, they
will be able to produce at low cost and take advantage of economies of
operation.
(iv) Communication:
The sales people belong to local areas of operation. They can directly
communicate with the consumers and frame policies to satisfy their needs.
 5. Departmentation by Time

This method of departmentation is used in situations where work is done

round the clock because:
1. The machine cannot be stopped before finishing the work.
2. The demand is high and the machine has to work overtime.
3. The nature of work entrusted to the organisations is such.
4. The services are essential in nature (health and fire services).
5. Workers work in shifts; morning, afternoon and night, so that work can progress
continuously.
These points are illustrated below:
1. The machine cannot be stopped in manufacturing steel and workers, therefore,
have to work in shifts.
2. During boom conditions, the demand increases and, therefore, extra load has to
be borne by machines. This is possible through shift duties.
3. Airlines, where flights arrive and depart, work throughout the day.
4. Essential services like hospitals and fire stations deal with emergencies and,
thus, people work in shifts.
Departments are created for each shift though the objectives and
nature of work carried in all the departments is the same.
This method of departmentation results in optimum utilisation of
machines as they work continuously which otherwise may
remain idle. It is also good for workers who cannot work during
day time. They can be gainfully employed during evening or
night shifts.
There are problems of co-ordination and supervision of employees
who work in shifts. Employees have to explain to the workers
joining the next shift about the stage of completion at which they
are leaving the work which may not always be possible.
It is also a costly form of departmentation as each shift has separate
functional departments.
6. Departmentation by Size:
• This method is followed in army where number of workers in
the unit is important. The company’s performance is judged by
the number of people working with it, and therefore, it adopts
departmentation by size. Departments are created on the basis
of number of people who form the department. Soldiers in
army are grouped in numbers to form departments.
7. Departmentation by Task Force:
• When organisation has a number of projects, it forms task
forces which consist of people from different units having
different skills to complete those projects. These groups are
formed temporarily till completion of the project. They are
similar to project organisations.
 ORGANISATIONAL EFFECTIVENESS
High level of organisational effectiveness is the need of the time. Effective
organisation can comfortably face local and global challenges and can
emerge opportunities across the globe. It can maintain pace with dynamic
environment and can ensure survival and steady growth over time. Today’s
organizations focus on many areas to improve effectiveness, such as basic
inputs, organisational climate and culture, products(goods and services),
customer orientation, socially significant activities, competitiveness and
innovation, relationship building with key stakeholder. Even, US based
giant companies including IBM, GE, GM ,etc., have entered the danger
zone and are struggling. Nokia, cell phone instrument giant, experienced
severe decline in sales due to low effective organizations can sustain steady
growth.
 Definitions of Organisational Effectiveness
Organizations effectiveness is difficult to define in an exact manner. Confusion is the
result of different view points and expectations of people. For example, marketing
manager equates effectiveness with volume of shares and market shares, financial
manager focuses on profits, PE ratio, and earnings per shares , while hr manager
emphasises on employee morale and satisfaction. Effectiveness is, thus, a
multidimensional concept. However ,the term is defined as:

Amitai Etizioni: “ Organizational effectiveness is the degree to which an organization

realises its goals.”

Basil Georgopolous and Arnold S Tannenbaum: “ Organizational effectiveness is the

extent to which an organization, given certain resources and means, achieves its
objectives with out placing undue strain on its members”.

The term can be defined as: Organizational effectiveness refers to the degree to which the
organization is able to achieve its stated goals successfully within given resources.
 ORGANIZATIONAL CHANGE
Organizational Change refers to a modification or transformation of the organization’s
structure, processes or goods. ORGANIZATIONAL CHANGE is defined as change that
has an impact on the way work is performed and has significant effects on staff.

ORGANIZATION CHANGES CAN BE: • In the structure of an organization •In the

structure of an organizational operation and size of a workforce • In working hours or
practices • In the way roles are carried out • In the scope of a role that results in a change
in the working situation, structure, terms and conditions or environment.

ORGANIZATION CHANGES CAN BE:

TYPES OF CHANGES: 1. Planned Change 2. Unplanned Change

• Planned Change is change resulting from a deliberate decision to alter the organization.
It is an intentional, goal – oriented activity.

• Unplanned Change is imposed on the organization and is often unforeseen.

 FORCES FOR CHANGE IN ORGANIZATION
1. External Forces 2. Internal Forces
External Forces
• Technological change • Globalization • Social & Political changes • Workforce
diversity
Internal Forces
• Changes in managerial personnel • Declining effectiveness • Changes in work
climate • Deficiencies in existing system • Crisis • Employee expectation
PROCESS OF CHANGE UNFREEZING CHANGE REFREEZING Reducing
forces for status quo(exsisting social or political issues). Developing new
attitudes, values & behavior. Re-inforcing new attitudes, values & behavior
CHANGE AGENT
• change agents may be either external or internal.
• is anyone who has the skill and power to stimulate, facilitate, and coordinate
the change effort.
 RESISTANCE TO CHANGE
1. Individual Resistance 2. Organizational Resistance

Individual Resistance Individual sources of resistance to change reside in basic human

characteristics such as perceptions, personalities & needs.
Economic Reason –The economic reason of resistance to change usually focus on:
Reasons of Individual Resistance :
Fear of reduced work hours & consequently less pay.
Fear of technological unemployment.
Fear of demotion & thus reduced pay.
Fear of Loss- When a change is impending, some employees may fear losing their jobs, status
particularly when an advanced technology is introduced.
Security – people with a high need for security are likely to resist change because it threatens
their feeling of safety. Status quo- change may pose disturbance to the existing comforts of
status quo.
Peer Pressure- individual employees may be prepared to accept change but refuse to accept it for
the sake of the group.
Disruption of Interpersonal Relation- employees may resist change that threatens to limit
meaningful interpersonal relationships on the job.
Social Displacement- introduction of change often results in disturbance of the existing social
relationships. Change may also result in breaking up of work groups.
 Organizational Resistance

Individual sources of resistance to change reside in basic human characteristics

such as perceptions, personalities & needs.
• Reasons of Organizational Resistance Resource constraint- resources
are major constraints for many organizations. The necessary financial ,
material & human resources may not be available to the organization to
make the needed changes.
• Structural inertia – some organizational structures have in-built
mechanism for resistance to change. Example: in bureaucratic structure
where jobs are narrowly defined & lines of authority are clearly spelled out,
change would be difficult. Sunk cost - Some organization invest a huge
amount of capital in fixed assets. If an organization wishes to introduce
change, then difficulty arise because of the sunk cost
• Threat to expertise- Change in organizational pattern may threaten the
expertise of specialized groups. Therefore, specialists usually resist change.
Politics- Organizational changes may also shift the existing balance of
power in an organization. Individuals or groups who hold power under the
current arrangement may fear losing these political advantages.
 MANAGING RESISTANCE TO CHANGE
Communication about impending change is essential if employees are to adjust
effectively. The details of change should be provided & its potential
consequences. Educating employees on new work procedures is often
helpful. Education & Communication
1. It is difficult for individuals to resist a change decision in which they
participated. Prior to making a change, those opposed can be brought into
the decision process. Participation Empathy & Support Active listening is
an excellent tool for identifying the reasons behind the resistance. An
expression of concerns about the change can provide important feedback
that managers can use to improve the change process.
2. Negotiation Manipulation & Cooptation another way to deal with resistance
to change is to exchange something of value for reduction in resistance.
Refers to covert influence attempts. Twisting & distorting facts to make
them appear more attractive, withholding undesirable information &
creating false rumors to get employees to accept a change.
3.Coercion is the application of direct threats or force on the resisters. They
essentially force people to accept a change by explicitly or implicitly
threatening them with the loss of their jobs, promotion possibilities &
transferring them.
 SIGNIFICANCE OF ORGANIZATION
In order to put the plan into action, a manager needs a formal structure of the organization. Every
company tries to create the most suitable structure of organization to direct efforts effectively
towards achievements of goals.
The American industrialist, Andrew Carnegies, said about the significance of organization: “ Take
away our factories, take away trade, revenues of transportation, our money, and leave nothing
to us but our organization, and in four years, we shall have established ourselves.”
1. Tool for Management Action
2. Achievement of Objectives Efficiently
3. Provision for all Activities
4. Benefit of Specialization
5. Effective Assignments of Work and Delegation of Authority
6. Clarity and Reduced Conflict
7. Promotion of Healthy Relations
8. Promotion Creativity
9. Optimum Use of Resources
10. Better Coordination
11. Reputation and Goodwill in the market
12. Facility for Expansion, Development and Diversification
13. Flexibility and Balancing
14. Employees’ Satisfaction and High morale
15. Base for Other Managerial Functions
 IMPORTANCE OF ORGANIZATION

Synergy effect: In an organization, people having different skills and

expertise work together to produce the synergetic effect with the
help of latest technology. The result of the work done in group
will be higher as compared to the additional value of individual
work. Organizations make possible the complex activities. A very
small team of players and very small number of civil servants can
manage the activities of the government and the nation.
Team Spirit: Organizations always enhance the team spirit within its
team members. No organization can attain its goal with a single
effort of limited members. So, by naturally organization strengthen
the feeling of team spirit to his components.
Attainment of Common goal: Different individuals have different
goals on the basis of their social values and they come to the
organization in the expectation of the fulfillment of those goals.
Organizations fulfill their goals by creating the environment of
compliance of organizational goals with the individual goals.
Organizations motivate them for the commitment in the
common goal.
Employment Opportunity: The organization has thousands
of small tasks and responsibilities in hierarchical form for
the goal attainment obviously creating employment
opportunity in variety of scale.
Economic Development: Through the employment,
purchasing power will increase as well as the organization
has to pay tax resulting more revenue collection for
government. This revenue will help in the infrastructure
development like roads, hospitals etc. On the other way,
employment generation is the basic tools for the economic
development for any nation. Employment creates income,
income creates purchasing power, purchasing power creates
demand, and to fulfill the increased demand production
should be increased. To produce more, again more
employment is necessary. Thus this helps for economic
development creating a good economic development circle
in the nation.
Specified Service: Organizations are established to
produce or render specified goods or services to the
society giving emphasis on innovation and creativity.
This also helps to fulfill the costumer needs bringing up
the social awareness.
Minimize Economic Disparities: As the lower level
people get the opportunity to work and get
remuneration, the economic gap between the different
levels of society will be lowered.
Transfer and adaptation of technology: Any
organization is involved in ongoing process of research
to enhance its level of services. In this course, it adapts
the latest technologies available in the market and
indirectly it also imparts these technologies to the
society through its members.