Class 12-commerce NCERT Solutions Business Studies Chapter 5 - Organising

A network of social relationships which arises spontaneously due to interaction at work is called an informal organisation. It arises out of free social interaction among employees of an organisation.

On the other hand, a formal organisational structure is one wherein the boundaries of authority are systematically and clearly defined in an organisation.

The other two options as given in the question, namely delegation and decentralisation, are related to the concept of transferring authority and responsibility to the lower levels in the hierarchy. 

Span of management refers to the number of subordinates under a superior. It is based on how many subordinates can be handled by a superior.

Steps involved in the process of organising:

1. Identification and Division of Work: The first step in the process of organising is to identify the various activities in the organisation and to divide them according to the plans. Division of work ensures that there is no duplication of work. In this way, it avoids the wastage of resources.
2. Creation of Departments: When the work is divided, activities which are similar in nature are grouped together in departments. This grouping can be done on the basis of several criteria such as regions and products. It promotes specialisation in work.
3. Assigning Duties: The third step is to assign and allocate the work to different employees. It must be ensured that the work is assigned according to the skills and capabilities of employees. In other words, it must be ensured that the best suitable person is selected for the work.
4. Establishing Relationships: A proper hierarchical structure must be established. Every employee must be clear that from whom he would take orders and to whom he is reporting. Such clarity in working relationships help in smooth operations in the organisation. 

Delegation refers to the act of transferring authority to lower levels in hierarchy. Basic elements of delegation:

1. Authority: It refers to the power of giving commands and directions to the subordinates. Herein, power is given with regard to deciding what activities are to be done and by whom. In a formal organisation, a scalar chain defines authority. In an organisation, the authority flows from top to bottom, i.e. the top-level management has the highest authority, then the middle level and the lowest is the lower level management. Assigning authority promotes obedience and compliance in the organisation.
2. Responsibility: Responsibility refers to the obligation that the task which is assigned is successfully completed within the stipulated time. A responsible subordinate is obedient and loyal towards the duties assigned to him. Contrary to authority, responsibility flows upward, i.e. the subordinate is responsible to his superior. However, it must be ensured that while giving responsibility, a fair degree of authority is also given. Similarly, the one who has authority must also be responsible. This is because without responsibility, authority may lead to the unjustified use of power. On the other hand, responsibility without authority would hamper efficiency.
3. Accountability: Accountability implies being answerable for the outcome of the work. In an organisation, the superior is accountable for the work assigned by him. Although he has delegated the work to the subordinates, he is still responsible for the outcome. The superior must ensure that the tasks are performed and completed satisfactorily. For this, regular feedback and supervision must be given. 

A functional organisational structure is one wherein the activities of a similar nature are grouped together in departments, and all departments in turn report to a head. For example, an organisation can have numerous departments such as production, human resources, finance and marketing, each of which in turn report to a coordinating head.

A functional structure proves to be more suitable in an organisation where there are a large number of diversified activities which require a high degree of specialisation.

Points highlighting the suitability of a functional structure:

1. Large Size: If a large size organisation is divided into smaller departments, it would promote greater efficiency and smooth operations.
2. Varying Functions: To deal with a large number of diversified activities simultaneously, a high degree of coordination is required. This coordination in activities is provided by departmentalisation.
3. Requirement of Specialisation: Performance of varying functions smoothly and efficiently requires specialisation. Under a functional structure, each department can specialise in their respective functions.  

A functional structure proves to be more suitable in a large organisation where there are a large number of diversified activities and operations which require a high degree of specialisation.

No, for an organisation to work smoothly, it is necessary that it is neither completely centralised nor completely decentralised. Rather, it must have a balance of the two.

Centralisation refers to the concentration of the decision-making power or authority only in a few hands at the higher level of management. In other words, all the important decisions with regard to planning, policy making and controlling are taken by the top-level management without any involvement of the lower management.

On the other hand, decentralisation refers the delegation of authority or power to the lower level in the hierarchy. The decision-making power is distributed at different levels.

An organisation must have a mix of both centralisation and decentralisation. With the growth of the organisation, it becomes necessary for it to decentralise. For smooth operations, it is required that those involved in the actual work process have a fair degree of authority and responsibility. Moreover, decentralisation is required for quick decision-making, which is specially needed with the growth of the organisation.

However, decentralisation must be followed only up to a certain limit. Complete/extreme decentralisation may harm the harmony of the organisation. It may happen that with the decision-making power, the lower level managers mould the rules and policies and diverge away from organisational goals. The top-level managers must retain certain degree of authority and power so as to maintain integrity of the organisation.

Both concepts of decentralisation and delegation are related to delegation of authority and responsibility to lower levels in the hierarchy. While delegation is concerned with just one level of hierarchy, decentralisation, on the other hand, is concerned with multiple levels. In other words, under delegation, the superior shares authority with the immediate subordinate. On the other hand, under decentralisation, authority is shared with multiple levels down the hierarchy. Thus, decentralisation is the wider form of the same concept as delegation. So, delegation at multiple levels leads to decentralisation. For example, suppose in an organisation the Managing Director delegates the responsibility of completing a project, hiring the required personnel and supervising the tasks to a project head. The project head in turn delegates the responsibility of hiring personnel and supervision to the team leader. In this situation, there is delegation of authority and responsibility to multiple levels-from the Managing Director to the Project Head and further to the team leader. This delegation of authority to lower levels gives rise to decentralisation.

Informal organisation means the social relationships which emerge from the interactions among employees in an organisation. In other words, it arises spontaneously out of the social friendly interactions among the like-minded personnel in a formal organisation. An informal organisation is said to support the formal organisation in the following ways:

1. Free Flow of Communication: In an informal organisation, there is free interaction and communication. In this way, it spreads information faster. Any information in the formal organisation which needs to be spread quickly can be done so with the help of an informal organisational structure.
2. Coordination: In an informal organisation, people develop a feeling of mutual trust and belongingness towards each other. This promotes better coordination among them.
3. Organisational Objectives: In an informal organisation, managers can interact freely with the subordinates. They can discuss various matters and assess their reactions easily. This supports the achievement of organisational goals along with personal goals.
4. Harmonious Environment: An informal organisation promotes the development of a harmonious and friendly working environment. Various issues and disputes in the formal organisation can be solved with the help of an informal organisation.
5. Efficiency and Productivity: A harmonious and friendly working environment helps in fulfilling the psychological and social needs of employees. This in turn helps in improving the productivity and efficiency in the organisation.  

In the given situation, divisional structure should be followed wherein various diversified business activities of the organisation can be grouped in different divisions. In the given situation, different units can be for shoes, leather bags and western formal wear. Each division is headed by a divisional manager who is responsible for the performance of that division. Further, under each division, multiple functions are performed such as production, sales and marketing.

In the given situation, a divisional structure is more suitable for the following reasons:

1. Under divisional structure, each division is responsible for its own profit and loss. In this way, the performance of each division of the organisation can be clearly evaluated, and so necessary actions can be taken.
2. Under divisional structure, each division is free to take its own decisions. Accordingly, the decision making and action are quick.
3. Divisional structure enables easy growth and expansion of the organisation. This is because new divisions can be easily added without affecting the existing divisions. 

In the given situation, a functional organisational structure is more suitable.

The following points justify the use of functional organisational structure:

1. As the given organisation is large in size, dividing it in smaller departments would promote greater efficiency and smooth operations.
2. To deal with a large number of diversified activities simultaneously, a high degree of coordination is required. This coordination in activities is provided by departmentalisation.
3. Performance of varying functions smoothly and efficiently requires specialisation. Under a functional structure, each department can specialise in their respective functions.  

Grouping of activities on the basis of functions is a part of functional organisation. A functional organisational structure is the one wherein activities of a similar nature are grouped together in departments. All the departments, in turn, report to a head.

Delegation refers to the act of transferring authority to lower levels in the hierarchy. For effective and smooth functioning, delegation is important for an organisation. Delegation helps in lowering the burden of top-level managers and thereby enables them to focus on other priority areas. Moreover, with delegation, the area of operations can also be easily extended. While on one hand, it is helpful for managers, on the other hand, it is beneficial for subordinates in the sense that it provides them with better opportunities for growth and development.

The following points explain the importance of delegation for effective organising:

1. Managerial Efficiency: With delegation, the burden of the top managers gets reduced to a large extent. They can focus on priority areas (such as research and innovation) while the routine work is handled by the subordinates independently. In this, the efficiency of the managers is increased.
2. Employee Proficiency: Delegation proves beneficial to the subordinates as well in the sense that it provides them with the opportunity to work independently, apply their own creativity and skills. This helps in their growth and development.
3. Motivation: Delegation of authority proves psychologically beneficial to subordinates. It motivates them to work to the best of their efficiency. It helps in developing a feeling of trust and commitment between superior and subordinate.
4. Growth: With delegation, employee proficiency is increased. In other words, it helps in preparing future managers take up leading positions and greater responsibilities. This supports the growth and expansion of the organisation.
5. Hierarchical Structure: The superior-subordinate relationship in an organisation is determined by delegation. In other words, it helps in determining the reporting relationships in the organisation.
6. Coordination: By clearly defining the reporting relationships, it helps in reducing the overlapping of work, thereby promoting better coordination.  

Divisional structure refers to an organisational structure wherein various diversified business activities of an organisation are grouped in different divisions. Each division is headed by a divisional manager who is responsible for the performance of that division. Further, under each division, multiple functions are performed such as production, sales and marketing. In other words, under each division, there is a functional structure.

This can be depicted with the help of an example. Suppose an organisation deals in the manufacturing of four products, namely footwear, garments, jewellery and leather accessories. Accordingly, there are four divisions, each of which reports to the Managing Director. Further, under each division, there are four departments-production, sales, marketing and advertising.

Points highlighting the importance of the divisional structure of the organisation:

1. Managerial Efficiency: Under divisional structure, each division is headed by a division head. The division head performs multiple functions for the division. In this way, he gets multiple opportunities for new experience and development. It helps in developing his skills and knowledge.
2. Gauging Performance: Under divisional structure, each division is responsible for its own profit and loss. In this way, the performance of each division of the organisation can be clearly evaluated, and so, necessary actions can be taken.
3. Flexibility and Initiative: As under divisional structure, each division functions independently. The divisional heads have the authority to take their own decisions. This promotes flexibility and initiative in the organisation.
4. Growth: Divisional structure enables easy growth and expansion of the organisation. This is because new divisions can be easily added without affecting the existing divisions. 

Some disadvantages of a divisional structure:

1. Departmental Conflicts: With the functioning of multiple divisions simultaneously, it may happen that a conflict arises between them with regard to decisions such as allocation of funds and resources. For example, a conflict may arise with regard to division of workforce among the divisions.
2. Increase in Cost: As each division functions separately, several activities which are common to the organisation are performed for each division separately. In other words, there is duplication of activities. This leads to an increase in the overall cost for the organisation.
3. Ignorance of Overall Objectives: It may happen that in achieving the divisional goals, the overall organisational goals take a back-seat. In other words, while focusing on the divisional objectives, the divisional managers ignore the overall organisational objectives.  

Decentralisation refers to the delegation of authority and power to the lower level in the hierarchy. It is optional in the sense that it is up to the organisation to decide that how much authority and power it wishes to delegate to the lower levels. The following points explain why an organisation would choose to be decentralised:

1. Initiative: Decentralisation provides managers the freedom and authority to take their own decisions. In this way, it gives them opportunities to take initiatives. This helps managers to develop self-confidence.
2. Managerial Competence: Decentralisation provides the personnel the opportunity to gain new experience and develop their skills. This helps in improving their competence. In this way, it helps in the development of future managers who can take greater responsibilities.
3. Control: With decentralisation, the performance of various departments can be evaluated in a better manner. The contribution of each department towards the overall objectives can be easily analysed.
4. Active Decision Making: Decentralisation enables decision making at the nearest point of action. This ensures quick decision making.
5. Growth: With decentralisation, the responsibility is passed on to the lower levels in the hierarchy. This motivates them to work to their best, improving their competence and efficiency. Accordingly, the overall performance and growth of the organisation is enhanced.
6. Reduced Workload of Top Managers: With decentralisation, a part of the responsibility of the top-level managers is passed on to the lower management. Accordingly, the top managers can focus on other priority areas, while the lower managers handle the routine work.  

Differential factors between centralisation and decentralisation:

Points highlighting the differences between a functional structure and a divisional structure:

No, the foreman cannot be blamed. In the given situation, while the production manager gave the responsibility to the foreman, he did not give him the required authority to carry out the task. It must always be remembered that with responsibility, a fair degree of authority is also necessary for smooth functioning.

As the organisation plans to diversify into new products, it would be appropriate for it to follow a divisional organisational structure, wherein various diversified business activities of the organisation can be grouped in different divisions. In the given situation, different divisions can be for simple toys and electronic toys. Each division would be headed by a divisional manager who would be responsible for the performance of that division. Further, under each division, multiple functions are performed such as production, sales and marketing.

Benefits which the company would derive from following a divisional structure:

1. Under divisional structure, each division is responsible for its own profit and loss. In this way, the performance of each division of the organisation can be clearly evaluated, and so, necessary actions can be taken.
2. Under divisional structure, each division is free to take its own decisions. Accordingly, the decision making and action are quick.
3. Divisional structure enables easy growth and expansion of the organisation. This is because new divisions can be easily added without affecting the existing divisions. 

The major change which is required is to move away from a complete formal organisational structure and allow a certain level of informal structure in the organisation.

An informal structure arises out of social interactions among employees of an organisation which are beyond their formal hierarchy.

An informal structure would benefit the organisation in the following manner:

1. In an informal organisation, there is free flow of communication. So, information spreads faster.
2. An informal organisation promotes a feeling of belongingness and mutual trust among employees. This helps in improving the working efficiency and productivity.
3. An informal organisation supports the working of formal organisation, thereby helping in the fulfilment of organisational objectives in a better manner.

The company can diversify in other sewing-related products such as better and technologically advanced sewing machines, machines with advance features such as embroidery etc. 

A major change which needs to be adopted is a move towards decentralisation.

With the growth of the organisation, it would be inappropriate for it to maintain complete centralisation. Certain authority and responsibility must be delegated to the lower level management for smooth and efficient functioning. Decentralisation would benefit the organisation in the following manner:

1. With decentralisation, managers at the lower level would have greater freedom to take initiatives and decisions.
2. Decentralisation helps in developing the competence of lower level managers which proves useful to the organisation in the long run.
3. With decentralisation, the decisions are taken near the point of action. Accordingly, decision making and action are quick.