Slide 1

ORGANISATI
ON

An organization is the pattern of ways in which
large numbers of people, too many to have
intimate face to face contact with all others, and
engaged

in

a

complexity

of

tasks,

relate

themselves to each other in the conscious,
systematic establishment and accomplishment
of mutually agreed purposes.

In terms of all the above definitions, corporations,

armies, schools, hospitals, churches, prisons, etc.
all are organizations.

But tribes, ethnic and friendship groups and
families are not organizations because they do not

involve

any

significant

amount

of

conscious

planning, coordination or deliberate structuring.

1.

A purpose, goal or
goals which has
already indicated in
a previous chapter
are the task of
planning.

2.

A clear concept of
the major duties
or activities
required to
achiever the
purpose.

Characteristics

of
an Organisation

3. Classification of
activities into jobs

4. Establishment of
relationships
between
these jobs.

Typology of Organisations
All organizations appear alike.

But this is not so.

Every organization has certain unique combination of
the above characteristics which distinguish it from all
other

organizations.

Blau

and

Scott5 classify

organizations into four categories using the criterion
of cui bono—who benefits:

1. Organisations which benefit their owners.
business organizations fall in this category.

All

2. Organisations which benefit their members. A wide
class of unions, cooperatives and clubs come under
this category.
3. Organisations which benefit their clients. Examples
are insurance companies, private schools, etc.
4. Organisations which benefit the whole society
(commonwealth
organizations)
such
as
governmental departments.

Consideration of Objectives

The first step in organizing is to know the objectives
of the enterprise. Objectives determine the various
activities which need to be performed and the type of
organization which needs to be built for this purpose.
Consideration of objectives is the first step in the
process of organizing.

A

Grouping of Activities into
Departments

B

C

The next step is to identify the activities necessary to
achieve them and to group the closely related and
similar activities into departments and sections. For
example, the activities of a manufacturing concern may
be grouped into such departments as production,
marketing, financing and personnel.

Deciding which Departments
will be Key Departments
Which department needs to be emphasised how much
will depend, of course, on the company’s objectives and
the way it seeks to be distinctive.

For example, a

company which believes that advertising is a primary
key to success will set up a separate advertising
department that reports directly to the president. But

another

company

which

considers

it

much

less

important may only create a separate section for it under
its sales department.

Determining Levels at which Various Types of
Decisions are to be Made
After deciding the relative importance of various departments,
the levels at which various major and minor decisions are to be

made must be determined. Each firm must decide for itself as to
how much decentralization of authority and responsibility it
wants to have. Extreme decentralization may lead to loss of

control and effective coordination as a result of which the firm as
a whole may fail to achieve its overall objectives.

Extreme

centralization, on the other hand, may lead to wrong decisions at

wrong times and complete breakdown of the morale of
employees.

Determining the Span of Management
The next step to be taken in designing a structure is
to determine the number of subordinates who
should report directly to each executive.

Setting up a Coordination Mechanism

First of all comes activities analysis. A thorough and
careful activities analysis clarifies as to what work has

to be performed, what kinds of work belong together,
and what emphasis each activity is to be given in the

organization structure.

Next

comes

decision

analysis.

Although

it

is

impossible for anyone to anticipate the contents of
future decisions, one can predict their kinds and
decide their places so that when they rise in future.
Finally, an analysis should be made of the various
relationships between the tasks of a manager and

those of his subordinates, peers and superiors.

SPAN OF MANAGEMENT
Meaning and Importance :
The term “span of management” is also referred to as
span of control, span of supervision, span of authority
or span of responsibility.

It indicates the number of

subordinates who report directly to a manager.

Span of management is important for two reasons.
• First, span of management affects the efficient

utilization of managers and the effective performance
of their subordinates.

• Second, there is a relationship between span of
management and organisational structure.

PRINCIPLES OF ORGANISING
• Objectives : The objectives of the enterprise influence

the organization structure and hence the objectives of
the enterprise should first be clearly defined. Then
every part of the organization should be geared to the
achievement of these objectives.

• Specialisation Effective organization must promote
specialization. The activities of the enterprise should be
divided according to functions and assigned to persons

according to their specialization.
• Span of Control As there is a limit to the number of
persons that can be supervised effectively by one boss,
the span of control should be as far as possible, the
minimum. That means, an executive should be asked to
supervise a reasonable number of subordinates only
say six.

• Exception As the executives at the higher levels have
limited time, only exceptionally complex problems
should be referred to them and routine matters should
be dealt with by the subordinates at lower levels. This
will enable the executives at higher levels to devote time
to more important and crucial issues.
• Scalar Principle This principle is sometimes known as
the “chain of command”. The line of authority from the

chief executive at the top to the first-line supervisor at
the bottom must be clearly defined.

• Unity of Command Each subordinate should have only
one superior whose command he has to obey. Dual
subordination

must

be

avoided,

for

it

causes

uneasiness, disorder, indiscipline and undermining of
authority.
• Delegation Proper authority should be delegated at the

lower levels of organization also.

The authority

delegated should be equal to responsibility, i.e. each
manager should have enough authority to accomplish

the task assigned to him.

• Responsibility The superior should be held responsible
for the acts of his subordinates. No superior should be
allowed to avoid responsibility by delegating authority
to his subordinates.
• Authority The authority is the tool by which a manager is
able to accomplish the desired objective.

Hence, the

authority of each manager must be clearly defined.
Further, the authority should be equal to responsibility.
• Efficiency The organization structure should enable the
enterprise to function efficiently and accomplish its
objectives with the lowest possible cost.

• Simplicity The organization structure should be as

simple as possible and the organization levels should,
as far as possible, be minimum. A large number of
levels of organization means difficulty of effective

communication and coordination.
• Flexibility The organization should be flexible, should

be adaptable to changing circumstances and permit
expansion and replacement without dislocation and
disruption of the basic design.

• Balance There should be a reasonable balance in the
size of various departments, between centralization
and decentralization, between the principle of span of

control and the short chain of command, and among
all types of factors such as human, technical and
financial.
• Unity of Direction There should be one objective and
one plan for a group of activities having the same
objective. Unity of direction facilitates unification and
coordination of activities at various levels.

• Personal Ability As people constitute an organization,
there is need for proper selection, placement and

training of staff.

Further, the organization structure

must ensure optimum use of human resources and
encourage management development programmes.

DEPARTMENTALISATION
Departmentalisation is one important step of building an
organization.

The aim is to take advantage of the

division of labour and specialization upto a certain limit.

There are several bases for departmentalization, each of
which

is

suitable

for

strategies and purposes.

particular

corporate

sizes,

Functions
By

far

the

most

widely

used

base

for

departmentalization is function. Each major function

of the enterprise is grouped into a department.

Advantages
• Everybody in this form of organization understands his own task
and feels highly secure both in his work and in his relationships.

•It promotes excellence in performance because of development of
expertise through specialization.
•It leads to improved planning and control of the key functions.
•It ensures economy, there is only one department related to one
function for the entire function. Manpower and other resources of
the company are effectively utilized by time-sharing them across
products or projects.

Drawbacks
• It fosters sub-goal loyalties. It is difficult for any one
to understand the task of the whole and to relate his
own work to it.
• It does not offer a good training ground for the overall
development of a manager.

• It is unsuitable for organizations which are large in
size, complexity or innovative scope.

• In

this

form

customer

needs

evoke

conflicting

interpretations like the story of twelve blind people and

the elephant.
• In this form procedures are overly complicated,
wasteful and time-consuming—a weakness sometimes
called as “organizational arthritis”.

The structure is

rigid and resists adaptation.

• In this form because of “common pot” accounting it is
difficult to judge whether the activities of a particular
department are worth their cost.

Products
Under this method, for each major product, a separate
semi-autonomous department is created and is put

under the charge of a manager who may also be made
responsible for producing a profit of a given magnitude.
Within each department, all the needed manufacturing,

engineering, marketing, manpower and other facilities
are

assembled.

detergents,
products),

Hindustan

toiletries,

Lever

chemicals

(manufacturing

and

agro-based

Richardson Hindustan (manufacturing a range of Vicks
products, Clearasil cream and soap), and Johnson and
Johnson (manufacturing a range of products for

children and surgical sutures) have product-based
departments

Advantages
• This form relieves top management of operating task
responsibility. It can therefore better concentrate on such
centralized activities like finance, R&D and control.

• This form enables top management to compare the
performance

of

different

products

and

invest

more

resources in profitable products and withdraw resources

from unprofitable ones.

•

In this form, since the responsibility for each product’s
performance is entrusted to a particular departmental head,
he is better stimulated for improving his performance.

•

In this form, those who work within a department derive

greater satisfaction from identification with a recognizable
goal.

Customers
An enterprise may be divided into a number of departments on
the basis of the customers that it services. For example, an
electronics firm may have separate departments for military,
industrial and consumer customers.

A big automobile

servicing enterprise may have separate departments for
servicing cars, heavy vehicles and scooters or an educational
institution may have separate departments for day, evening
and correspondence courses to impart education to full-time
students, locally employed students and outstation students.

Regions or Territory
When

several

organization

production

are

or

marketing

geographically

units

dispersed

in

of

an

various

locations, it is logical to departmentalize those units on a
geographical

basis.

The

Indian

Railways

are

departmentalized on this basis. Northern Railways, Western
Railways, Southern Railways, Eastern Railways, Central
Railways, etc. are departments in this sense.

The Food

Corporation of India has also geographical organization with
several zonal offices at different places and a head office in
New Delhi.

Advantages
• It motivates each regional head to achieve high performance.
• It provides each regional head an opportunity to adapt to his
local situation and customer need with speed and accuracy.
• It affords valuable top-management training and experience
to middle-level executives.
• It enables the organization to take advantage of locational
factors, such as availability of raw materials, labour, market,
etc.
• It enables the organization to compare regional performances
and invest more resources in profitable regions and withdraw
resources from unprofitable ones.

(Functional Departmentalisation)
General Manager
Fig. 7.3 A typical matrix organization

Contract
Administration

R&D
(Pr
od
uc
t
De
pa
rt
m
en
tal
isa
tio
n)

A
Project
Manager

R &D
Group

Contract
Admn. Group

Engineering
Group
Engg.
Group

Mfg.
Group
Mfg.
Group

A

Project
Manager

B
Project
Manager

C

R&D
Group

R&D
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group


Slide 2

ORGANISATI
ON

An organization is the pattern of ways in which
large numbers of people, too many to have
intimate face to face contact with all others, and
engaged

in

a

complexity

of

tasks,

relate

themselves to each other in the conscious,
systematic establishment and accomplishment
of mutually agreed purposes.

In terms of all the above definitions, corporations,

armies, schools, hospitals, churches, prisons, etc.
all are organizations.

But tribes, ethnic and friendship groups and
families are not organizations because they do not

involve

any

significant

amount

of

conscious

planning, coordination or deliberate structuring.

1.

A purpose, goal or
goals which has
already indicated in
a previous chapter
are the task of
planning.

2.

A clear concept of
the major duties
or activities
required to
achiever the
purpose.

Characteristics

of
an Organisation

3. Classification of
activities into jobs

4. Establishment of
relationships
between
these jobs.

Typology of Organisations
All organizations appear alike.

But this is not so.

Every organization has certain unique combination of
the above characteristics which distinguish it from all
other

organizations.

Blau

and

Scott5 classify

organizations into four categories using the criterion
of cui bono—who benefits:

1. Organisations which benefit their owners.
business organizations fall in this category.

All

2. Organisations which benefit their members. A wide
class of unions, cooperatives and clubs come under
this category.
3. Organisations which benefit their clients. Examples
are insurance companies, private schools, etc.
4. Organisations which benefit the whole society
(commonwealth
organizations)
such
as
governmental departments.

Consideration of Objectives

The first step in organizing is to know the objectives
of the enterprise. Objectives determine the various
activities which need to be performed and the type of
organization which needs to be built for this purpose.
Consideration of objectives is the first step in the
process of organizing.

A

Grouping of Activities into
Departments

B

C

The next step is to identify the activities necessary to
achieve them and to group the closely related and
similar activities into departments and sections. For
example, the activities of a manufacturing concern may
be grouped into such departments as production,
marketing, financing and personnel.

Deciding which Departments
will be Key Departments
Which department needs to be emphasised how much
will depend, of course, on the company’s objectives and
the way it seeks to be distinctive.

For example, a

company which believes that advertising is a primary
key to success will set up a separate advertising
department that reports directly to the president. But

another

company

which

considers

it

much

less

important may only create a separate section for it under
its sales department.

Determining Levels at which Various Types of
Decisions are to be Made
After deciding the relative importance of various departments,
the levels at which various major and minor decisions are to be

made must be determined. Each firm must decide for itself as to
how much decentralization of authority and responsibility it
wants to have. Extreme decentralization may lead to loss of

control and effective coordination as a result of which the firm as
a whole may fail to achieve its overall objectives.

Extreme

centralization, on the other hand, may lead to wrong decisions at

wrong times and complete breakdown of the morale of
employees.

Determining the Span of Management
The next step to be taken in designing a structure is
to determine the number of subordinates who
should report directly to each executive.

Setting up a Coordination Mechanism

First of all comes activities analysis. A thorough and
careful activities analysis clarifies as to what work has

to be performed, what kinds of work belong together,
and what emphasis each activity is to be given in the

organization structure.

Next

comes

decision

analysis.

Although

it

is

impossible for anyone to anticipate the contents of
future decisions, one can predict their kinds and
decide their places so that when they rise in future.
Finally, an analysis should be made of the various
relationships between the tasks of a manager and

those of his subordinates, peers and superiors.

SPAN OF MANAGEMENT
Meaning and Importance :
The term “span of management” is also referred to as
span of control, span of supervision, span of authority
or span of responsibility.

It indicates the number of

subordinates who report directly to a manager.

Span of management is important for two reasons.
• First, span of management affects the efficient

utilization of managers and the effective performance
of their subordinates.

• Second, there is a relationship between span of
management and organisational structure.

PRINCIPLES OF ORGANISING
• Objectives : The objectives of the enterprise influence

the organization structure and hence the objectives of
the enterprise should first be clearly defined. Then
every part of the organization should be geared to the
achievement of these objectives.

• Specialisation Effective organization must promote
specialization. The activities of the enterprise should be
divided according to functions and assigned to persons

according to their specialization.
• Span of Control As there is a limit to the number of
persons that can be supervised effectively by one boss,
the span of control should be as far as possible, the
minimum. That means, an executive should be asked to
supervise a reasonable number of subordinates only
say six.

• Exception As the executives at the higher levels have
limited time, only exceptionally complex problems
should be referred to them and routine matters should
be dealt with by the subordinates at lower levels. This
will enable the executives at higher levels to devote time
to more important and crucial issues.
• Scalar Principle This principle is sometimes known as
the “chain of command”. The line of authority from the

chief executive at the top to the first-line supervisor at
the bottom must be clearly defined.

• Unity of Command Each subordinate should have only
one superior whose command he has to obey. Dual
subordination

must

be

avoided,

for

it

causes

uneasiness, disorder, indiscipline and undermining of
authority.
• Delegation Proper authority should be delegated at the

lower levels of organization also.

The authority

delegated should be equal to responsibility, i.e. each
manager should have enough authority to accomplish

the task assigned to him.

• Responsibility The superior should be held responsible
for the acts of his subordinates. No superior should be
allowed to avoid responsibility by delegating authority
to his subordinates.
• Authority The authority is the tool by which a manager is
able to accomplish the desired objective.

Hence, the

authority of each manager must be clearly defined.
Further, the authority should be equal to responsibility.
• Efficiency The organization structure should enable the
enterprise to function efficiently and accomplish its
objectives with the lowest possible cost.

• Simplicity The organization structure should be as

simple as possible and the organization levels should,
as far as possible, be minimum. A large number of
levels of organization means difficulty of effective

communication and coordination.
• Flexibility The organization should be flexible, should

be adaptable to changing circumstances and permit
expansion and replacement without dislocation and
disruption of the basic design.

• Balance There should be a reasonable balance in the
size of various departments, between centralization
and decentralization, between the principle of span of

control and the short chain of command, and among
all types of factors such as human, technical and
financial.
• Unity of Direction There should be one objective and
one plan for a group of activities having the same
objective. Unity of direction facilitates unification and
coordination of activities at various levels.

• Personal Ability As people constitute an organization,
there is need for proper selection, placement and

training of staff.

Further, the organization structure

must ensure optimum use of human resources and
encourage management development programmes.

DEPARTMENTALISATION
Departmentalisation is one important step of building an
organization.

The aim is to take advantage of the

division of labour and specialization upto a certain limit.

There are several bases for departmentalization, each of
which

is

suitable

for

strategies and purposes.

particular

corporate

sizes,

Functions
By

far

the

most

widely

used

base

for

departmentalization is function. Each major function

of the enterprise is grouped into a department.

Advantages
• Everybody in this form of organization understands his own task
and feels highly secure both in his work and in his relationships.

•It promotes excellence in performance because of development of
expertise through specialization.
•It leads to improved planning and control of the key functions.
•It ensures economy, there is only one department related to one
function for the entire function. Manpower and other resources of
the company are effectively utilized by time-sharing them across
products or projects.

Drawbacks
• It fosters sub-goal loyalties. It is difficult for any one
to understand the task of the whole and to relate his
own work to it.
• It does not offer a good training ground for the overall
development of a manager.

• It is unsuitable for organizations which are large in
size, complexity or innovative scope.

• In

this

form

customer

needs

evoke

conflicting

interpretations like the story of twelve blind people and

the elephant.
• In this form procedures are overly complicated,
wasteful and time-consuming—a weakness sometimes
called as “organizational arthritis”.

The structure is

rigid and resists adaptation.

• In this form because of “common pot” accounting it is
difficult to judge whether the activities of a particular
department are worth their cost.

Products
Under this method, for each major product, a separate
semi-autonomous department is created and is put

under the charge of a manager who may also be made
responsible for producing a profit of a given magnitude.
Within each department, all the needed manufacturing,

engineering, marketing, manpower and other facilities
are

assembled.

detergents,
products),

Hindustan

toiletries,

Lever

chemicals

(manufacturing

and

agro-based

Richardson Hindustan (manufacturing a range of Vicks
products, Clearasil cream and soap), and Johnson and
Johnson (manufacturing a range of products for

children and surgical sutures) have product-based
departments

Advantages
• This form relieves top management of operating task
responsibility. It can therefore better concentrate on such
centralized activities like finance, R&D and control.

• This form enables top management to compare the
performance

of

different

products

and

invest

more

resources in profitable products and withdraw resources

from unprofitable ones.

•

In this form, since the responsibility for each product’s
performance is entrusted to a particular departmental head,
he is better stimulated for improving his performance.

•

In this form, those who work within a department derive

greater satisfaction from identification with a recognizable
goal.

Customers
An enterprise may be divided into a number of departments on
the basis of the customers that it services. For example, an
electronics firm may have separate departments for military,
industrial and consumer customers.

A big automobile

servicing enterprise may have separate departments for
servicing cars, heavy vehicles and scooters or an educational
institution may have separate departments for day, evening
and correspondence courses to impart education to full-time
students, locally employed students and outstation students.

Regions or Territory
When

several

organization

production

are

or

marketing

geographically

units

dispersed

in

of

an

various

locations, it is logical to departmentalize those units on a
geographical

basis.

The

Indian

Railways

are

departmentalized on this basis. Northern Railways, Western
Railways, Southern Railways, Eastern Railways, Central
Railways, etc. are departments in this sense.

The Food

Corporation of India has also geographical organization with
several zonal offices at different places and a head office in
New Delhi.

Advantages
• It motivates each regional head to achieve high performance.
• It provides each regional head an opportunity to adapt to his
local situation and customer need with speed and accuracy.
• It affords valuable top-management training and experience
to middle-level executives.
• It enables the organization to take advantage of locational
factors, such as availability of raw materials, labour, market,
etc.
• It enables the organization to compare regional performances
and invest more resources in profitable regions and withdraw
resources from unprofitable ones.

(Functional Departmentalisation)
General Manager
Fig. 7.3 A typical matrix organization

Contract
Administration

R&D
(Pr
od
uc
t
De
pa
rt
m
en
tal
isa
tio
n)

A
Project
Manager

R &D
Group

Contract
Admn. Group

Engineering
Group
Engg.
Group

Mfg.
Group
Mfg.
Group

A

Project
Manager

B
Project
Manager

C

R&D
Group

R&D
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group


Slide 3

ORGANISATI
ON

An organization is the pattern of ways in which
large numbers of people, too many to have
intimate face to face contact with all others, and
engaged

in

a

complexity

of

tasks,

relate

themselves to each other in the conscious,
systematic establishment and accomplishment
of mutually agreed purposes.

In terms of all the above definitions, corporations,

armies, schools, hospitals, churches, prisons, etc.
all are organizations.

But tribes, ethnic and friendship groups and
families are not organizations because they do not

involve

any

significant

amount

of

conscious

planning, coordination or deliberate structuring.

1.

A purpose, goal or
goals which has
already indicated in
a previous chapter
are the task of
planning.

2.

A clear concept of
the major duties
or activities
required to
achiever the
purpose.

Characteristics

of
an Organisation

3. Classification of
activities into jobs

4. Establishment of
relationships
between
these jobs.

Typology of Organisations
All organizations appear alike.

But this is not so.

Every organization has certain unique combination of
the above characteristics which distinguish it from all
other

organizations.

Blau

and

Scott5 classify

organizations into four categories using the criterion
of cui bono—who benefits:

1. Organisations which benefit their owners.
business organizations fall in this category.

All

2. Organisations which benefit their members. A wide
class of unions, cooperatives and clubs come under
this category.
3. Organisations which benefit their clients. Examples
are insurance companies, private schools, etc.
4. Organisations which benefit the whole society
(commonwealth
organizations)
such
as
governmental departments.

Consideration of Objectives

The first step in organizing is to know the objectives
of the enterprise. Objectives determine the various
activities which need to be performed and the type of
organization which needs to be built for this purpose.
Consideration of objectives is the first step in the
process of organizing.

A

Grouping of Activities into
Departments

B

C

The next step is to identify the activities necessary to
achieve them and to group the closely related and
similar activities into departments and sections. For
example, the activities of a manufacturing concern may
be grouped into such departments as production,
marketing, financing and personnel.

Deciding which Departments
will be Key Departments
Which department needs to be emphasised how much
will depend, of course, on the company’s objectives and
the way it seeks to be distinctive.

For example, a

company which believes that advertising is a primary
key to success will set up a separate advertising
department that reports directly to the president. But

another

company

which

considers

it

much

less

important may only create a separate section for it under
its sales department.

Determining Levels at which Various Types of
Decisions are to be Made
After deciding the relative importance of various departments,
the levels at which various major and minor decisions are to be

made must be determined. Each firm must decide for itself as to
how much decentralization of authority and responsibility it
wants to have. Extreme decentralization may lead to loss of

control and effective coordination as a result of which the firm as
a whole may fail to achieve its overall objectives.

Extreme

centralization, on the other hand, may lead to wrong decisions at

wrong times and complete breakdown of the morale of
employees.

Determining the Span of Management
The next step to be taken in designing a structure is
to determine the number of subordinates who
should report directly to each executive.

Setting up a Coordination Mechanism

First of all comes activities analysis. A thorough and
careful activities analysis clarifies as to what work has

to be performed, what kinds of work belong together,
and what emphasis each activity is to be given in the

organization structure.

Next

comes

decision

analysis.

Although

it

is

impossible for anyone to anticipate the contents of
future decisions, one can predict their kinds and
decide their places so that when they rise in future.
Finally, an analysis should be made of the various
relationships between the tasks of a manager and

those of his subordinates, peers and superiors.

SPAN OF MANAGEMENT
Meaning and Importance :
The term “span of management” is also referred to as
span of control, span of supervision, span of authority
or span of responsibility.

It indicates the number of

subordinates who report directly to a manager.

Span of management is important for two reasons.
• First, span of management affects the efficient

utilization of managers and the effective performance
of their subordinates.

• Second, there is a relationship between span of
management and organisational structure.

PRINCIPLES OF ORGANISING
• Objectives : The objectives of the enterprise influence

the organization structure and hence the objectives of
the enterprise should first be clearly defined. Then
every part of the organization should be geared to the
achievement of these objectives.

• Specialisation Effective organization must promote
specialization. The activities of the enterprise should be
divided according to functions and assigned to persons

according to their specialization.
• Span of Control As there is a limit to the number of
persons that can be supervised effectively by one boss,
the span of control should be as far as possible, the
minimum. That means, an executive should be asked to
supervise a reasonable number of subordinates only
say six.

• Exception As the executives at the higher levels have
limited time, only exceptionally complex problems
should be referred to them and routine matters should
be dealt with by the subordinates at lower levels. This
will enable the executives at higher levels to devote time
to more important and crucial issues.
• Scalar Principle This principle is sometimes known as
the “chain of command”. The line of authority from the

chief executive at the top to the first-line supervisor at
the bottom must be clearly defined.

• Unity of Command Each subordinate should have only
one superior whose command he has to obey. Dual
subordination

must

be

avoided,

for

it

causes

uneasiness, disorder, indiscipline and undermining of
authority.
• Delegation Proper authority should be delegated at the

lower levels of organization also.

The authority

delegated should be equal to responsibility, i.e. each
manager should have enough authority to accomplish

the task assigned to him.

• Responsibility The superior should be held responsible
for the acts of his subordinates. No superior should be
allowed to avoid responsibility by delegating authority
to his subordinates.
• Authority The authority is the tool by which a manager is
able to accomplish the desired objective.

Hence, the

authority of each manager must be clearly defined.
Further, the authority should be equal to responsibility.
• Efficiency The organization structure should enable the
enterprise to function efficiently and accomplish its
objectives with the lowest possible cost.

• Simplicity The organization structure should be as

simple as possible and the organization levels should,
as far as possible, be minimum. A large number of
levels of organization means difficulty of effective

communication and coordination.
• Flexibility The organization should be flexible, should

be adaptable to changing circumstances and permit
expansion and replacement without dislocation and
disruption of the basic design.

• Balance There should be a reasonable balance in the
size of various departments, between centralization
and decentralization, between the principle of span of

control and the short chain of command, and among
all types of factors such as human, technical and
financial.
• Unity of Direction There should be one objective and
one plan for a group of activities having the same
objective. Unity of direction facilitates unification and
coordination of activities at various levels.

• Personal Ability As people constitute an organization,
there is need for proper selection, placement and

training of staff.

Further, the organization structure

must ensure optimum use of human resources and
encourage management development programmes.

DEPARTMENTALISATION
Departmentalisation is one important step of building an
organization.

The aim is to take advantage of the

division of labour and specialization upto a certain limit.

There are several bases for departmentalization, each of
which

is

suitable

for

strategies and purposes.

particular

corporate

sizes,

Functions
By

far

the

most

widely

used

base

for

departmentalization is function. Each major function

of the enterprise is grouped into a department.

Advantages
• Everybody in this form of organization understands his own task
and feels highly secure both in his work and in his relationships.

•It promotes excellence in performance because of development of
expertise through specialization.
•It leads to improved planning and control of the key functions.
•It ensures economy, there is only one department related to one
function for the entire function. Manpower and other resources of
the company are effectively utilized by time-sharing them across
products or projects.

Drawbacks
• It fosters sub-goal loyalties. It is difficult for any one
to understand the task of the whole and to relate his
own work to it.
• It does not offer a good training ground for the overall
development of a manager.

• It is unsuitable for organizations which are large in
size, complexity or innovative scope.

• In

this

form

customer

needs

evoke

conflicting

interpretations like the story of twelve blind people and

the elephant.
• In this form procedures are overly complicated,
wasteful and time-consuming—a weakness sometimes
called as “organizational arthritis”.

The structure is

rigid and resists adaptation.

• In this form because of “common pot” accounting it is
difficult to judge whether the activities of a particular
department are worth their cost.

Products
Under this method, for each major product, a separate
semi-autonomous department is created and is put

under the charge of a manager who may also be made
responsible for producing a profit of a given magnitude.
Within each department, all the needed manufacturing,

engineering, marketing, manpower and other facilities
are

assembled.

detergents,
products),

Hindustan

toiletries,

Lever

chemicals

(manufacturing

and

agro-based

Richardson Hindustan (manufacturing a range of Vicks
products, Clearasil cream and soap), and Johnson and
Johnson (manufacturing a range of products for

children and surgical sutures) have product-based
departments

Advantages
• This form relieves top management of operating task
responsibility. It can therefore better concentrate on such
centralized activities like finance, R&D and control.

• This form enables top management to compare the
performance

of

different

products

and

invest

more

resources in profitable products and withdraw resources

from unprofitable ones.

•

In this form, since the responsibility for each product’s
performance is entrusted to a particular departmental head,
he is better stimulated for improving his performance.

•

In this form, those who work within a department derive

greater satisfaction from identification with a recognizable
goal.

Customers
An enterprise may be divided into a number of departments on
the basis of the customers that it services. For example, an
electronics firm may have separate departments for military,
industrial and consumer customers.

A big automobile

servicing enterprise may have separate departments for
servicing cars, heavy vehicles and scooters or an educational
institution may have separate departments for day, evening
and correspondence courses to impart education to full-time
students, locally employed students and outstation students.

Regions or Territory
When

several

organization

production

are

or

marketing

geographically

units

dispersed

in

of

an

various

locations, it is logical to departmentalize those units on a
geographical

basis.

The

Indian

Railways

are

departmentalized on this basis. Northern Railways, Western
Railways, Southern Railways, Eastern Railways, Central
Railways, etc. are departments in this sense.

The Food

Corporation of India has also geographical organization with
several zonal offices at different places and a head office in
New Delhi.

Advantages
• It motivates each regional head to achieve high performance.
• It provides each regional head an opportunity to adapt to his
local situation and customer need with speed and accuracy.
• It affords valuable top-management training and experience
to middle-level executives.
• It enables the organization to take advantage of locational
factors, such as availability of raw materials, labour, market,
etc.
• It enables the organization to compare regional performances
and invest more resources in profitable regions and withdraw
resources from unprofitable ones.

(Functional Departmentalisation)
General Manager
Fig. 7.3 A typical matrix organization

Contract
Administration

R&D
(Pr
od
uc
t
De
pa
rt
m
en
tal
isa
tio
n)

A
Project
Manager

R &D
Group

Contract
Admn. Group

Engineering
Group
Engg.
Group

Mfg.
Group
Mfg.
Group

A

Project
Manager

B
Project
Manager

C

R&D
Group

R&D
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group


Slide 4

ORGANISATI
ON

An organization is the pattern of ways in which
large numbers of people, too many to have
intimate face to face contact with all others, and
engaged

in

a

complexity

of

tasks,

relate

themselves to each other in the conscious,
systematic establishment and accomplishment
of mutually agreed purposes.

In terms of all the above definitions, corporations,

armies, schools, hospitals, churches, prisons, etc.
all are organizations.

But tribes, ethnic and friendship groups and
families are not organizations because they do not

involve

any

significant

amount

of

conscious

planning, coordination or deliberate structuring.

1.

A purpose, goal or
goals which has
already indicated in
a previous chapter
are the task of
planning.

2.

A clear concept of
the major duties
or activities
required to
achiever the
purpose.

Characteristics

of
an Organisation

3. Classification of
activities into jobs

4. Establishment of
relationships
between
these jobs.

Typology of Organisations
All organizations appear alike.

But this is not so.

Every organization has certain unique combination of
the above characteristics which distinguish it from all
other

organizations.

Blau

and

Scott5 classify

organizations into four categories using the criterion
of cui bono—who benefits:

1. Organisations which benefit their owners.
business organizations fall in this category.

All

2. Organisations which benefit their members. A wide
class of unions, cooperatives and clubs come under
this category.
3. Organisations which benefit their clients. Examples
are insurance companies, private schools, etc.
4. Organisations which benefit the whole society
(commonwealth
organizations)
such
as
governmental departments.

Consideration of Objectives

The first step in organizing is to know the objectives
of the enterprise. Objectives determine the various
activities which need to be performed and the type of
organization which needs to be built for this purpose.
Consideration of objectives is the first step in the
process of organizing.

A

Grouping of Activities into
Departments

B

C

The next step is to identify the activities necessary to
achieve them and to group the closely related and
similar activities into departments and sections. For
example, the activities of a manufacturing concern may
be grouped into such departments as production,
marketing, financing and personnel.

Deciding which Departments
will be Key Departments
Which department needs to be emphasised how much
will depend, of course, on the company’s objectives and
the way it seeks to be distinctive.

For example, a

company which believes that advertising is a primary
key to success will set up a separate advertising
department that reports directly to the president. But

another

company

which

considers

it

much

less

important may only create a separate section for it under
its sales department.

Determining Levels at which Various Types of
Decisions are to be Made
After deciding the relative importance of various departments,
the levels at which various major and minor decisions are to be

made must be determined. Each firm must decide for itself as to
how much decentralization of authority and responsibility it
wants to have. Extreme decentralization may lead to loss of

control and effective coordination as a result of which the firm as
a whole may fail to achieve its overall objectives.

Extreme

centralization, on the other hand, may lead to wrong decisions at

wrong times and complete breakdown of the morale of
employees.

Determining the Span of Management
The next step to be taken in designing a structure is
to determine the number of subordinates who
should report directly to each executive.

Setting up a Coordination Mechanism

First of all comes activities analysis. A thorough and
careful activities analysis clarifies as to what work has

to be performed, what kinds of work belong together,
and what emphasis each activity is to be given in the

organization structure.

Next

comes

decision

analysis.

Although

it

is

impossible for anyone to anticipate the contents of
future decisions, one can predict their kinds and
decide their places so that when they rise in future.
Finally, an analysis should be made of the various
relationships between the tasks of a manager and

those of his subordinates, peers and superiors.

SPAN OF MANAGEMENT
Meaning and Importance :
The term “span of management” is also referred to as
span of control, span of supervision, span of authority
or span of responsibility.

It indicates the number of

subordinates who report directly to a manager.

Span of management is important for two reasons.
• First, span of management affects the efficient

utilization of managers and the effective performance
of their subordinates.

• Second, there is a relationship between span of
management and organisational structure.

PRINCIPLES OF ORGANISING
• Objectives : The objectives of the enterprise influence

the organization structure and hence the objectives of
the enterprise should first be clearly defined. Then
every part of the organization should be geared to the
achievement of these objectives.

• Specialisation Effective organization must promote
specialization. The activities of the enterprise should be
divided according to functions and assigned to persons

according to their specialization.
• Span of Control As there is a limit to the number of
persons that can be supervised effectively by one boss,
the span of control should be as far as possible, the
minimum. That means, an executive should be asked to
supervise a reasonable number of subordinates only
say six.

• Exception As the executives at the higher levels have
limited time, only exceptionally complex problems
should be referred to them and routine matters should
be dealt with by the subordinates at lower levels. This
will enable the executives at higher levels to devote time
to more important and crucial issues.
• Scalar Principle This principle is sometimes known as
the “chain of command”. The line of authority from the

chief executive at the top to the first-line supervisor at
the bottom must be clearly defined.

• Unity of Command Each subordinate should have only
one superior whose command he has to obey. Dual
subordination

must

be

avoided,

for

it

causes

uneasiness, disorder, indiscipline and undermining of
authority.
• Delegation Proper authority should be delegated at the

lower levels of organization also.

The authority

delegated should be equal to responsibility, i.e. each
manager should have enough authority to accomplish

the task assigned to him.

• Responsibility The superior should be held responsible
for the acts of his subordinates. No superior should be
allowed to avoid responsibility by delegating authority
to his subordinates.
• Authority The authority is the tool by which a manager is
able to accomplish the desired objective.

Hence, the

authority of each manager must be clearly defined.
Further, the authority should be equal to responsibility.
• Efficiency The organization structure should enable the
enterprise to function efficiently and accomplish its
objectives with the lowest possible cost.

• Simplicity The organization structure should be as

simple as possible and the organization levels should,
as far as possible, be minimum. A large number of
levels of organization means difficulty of effective

communication and coordination.
• Flexibility The organization should be flexible, should

be adaptable to changing circumstances and permit
expansion and replacement without dislocation and
disruption of the basic design.

• Balance There should be a reasonable balance in the
size of various departments, between centralization
and decentralization, between the principle of span of

control and the short chain of command, and among
all types of factors such as human, technical and
financial.
• Unity of Direction There should be one objective and
one plan for a group of activities having the same
objective. Unity of direction facilitates unification and
coordination of activities at various levels.

• Personal Ability As people constitute an organization,
there is need for proper selection, placement and

training of staff.

Further, the organization structure

must ensure optimum use of human resources and
encourage management development programmes.

DEPARTMENTALISATION
Departmentalisation is one important step of building an
organization.

The aim is to take advantage of the

division of labour and specialization upto a certain limit.

There are several bases for departmentalization, each of
which

is

suitable

for

strategies and purposes.

particular

corporate

sizes,

Functions
By

far

the

most

widely

used

base

for

departmentalization is function. Each major function

of the enterprise is grouped into a department.

Advantages
• Everybody in this form of organization understands his own task
and feels highly secure both in his work and in his relationships.

•It promotes excellence in performance because of development of
expertise through specialization.
•It leads to improved planning and control of the key functions.
•It ensures economy, there is only one department related to one
function for the entire function. Manpower and other resources of
the company are effectively utilized by time-sharing them across
products or projects.

Drawbacks
• It fosters sub-goal loyalties. It is difficult for any one
to understand the task of the whole and to relate his
own work to it.
• It does not offer a good training ground for the overall
development of a manager.

• It is unsuitable for organizations which are large in
size, complexity or innovative scope.

• In

this

form

customer

needs

evoke

conflicting

interpretations like the story of twelve blind people and

the elephant.
• In this form procedures are overly complicated,
wasteful and time-consuming—a weakness sometimes
called as “organizational arthritis”.

The structure is

rigid and resists adaptation.

• In this form because of “common pot” accounting it is
difficult to judge whether the activities of a particular
department are worth their cost.

Products
Under this method, for each major product, a separate
semi-autonomous department is created and is put

under the charge of a manager who may also be made
responsible for producing a profit of a given magnitude.
Within each department, all the needed manufacturing,

engineering, marketing, manpower and other facilities
are

assembled.

detergents,
products),

Hindustan

toiletries,

Lever

chemicals

(manufacturing

and

agro-based

Richardson Hindustan (manufacturing a range of Vicks
products, Clearasil cream and soap), and Johnson and
Johnson (manufacturing a range of products for

children and surgical sutures) have product-based
departments

Advantages
• This form relieves top management of operating task
responsibility. It can therefore better concentrate on such
centralized activities like finance, R&D and control.

• This form enables top management to compare the
performance

of

different

products

and

invest

more

resources in profitable products and withdraw resources

from unprofitable ones.

•

In this form, since the responsibility for each product’s
performance is entrusted to a particular departmental head,
he is better stimulated for improving his performance.

•

In this form, those who work within a department derive

greater satisfaction from identification with a recognizable
goal.

Customers
An enterprise may be divided into a number of departments on
the basis of the customers that it services. For example, an
electronics firm may have separate departments for military,
industrial and consumer customers.

A big automobile

servicing enterprise may have separate departments for
servicing cars, heavy vehicles and scooters or an educational
institution may have separate departments for day, evening
and correspondence courses to impart education to full-time
students, locally employed students and outstation students.

Regions or Territory
When

several

organization

production

are

or

marketing

geographically

units

dispersed

in

of

an

various

locations, it is logical to departmentalize those units on a
geographical

basis.

The

Indian

Railways

are

departmentalized on this basis. Northern Railways, Western
Railways, Southern Railways, Eastern Railways, Central
Railways, etc. are departments in this sense.

The Food

Corporation of India has also geographical organization with
several zonal offices at different places and a head office in
New Delhi.

Advantages
• It motivates each regional head to achieve high performance.
• It provides each regional head an opportunity to adapt to his
local situation and customer need with speed and accuracy.
• It affords valuable top-management training and experience
to middle-level executives.
• It enables the organization to take advantage of locational
factors, such as availability of raw materials, labour, market,
etc.
• It enables the organization to compare regional performances
and invest more resources in profitable regions and withdraw
resources from unprofitable ones.

(Functional Departmentalisation)
General Manager
Fig. 7.3 A typical matrix organization

Contract
Administration

R&D
(Pr
od
uc
t
De
pa
rt
m
en
tal
isa
tio
n)

A
Project
Manager

R &D
Group

Contract
Admn. Group

Engineering
Group
Engg.
Group

Mfg.
Group
Mfg.
Group

A

Project
Manager

B
Project
Manager

C

R&D
Group

R&D
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group


Slide 5

ORGANISATI
ON

An organization is the pattern of ways in which
large numbers of people, too many to have
intimate face to face contact with all others, and
engaged

in

a

complexity

of

tasks,

relate

themselves to each other in the conscious,
systematic establishment and accomplishment
of mutually agreed purposes.

In terms of all the above definitions, corporations,

armies, schools, hospitals, churches, prisons, etc.
all are organizations.

But tribes, ethnic and friendship groups and
families are not organizations because they do not

involve

any

significant

amount

of

conscious

planning, coordination or deliberate structuring.

1.

A purpose, goal or
goals which has
already indicated in
a previous chapter
are the task of
planning.

2.

A clear concept of
the major duties
or activities
required to
achiever the
purpose.

Characteristics

of
an Organisation

3. Classification of
activities into jobs

4. Establishment of
relationships
between
these jobs.

Typology of Organisations
All organizations appear alike.

But this is not so.

Every organization has certain unique combination of
the above characteristics which distinguish it from all
other

organizations.

Blau

and

Scott5 classify

organizations into four categories using the criterion
of cui bono—who benefits:

1. Organisations which benefit their owners.
business organizations fall in this category.

All

2. Organisations which benefit their members. A wide
class of unions, cooperatives and clubs come under
this category.
3. Organisations which benefit their clients. Examples
are insurance companies, private schools, etc.
4. Organisations which benefit the whole society
(commonwealth
organizations)
such
as
governmental departments.

Consideration of Objectives

The first step in organizing is to know the objectives
of the enterprise. Objectives determine the various
activities which need to be performed and the type of
organization which needs to be built for this purpose.
Consideration of objectives is the first step in the
process of organizing.

A

Grouping of Activities into
Departments

B

C

The next step is to identify the activities necessary to
achieve them and to group the closely related and
similar activities into departments and sections. For
example, the activities of a manufacturing concern may
be grouped into such departments as production,
marketing, financing and personnel.

Deciding which Departments
will be Key Departments
Which department needs to be emphasised how much
will depend, of course, on the company’s objectives and
the way it seeks to be distinctive.

For example, a

company which believes that advertising is a primary
key to success will set up a separate advertising
department that reports directly to the president. But

another

company

which

considers

it

much

less

important may only create a separate section for it under
its sales department.

Determining Levels at which Various Types of
Decisions are to be Made
After deciding the relative importance of various departments,
the levels at which various major and minor decisions are to be

made must be determined. Each firm must decide for itself as to
how much decentralization of authority and responsibility it
wants to have. Extreme decentralization may lead to loss of

control and effective coordination as a result of which the firm as
a whole may fail to achieve its overall objectives.

Extreme

centralization, on the other hand, may lead to wrong decisions at

wrong times and complete breakdown of the morale of
employees.

Determining the Span of Management
The next step to be taken in designing a structure is
to determine the number of subordinates who
should report directly to each executive.

Setting up a Coordination Mechanism

First of all comes activities analysis. A thorough and
careful activities analysis clarifies as to what work has

to be performed, what kinds of work belong together,
and what emphasis each activity is to be given in the

organization structure.

Next

comes

decision

analysis.

Although

it

is

impossible for anyone to anticipate the contents of
future decisions, one can predict their kinds and
decide their places so that when they rise in future.
Finally, an analysis should be made of the various
relationships between the tasks of a manager and

those of his subordinates, peers and superiors.

SPAN OF MANAGEMENT
Meaning and Importance :
The term “span of management” is also referred to as
span of control, span of supervision, span of authority
or span of responsibility.

It indicates the number of

subordinates who report directly to a manager.

Span of management is important for two reasons.
• First, span of management affects the efficient

utilization of managers and the effective performance
of their subordinates.

• Second, there is a relationship between span of
management and organisational structure.

PRINCIPLES OF ORGANISING
• Objectives : The objectives of the enterprise influence

the organization structure and hence the objectives of
the enterprise should first be clearly defined. Then
every part of the organization should be geared to the
achievement of these objectives.

• Specialisation Effective organization must promote
specialization. The activities of the enterprise should be
divided according to functions and assigned to persons

according to their specialization.
• Span of Control As there is a limit to the number of
persons that can be supervised effectively by one boss,
the span of control should be as far as possible, the
minimum. That means, an executive should be asked to
supervise a reasonable number of subordinates only
say six.

• Exception As the executives at the higher levels have
limited time, only exceptionally complex problems
should be referred to them and routine matters should
be dealt with by the subordinates at lower levels. This
will enable the executives at higher levels to devote time
to more important and crucial issues.
• Scalar Principle This principle is sometimes known as
the “chain of command”. The line of authority from the

chief executive at the top to the first-line supervisor at
the bottom must be clearly defined.

• Unity of Command Each subordinate should have only
one superior whose command he has to obey. Dual
subordination

must

be

avoided,

for

it

causes

uneasiness, disorder, indiscipline and undermining of
authority.
• Delegation Proper authority should be delegated at the

lower levels of organization also.

The authority

delegated should be equal to responsibility, i.e. each
manager should have enough authority to accomplish

the task assigned to him.

• Responsibility The superior should be held responsible
for the acts of his subordinates. No superior should be
allowed to avoid responsibility by delegating authority
to his subordinates.
• Authority The authority is the tool by which a manager is
able to accomplish the desired objective.

Hence, the

authority of each manager must be clearly defined.
Further, the authority should be equal to responsibility.
• Efficiency The organization structure should enable the
enterprise to function efficiently and accomplish its
objectives with the lowest possible cost.

• Simplicity The organization structure should be as

simple as possible and the organization levels should,
as far as possible, be minimum. A large number of
levels of organization means difficulty of effective

communication and coordination.
• Flexibility The organization should be flexible, should

be adaptable to changing circumstances and permit
expansion and replacement without dislocation and
disruption of the basic design.

• Balance There should be a reasonable balance in the
size of various departments, between centralization
and decentralization, between the principle of span of

control and the short chain of command, and among
all types of factors such as human, technical and
financial.
• Unity of Direction There should be one objective and
one plan for a group of activities having the same
objective. Unity of direction facilitates unification and
coordination of activities at various levels.

• Personal Ability As people constitute an organization,
there is need for proper selection, placement and

training of staff.

Further, the organization structure

must ensure optimum use of human resources and
encourage management development programmes.

DEPARTMENTALISATION
Departmentalisation is one important step of building an
organization.

The aim is to take advantage of the

division of labour and specialization upto a certain limit.

There are several bases for departmentalization, each of
which

is

suitable

for

strategies and purposes.

particular

corporate

sizes,

Functions
By

far

the

most

widely

used

base

for

departmentalization is function. Each major function

of the enterprise is grouped into a department.

Advantages
• Everybody in this form of organization understands his own task
and feels highly secure both in his work and in his relationships.

•It promotes excellence in performance because of development of
expertise through specialization.
•It leads to improved planning and control of the key functions.
•It ensures economy, there is only one department related to one
function for the entire function. Manpower and other resources of
the company are effectively utilized by time-sharing them across
products or projects.

Drawbacks
• It fosters sub-goal loyalties. It is difficult for any one
to understand the task of the whole and to relate his
own work to it.
• It does not offer a good training ground for the overall
development of a manager.

• It is unsuitable for organizations which are large in
size, complexity or innovative scope.

• In

this

form

customer

needs

evoke

conflicting

interpretations like the story of twelve blind people and

the elephant.
• In this form procedures are overly complicated,
wasteful and time-consuming—a weakness sometimes
called as “organizational arthritis”.

The structure is

rigid and resists adaptation.

• In this form because of “common pot” accounting it is
difficult to judge whether the activities of a particular
department are worth their cost.

Products
Under this method, for each major product, a separate
semi-autonomous department is created and is put

under the charge of a manager who may also be made
responsible for producing a profit of a given magnitude.
Within each department, all the needed manufacturing,

engineering, marketing, manpower and other facilities
are

assembled.

detergents,
products),

Hindustan

toiletries,

Lever

chemicals

(manufacturing

and

agro-based

Richardson Hindustan (manufacturing a range of Vicks
products, Clearasil cream and soap), and Johnson and
Johnson (manufacturing a range of products for

children and surgical sutures) have product-based
departments

Advantages
• This form relieves top management of operating task
responsibility. It can therefore better concentrate on such
centralized activities like finance, R&D and control.

• This form enables top management to compare the
performance

of

different

products

and

invest

more

resources in profitable products and withdraw resources

from unprofitable ones.

•

In this form, since the responsibility for each product’s
performance is entrusted to a particular departmental head,
he is better stimulated for improving his performance.

•

In this form, those who work within a department derive

greater satisfaction from identification with a recognizable
goal.

Customers
An enterprise may be divided into a number of departments on
the basis of the customers that it services. For example, an
electronics firm may have separate departments for military,
industrial and consumer customers.

A big automobile

servicing enterprise may have separate departments for
servicing cars, heavy vehicles and scooters or an educational
institution may have separate departments for day, evening
and correspondence courses to impart education to full-time
students, locally employed students and outstation students.

Regions or Territory
When

several

organization

production

are

or

marketing

geographically

units

dispersed

in

of

an

various

locations, it is logical to departmentalize those units on a
geographical

basis.

The

Indian

Railways

are

departmentalized on this basis. Northern Railways, Western
Railways, Southern Railways, Eastern Railways, Central
Railways, etc. are departments in this sense.

The Food

Corporation of India has also geographical organization with
several zonal offices at different places and a head office in
New Delhi.

Advantages
• It motivates each regional head to achieve high performance.
• It provides each regional head an opportunity to adapt to his
local situation and customer need with speed and accuracy.
• It affords valuable top-management training and experience
to middle-level executives.
• It enables the organization to take advantage of locational
factors, such as availability of raw materials, labour, market,
etc.
• It enables the organization to compare regional performances
and invest more resources in profitable regions and withdraw
resources from unprofitable ones.

(Functional Departmentalisation)
General Manager
Fig. 7.3 A typical matrix organization

Contract
Administration

R&D
(Pr
od
uc
t
De
pa
rt
m
en
tal
isa
tio
n)

A
Project
Manager

R &D
Group

Contract
Admn. Group

Engineering
Group
Engg.
Group

Mfg.
Group
Mfg.
Group

A

Project
Manager

B
Project
Manager

C

R&D
Group

R&D
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group


Slide 6

ORGANISATI
ON

An organization is the pattern of ways in which
large numbers of people, too many to have
intimate face to face contact with all others, and
engaged

in

a

complexity

of

tasks,

relate

themselves to each other in the conscious,
systematic establishment and accomplishment
of mutually agreed purposes.

In terms of all the above definitions, corporations,

armies, schools, hospitals, churches, prisons, etc.
all are organizations.

But tribes, ethnic and friendship groups and
families are not organizations because they do not

involve

any

significant

amount

of

conscious

planning, coordination or deliberate structuring.

1.

A purpose, goal or
goals which has
already indicated in
a previous chapter
are the task of
planning.

2.

A clear concept of
the major duties
or activities
required to
achiever the
purpose.

Characteristics

of
an Organisation

3. Classification of
activities into jobs

4. Establishment of
relationships
between
these jobs.

Typology of Organisations
All organizations appear alike.

But this is not so.

Every organization has certain unique combination of
the above characteristics which distinguish it from all
other

organizations.

Blau

and

Scott5 classify

organizations into four categories using the criterion
of cui bono—who benefits:

1. Organisations which benefit their owners.
business organizations fall in this category.

All

2. Organisations which benefit their members. A wide
class of unions, cooperatives and clubs come under
this category.
3. Organisations which benefit their clients. Examples
are insurance companies, private schools, etc.
4. Organisations which benefit the whole society
(commonwealth
organizations)
such
as
governmental departments.

Consideration of Objectives

The first step in organizing is to know the objectives
of the enterprise. Objectives determine the various
activities which need to be performed and the type of
organization which needs to be built for this purpose.
Consideration of objectives is the first step in the
process of organizing.

A

Grouping of Activities into
Departments

B

C

The next step is to identify the activities necessary to
achieve them and to group the closely related and
similar activities into departments and sections. For
example, the activities of a manufacturing concern may
be grouped into such departments as production,
marketing, financing and personnel.

Deciding which Departments
will be Key Departments
Which department needs to be emphasised how much
will depend, of course, on the company’s objectives and
the way it seeks to be distinctive.

For example, a

company which believes that advertising is a primary
key to success will set up a separate advertising
department that reports directly to the president. But

another

company

which

considers

it

much

less

important may only create a separate section for it under
its sales department.

Determining Levels at which Various Types of
Decisions are to be Made
After deciding the relative importance of various departments,
the levels at which various major and minor decisions are to be

made must be determined. Each firm must decide for itself as to
how much decentralization of authority and responsibility it
wants to have. Extreme decentralization may lead to loss of

control and effective coordination as a result of which the firm as
a whole may fail to achieve its overall objectives.

Extreme

centralization, on the other hand, may lead to wrong decisions at

wrong times and complete breakdown of the morale of
employees.

Determining the Span of Management
The next step to be taken in designing a structure is
to determine the number of subordinates who
should report directly to each executive.

Setting up a Coordination Mechanism

First of all comes activities analysis. A thorough and
careful activities analysis clarifies as to what work has

to be performed, what kinds of work belong together,
and what emphasis each activity is to be given in the

organization structure.

Next

comes

decision

analysis.

Although

it

is

impossible for anyone to anticipate the contents of
future decisions, one can predict their kinds and
decide their places so that when they rise in future.
Finally, an analysis should be made of the various
relationships between the tasks of a manager and

those of his subordinates, peers and superiors.

SPAN OF MANAGEMENT
Meaning and Importance :
The term “span of management” is also referred to as
span of control, span of supervision, span of authority
or span of responsibility.

It indicates the number of

subordinates who report directly to a manager.

Span of management is important for two reasons.
• First, span of management affects the efficient

utilization of managers and the effective performance
of their subordinates.

• Second, there is a relationship between span of
management and organisational structure.

PRINCIPLES OF ORGANISING
• Objectives : The objectives of the enterprise influence

the organization structure and hence the objectives of
the enterprise should first be clearly defined. Then
every part of the organization should be geared to the
achievement of these objectives.

• Specialisation Effective organization must promote
specialization. The activities of the enterprise should be
divided according to functions and assigned to persons

according to their specialization.
• Span of Control As there is a limit to the number of
persons that can be supervised effectively by one boss,
the span of control should be as far as possible, the
minimum. That means, an executive should be asked to
supervise a reasonable number of subordinates only
say six.

• Exception As the executives at the higher levels have
limited time, only exceptionally complex problems
should be referred to them and routine matters should
be dealt with by the subordinates at lower levels. This
will enable the executives at higher levels to devote time
to more important and crucial issues.
• Scalar Principle This principle is sometimes known as
the “chain of command”. The line of authority from the

chief executive at the top to the first-line supervisor at
the bottom must be clearly defined.

• Unity of Command Each subordinate should have only
one superior whose command he has to obey. Dual
subordination

must

be

avoided,

for

it

causes

uneasiness, disorder, indiscipline and undermining of
authority.
• Delegation Proper authority should be delegated at the

lower levels of organization also.

The authority

delegated should be equal to responsibility, i.e. each
manager should have enough authority to accomplish

the task assigned to him.

• Responsibility The superior should be held responsible
for the acts of his subordinates. No superior should be
allowed to avoid responsibility by delegating authority
to his subordinates.
• Authority The authority is the tool by which a manager is
able to accomplish the desired objective.

Hence, the

authority of each manager must be clearly defined.
Further, the authority should be equal to responsibility.
• Efficiency The organization structure should enable the
enterprise to function efficiently and accomplish its
objectives with the lowest possible cost.

• Simplicity The organization structure should be as

simple as possible and the organization levels should,
as far as possible, be minimum. A large number of
levels of organization means difficulty of effective

communication and coordination.
• Flexibility The organization should be flexible, should

be adaptable to changing circumstances and permit
expansion and replacement without dislocation and
disruption of the basic design.

• Balance There should be a reasonable balance in the
size of various departments, between centralization
and decentralization, between the principle of span of

control and the short chain of command, and among
all types of factors such as human, technical and
financial.
• Unity of Direction There should be one objective and
one plan for a group of activities having the same
objective. Unity of direction facilitates unification and
coordination of activities at various levels.

• Personal Ability As people constitute an organization,
there is need for proper selection, placement and

training of staff.

Further, the organization structure

must ensure optimum use of human resources and
encourage management development programmes.

DEPARTMENTALISATION
Departmentalisation is one important step of building an
organization.

The aim is to take advantage of the

division of labour and specialization upto a certain limit.

There are several bases for departmentalization, each of
which

is

suitable

for

strategies and purposes.

particular

corporate

sizes,

Functions
By

far

the

most

widely

used

base

for

departmentalization is function. Each major function

of the enterprise is grouped into a department.

Advantages
• Everybody in this form of organization understands his own task
and feels highly secure both in his work and in his relationships.

•It promotes excellence in performance because of development of
expertise through specialization.
•It leads to improved planning and control of the key functions.
•It ensures economy, there is only one department related to one
function for the entire function. Manpower and other resources of
the company are effectively utilized by time-sharing them across
products or projects.

Drawbacks
• It fosters sub-goal loyalties. It is difficult for any one
to understand the task of the whole and to relate his
own work to it.
• It does not offer a good training ground for the overall
development of a manager.

• It is unsuitable for organizations which are large in
size, complexity or innovative scope.

• In

this

form

customer

needs

evoke

conflicting

interpretations like the story of twelve blind people and

the elephant.
• In this form procedures are overly complicated,
wasteful and time-consuming—a weakness sometimes
called as “organizational arthritis”.

The structure is

rigid and resists adaptation.

• In this form because of “common pot” accounting it is
difficult to judge whether the activities of a particular
department are worth their cost.

Products
Under this method, for each major product, a separate
semi-autonomous department is created and is put

under the charge of a manager who may also be made
responsible for producing a profit of a given magnitude.
Within each department, all the needed manufacturing,

engineering, marketing, manpower and other facilities
are

assembled.

detergents,
products),

Hindustan

toiletries,

Lever

chemicals

(manufacturing

and

agro-based

Richardson Hindustan (manufacturing a range of Vicks
products, Clearasil cream and soap), and Johnson and
Johnson (manufacturing a range of products for

children and surgical sutures) have product-based
departments

Advantages
• This form relieves top management of operating task
responsibility. It can therefore better concentrate on such
centralized activities like finance, R&D and control.

• This form enables top management to compare the
performance

of

different

products

and

invest

more

resources in profitable products and withdraw resources

from unprofitable ones.

•

In this form, since the responsibility for each product’s
performance is entrusted to a particular departmental head,
he is better stimulated for improving his performance.

•

In this form, those who work within a department derive

greater satisfaction from identification with a recognizable
goal.

Customers
An enterprise may be divided into a number of departments on
the basis of the customers that it services. For example, an
electronics firm may have separate departments for military,
industrial and consumer customers.

A big automobile

servicing enterprise may have separate departments for
servicing cars, heavy vehicles and scooters or an educational
institution may have separate departments for day, evening
and correspondence courses to impart education to full-time
students, locally employed students and outstation students.

Regions or Territory
When

several

organization

production

are

or

marketing

geographically

units

dispersed

in

of

an

various

locations, it is logical to departmentalize those units on a
geographical

basis.

The

Indian

Railways

are

departmentalized on this basis. Northern Railways, Western
Railways, Southern Railways, Eastern Railways, Central
Railways, etc. are departments in this sense.

The Food

Corporation of India has also geographical organization with
several zonal offices at different places and a head office in
New Delhi.

Advantages
• It motivates each regional head to achieve high performance.
• It provides each regional head an opportunity to adapt to his
local situation and customer need with speed and accuracy.
• It affords valuable top-management training and experience
to middle-level executives.
• It enables the organization to take advantage of locational
factors, such as availability of raw materials, labour, market,
etc.
• It enables the organization to compare regional performances
and invest more resources in profitable regions and withdraw
resources from unprofitable ones.

(Functional Departmentalisation)
General Manager
Fig. 7.3 A typical matrix organization

Contract
Administration

R&D
(Pr
od
uc
t
De
pa
rt
m
en
tal
isa
tio
n)

A
Project
Manager

R &D
Group

Contract
Admn. Group

Engineering
Group
Engg.
Group

Mfg.
Group
Mfg.
Group

A

Project
Manager

B
Project
Manager

C

R&D
Group

R&D
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group


Slide 7

ORGANISATI
ON

An organization is the pattern of ways in which
large numbers of people, too many to have
intimate face to face contact with all others, and
engaged

in

a

complexity

of

tasks,

relate

themselves to each other in the conscious,
systematic establishment and accomplishment
of mutually agreed purposes.

In terms of all the above definitions, corporations,

armies, schools, hospitals, churches, prisons, etc.
all are organizations.

But tribes, ethnic and friendship groups and
families are not organizations because they do not

involve

any

significant

amount

of

conscious

planning, coordination or deliberate structuring.

1.

A purpose, goal or
goals which has
already indicated in
a previous chapter
are the task of
planning.

2.

A clear concept of
the major duties
or activities
required to
achiever the
purpose.

Characteristics

of
an Organisation

3. Classification of
activities into jobs

4. Establishment of
relationships
between
these jobs.

Typology of Organisations
All organizations appear alike.

But this is not so.

Every organization has certain unique combination of
the above characteristics which distinguish it from all
other

organizations.

Blau

and

Scott5 classify

organizations into four categories using the criterion
of cui bono—who benefits:

1. Organisations which benefit their owners.
business organizations fall in this category.

All

2. Organisations which benefit their members. A wide
class of unions, cooperatives and clubs come under
this category.
3. Organisations which benefit their clients. Examples
are insurance companies, private schools, etc.
4. Organisations which benefit the whole society
(commonwealth
organizations)
such
as
governmental departments.

Consideration of Objectives

The first step in organizing is to know the objectives
of the enterprise. Objectives determine the various
activities which need to be performed and the type of
organization which needs to be built for this purpose.
Consideration of objectives is the first step in the
process of organizing.

A

Grouping of Activities into
Departments

B

C

The next step is to identify the activities necessary to
achieve them and to group the closely related and
similar activities into departments and sections. For
example, the activities of a manufacturing concern may
be grouped into such departments as production,
marketing, financing and personnel.

Deciding which Departments
will be Key Departments
Which department needs to be emphasised how much
will depend, of course, on the company’s objectives and
the way it seeks to be distinctive.

For example, a

company which believes that advertising is a primary
key to success will set up a separate advertising
department that reports directly to the president. But

another

company

which

considers

it

much

less

important may only create a separate section for it under
its sales department.

Determining Levels at which Various Types of
Decisions are to be Made
After deciding the relative importance of various departments,
the levels at which various major and minor decisions are to be

made must be determined. Each firm must decide for itself as to
how much decentralization of authority and responsibility it
wants to have. Extreme decentralization may lead to loss of

control and effective coordination as a result of which the firm as
a whole may fail to achieve its overall objectives.

Extreme

centralization, on the other hand, may lead to wrong decisions at

wrong times and complete breakdown of the morale of
employees.

Determining the Span of Management
The next step to be taken in designing a structure is
to determine the number of subordinates who
should report directly to each executive.

Setting up a Coordination Mechanism

First of all comes activities analysis. A thorough and
careful activities analysis clarifies as to what work has

to be performed, what kinds of work belong together,
and what emphasis each activity is to be given in the

organization structure.

Next

comes

decision

analysis.

Although

it

is

impossible for anyone to anticipate the contents of
future decisions, one can predict their kinds and
decide their places so that when they rise in future.
Finally, an analysis should be made of the various
relationships between the tasks of a manager and

those of his subordinates, peers and superiors.

SPAN OF MANAGEMENT
Meaning and Importance :
The term “span of management” is also referred to as
span of control, span of supervision, span of authority
or span of responsibility.

It indicates the number of

subordinates who report directly to a manager.

Span of management is important for two reasons.
• First, span of management affects the efficient

utilization of managers and the effective performance
of their subordinates.

• Second, there is a relationship between span of
management and organisational structure.

PRINCIPLES OF ORGANISING
• Objectives : The objectives of the enterprise influence

the organization structure and hence the objectives of
the enterprise should first be clearly defined. Then
every part of the organization should be geared to the
achievement of these objectives.

• Specialisation Effective organization must promote
specialization. The activities of the enterprise should be
divided according to functions and assigned to persons

according to their specialization.
• Span of Control As there is a limit to the number of
persons that can be supervised effectively by one boss,
the span of control should be as far as possible, the
minimum. That means, an executive should be asked to
supervise a reasonable number of subordinates only
say six.

• Exception As the executives at the higher levels have
limited time, only exceptionally complex problems
should be referred to them and routine matters should
be dealt with by the subordinates at lower levels. This
will enable the executives at higher levels to devote time
to more important and crucial issues.
• Scalar Principle This principle is sometimes known as
the “chain of command”. The line of authority from the

chief executive at the top to the first-line supervisor at
the bottom must be clearly defined.

• Unity of Command Each subordinate should have only
one superior whose command he has to obey. Dual
subordination

must

be

avoided,

for

it

causes

uneasiness, disorder, indiscipline and undermining of
authority.
• Delegation Proper authority should be delegated at the

lower levels of organization also.

The authority

delegated should be equal to responsibility, i.e. each
manager should have enough authority to accomplish

the task assigned to him.

• Responsibility The superior should be held responsible
for the acts of his subordinates. No superior should be
allowed to avoid responsibility by delegating authority
to his subordinates.
• Authority The authority is the tool by which a manager is
able to accomplish the desired objective.

Hence, the

authority of each manager must be clearly defined.
Further, the authority should be equal to responsibility.
• Efficiency The organization structure should enable the
enterprise to function efficiently and accomplish its
objectives with the lowest possible cost.

• Simplicity The organization structure should be as

simple as possible and the organization levels should,
as far as possible, be minimum. A large number of
levels of organization means difficulty of effective

communication and coordination.
• Flexibility The organization should be flexible, should

be adaptable to changing circumstances and permit
expansion and replacement without dislocation and
disruption of the basic design.

• Balance There should be a reasonable balance in the
size of various departments, between centralization
and decentralization, between the principle of span of

control and the short chain of command, and among
all types of factors such as human, technical and
financial.
• Unity of Direction There should be one objective and
one plan for a group of activities having the same
objective. Unity of direction facilitates unification and
coordination of activities at various levels.

• Personal Ability As people constitute an organization,
there is need for proper selection, placement and

training of staff.

Further, the organization structure

must ensure optimum use of human resources and
encourage management development programmes.

DEPARTMENTALISATION
Departmentalisation is one important step of building an
organization.

The aim is to take advantage of the

division of labour and specialization upto a certain limit.

There are several bases for departmentalization, each of
which

is

suitable

for

strategies and purposes.

particular

corporate

sizes,

Functions
By

far

the

most

widely

used

base

for

departmentalization is function. Each major function

of the enterprise is grouped into a department.

Advantages
• Everybody in this form of organization understands his own task
and feels highly secure both in his work and in his relationships.

•It promotes excellence in performance because of development of
expertise through specialization.
•It leads to improved planning and control of the key functions.
•It ensures economy, there is only one department related to one
function for the entire function. Manpower and other resources of
the company are effectively utilized by time-sharing them across
products or projects.

Drawbacks
• It fosters sub-goal loyalties. It is difficult for any one
to understand the task of the whole and to relate his
own work to it.
• It does not offer a good training ground for the overall
development of a manager.

• It is unsuitable for organizations which are large in
size, complexity or innovative scope.

• In

this

form

customer

needs

evoke

conflicting

interpretations like the story of twelve blind people and

the elephant.
• In this form procedures are overly complicated,
wasteful and time-consuming—a weakness sometimes
called as “organizational arthritis”.

The structure is

rigid and resists adaptation.

• In this form because of “common pot” accounting it is
difficult to judge whether the activities of a particular
department are worth their cost.

Products
Under this method, for each major product, a separate
semi-autonomous department is created and is put

under the charge of a manager who may also be made
responsible for producing a profit of a given magnitude.
Within each department, all the needed manufacturing,

engineering, marketing, manpower and other facilities
are

assembled.

detergents,
products),

Hindustan

toiletries,

Lever

chemicals

(manufacturing

and

agro-based

Richardson Hindustan (manufacturing a range of Vicks
products, Clearasil cream and soap), and Johnson and
Johnson (manufacturing a range of products for

children and surgical sutures) have product-based
departments

Advantages
• This form relieves top management of operating task
responsibility. It can therefore better concentrate on such
centralized activities like finance, R&D and control.

• This form enables top management to compare the
performance

of

different

products

and

invest

more

resources in profitable products and withdraw resources

from unprofitable ones.

•

In this form, since the responsibility for each product’s
performance is entrusted to a particular departmental head,
he is better stimulated for improving his performance.

•

In this form, those who work within a department derive

greater satisfaction from identification with a recognizable
goal.

Customers
An enterprise may be divided into a number of departments on
the basis of the customers that it services. For example, an
electronics firm may have separate departments for military,
industrial and consumer customers.

A big automobile

servicing enterprise may have separate departments for
servicing cars, heavy vehicles and scooters or an educational
institution may have separate departments for day, evening
and correspondence courses to impart education to full-time
students, locally employed students and outstation students.

Regions or Territory
When

several

organization

production

are

or

marketing

geographically

units

dispersed

in

of

an

various

locations, it is logical to departmentalize those units on a
geographical

basis.

The

Indian

Railways

are

departmentalized on this basis. Northern Railways, Western
Railways, Southern Railways, Eastern Railways, Central
Railways, etc. are departments in this sense.

The Food

Corporation of India has also geographical organization with
several zonal offices at different places and a head office in
New Delhi.

Advantages
• It motivates each regional head to achieve high performance.
• It provides each regional head an opportunity to adapt to his
local situation and customer need with speed and accuracy.
• It affords valuable top-management training and experience
to middle-level executives.
• It enables the organization to take advantage of locational
factors, such as availability of raw materials, labour, market,
etc.
• It enables the organization to compare regional performances
and invest more resources in profitable regions and withdraw
resources from unprofitable ones.

(Functional Departmentalisation)
General Manager
Fig. 7.3 A typical matrix organization

Contract
Administration

R&D
(Pr
od
uc
t
De
pa
rt
m
en
tal
isa
tio
n)

A
Project
Manager

R &D
Group

Contract
Admn. Group

Engineering
Group
Engg.
Group

Mfg.
Group
Mfg.
Group

A

Project
Manager

B
Project
Manager

C

R&D
Group

R&D
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group


Slide 8

ORGANISATI
ON

An organization is the pattern of ways in which
large numbers of people, too many to have
intimate face to face contact with all others, and
engaged

in

a

complexity

of

tasks,

relate

themselves to each other in the conscious,
systematic establishment and accomplishment
of mutually agreed purposes.

In terms of all the above definitions, corporations,

armies, schools, hospitals, churches, prisons, etc.
all are organizations.

But tribes, ethnic and friendship groups and
families are not organizations because they do not

involve

any

significant

amount

of

conscious

planning, coordination or deliberate structuring.

1.

A purpose, goal or
goals which has
already indicated in
a previous chapter
are the task of
planning.

2.

A clear concept of
the major duties
or activities
required to
achiever the
purpose.

Characteristics

of
an Organisation

3. Classification of
activities into jobs

4. Establishment of
relationships
between
these jobs.

Typology of Organisations
All organizations appear alike.

But this is not so.

Every organization has certain unique combination of
the above characteristics which distinguish it from all
other

organizations.

Blau

and

Scott5 classify

organizations into four categories using the criterion
of cui bono—who benefits:

1. Organisations which benefit their owners.
business organizations fall in this category.

All

2. Organisations which benefit their members. A wide
class of unions, cooperatives and clubs come under
this category.
3. Organisations which benefit their clients. Examples
are insurance companies, private schools, etc.
4. Organisations which benefit the whole society
(commonwealth
organizations)
such
as
governmental departments.

Consideration of Objectives

The first step in organizing is to know the objectives
of the enterprise. Objectives determine the various
activities which need to be performed and the type of
organization which needs to be built for this purpose.
Consideration of objectives is the first step in the
process of organizing.

A

Grouping of Activities into
Departments

B

C

The next step is to identify the activities necessary to
achieve them and to group the closely related and
similar activities into departments and sections. For
example, the activities of a manufacturing concern may
be grouped into such departments as production,
marketing, financing and personnel.

Deciding which Departments
will be Key Departments
Which department needs to be emphasised how much
will depend, of course, on the company’s objectives and
the way it seeks to be distinctive.

For example, a

company which believes that advertising is a primary
key to success will set up a separate advertising
department that reports directly to the president. But

another

company

which

considers

it

much

less

important may only create a separate section for it under
its sales department.

Determining Levels at which Various Types of
Decisions are to be Made
After deciding the relative importance of various departments,
the levels at which various major and minor decisions are to be

made must be determined. Each firm must decide for itself as to
how much decentralization of authority and responsibility it
wants to have. Extreme decentralization may lead to loss of

control and effective coordination as a result of which the firm as
a whole may fail to achieve its overall objectives.

Extreme

centralization, on the other hand, may lead to wrong decisions at

wrong times and complete breakdown of the morale of
employees.

Determining the Span of Management
The next step to be taken in designing a structure is
to determine the number of subordinates who
should report directly to each executive.

Setting up a Coordination Mechanism

First of all comes activities analysis. A thorough and
careful activities analysis clarifies as to what work has

to be performed, what kinds of work belong together,
and what emphasis each activity is to be given in the

organization structure.

Next

comes

decision

analysis.

Although

it

is

impossible for anyone to anticipate the contents of
future decisions, one can predict their kinds and
decide their places so that when they rise in future.
Finally, an analysis should be made of the various
relationships between the tasks of a manager and

those of his subordinates, peers and superiors.

SPAN OF MANAGEMENT
Meaning and Importance :
The term “span of management” is also referred to as
span of control, span of supervision, span of authority
or span of responsibility.

It indicates the number of

subordinates who report directly to a manager.

Span of management is important for two reasons.
• First, span of management affects the efficient

utilization of managers and the effective performance
of their subordinates.

• Second, there is a relationship between span of
management and organisational structure.

PRINCIPLES OF ORGANISING
• Objectives : The objectives of the enterprise influence

the organization structure and hence the objectives of
the enterprise should first be clearly defined. Then
every part of the organization should be geared to the
achievement of these objectives.

• Specialisation Effective organization must promote
specialization. The activities of the enterprise should be
divided according to functions and assigned to persons

according to their specialization.
• Span of Control As there is a limit to the number of
persons that can be supervised effectively by one boss,
the span of control should be as far as possible, the
minimum. That means, an executive should be asked to
supervise a reasonable number of subordinates only
say six.

• Exception As the executives at the higher levels have
limited time, only exceptionally complex problems
should be referred to them and routine matters should
be dealt with by the subordinates at lower levels. This
will enable the executives at higher levels to devote time
to more important and crucial issues.
• Scalar Principle This principle is sometimes known as
the “chain of command”. The line of authority from the

chief executive at the top to the first-line supervisor at
the bottom must be clearly defined.

• Unity of Command Each subordinate should have only
one superior whose command he has to obey. Dual
subordination

must

be

avoided,

for

it

causes

uneasiness, disorder, indiscipline and undermining of
authority.
• Delegation Proper authority should be delegated at the

lower levels of organization also.

The authority

delegated should be equal to responsibility, i.e. each
manager should have enough authority to accomplish

the task assigned to him.

• Responsibility The superior should be held responsible
for the acts of his subordinates. No superior should be
allowed to avoid responsibility by delegating authority
to his subordinates.
• Authority The authority is the tool by which a manager is
able to accomplish the desired objective.

Hence, the

authority of each manager must be clearly defined.
Further, the authority should be equal to responsibility.
• Efficiency The organization structure should enable the
enterprise to function efficiently and accomplish its
objectives with the lowest possible cost.

• Simplicity The organization structure should be as

simple as possible and the organization levels should,
as far as possible, be minimum. A large number of
levels of organization means difficulty of effective

communication and coordination.
• Flexibility The organization should be flexible, should

be adaptable to changing circumstances and permit
expansion and replacement without dislocation and
disruption of the basic design.

• Balance There should be a reasonable balance in the
size of various departments, between centralization
and decentralization, between the principle of span of

control and the short chain of command, and among
all types of factors such as human, technical and
financial.
• Unity of Direction There should be one objective and
one plan for a group of activities having the same
objective. Unity of direction facilitates unification and
coordination of activities at various levels.

• Personal Ability As people constitute an organization,
there is need for proper selection, placement and

training of staff.

Further, the organization structure

must ensure optimum use of human resources and
encourage management development programmes.

DEPARTMENTALISATION
Departmentalisation is one important step of building an
organization.

The aim is to take advantage of the

division of labour and specialization upto a certain limit.

There are several bases for departmentalization, each of
which

is

suitable

for

strategies and purposes.

particular

corporate

sizes,

Functions
By

far

the

most

widely

used

base

for

departmentalization is function. Each major function

of the enterprise is grouped into a department.

Advantages
• Everybody in this form of organization understands his own task
and feels highly secure both in his work and in his relationships.

•It promotes excellence in performance because of development of
expertise through specialization.
•It leads to improved planning and control of the key functions.
•It ensures economy, there is only one department related to one
function for the entire function. Manpower and other resources of
the company are effectively utilized by time-sharing them across
products or projects.

Drawbacks
• It fosters sub-goal loyalties. It is difficult for any one
to understand the task of the whole and to relate his
own work to it.
• It does not offer a good training ground for the overall
development of a manager.

• It is unsuitable for organizations which are large in
size, complexity or innovative scope.

• In

this

form

customer

needs

evoke

conflicting

interpretations like the story of twelve blind people and

the elephant.
• In this form procedures are overly complicated,
wasteful and time-consuming—a weakness sometimes
called as “organizational arthritis”.

The structure is

rigid and resists adaptation.

• In this form because of “common pot” accounting it is
difficult to judge whether the activities of a particular
department are worth their cost.

Products
Under this method, for each major product, a separate
semi-autonomous department is created and is put

under the charge of a manager who may also be made
responsible for producing a profit of a given magnitude.
Within each department, all the needed manufacturing,

engineering, marketing, manpower and other facilities
are

assembled.

detergents,
products),

Hindustan

toiletries,

Lever

chemicals

(manufacturing

and

agro-based

Richardson Hindustan (manufacturing a range of Vicks
products, Clearasil cream and soap), and Johnson and
Johnson (manufacturing a range of products for

children and surgical sutures) have product-based
departments

Advantages
• This form relieves top management of operating task
responsibility. It can therefore better concentrate on such
centralized activities like finance, R&D and control.

• This form enables top management to compare the
performance

of

different

products

and

invest

more

resources in profitable products and withdraw resources

from unprofitable ones.

•

In this form, since the responsibility for each product’s
performance is entrusted to a particular departmental head,
he is better stimulated for improving his performance.

•

In this form, those who work within a department derive

greater satisfaction from identification with a recognizable
goal.

Customers
An enterprise may be divided into a number of departments on
the basis of the customers that it services. For example, an
electronics firm may have separate departments for military,
industrial and consumer customers.

A big automobile

servicing enterprise may have separate departments for
servicing cars, heavy vehicles and scooters or an educational
institution may have separate departments for day, evening
and correspondence courses to impart education to full-time
students, locally employed students and outstation students.

Regions or Territory
When

several

organization

production

are

or

marketing

geographically

units

dispersed

in

of

an

various

locations, it is logical to departmentalize those units on a
geographical

basis.

The

Indian

Railways

are

departmentalized on this basis. Northern Railways, Western
Railways, Southern Railways, Eastern Railways, Central
Railways, etc. are departments in this sense.

The Food

Corporation of India has also geographical organization with
several zonal offices at different places and a head office in
New Delhi.

Advantages
• It motivates each regional head to achieve high performance.
• It provides each regional head an opportunity to adapt to his
local situation and customer need with speed and accuracy.
• It affords valuable top-management training and experience
to middle-level executives.
• It enables the organization to take advantage of locational
factors, such as availability of raw materials, labour, market,
etc.
• It enables the organization to compare regional performances
and invest more resources in profitable regions and withdraw
resources from unprofitable ones.

(Functional Departmentalisation)
General Manager
Fig. 7.3 A typical matrix organization

Contract
Administration

R&D
(Pr
od
uc
t
De
pa
rt
m
en
tal
isa
tio
n)

A
Project
Manager

R &D
Group

Contract
Admn. Group

Engineering
Group
Engg.
Group

Mfg.
Group
Mfg.
Group

A

Project
Manager

B
Project
Manager

C

R&D
Group

R&D
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group


Slide 9

ORGANISATI
ON

An organization is the pattern of ways in which
large numbers of people, too many to have
intimate face to face contact with all others, and
engaged

in

a

complexity

of

tasks,

relate

themselves to each other in the conscious,
systematic establishment and accomplishment
of mutually agreed purposes.

In terms of all the above definitions, corporations,

armies, schools, hospitals, churches, prisons, etc.
all are organizations.

But tribes, ethnic and friendship groups and
families are not organizations because they do not

involve

any

significant

amount

of

conscious

planning, coordination or deliberate structuring.

1.

A purpose, goal or
goals which has
already indicated in
a previous chapter
are the task of
planning.

2.

A clear concept of
the major duties
or activities
required to
achiever the
purpose.

Characteristics

of
an Organisation

3. Classification of
activities into jobs

4. Establishment of
relationships
between
these jobs.

Typology of Organisations
All organizations appear alike.

But this is not so.

Every organization has certain unique combination of
the above characteristics which distinguish it from all
other

organizations.

Blau

and

Scott5 classify

organizations into four categories using the criterion
of cui bono—who benefits:

1. Organisations which benefit their owners.
business organizations fall in this category.

All

2. Organisations which benefit their members. A wide
class of unions, cooperatives and clubs come under
this category.
3. Organisations which benefit their clients. Examples
are insurance companies, private schools, etc.
4. Organisations which benefit the whole society
(commonwealth
organizations)
such
as
governmental departments.

Consideration of Objectives

The first step in organizing is to know the objectives
of the enterprise. Objectives determine the various
activities which need to be performed and the type of
organization which needs to be built for this purpose.
Consideration of objectives is the first step in the
process of organizing.

A

Grouping of Activities into
Departments

B

C

The next step is to identify the activities necessary to
achieve them and to group the closely related and
similar activities into departments and sections. For
example, the activities of a manufacturing concern may
be grouped into such departments as production,
marketing, financing and personnel.

Deciding which Departments
will be Key Departments
Which department needs to be emphasised how much
will depend, of course, on the company’s objectives and
the way it seeks to be distinctive.

For example, a

company which believes that advertising is a primary
key to success will set up a separate advertising
department that reports directly to the president. But

another

company

which

considers

it

much

less

important may only create a separate section for it under
its sales department.

Determining Levels at which Various Types of
Decisions are to be Made
After deciding the relative importance of various departments,
the levels at which various major and minor decisions are to be

made must be determined. Each firm must decide for itself as to
how much decentralization of authority and responsibility it
wants to have. Extreme decentralization may lead to loss of

control and effective coordination as a result of which the firm as
a whole may fail to achieve its overall objectives.

Extreme

centralization, on the other hand, may lead to wrong decisions at

wrong times and complete breakdown of the morale of
employees.

Determining the Span of Management
The next step to be taken in designing a structure is
to determine the number of subordinates who
should report directly to each executive.

Setting up a Coordination Mechanism

First of all comes activities analysis. A thorough and
careful activities analysis clarifies as to what work has

to be performed, what kinds of work belong together,
and what emphasis each activity is to be given in the

organization structure.

Next

comes

decision

analysis.

Although

it

is

impossible for anyone to anticipate the contents of
future decisions, one can predict their kinds and
decide their places so that when they rise in future.
Finally, an analysis should be made of the various
relationships between the tasks of a manager and

those of his subordinates, peers and superiors.

SPAN OF MANAGEMENT
Meaning and Importance :
The term “span of management” is also referred to as
span of control, span of supervision, span of authority
or span of responsibility.

It indicates the number of

subordinates who report directly to a manager.

Span of management is important for two reasons.
• First, span of management affects the efficient

utilization of managers and the effective performance
of their subordinates.

• Second, there is a relationship between span of
management and organisational structure.

PRINCIPLES OF ORGANISING
• Objectives : The objectives of the enterprise influence

the organization structure and hence the objectives of
the enterprise should first be clearly defined. Then
every part of the organization should be geared to the
achievement of these objectives.

• Specialisation Effective organization must promote
specialization. The activities of the enterprise should be
divided according to functions and assigned to persons

according to their specialization.
• Span of Control As there is a limit to the number of
persons that can be supervised effectively by one boss,
the span of control should be as far as possible, the
minimum. That means, an executive should be asked to
supervise a reasonable number of subordinates only
say six.

• Exception As the executives at the higher levels have
limited time, only exceptionally complex problems
should be referred to them and routine matters should
be dealt with by the subordinates at lower levels. This
will enable the executives at higher levels to devote time
to more important and crucial issues.
• Scalar Principle This principle is sometimes known as
the “chain of command”. The line of authority from the

chief executive at the top to the first-line supervisor at
the bottom must be clearly defined.

• Unity of Command Each subordinate should have only
one superior whose command he has to obey. Dual
subordination

must

be

avoided,

for

it

causes

uneasiness, disorder, indiscipline and undermining of
authority.
• Delegation Proper authority should be delegated at the

lower levels of organization also.

The authority

delegated should be equal to responsibility, i.e. each
manager should have enough authority to accomplish

the task assigned to him.

• Responsibility The superior should be held responsible
for the acts of his subordinates. No superior should be
allowed to avoid responsibility by delegating authority
to his subordinates.
• Authority The authority is the tool by which a manager is
able to accomplish the desired objective.

Hence, the

authority of each manager must be clearly defined.
Further, the authority should be equal to responsibility.
• Efficiency The organization structure should enable the
enterprise to function efficiently and accomplish its
objectives with the lowest possible cost.

• Simplicity The organization structure should be as

simple as possible and the organization levels should,
as far as possible, be minimum. A large number of
levels of organization means difficulty of effective

communication and coordination.
• Flexibility The organization should be flexible, should

be adaptable to changing circumstances and permit
expansion and replacement without dislocation and
disruption of the basic design.

• Balance There should be a reasonable balance in the
size of various departments, between centralization
and decentralization, between the principle of span of

control and the short chain of command, and among
all types of factors such as human, technical and
financial.
• Unity of Direction There should be one objective and
one plan for a group of activities having the same
objective. Unity of direction facilitates unification and
coordination of activities at various levels.

• Personal Ability As people constitute an organization,
there is need for proper selection, placement and

training of staff.

Further, the organization structure

must ensure optimum use of human resources and
encourage management development programmes.

DEPARTMENTALISATION
Departmentalisation is one important step of building an
organization.

The aim is to take advantage of the

division of labour and specialization upto a certain limit.

There are several bases for departmentalization, each of
which

is

suitable

for

strategies and purposes.

particular

corporate

sizes,

Functions
By

far

the

most

widely

used

base

for

departmentalization is function. Each major function

of the enterprise is grouped into a department.

Advantages
• Everybody in this form of organization understands his own task
and feels highly secure both in his work and in his relationships.

•It promotes excellence in performance because of development of
expertise through specialization.
•It leads to improved planning and control of the key functions.
•It ensures economy, there is only one department related to one
function for the entire function. Manpower and other resources of
the company are effectively utilized by time-sharing them across
products or projects.

Drawbacks
• It fosters sub-goal loyalties. It is difficult for any one
to understand the task of the whole and to relate his
own work to it.
• It does not offer a good training ground for the overall
development of a manager.

• It is unsuitable for organizations which are large in
size, complexity or innovative scope.

• In

this

form

customer

needs

evoke

conflicting

interpretations like the story of twelve blind people and

the elephant.
• In this form procedures are overly complicated,
wasteful and time-consuming—a weakness sometimes
called as “organizational arthritis”.

The structure is

rigid and resists adaptation.

• In this form because of “common pot” accounting it is
difficult to judge whether the activities of a particular
department are worth their cost.

Products
Under this method, for each major product, a separate
semi-autonomous department is created and is put

under the charge of a manager who may also be made
responsible for producing a profit of a given magnitude.
Within each department, all the needed manufacturing,

engineering, marketing, manpower and other facilities
are

assembled.

detergents,
products),

Hindustan

toiletries,

Lever

chemicals

(manufacturing

and

agro-based

Richardson Hindustan (manufacturing a range of Vicks
products, Clearasil cream and soap), and Johnson and
Johnson (manufacturing a range of products for

children and surgical sutures) have product-based
departments

Advantages
• This form relieves top management of operating task
responsibility. It can therefore better concentrate on such
centralized activities like finance, R&D and control.

• This form enables top management to compare the
performance

of

different

products

and

invest

more

resources in profitable products and withdraw resources

from unprofitable ones.

•

In this form, since the responsibility for each product’s
performance is entrusted to a particular departmental head,
he is better stimulated for improving his performance.

•

In this form, those who work within a department derive

greater satisfaction from identification with a recognizable
goal.

Customers
An enterprise may be divided into a number of departments on
the basis of the customers that it services. For example, an
electronics firm may have separate departments for military,
industrial and consumer customers.

A big automobile

servicing enterprise may have separate departments for
servicing cars, heavy vehicles and scooters or an educational
institution may have separate departments for day, evening
and correspondence courses to impart education to full-time
students, locally employed students and outstation students.

Regions or Territory
When

several

organization

production

are

or

marketing

geographically

units

dispersed

in

of

an

various

locations, it is logical to departmentalize those units on a
geographical

basis.

The

Indian

Railways

are

departmentalized on this basis. Northern Railways, Western
Railways, Southern Railways, Eastern Railways, Central
Railways, etc. are departments in this sense.

The Food

Corporation of India has also geographical organization with
several zonal offices at different places and a head office in
New Delhi.

Advantages
• It motivates each regional head to achieve high performance.
• It provides each regional head an opportunity to adapt to his
local situation and customer need with speed and accuracy.
• It affords valuable top-management training and experience
to middle-level executives.
• It enables the organization to take advantage of locational
factors, such as availability of raw materials, labour, market,
etc.
• It enables the organization to compare regional performances
and invest more resources in profitable regions and withdraw
resources from unprofitable ones.

(Functional Departmentalisation)
General Manager
Fig. 7.3 A typical matrix organization

Contract
Administration

R&D
(Pr
od
uc
t
De
pa
rt
m
en
tal
isa
tio
n)

A
Project
Manager

R &D
Group

Contract
Admn. Group

Engineering
Group
Engg.
Group

Mfg.
Group
Mfg.
Group

A

Project
Manager

B
Project
Manager

C

R&D
Group

R&D
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group


Slide 10

ORGANISATI
ON

An organization is the pattern of ways in which
large numbers of people, too many to have
intimate face to face contact with all others, and
engaged

in

a

complexity

of

tasks,

relate

themselves to each other in the conscious,
systematic establishment and accomplishment
of mutually agreed purposes.

In terms of all the above definitions, corporations,

armies, schools, hospitals, churches, prisons, etc.
all are organizations.

But tribes, ethnic and friendship groups and
families are not organizations because they do not

involve

any

significant

amount

of

conscious

planning, coordination or deliberate structuring.

1.

A purpose, goal or
goals which has
already indicated in
a previous chapter
are the task of
planning.

2.

A clear concept of
the major duties
or activities
required to
achiever the
purpose.

Characteristics

of
an Organisation

3. Classification of
activities into jobs

4. Establishment of
relationships
between
these jobs.

Typology of Organisations
All organizations appear alike.

But this is not so.

Every organization has certain unique combination of
the above characteristics which distinguish it from all
other

organizations.

Blau

and

Scott5 classify

organizations into four categories using the criterion
of cui bono—who benefits:

1. Organisations which benefit their owners.
business organizations fall in this category.

All

2. Organisations which benefit their members. A wide
class of unions, cooperatives and clubs come under
this category.
3. Organisations which benefit their clients. Examples
are insurance companies, private schools, etc.
4. Organisations which benefit the whole society
(commonwealth
organizations)
such
as
governmental departments.

Consideration of Objectives

The first step in organizing is to know the objectives
of the enterprise. Objectives determine the various
activities which need to be performed and the type of
organization which needs to be built for this purpose.
Consideration of objectives is the first step in the
process of organizing.

A

Grouping of Activities into
Departments

B

C

The next step is to identify the activities necessary to
achieve them and to group the closely related and
similar activities into departments and sections. For
example, the activities of a manufacturing concern may
be grouped into such departments as production,
marketing, financing and personnel.

Deciding which Departments
will be Key Departments
Which department needs to be emphasised how much
will depend, of course, on the company’s objectives and
the way it seeks to be distinctive.

For example, a

company which believes that advertising is a primary
key to success will set up a separate advertising
department that reports directly to the president. But

another

company

which

considers

it

much

less

important may only create a separate section for it under
its sales department.

Determining Levels at which Various Types of
Decisions are to be Made
After deciding the relative importance of various departments,
the levels at which various major and minor decisions are to be

made must be determined. Each firm must decide for itself as to
how much decentralization of authority and responsibility it
wants to have. Extreme decentralization may lead to loss of

control and effective coordination as a result of which the firm as
a whole may fail to achieve its overall objectives.

Extreme

centralization, on the other hand, may lead to wrong decisions at

wrong times and complete breakdown of the morale of
employees.

Determining the Span of Management
The next step to be taken in designing a structure is
to determine the number of subordinates who
should report directly to each executive.

Setting up a Coordination Mechanism

First of all comes activities analysis. A thorough and
careful activities analysis clarifies as to what work has

to be performed, what kinds of work belong together,
and what emphasis each activity is to be given in the

organization structure.

Next

comes

decision

analysis.

Although

it

is

impossible for anyone to anticipate the contents of
future decisions, one can predict their kinds and
decide their places so that when they rise in future.
Finally, an analysis should be made of the various
relationships between the tasks of a manager and

those of his subordinates, peers and superiors.

SPAN OF MANAGEMENT
Meaning and Importance :
The term “span of management” is also referred to as
span of control, span of supervision, span of authority
or span of responsibility.

It indicates the number of

subordinates who report directly to a manager.

Span of management is important for two reasons.
• First, span of management affects the efficient

utilization of managers and the effective performance
of their subordinates.

• Second, there is a relationship between span of
management and organisational structure.

PRINCIPLES OF ORGANISING
• Objectives : The objectives of the enterprise influence

the organization structure and hence the objectives of
the enterprise should first be clearly defined. Then
every part of the organization should be geared to the
achievement of these objectives.

• Specialisation Effective organization must promote
specialization. The activities of the enterprise should be
divided according to functions and assigned to persons

according to their specialization.
• Span of Control As there is a limit to the number of
persons that can be supervised effectively by one boss,
the span of control should be as far as possible, the
minimum. That means, an executive should be asked to
supervise a reasonable number of subordinates only
say six.

• Exception As the executives at the higher levels have
limited time, only exceptionally complex problems
should be referred to them and routine matters should
be dealt with by the subordinates at lower levels. This
will enable the executives at higher levels to devote time
to more important and crucial issues.
• Scalar Principle This principle is sometimes known as
the “chain of command”. The line of authority from the

chief executive at the top to the first-line supervisor at
the bottom must be clearly defined.

• Unity of Command Each subordinate should have only
one superior whose command he has to obey. Dual
subordination

must

be

avoided,

for

it

causes

uneasiness, disorder, indiscipline and undermining of
authority.
• Delegation Proper authority should be delegated at the

lower levels of organization also.

The authority

delegated should be equal to responsibility, i.e. each
manager should have enough authority to accomplish

the task assigned to him.

• Responsibility The superior should be held responsible
for the acts of his subordinates. No superior should be
allowed to avoid responsibility by delegating authority
to his subordinates.
• Authority The authority is the tool by which a manager is
able to accomplish the desired objective.

Hence, the

authority of each manager must be clearly defined.
Further, the authority should be equal to responsibility.
• Efficiency The organization structure should enable the
enterprise to function efficiently and accomplish its
objectives with the lowest possible cost.

• Simplicity The organization structure should be as

simple as possible and the organization levels should,
as far as possible, be minimum. A large number of
levels of organization means difficulty of effective

communication and coordination.
• Flexibility The organization should be flexible, should

be adaptable to changing circumstances and permit
expansion and replacement without dislocation and
disruption of the basic design.

• Balance There should be a reasonable balance in the
size of various departments, between centralization
and decentralization, between the principle of span of

control and the short chain of command, and among
all types of factors such as human, technical and
financial.
• Unity of Direction There should be one objective and
one plan for a group of activities having the same
objective. Unity of direction facilitates unification and
coordination of activities at various levels.

• Personal Ability As people constitute an organization,
there is need for proper selection, placement and

training of staff.

Further, the organization structure

must ensure optimum use of human resources and
encourage management development programmes.

DEPARTMENTALISATION
Departmentalisation is one important step of building an
organization.

The aim is to take advantage of the

division of labour and specialization upto a certain limit.

There are several bases for departmentalization, each of
which

is

suitable

for

strategies and purposes.

particular

corporate

sizes,

Functions
By

far

the

most

widely

used

base

for

departmentalization is function. Each major function

of the enterprise is grouped into a department.

Advantages
• Everybody in this form of organization understands his own task
and feels highly secure both in his work and in his relationships.

•It promotes excellence in performance because of development of
expertise through specialization.
•It leads to improved planning and control of the key functions.
•It ensures economy, there is only one department related to one
function for the entire function. Manpower and other resources of
the company are effectively utilized by time-sharing them across
products or projects.

Drawbacks
• It fosters sub-goal loyalties. It is difficult for any one
to understand the task of the whole and to relate his
own work to it.
• It does not offer a good training ground for the overall
development of a manager.

• It is unsuitable for organizations which are large in
size, complexity or innovative scope.

• In

this

form

customer

needs

evoke

conflicting

interpretations like the story of twelve blind people and

the elephant.
• In this form procedures are overly complicated,
wasteful and time-consuming—a weakness sometimes
called as “organizational arthritis”.

The structure is

rigid and resists adaptation.

• In this form because of “common pot” accounting it is
difficult to judge whether the activities of a particular
department are worth their cost.

Products
Under this method, for each major product, a separate
semi-autonomous department is created and is put

under the charge of a manager who may also be made
responsible for producing a profit of a given magnitude.
Within each department, all the needed manufacturing,

engineering, marketing, manpower and other facilities
are

assembled.

detergents,
products),

Hindustan

toiletries,

Lever

chemicals

(manufacturing

and

agro-based

Richardson Hindustan (manufacturing a range of Vicks
products, Clearasil cream and soap), and Johnson and
Johnson (manufacturing a range of products for

children and surgical sutures) have product-based
departments

Advantages
• This form relieves top management of operating task
responsibility. It can therefore better concentrate on such
centralized activities like finance, R&D and control.

• This form enables top management to compare the
performance

of

different

products

and

invest

more

resources in profitable products and withdraw resources

from unprofitable ones.

•

In this form, since the responsibility for each product’s
performance is entrusted to a particular departmental head,
he is better stimulated for improving his performance.

•

In this form, those who work within a department derive

greater satisfaction from identification with a recognizable
goal.

Customers
An enterprise may be divided into a number of departments on
the basis of the customers that it services. For example, an
electronics firm may have separate departments for military,
industrial and consumer customers.

A big automobile

servicing enterprise may have separate departments for
servicing cars, heavy vehicles and scooters or an educational
institution may have separate departments for day, evening
and correspondence courses to impart education to full-time
students, locally employed students and outstation students.

Regions or Territory
When

several

organization

production

are

or

marketing

geographically

units

dispersed

in

of

an

various

locations, it is logical to departmentalize those units on a
geographical

basis.

The

Indian

Railways

are

departmentalized on this basis. Northern Railways, Western
Railways, Southern Railways, Eastern Railways, Central
Railways, etc. are departments in this sense.

The Food

Corporation of India has also geographical organization with
several zonal offices at different places and a head office in
New Delhi.

Advantages
• It motivates each regional head to achieve high performance.
• It provides each regional head an opportunity to adapt to his
local situation and customer need with speed and accuracy.
• It affords valuable top-management training and experience
to middle-level executives.
• It enables the organization to take advantage of locational
factors, such as availability of raw materials, labour, market,
etc.
• It enables the organization to compare regional performances
and invest more resources in profitable regions and withdraw
resources from unprofitable ones.

(Functional Departmentalisation)
General Manager
Fig. 7.3 A typical matrix organization

Contract
Administration

R&D
(Pr
od
uc
t
De
pa
rt
m
en
tal
isa
tio
n)

A
Project
Manager

R &D
Group

Contract
Admn. Group

Engineering
Group
Engg.
Group

Mfg.
Group
Mfg.
Group

A

Project
Manager

B
Project
Manager

C

R&D
Group

R&D
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group


Slide 11

ORGANISATI
ON

An organization is the pattern of ways in which
large numbers of people, too many to have
intimate face to face contact with all others, and
engaged

in

a

complexity

of

tasks,

relate

themselves to each other in the conscious,
systematic establishment and accomplishment
of mutually agreed purposes.

In terms of all the above definitions, corporations,

armies, schools, hospitals, churches, prisons, etc.
all are organizations.

But tribes, ethnic and friendship groups and
families are not organizations because they do not

involve

any

significant

amount

of

conscious

planning, coordination or deliberate structuring.

1.

A purpose, goal or
goals which has
already indicated in
a previous chapter
are the task of
planning.

2.

A clear concept of
the major duties
or activities
required to
achiever the
purpose.

Characteristics

of
an Organisation

3. Classification of
activities into jobs

4. Establishment of
relationships
between
these jobs.

Typology of Organisations
All organizations appear alike.

But this is not so.

Every organization has certain unique combination of
the above characteristics which distinguish it from all
other

organizations.

Blau

and

Scott5 classify

organizations into four categories using the criterion
of cui bono—who benefits:

1. Organisations which benefit their owners.
business organizations fall in this category.

All

2. Organisations which benefit their members. A wide
class of unions, cooperatives and clubs come under
this category.
3. Organisations which benefit their clients. Examples
are insurance companies, private schools, etc.
4. Organisations which benefit the whole society
(commonwealth
organizations)
such
as
governmental departments.

Consideration of Objectives

The first step in organizing is to know the objectives
of the enterprise. Objectives determine the various
activities which need to be performed and the type of
organization which needs to be built for this purpose.
Consideration of objectives is the first step in the
process of organizing.

A

Grouping of Activities into
Departments

B

C

The next step is to identify the activities necessary to
achieve them and to group the closely related and
similar activities into departments and sections. For
example, the activities of a manufacturing concern may
be grouped into such departments as production,
marketing, financing and personnel.

Deciding which Departments
will be Key Departments
Which department needs to be emphasised how much
will depend, of course, on the company’s objectives and
the way it seeks to be distinctive.

For example, a

company which believes that advertising is a primary
key to success will set up a separate advertising
department that reports directly to the president. But

another

company

which

considers

it

much

less

important may only create a separate section for it under
its sales department.

Determining Levels at which Various Types of
Decisions are to be Made
After deciding the relative importance of various departments,
the levels at which various major and minor decisions are to be

made must be determined. Each firm must decide for itself as to
how much decentralization of authority and responsibility it
wants to have. Extreme decentralization may lead to loss of

control and effective coordination as a result of which the firm as
a whole may fail to achieve its overall objectives.

Extreme

centralization, on the other hand, may lead to wrong decisions at

wrong times and complete breakdown of the morale of
employees.

Determining the Span of Management
The next step to be taken in designing a structure is
to determine the number of subordinates who
should report directly to each executive.

Setting up a Coordination Mechanism

First of all comes activities analysis. A thorough and
careful activities analysis clarifies as to what work has

to be performed, what kinds of work belong together,
and what emphasis each activity is to be given in the

organization structure.

Next

comes

decision

analysis.

Although

it

is

impossible for anyone to anticipate the contents of
future decisions, one can predict their kinds and
decide their places so that when they rise in future.
Finally, an analysis should be made of the various
relationships between the tasks of a manager and

those of his subordinates, peers and superiors.

SPAN OF MANAGEMENT
Meaning and Importance :
The term “span of management” is also referred to as
span of control, span of supervision, span of authority
or span of responsibility.

It indicates the number of

subordinates who report directly to a manager.

Span of management is important for two reasons.
• First, span of management affects the efficient

utilization of managers and the effective performance
of their subordinates.

• Second, there is a relationship between span of
management and organisational structure.

PRINCIPLES OF ORGANISING
• Objectives : The objectives of the enterprise influence

the organization structure and hence the objectives of
the enterprise should first be clearly defined. Then
every part of the organization should be geared to the
achievement of these objectives.

• Specialisation Effective organization must promote
specialization. The activities of the enterprise should be
divided according to functions and assigned to persons

according to their specialization.
• Span of Control As there is a limit to the number of
persons that can be supervised effectively by one boss,
the span of control should be as far as possible, the
minimum. That means, an executive should be asked to
supervise a reasonable number of subordinates only
say six.

• Exception As the executives at the higher levels have
limited time, only exceptionally complex problems
should be referred to them and routine matters should
be dealt with by the subordinates at lower levels. This
will enable the executives at higher levels to devote time
to more important and crucial issues.
• Scalar Principle This principle is sometimes known as
the “chain of command”. The line of authority from the

chief executive at the top to the first-line supervisor at
the bottom must be clearly defined.

• Unity of Command Each subordinate should have only
one superior whose command he has to obey. Dual
subordination

must

be

avoided,

for

it

causes

uneasiness, disorder, indiscipline and undermining of
authority.
• Delegation Proper authority should be delegated at the

lower levels of organization also.

The authority

delegated should be equal to responsibility, i.e. each
manager should have enough authority to accomplish

the task assigned to him.

• Responsibility The superior should be held responsible
for the acts of his subordinates. No superior should be
allowed to avoid responsibility by delegating authority
to his subordinates.
• Authority The authority is the tool by which a manager is
able to accomplish the desired objective.

Hence, the

authority of each manager must be clearly defined.
Further, the authority should be equal to responsibility.
• Efficiency The organization structure should enable the
enterprise to function efficiently and accomplish its
objectives with the lowest possible cost.

• Simplicity The organization structure should be as

simple as possible and the organization levels should,
as far as possible, be minimum. A large number of
levels of organization means difficulty of effective

communication and coordination.
• Flexibility The organization should be flexible, should

be adaptable to changing circumstances and permit
expansion and replacement without dislocation and
disruption of the basic design.

• Balance There should be a reasonable balance in the
size of various departments, between centralization
and decentralization, between the principle of span of

control and the short chain of command, and among
all types of factors such as human, technical and
financial.
• Unity of Direction There should be one objective and
one plan for a group of activities having the same
objective. Unity of direction facilitates unification and
coordination of activities at various levels.

• Personal Ability As people constitute an organization,
there is need for proper selection, placement and

training of staff.

Further, the organization structure

must ensure optimum use of human resources and
encourage management development programmes.

DEPARTMENTALISATION
Departmentalisation is one important step of building an
organization.

The aim is to take advantage of the

division of labour and specialization upto a certain limit.

There are several bases for departmentalization, each of
which

is

suitable

for

strategies and purposes.

particular

corporate

sizes,

Functions
By

far

the

most

widely

used

base

for

departmentalization is function. Each major function

of the enterprise is grouped into a department.

Advantages
• Everybody in this form of organization understands his own task
and feels highly secure both in his work and in his relationships.

•It promotes excellence in performance because of development of
expertise through specialization.
•It leads to improved planning and control of the key functions.
•It ensures economy, there is only one department related to one
function for the entire function. Manpower and other resources of
the company are effectively utilized by time-sharing them across
products or projects.

Drawbacks
• It fosters sub-goal loyalties. It is difficult for any one
to understand the task of the whole and to relate his
own work to it.
• It does not offer a good training ground for the overall
development of a manager.

• It is unsuitable for organizations which are large in
size, complexity or innovative scope.

• In

this

form

customer

needs

evoke

conflicting

interpretations like the story of twelve blind people and

the elephant.
• In this form procedures are overly complicated,
wasteful and time-consuming—a weakness sometimes
called as “organizational arthritis”.

The structure is

rigid and resists adaptation.

• In this form because of “common pot” accounting it is
difficult to judge whether the activities of a particular
department are worth their cost.

Products
Under this method, for each major product, a separate
semi-autonomous department is created and is put

under the charge of a manager who may also be made
responsible for producing a profit of a given magnitude.
Within each department, all the needed manufacturing,

engineering, marketing, manpower and other facilities
are

assembled.

detergents,
products),

Hindustan

toiletries,

Lever

chemicals

(manufacturing

and

agro-based

Richardson Hindustan (manufacturing a range of Vicks
products, Clearasil cream and soap), and Johnson and
Johnson (manufacturing a range of products for

children and surgical sutures) have product-based
departments

Advantages
• This form relieves top management of operating task
responsibility. It can therefore better concentrate on such
centralized activities like finance, R&D and control.

• This form enables top management to compare the
performance

of

different

products

and

invest

more

resources in profitable products and withdraw resources

from unprofitable ones.

•

In this form, since the responsibility for each product’s
performance is entrusted to a particular departmental head,
he is better stimulated for improving his performance.

•

In this form, those who work within a department derive

greater satisfaction from identification with a recognizable
goal.

Customers
An enterprise may be divided into a number of departments on
the basis of the customers that it services. For example, an
electronics firm may have separate departments for military,
industrial and consumer customers.

A big automobile

servicing enterprise may have separate departments for
servicing cars, heavy vehicles and scooters or an educational
institution may have separate departments for day, evening
and correspondence courses to impart education to full-time
students, locally employed students and outstation students.

Regions or Territory
When

several

organization

production

are

or

marketing

geographically

units

dispersed

in

of

an

various

locations, it is logical to departmentalize those units on a
geographical

basis.

The

Indian

Railways

are

departmentalized on this basis. Northern Railways, Western
Railways, Southern Railways, Eastern Railways, Central
Railways, etc. are departments in this sense.

The Food

Corporation of India has also geographical organization with
several zonal offices at different places and a head office in
New Delhi.

Advantages
• It motivates each regional head to achieve high performance.
• It provides each regional head an opportunity to adapt to his
local situation and customer need with speed and accuracy.
• It affords valuable top-management training and experience
to middle-level executives.
• It enables the organization to take advantage of locational
factors, such as availability of raw materials, labour, market,
etc.
• It enables the organization to compare regional performances
and invest more resources in profitable regions and withdraw
resources from unprofitable ones.

(Functional Departmentalisation)
General Manager
Fig. 7.3 A typical matrix organization

Contract
Administration

R&D
(Pr
od
uc
t
De
pa
rt
m
en
tal
isa
tio
n)

A
Project
Manager

R &D
Group

Contract
Admn. Group

Engineering
Group
Engg.
Group

Mfg.
Group
Mfg.
Group

A

Project
Manager

B
Project
Manager

C

R&D
Group

R&D
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group


Slide 12

ORGANISATI
ON

An organization is the pattern of ways in which
large numbers of people, too many to have
intimate face to face contact with all others, and
engaged

in

a

complexity

of

tasks,

relate

themselves to each other in the conscious,
systematic establishment and accomplishment
of mutually agreed purposes.

In terms of all the above definitions, corporations,

armies, schools, hospitals, churches, prisons, etc.
all are organizations.

But tribes, ethnic and friendship groups and
families are not organizations because they do not

involve

any

significant

amount

of

conscious

planning, coordination or deliberate structuring.

1.

A purpose, goal or
goals which has
already indicated in
a previous chapter
are the task of
planning.

2.

A clear concept of
the major duties
or activities
required to
achiever the
purpose.

Characteristics

of
an Organisation

3. Classification of
activities into jobs

4. Establishment of
relationships
between
these jobs.

Typology of Organisations
All organizations appear alike.

But this is not so.

Every organization has certain unique combination of
the above characteristics which distinguish it from all
other

organizations.

Blau

and

Scott5 classify

organizations into four categories using the criterion
of cui bono—who benefits:

1. Organisations which benefit their owners.
business organizations fall in this category.

All

2. Organisations which benefit their members. A wide
class of unions, cooperatives and clubs come under
this category.
3. Organisations which benefit their clients. Examples
are insurance companies, private schools, etc.
4. Organisations which benefit the whole society
(commonwealth
organizations)
such
as
governmental departments.

Consideration of Objectives

The first step in organizing is to know the objectives
of the enterprise. Objectives determine the various
activities which need to be performed and the type of
organization which needs to be built for this purpose.
Consideration of objectives is the first step in the
process of organizing.

A

Grouping of Activities into
Departments

B

C

The next step is to identify the activities necessary to
achieve them and to group the closely related and
similar activities into departments and sections. For
example, the activities of a manufacturing concern may
be grouped into such departments as production,
marketing, financing and personnel.

Deciding which Departments
will be Key Departments
Which department needs to be emphasised how much
will depend, of course, on the company’s objectives and
the way it seeks to be distinctive.

For example, a

company which believes that advertising is a primary
key to success will set up a separate advertising
department that reports directly to the president. But

another

company

which

considers

it

much

less

important may only create a separate section for it under
its sales department.

Determining Levels at which Various Types of
Decisions are to be Made
After deciding the relative importance of various departments,
the levels at which various major and minor decisions are to be

made must be determined. Each firm must decide for itself as to
how much decentralization of authority and responsibility it
wants to have. Extreme decentralization may lead to loss of

control and effective coordination as a result of which the firm as
a whole may fail to achieve its overall objectives.

Extreme

centralization, on the other hand, may lead to wrong decisions at

wrong times and complete breakdown of the morale of
employees.

Determining the Span of Management
The next step to be taken in designing a structure is
to determine the number of subordinates who
should report directly to each executive.

Setting up a Coordination Mechanism

First of all comes activities analysis. A thorough and
careful activities analysis clarifies as to what work has

to be performed, what kinds of work belong together,
and what emphasis each activity is to be given in the

organization structure.

Next

comes

decision

analysis.

Although

it

is

impossible for anyone to anticipate the contents of
future decisions, one can predict their kinds and
decide their places so that when they rise in future.
Finally, an analysis should be made of the various
relationships between the tasks of a manager and

those of his subordinates, peers and superiors.

SPAN OF MANAGEMENT
Meaning and Importance :
The term “span of management” is also referred to as
span of control, span of supervision, span of authority
or span of responsibility.

It indicates the number of

subordinates who report directly to a manager.

Span of management is important for two reasons.
• First, span of management affects the efficient

utilization of managers and the effective performance
of their subordinates.

• Second, there is a relationship between span of
management and organisational structure.

PRINCIPLES OF ORGANISING
• Objectives : The objectives of the enterprise influence

the organization structure and hence the objectives of
the enterprise should first be clearly defined. Then
every part of the organization should be geared to the
achievement of these objectives.

• Specialisation Effective organization must promote
specialization. The activities of the enterprise should be
divided according to functions and assigned to persons

according to their specialization.
• Span of Control As there is a limit to the number of
persons that can be supervised effectively by one boss,
the span of control should be as far as possible, the
minimum. That means, an executive should be asked to
supervise a reasonable number of subordinates only
say six.

• Exception As the executives at the higher levels have
limited time, only exceptionally complex problems
should be referred to them and routine matters should
be dealt with by the subordinates at lower levels. This
will enable the executives at higher levels to devote time
to more important and crucial issues.
• Scalar Principle This principle is sometimes known as
the “chain of command”. The line of authority from the

chief executive at the top to the first-line supervisor at
the bottom must be clearly defined.

• Unity of Command Each subordinate should have only
one superior whose command he has to obey. Dual
subordination

must

be

avoided,

for

it

causes

uneasiness, disorder, indiscipline and undermining of
authority.
• Delegation Proper authority should be delegated at the

lower levels of organization also.

The authority

delegated should be equal to responsibility, i.e. each
manager should have enough authority to accomplish

the task assigned to him.

• Responsibility The superior should be held responsible
for the acts of his subordinates. No superior should be
allowed to avoid responsibility by delegating authority
to his subordinates.
• Authority The authority is the tool by which a manager is
able to accomplish the desired objective.

Hence, the

authority of each manager must be clearly defined.
Further, the authority should be equal to responsibility.
• Efficiency The organization structure should enable the
enterprise to function efficiently and accomplish its
objectives with the lowest possible cost.

• Simplicity The organization structure should be as

simple as possible and the organization levels should,
as far as possible, be minimum. A large number of
levels of organization means difficulty of effective

communication and coordination.
• Flexibility The organization should be flexible, should

be adaptable to changing circumstances and permit
expansion and replacement without dislocation and
disruption of the basic design.

• Balance There should be a reasonable balance in the
size of various departments, between centralization
and decentralization, between the principle of span of

control and the short chain of command, and among
all types of factors such as human, technical and
financial.
• Unity of Direction There should be one objective and
one plan for a group of activities having the same
objective. Unity of direction facilitates unification and
coordination of activities at various levels.

• Personal Ability As people constitute an organization,
there is need for proper selection, placement and

training of staff.

Further, the organization structure

must ensure optimum use of human resources and
encourage management development programmes.

DEPARTMENTALISATION
Departmentalisation is one important step of building an
organization.

The aim is to take advantage of the

division of labour and specialization upto a certain limit.

There are several bases for departmentalization, each of
which

is

suitable

for

strategies and purposes.

particular

corporate

sizes,

Functions
By

far

the

most

widely

used

base

for

departmentalization is function. Each major function

of the enterprise is grouped into a department.

Advantages
• Everybody in this form of organization understands his own task
and feels highly secure both in his work and in his relationships.

•It promotes excellence in performance because of development of
expertise through specialization.
•It leads to improved planning and control of the key functions.
•It ensures economy, there is only one department related to one
function for the entire function. Manpower and other resources of
the company are effectively utilized by time-sharing them across
products or projects.

Drawbacks
• It fosters sub-goal loyalties. It is difficult for any one
to understand the task of the whole and to relate his
own work to it.
• It does not offer a good training ground for the overall
development of a manager.

• It is unsuitable for organizations which are large in
size, complexity or innovative scope.

• In

this

form

customer

needs

evoke

conflicting

interpretations like the story of twelve blind people and

the elephant.
• In this form procedures are overly complicated,
wasteful and time-consuming—a weakness sometimes
called as “organizational arthritis”.

The structure is

rigid and resists adaptation.

• In this form because of “common pot” accounting it is
difficult to judge whether the activities of a particular
department are worth their cost.

Products
Under this method, for each major product, a separate
semi-autonomous department is created and is put

under the charge of a manager who may also be made
responsible for producing a profit of a given magnitude.
Within each department, all the needed manufacturing,

engineering, marketing, manpower and other facilities
are

assembled.

detergents,
products),

Hindustan

toiletries,

Lever

chemicals

(manufacturing

and

agro-based

Richardson Hindustan (manufacturing a range of Vicks
products, Clearasil cream and soap), and Johnson and
Johnson (manufacturing a range of products for

children and surgical sutures) have product-based
departments

Advantages
• This form relieves top management of operating task
responsibility. It can therefore better concentrate on such
centralized activities like finance, R&D and control.

• This form enables top management to compare the
performance

of

different

products

and

invest

more

resources in profitable products and withdraw resources

from unprofitable ones.

•

In this form, since the responsibility for each product’s
performance is entrusted to a particular departmental head,
he is better stimulated for improving his performance.

•

In this form, those who work within a department derive

greater satisfaction from identification with a recognizable
goal.

Customers
An enterprise may be divided into a number of departments on
the basis of the customers that it services. For example, an
electronics firm may have separate departments for military,
industrial and consumer customers.

A big automobile

servicing enterprise may have separate departments for
servicing cars, heavy vehicles and scooters or an educational
institution may have separate departments for day, evening
and correspondence courses to impart education to full-time
students, locally employed students and outstation students.

Regions or Territory
When

several

organization

production

are

or

marketing

geographically

units

dispersed

in

of

an

various

locations, it is logical to departmentalize those units on a
geographical

basis.

The

Indian

Railways

are

departmentalized on this basis. Northern Railways, Western
Railways, Southern Railways, Eastern Railways, Central
Railways, etc. are departments in this sense.

The Food

Corporation of India has also geographical organization with
several zonal offices at different places and a head office in
New Delhi.

Advantages
• It motivates each regional head to achieve high performance.
• It provides each regional head an opportunity to adapt to his
local situation and customer need with speed and accuracy.
• It affords valuable top-management training and experience
to middle-level executives.
• It enables the organization to take advantage of locational
factors, such as availability of raw materials, labour, market,
etc.
• It enables the organization to compare regional performances
and invest more resources in profitable regions and withdraw
resources from unprofitable ones.

(Functional Departmentalisation)
General Manager
Fig. 7.3 A typical matrix organization

Contract
Administration

R&D
(Pr
od
uc
t
De
pa
rt
m
en
tal
isa
tio
n)

A
Project
Manager

R &D
Group

Contract
Admn. Group

Engineering
Group
Engg.
Group

Mfg.
Group
Mfg.
Group

A

Project
Manager

B
Project
Manager

C

R&D
Group

R&D
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group


Slide 13

ORGANISATI
ON

An organization is the pattern of ways in which
large numbers of people, too many to have
intimate face to face contact with all others, and
engaged

in

a

complexity

of

tasks,

relate

themselves to each other in the conscious,
systematic establishment and accomplishment
of mutually agreed purposes.

In terms of all the above definitions, corporations,

armies, schools, hospitals, churches, prisons, etc.
all are organizations.

But tribes, ethnic and friendship groups and
families are not organizations because they do not

involve

any

significant

amount

of

conscious

planning, coordination or deliberate structuring.

1.

A purpose, goal or
goals which has
already indicated in
a previous chapter
are the task of
planning.

2.

A clear concept of
the major duties
or activities
required to
achiever the
purpose.

Characteristics

of
an Organisation

3. Classification of
activities into jobs

4. Establishment of
relationships
between
these jobs.

Typology of Organisations
All organizations appear alike.

But this is not so.

Every organization has certain unique combination of
the above characteristics which distinguish it from all
other

organizations.

Blau

and

Scott5 classify

organizations into four categories using the criterion
of cui bono—who benefits:

1. Organisations which benefit their owners.
business organizations fall in this category.

All

2. Organisations which benefit their members. A wide
class of unions, cooperatives and clubs come under
this category.
3. Organisations which benefit their clients. Examples
are insurance companies, private schools, etc.
4. Organisations which benefit the whole society
(commonwealth
organizations)
such
as
governmental departments.

Consideration of Objectives

The first step in organizing is to know the objectives
of the enterprise. Objectives determine the various
activities which need to be performed and the type of
organization which needs to be built for this purpose.
Consideration of objectives is the first step in the
process of organizing.

A

Grouping of Activities into
Departments

B

C

The next step is to identify the activities necessary to
achieve them and to group the closely related and
similar activities into departments and sections. For
example, the activities of a manufacturing concern may
be grouped into such departments as production,
marketing, financing and personnel.

Deciding which Departments
will be Key Departments
Which department needs to be emphasised how much
will depend, of course, on the company’s objectives and
the way it seeks to be distinctive.

For example, a

company which believes that advertising is a primary
key to success will set up a separate advertising
department that reports directly to the president. But

another

company

which

considers

it

much

less

important may only create a separate section for it under
its sales department.

Determining Levels at which Various Types of
Decisions are to be Made
After deciding the relative importance of various departments,
the levels at which various major and minor decisions are to be

made must be determined. Each firm must decide for itself as to
how much decentralization of authority and responsibility it
wants to have. Extreme decentralization may lead to loss of

control and effective coordination as a result of which the firm as
a whole may fail to achieve its overall objectives.

Extreme

centralization, on the other hand, may lead to wrong decisions at

wrong times and complete breakdown of the morale of
employees.

Determining the Span of Management
The next step to be taken in designing a structure is
to determine the number of subordinates who
should report directly to each executive.

Setting up a Coordination Mechanism

First of all comes activities analysis. A thorough and
careful activities analysis clarifies as to what work has

to be performed, what kinds of work belong together,
and what emphasis each activity is to be given in the

organization structure.

Next

comes

decision

analysis.

Although

it

is

impossible for anyone to anticipate the contents of
future decisions, one can predict their kinds and
decide their places so that when they rise in future.
Finally, an analysis should be made of the various
relationships between the tasks of a manager and

those of his subordinates, peers and superiors.

SPAN OF MANAGEMENT
Meaning and Importance :
The term “span of management” is also referred to as
span of control, span of supervision, span of authority
or span of responsibility.

It indicates the number of

subordinates who report directly to a manager.

Span of management is important for two reasons.
• First, span of management affects the efficient

utilization of managers and the effective performance
of their subordinates.

• Second, there is a relationship between span of
management and organisational structure.

PRINCIPLES OF ORGANISING
• Objectives : The objectives of the enterprise influence

the organization structure and hence the objectives of
the enterprise should first be clearly defined. Then
every part of the organization should be geared to the
achievement of these objectives.

• Specialisation Effective organization must promote
specialization. The activities of the enterprise should be
divided according to functions and assigned to persons

according to their specialization.
• Span of Control As there is a limit to the number of
persons that can be supervised effectively by one boss,
the span of control should be as far as possible, the
minimum. That means, an executive should be asked to
supervise a reasonable number of subordinates only
say six.

• Exception As the executives at the higher levels have
limited time, only exceptionally complex problems
should be referred to them and routine matters should
be dealt with by the subordinates at lower levels. This
will enable the executives at higher levels to devote time
to more important and crucial issues.
• Scalar Principle This principle is sometimes known as
the “chain of command”. The line of authority from the

chief executive at the top to the first-line supervisor at
the bottom must be clearly defined.

• Unity of Command Each subordinate should have only
one superior whose command he has to obey. Dual
subordination

must

be

avoided,

for

it

causes

uneasiness, disorder, indiscipline and undermining of
authority.
• Delegation Proper authority should be delegated at the

lower levels of organization also.

The authority

delegated should be equal to responsibility, i.e. each
manager should have enough authority to accomplish

the task assigned to him.

• Responsibility The superior should be held responsible
for the acts of his subordinates. No superior should be
allowed to avoid responsibility by delegating authority
to his subordinates.
• Authority The authority is the tool by which a manager is
able to accomplish the desired objective.

Hence, the

authority of each manager must be clearly defined.
Further, the authority should be equal to responsibility.
• Efficiency The organization structure should enable the
enterprise to function efficiently and accomplish its
objectives with the lowest possible cost.

• Simplicity The organization structure should be as

simple as possible and the organization levels should,
as far as possible, be minimum. A large number of
levels of organization means difficulty of effective

communication and coordination.
• Flexibility The organization should be flexible, should

be adaptable to changing circumstances and permit
expansion and replacement without dislocation and
disruption of the basic design.

• Balance There should be a reasonable balance in the
size of various departments, between centralization
and decentralization, between the principle of span of

control and the short chain of command, and among
all types of factors such as human, technical and
financial.
• Unity of Direction There should be one objective and
one plan for a group of activities having the same
objective. Unity of direction facilitates unification and
coordination of activities at various levels.

• Personal Ability As people constitute an organization,
there is need for proper selection, placement and

training of staff.

Further, the organization structure

must ensure optimum use of human resources and
encourage management development programmes.

DEPARTMENTALISATION
Departmentalisation is one important step of building an
organization.

The aim is to take advantage of the

division of labour and specialization upto a certain limit.

There are several bases for departmentalization, each of
which

is

suitable

for

strategies and purposes.

particular

corporate

sizes,

Functions
By

far

the

most

widely

used

base

for

departmentalization is function. Each major function

of the enterprise is grouped into a department.

Advantages
• Everybody in this form of organization understands his own task
and feels highly secure both in his work and in his relationships.

•It promotes excellence in performance because of development of
expertise through specialization.
•It leads to improved planning and control of the key functions.
•It ensures economy, there is only one department related to one
function for the entire function. Manpower and other resources of
the company are effectively utilized by time-sharing them across
products or projects.

Drawbacks
• It fosters sub-goal loyalties. It is difficult for any one
to understand the task of the whole and to relate his
own work to it.
• It does not offer a good training ground for the overall
development of a manager.

• It is unsuitable for organizations which are large in
size, complexity or innovative scope.

• In

this

form

customer

needs

evoke

conflicting

interpretations like the story of twelve blind people and

the elephant.
• In this form procedures are overly complicated,
wasteful and time-consuming—a weakness sometimes
called as “organizational arthritis”.

The structure is

rigid and resists adaptation.

• In this form because of “common pot” accounting it is
difficult to judge whether the activities of a particular
department are worth their cost.

Products
Under this method, for each major product, a separate
semi-autonomous department is created and is put

under the charge of a manager who may also be made
responsible for producing a profit of a given magnitude.
Within each department, all the needed manufacturing,

engineering, marketing, manpower and other facilities
are

assembled.

detergents,
products),

Hindustan

toiletries,

Lever

chemicals

(manufacturing

and

agro-based

Richardson Hindustan (manufacturing a range of Vicks
products, Clearasil cream and soap), and Johnson and
Johnson (manufacturing a range of products for

children and surgical sutures) have product-based
departments

Advantages
• This form relieves top management of operating task
responsibility. It can therefore better concentrate on such
centralized activities like finance, R&D and control.

• This form enables top management to compare the
performance

of

different

products

and

invest

more

resources in profitable products and withdraw resources

from unprofitable ones.

•

In this form, since the responsibility for each product’s
performance is entrusted to a particular departmental head,
he is better stimulated for improving his performance.

•

In this form, those who work within a department derive

greater satisfaction from identification with a recognizable
goal.

Customers
An enterprise may be divided into a number of departments on
the basis of the customers that it services. For example, an
electronics firm may have separate departments for military,
industrial and consumer customers.

A big automobile

servicing enterprise may have separate departments for
servicing cars, heavy vehicles and scooters or an educational
institution may have separate departments for day, evening
and correspondence courses to impart education to full-time
students, locally employed students and outstation students.

Regions or Territory
When

several

organization

production

are

or

marketing

geographically

units

dispersed

in

of

an

various

locations, it is logical to departmentalize those units on a
geographical

basis.

The

Indian

Railways

are

departmentalized on this basis. Northern Railways, Western
Railways, Southern Railways, Eastern Railways, Central
Railways, etc. are departments in this sense.

The Food

Corporation of India has also geographical organization with
several zonal offices at different places and a head office in
New Delhi.

Advantages
• It motivates each regional head to achieve high performance.
• It provides each regional head an opportunity to adapt to his
local situation and customer need with speed and accuracy.
• It affords valuable top-management training and experience
to middle-level executives.
• It enables the organization to take advantage of locational
factors, such as availability of raw materials, labour, market,
etc.
• It enables the organization to compare regional performances
and invest more resources in profitable regions and withdraw
resources from unprofitable ones.

(Functional Departmentalisation)
General Manager
Fig. 7.3 A typical matrix organization

Contract
Administration

R&D
(Pr
od
uc
t
De
pa
rt
m
en
tal
isa
tio
n)

A
Project
Manager

R &D
Group

Contract
Admn. Group

Engineering
Group
Engg.
Group

Mfg.
Group
Mfg.
Group

A

Project
Manager

B
Project
Manager

C

R&D
Group

R&D
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group


Slide 14

ORGANISATI
ON

An organization is the pattern of ways in which
large numbers of people, too many to have
intimate face to face contact with all others, and
engaged

in

a

complexity

of

tasks,

relate

themselves to each other in the conscious,
systematic establishment and accomplishment
of mutually agreed purposes.

In terms of all the above definitions, corporations,

armies, schools, hospitals, churches, prisons, etc.
all are organizations.

But tribes, ethnic and friendship groups and
families are not organizations because they do not

involve

any

significant

amount

of

conscious

planning, coordination or deliberate structuring.

1.

A purpose, goal or
goals which has
already indicated in
a previous chapter
are the task of
planning.

2.

A clear concept of
the major duties
or activities
required to
achiever the
purpose.

Characteristics

of
an Organisation

3. Classification of
activities into jobs

4. Establishment of
relationships
between
these jobs.

Typology of Organisations
All organizations appear alike.

But this is not so.

Every organization has certain unique combination of
the above characteristics which distinguish it from all
other

organizations.

Blau

and

Scott5 classify

organizations into four categories using the criterion
of cui bono—who benefits:

1. Organisations which benefit their owners.
business organizations fall in this category.

All

2. Organisations which benefit their members. A wide
class of unions, cooperatives and clubs come under
this category.
3. Organisations which benefit their clients. Examples
are insurance companies, private schools, etc.
4. Organisations which benefit the whole society
(commonwealth
organizations)
such
as
governmental departments.

Consideration of Objectives

The first step in organizing is to know the objectives
of the enterprise. Objectives determine the various
activities which need to be performed and the type of
organization which needs to be built for this purpose.
Consideration of objectives is the first step in the
process of organizing.

A

Grouping of Activities into
Departments

B

C

The next step is to identify the activities necessary to
achieve them and to group the closely related and
similar activities into departments and sections. For
example, the activities of a manufacturing concern may
be grouped into such departments as production,
marketing, financing and personnel.

Deciding which Departments
will be Key Departments
Which department needs to be emphasised how much
will depend, of course, on the company’s objectives and
the way it seeks to be distinctive.

For example, a

company which believes that advertising is a primary
key to success will set up a separate advertising
department that reports directly to the president. But

another

company

which

considers

it

much

less

important may only create a separate section for it under
its sales department.

Determining Levels at which Various Types of
Decisions are to be Made
After deciding the relative importance of various departments,
the levels at which various major and minor decisions are to be

made must be determined. Each firm must decide for itself as to
how much decentralization of authority and responsibility it
wants to have. Extreme decentralization may lead to loss of

control and effective coordination as a result of which the firm as
a whole may fail to achieve its overall objectives.

Extreme

centralization, on the other hand, may lead to wrong decisions at

wrong times and complete breakdown of the morale of
employees.

Determining the Span of Management
The next step to be taken in designing a structure is
to determine the number of subordinates who
should report directly to each executive.

Setting up a Coordination Mechanism

First of all comes activities analysis. A thorough and
careful activities analysis clarifies as to what work has

to be performed, what kinds of work belong together,
and what emphasis each activity is to be given in the

organization structure.

Next

comes

decision

analysis.

Although

it

is

impossible for anyone to anticipate the contents of
future decisions, one can predict their kinds and
decide their places so that when they rise in future.
Finally, an analysis should be made of the various
relationships between the tasks of a manager and

those of his subordinates, peers and superiors.

SPAN OF MANAGEMENT
Meaning and Importance :
The term “span of management” is also referred to as
span of control, span of supervision, span of authority
or span of responsibility.

It indicates the number of

subordinates who report directly to a manager.

Span of management is important for two reasons.
• First, span of management affects the efficient

utilization of managers and the effective performance
of their subordinates.

• Second, there is a relationship between span of
management and organisational structure.

PRINCIPLES OF ORGANISING
• Objectives : The objectives of the enterprise influence

the organization structure and hence the objectives of
the enterprise should first be clearly defined. Then
every part of the organization should be geared to the
achievement of these objectives.

• Specialisation Effective organization must promote
specialization. The activities of the enterprise should be
divided according to functions and assigned to persons

according to their specialization.
• Span of Control As there is a limit to the number of
persons that can be supervised effectively by one boss,
the span of control should be as far as possible, the
minimum. That means, an executive should be asked to
supervise a reasonable number of subordinates only
say six.

• Exception As the executives at the higher levels have
limited time, only exceptionally complex problems
should be referred to them and routine matters should
be dealt with by the subordinates at lower levels. This
will enable the executives at higher levels to devote time
to more important and crucial issues.
• Scalar Principle This principle is sometimes known as
the “chain of command”. The line of authority from the

chief executive at the top to the first-line supervisor at
the bottom must be clearly defined.

• Unity of Command Each subordinate should have only
one superior whose command he has to obey. Dual
subordination

must

be

avoided,

for

it

causes

uneasiness, disorder, indiscipline and undermining of
authority.
• Delegation Proper authority should be delegated at the

lower levels of organization also.

The authority

delegated should be equal to responsibility, i.e. each
manager should have enough authority to accomplish

the task assigned to him.

• Responsibility The superior should be held responsible
for the acts of his subordinates. No superior should be
allowed to avoid responsibility by delegating authority
to his subordinates.
• Authority The authority is the tool by which a manager is
able to accomplish the desired objective.

Hence, the

authority of each manager must be clearly defined.
Further, the authority should be equal to responsibility.
• Efficiency The organization structure should enable the
enterprise to function efficiently and accomplish its
objectives with the lowest possible cost.

• Simplicity The organization structure should be as

simple as possible and the organization levels should,
as far as possible, be minimum. A large number of
levels of organization means difficulty of effective

communication and coordination.
• Flexibility The organization should be flexible, should

be adaptable to changing circumstances and permit
expansion and replacement without dislocation and
disruption of the basic design.

• Balance There should be a reasonable balance in the
size of various departments, between centralization
and decentralization, between the principle of span of

control and the short chain of command, and among
all types of factors such as human, technical and
financial.
• Unity of Direction There should be one objective and
one plan for a group of activities having the same
objective. Unity of direction facilitates unification and
coordination of activities at various levels.

• Personal Ability As people constitute an organization,
there is need for proper selection, placement and

training of staff.

Further, the organization structure

must ensure optimum use of human resources and
encourage management development programmes.

DEPARTMENTALISATION
Departmentalisation is one important step of building an
organization.

The aim is to take advantage of the

division of labour and specialization upto a certain limit.

There are several bases for departmentalization, each of
which

is

suitable

for

strategies and purposes.

particular

corporate

sizes,

Functions
By

far

the

most

widely

used

base

for

departmentalization is function. Each major function

of the enterprise is grouped into a department.

Advantages
• Everybody in this form of organization understands his own task
and feels highly secure both in his work and in his relationships.

•It promotes excellence in performance because of development of
expertise through specialization.
•It leads to improved planning and control of the key functions.
•It ensures economy, there is only one department related to one
function for the entire function. Manpower and other resources of
the company are effectively utilized by time-sharing them across
products or projects.

Drawbacks
• It fosters sub-goal loyalties. It is difficult for any one
to understand the task of the whole and to relate his
own work to it.
• It does not offer a good training ground for the overall
development of a manager.

• It is unsuitable for organizations which are large in
size, complexity or innovative scope.

• In

this

form

customer

needs

evoke

conflicting

interpretations like the story of twelve blind people and

the elephant.
• In this form procedures are overly complicated,
wasteful and time-consuming—a weakness sometimes
called as “organizational arthritis”.

The structure is

rigid and resists adaptation.

• In this form because of “common pot” accounting it is
difficult to judge whether the activities of a particular
department are worth their cost.

Products
Under this method, for each major product, a separate
semi-autonomous department is created and is put

under the charge of a manager who may also be made
responsible for producing a profit of a given magnitude.
Within each department, all the needed manufacturing,

engineering, marketing, manpower and other facilities
are

assembled.

detergents,
products),

Hindustan

toiletries,

Lever

chemicals

(manufacturing

and

agro-based

Richardson Hindustan (manufacturing a range of Vicks
products, Clearasil cream and soap), and Johnson and
Johnson (manufacturing a range of products for

children and surgical sutures) have product-based
departments

Advantages
• This form relieves top management of operating task
responsibility. It can therefore better concentrate on such
centralized activities like finance, R&D and control.

• This form enables top management to compare the
performance

of

different

products

and

invest

more

resources in profitable products and withdraw resources

from unprofitable ones.

•

In this form, since the responsibility for each product’s
performance is entrusted to a particular departmental head,
he is better stimulated for improving his performance.

•

In this form, those who work within a department derive

greater satisfaction from identification with a recognizable
goal.

Customers
An enterprise may be divided into a number of departments on
the basis of the customers that it services. For example, an
electronics firm may have separate departments for military,
industrial and consumer customers.

A big automobile

servicing enterprise may have separate departments for
servicing cars, heavy vehicles and scooters or an educational
institution may have separate departments for day, evening
and correspondence courses to impart education to full-time
students, locally employed students and outstation students.

Regions or Territory
When

several

organization

production

are

or

marketing

geographically

units

dispersed

in

of

an

various

locations, it is logical to departmentalize those units on a
geographical

basis.

The

Indian

Railways

are

departmentalized on this basis. Northern Railways, Western
Railways, Southern Railways, Eastern Railways, Central
Railways, etc. are departments in this sense.

The Food

Corporation of India has also geographical organization with
several zonal offices at different places and a head office in
New Delhi.

Advantages
• It motivates each regional head to achieve high performance.
• It provides each regional head an opportunity to adapt to his
local situation and customer need with speed and accuracy.
• It affords valuable top-management training and experience
to middle-level executives.
• It enables the organization to take advantage of locational
factors, such as availability of raw materials, labour, market,
etc.
• It enables the organization to compare regional performances
and invest more resources in profitable regions and withdraw
resources from unprofitable ones.

(Functional Departmentalisation)
General Manager
Fig. 7.3 A typical matrix organization

Contract
Administration

R&D
(Pr
od
uc
t
De
pa
rt
m
en
tal
isa
tio
n)

A
Project
Manager

R &D
Group

Contract
Admn. Group

Engineering
Group
Engg.
Group

Mfg.
Group
Mfg.
Group

A

Project
Manager

B
Project
Manager

C

R&D
Group

R&D
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group


Slide 15

ORGANISATI
ON

An organization is the pattern of ways in which
large numbers of people, too many to have
intimate face to face contact with all others, and
engaged

in

a

complexity

of

tasks,

relate

themselves to each other in the conscious,
systematic establishment and accomplishment
of mutually agreed purposes.

In terms of all the above definitions, corporations,

armies, schools, hospitals, churches, prisons, etc.
all are organizations.

But tribes, ethnic and friendship groups and
families are not organizations because they do not

involve

any

significant

amount

of

conscious

planning, coordination or deliberate structuring.

1.

A purpose, goal or
goals which has
already indicated in
a previous chapter
are the task of
planning.

2.

A clear concept of
the major duties
or activities
required to
achiever the
purpose.

Characteristics

of
an Organisation

3. Classification of
activities into jobs

4. Establishment of
relationships
between
these jobs.

Typology of Organisations
All organizations appear alike.

But this is not so.

Every organization has certain unique combination of
the above characteristics which distinguish it from all
other

organizations.

Blau

and

Scott5 classify

organizations into four categories using the criterion
of cui bono—who benefits:

1. Organisations which benefit their owners.
business organizations fall in this category.

All

2. Organisations which benefit their members. A wide
class of unions, cooperatives and clubs come under
this category.
3. Organisations which benefit their clients. Examples
are insurance companies, private schools, etc.
4. Organisations which benefit the whole society
(commonwealth
organizations)
such
as
governmental departments.

Consideration of Objectives

The first step in organizing is to know the objectives
of the enterprise. Objectives determine the various
activities which need to be performed and the type of
organization which needs to be built for this purpose.
Consideration of objectives is the first step in the
process of organizing.

A

Grouping of Activities into
Departments

B

C

The next step is to identify the activities necessary to
achieve them and to group the closely related and
similar activities into departments and sections. For
example, the activities of a manufacturing concern may
be grouped into such departments as production,
marketing, financing and personnel.

Deciding which Departments
will be Key Departments
Which department needs to be emphasised how much
will depend, of course, on the company’s objectives and
the way it seeks to be distinctive.

For example, a

company which believes that advertising is a primary
key to success will set up a separate advertising
department that reports directly to the president. But

another

company

which

considers

it

much

less

important may only create a separate section for it under
its sales department.

Determining Levels at which Various Types of
Decisions are to be Made
After deciding the relative importance of various departments,
the levels at which various major and minor decisions are to be

made must be determined. Each firm must decide for itself as to
how much decentralization of authority and responsibility it
wants to have. Extreme decentralization may lead to loss of

control and effective coordination as a result of which the firm as
a whole may fail to achieve its overall objectives.

Extreme

centralization, on the other hand, may lead to wrong decisions at

wrong times and complete breakdown of the morale of
employees.

Determining the Span of Management
The next step to be taken in designing a structure is
to determine the number of subordinates who
should report directly to each executive.

Setting up a Coordination Mechanism

First of all comes activities analysis. A thorough and
careful activities analysis clarifies as to what work has

to be performed, what kinds of work belong together,
and what emphasis each activity is to be given in the

organization structure.

Next

comes

decision

analysis.

Although

it

is

impossible for anyone to anticipate the contents of
future decisions, one can predict their kinds and
decide their places so that when they rise in future.
Finally, an analysis should be made of the various
relationships between the tasks of a manager and

those of his subordinates, peers and superiors.

SPAN OF MANAGEMENT
Meaning and Importance :
The term “span of management” is also referred to as
span of control, span of supervision, span of authority
or span of responsibility.

It indicates the number of

subordinates who report directly to a manager.

Span of management is important for two reasons.
• First, span of management affects the efficient

utilization of managers and the effective performance
of their subordinates.

• Second, there is a relationship between span of
management and organisational structure.

PRINCIPLES OF ORGANISING
• Objectives : The objectives of the enterprise influence

the organization structure and hence the objectives of
the enterprise should first be clearly defined. Then
every part of the organization should be geared to the
achievement of these objectives.

• Specialisation Effective organization must promote
specialization. The activities of the enterprise should be
divided according to functions and assigned to persons

according to their specialization.
• Span of Control As there is a limit to the number of
persons that can be supervised effectively by one boss,
the span of control should be as far as possible, the
minimum. That means, an executive should be asked to
supervise a reasonable number of subordinates only
say six.

• Exception As the executives at the higher levels have
limited time, only exceptionally complex problems
should be referred to them and routine matters should
be dealt with by the subordinates at lower levels. This
will enable the executives at higher levels to devote time
to more important and crucial issues.
• Scalar Principle This principle is sometimes known as
the “chain of command”. The line of authority from the

chief executive at the top to the first-line supervisor at
the bottom must be clearly defined.

• Unity of Command Each subordinate should have only
one superior whose command he has to obey. Dual
subordination

must

be

avoided,

for

it

causes

uneasiness, disorder, indiscipline and undermining of
authority.
• Delegation Proper authority should be delegated at the

lower levels of organization also.

The authority

delegated should be equal to responsibility, i.e. each
manager should have enough authority to accomplish

the task assigned to him.

• Responsibility The superior should be held responsible
for the acts of his subordinates. No superior should be
allowed to avoid responsibility by delegating authority
to his subordinates.
• Authority The authority is the tool by which a manager is
able to accomplish the desired objective.

Hence, the

authority of each manager must be clearly defined.
Further, the authority should be equal to responsibility.
• Efficiency The organization structure should enable the
enterprise to function efficiently and accomplish its
objectives with the lowest possible cost.

• Simplicity The organization structure should be as

simple as possible and the organization levels should,
as far as possible, be minimum. A large number of
levels of organization means difficulty of effective

communication and coordination.
• Flexibility The organization should be flexible, should

be adaptable to changing circumstances and permit
expansion and replacement without dislocation and
disruption of the basic design.

• Balance There should be a reasonable balance in the
size of various departments, between centralization
and decentralization, between the principle of span of

control and the short chain of command, and among
all types of factors such as human, technical and
financial.
• Unity of Direction There should be one objective and
one plan for a group of activities having the same
objective. Unity of direction facilitates unification and
coordination of activities at various levels.

• Personal Ability As people constitute an organization,
there is need for proper selection, placement and

training of staff.

Further, the organization structure

must ensure optimum use of human resources and
encourage management development programmes.

DEPARTMENTALISATION
Departmentalisation is one important step of building an
organization.

The aim is to take advantage of the

division of labour and specialization upto a certain limit.

There are several bases for departmentalization, each of
which

is

suitable

for

strategies and purposes.

particular

corporate

sizes,

Functions
By

far

the

most

widely

used

base

for

departmentalization is function. Each major function

of the enterprise is grouped into a department.

Advantages
• Everybody in this form of organization understands his own task
and feels highly secure both in his work and in his relationships.

•It promotes excellence in performance because of development of
expertise through specialization.
•It leads to improved planning and control of the key functions.
•It ensures economy, there is only one department related to one
function for the entire function. Manpower and other resources of
the company are effectively utilized by time-sharing them across
products or projects.

Drawbacks
• It fosters sub-goal loyalties. It is difficult for any one
to understand the task of the whole and to relate his
own work to it.
• It does not offer a good training ground for the overall
development of a manager.

• It is unsuitable for organizations which are large in
size, complexity or innovative scope.

• In

this

form

customer

needs

evoke

conflicting

interpretations like the story of twelve blind people and

the elephant.
• In this form procedures are overly complicated,
wasteful and time-consuming—a weakness sometimes
called as “organizational arthritis”.

The structure is

rigid and resists adaptation.

• In this form because of “common pot” accounting it is
difficult to judge whether the activities of a particular
department are worth their cost.

Products
Under this method, for each major product, a separate
semi-autonomous department is created and is put

under the charge of a manager who may also be made
responsible for producing a profit of a given magnitude.
Within each department, all the needed manufacturing,

engineering, marketing, manpower and other facilities
are

assembled.

detergents,
products),

Hindustan

toiletries,

Lever

chemicals

(manufacturing

and

agro-based

Richardson Hindustan (manufacturing a range of Vicks
products, Clearasil cream and soap), and Johnson and
Johnson (manufacturing a range of products for

children and surgical sutures) have product-based
departments

Advantages
• This form relieves top management of operating task
responsibility. It can therefore better concentrate on such
centralized activities like finance, R&D and control.

• This form enables top management to compare the
performance

of

different

products

and

invest

more

resources in profitable products and withdraw resources

from unprofitable ones.

•

In this form, since the responsibility for each product’s
performance is entrusted to a particular departmental head,
he is better stimulated for improving his performance.

•

In this form, those who work within a department derive

greater satisfaction from identification with a recognizable
goal.

Customers
An enterprise may be divided into a number of departments on
the basis of the customers that it services. For example, an
electronics firm may have separate departments for military,
industrial and consumer customers.

A big automobile

servicing enterprise may have separate departments for
servicing cars, heavy vehicles and scooters or an educational
institution may have separate departments for day, evening
and correspondence courses to impart education to full-time
students, locally employed students and outstation students.

Regions or Territory
When

several

organization

production

are

or

marketing

geographically

units

dispersed

in

of

an

various

locations, it is logical to departmentalize those units on a
geographical

basis.

The

Indian

Railways

are

departmentalized on this basis. Northern Railways, Western
Railways, Southern Railways, Eastern Railways, Central
Railways, etc. are departments in this sense.

The Food

Corporation of India has also geographical organization with
several zonal offices at different places and a head office in
New Delhi.

Advantages
• It motivates each regional head to achieve high performance.
• It provides each regional head an opportunity to adapt to his
local situation and customer need with speed and accuracy.
• It affords valuable top-management training and experience
to middle-level executives.
• It enables the organization to take advantage of locational
factors, such as availability of raw materials, labour, market,
etc.
• It enables the organization to compare regional performances
and invest more resources in profitable regions and withdraw
resources from unprofitable ones.

(Functional Departmentalisation)
General Manager
Fig. 7.3 A typical matrix organization

Contract
Administration

R&D
(Pr
od
uc
t
De
pa
rt
m
en
tal
isa
tio
n)

A
Project
Manager

R &D
Group

Contract
Admn. Group

Engineering
Group
Engg.
Group

Mfg.
Group
Mfg.
Group

A

Project
Manager

B
Project
Manager

C

R&D
Group

R&D
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group


Slide 16

ORGANISATI
ON

An organization is the pattern of ways in which
large numbers of people, too many to have
intimate face to face contact with all others, and
engaged

in

a

complexity

of

tasks,

relate

themselves to each other in the conscious,
systematic establishment and accomplishment
of mutually agreed purposes.

In terms of all the above definitions, corporations,

armies, schools, hospitals, churches, prisons, etc.
all are organizations.

But tribes, ethnic and friendship groups and
families are not organizations because they do not

involve

any

significant

amount

of

conscious

planning, coordination or deliberate structuring.

1.

A purpose, goal or
goals which has
already indicated in
a previous chapter
are the task of
planning.

2.

A clear concept of
the major duties
or activities
required to
achiever the
purpose.

Characteristics

of
an Organisation

3. Classification of
activities into jobs

4. Establishment of
relationships
between
these jobs.

Typology of Organisations
All organizations appear alike.

But this is not so.

Every organization has certain unique combination of
the above characteristics which distinguish it from all
other

organizations.

Blau

and

Scott5 classify

organizations into four categories using the criterion
of cui bono—who benefits:

1. Organisations which benefit their owners.
business organizations fall in this category.

All

2. Organisations which benefit their members. A wide
class of unions, cooperatives and clubs come under
this category.
3. Organisations which benefit their clients. Examples
are insurance companies, private schools, etc.
4. Organisations which benefit the whole society
(commonwealth
organizations)
such
as
governmental departments.

Consideration of Objectives

The first step in organizing is to know the objectives
of the enterprise. Objectives determine the various
activities which need to be performed and the type of
organization which needs to be built for this purpose.
Consideration of objectives is the first step in the
process of organizing.

A

Grouping of Activities into
Departments

B

C

The next step is to identify the activities necessary to
achieve them and to group the closely related and
similar activities into departments and sections. For
example, the activities of a manufacturing concern may
be grouped into such departments as production,
marketing, financing and personnel.

Deciding which Departments
will be Key Departments
Which department needs to be emphasised how much
will depend, of course, on the company’s objectives and
the way it seeks to be distinctive.

For example, a

company which believes that advertising is a primary
key to success will set up a separate advertising
department that reports directly to the president. But

another

company

which

considers

it

much

less

important may only create a separate section for it under
its sales department.

Determining Levels at which Various Types of
Decisions are to be Made
After deciding the relative importance of various departments,
the levels at which various major and minor decisions are to be

made must be determined. Each firm must decide for itself as to
how much decentralization of authority and responsibility it
wants to have. Extreme decentralization may lead to loss of

control and effective coordination as a result of which the firm as
a whole may fail to achieve its overall objectives.

Extreme

centralization, on the other hand, may lead to wrong decisions at

wrong times and complete breakdown of the morale of
employees.

Determining the Span of Management
The next step to be taken in designing a structure is
to determine the number of subordinates who
should report directly to each executive.

Setting up a Coordination Mechanism

First of all comes activities analysis. A thorough and
careful activities analysis clarifies as to what work has

to be performed, what kinds of work belong together,
and what emphasis each activity is to be given in the

organization structure.

Next

comes

decision

analysis.

Although

it

is

impossible for anyone to anticipate the contents of
future decisions, one can predict their kinds and
decide their places so that when they rise in future.
Finally, an analysis should be made of the various
relationships between the tasks of a manager and

those of his subordinates, peers and superiors.

SPAN OF MANAGEMENT
Meaning and Importance :
The term “span of management” is also referred to as
span of control, span of supervision, span of authority
or span of responsibility.

It indicates the number of

subordinates who report directly to a manager.

Span of management is important for two reasons.
• First, span of management affects the efficient

utilization of managers and the effective performance
of their subordinates.

• Second, there is a relationship between span of
management and organisational structure.

PRINCIPLES OF ORGANISING
• Objectives : The objectives of the enterprise influence

the organization structure and hence the objectives of
the enterprise should first be clearly defined. Then
every part of the organization should be geared to the
achievement of these objectives.

• Specialisation Effective organization must promote
specialization. The activities of the enterprise should be
divided according to functions and assigned to persons

according to their specialization.
• Span of Control As there is a limit to the number of
persons that can be supervised effectively by one boss,
the span of control should be as far as possible, the
minimum. That means, an executive should be asked to
supervise a reasonable number of subordinates only
say six.

• Exception As the executives at the higher levels have
limited time, only exceptionally complex problems
should be referred to them and routine matters should
be dealt with by the subordinates at lower levels. This
will enable the executives at higher levels to devote time
to more important and crucial issues.
• Scalar Principle This principle is sometimes known as
the “chain of command”. The line of authority from the

chief executive at the top to the first-line supervisor at
the bottom must be clearly defined.

• Unity of Command Each subordinate should have only
one superior whose command he has to obey. Dual
subordination

must

be

avoided,

for

it

causes

uneasiness, disorder, indiscipline and undermining of
authority.
• Delegation Proper authority should be delegated at the

lower levels of organization also.

The authority

delegated should be equal to responsibility, i.e. each
manager should have enough authority to accomplish

the task assigned to him.

• Responsibility The superior should be held responsible
for the acts of his subordinates. No superior should be
allowed to avoid responsibility by delegating authority
to his subordinates.
• Authority The authority is the tool by which a manager is
able to accomplish the desired objective.

Hence, the

authority of each manager must be clearly defined.
Further, the authority should be equal to responsibility.
• Efficiency The organization structure should enable the
enterprise to function efficiently and accomplish its
objectives with the lowest possible cost.

• Simplicity The organization structure should be as

simple as possible and the organization levels should,
as far as possible, be minimum. A large number of
levels of organization means difficulty of effective

communication and coordination.
• Flexibility The organization should be flexible, should

be adaptable to changing circumstances and permit
expansion and replacement without dislocation and
disruption of the basic design.

• Balance There should be a reasonable balance in the
size of various departments, between centralization
and decentralization, between the principle of span of

control and the short chain of command, and among
all types of factors such as human, technical and
financial.
• Unity of Direction There should be one objective and
one plan for a group of activities having the same
objective. Unity of direction facilitates unification and
coordination of activities at various levels.

• Personal Ability As people constitute an organization,
there is need for proper selection, placement and

training of staff.

Further, the organization structure

must ensure optimum use of human resources and
encourage management development programmes.

DEPARTMENTALISATION
Departmentalisation is one important step of building an
organization.

The aim is to take advantage of the

division of labour and specialization upto a certain limit.

There are several bases for departmentalization, each of
which

is

suitable

for

strategies and purposes.

particular

corporate

sizes,

Functions
By

far

the

most

widely

used

base

for

departmentalization is function. Each major function

of the enterprise is grouped into a department.

Advantages
• Everybody in this form of organization understands his own task
and feels highly secure both in his work and in his relationships.

•It promotes excellence in performance because of development of
expertise through specialization.
•It leads to improved planning and control of the key functions.
•It ensures economy, there is only one department related to one
function for the entire function. Manpower and other resources of
the company are effectively utilized by time-sharing them across
products or projects.

Drawbacks
• It fosters sub-goal loyalties. It is difficult for any one
to understand the task of the whole and to relate his
own work to it.
• It does not offer a good training ground for the overall
development of a manager.

• It is unsuitable for organizations which are large in
size, complexity or innovative scope.

• In

this

form

customer

needs

evoke

conflicting

interpretations like the story of twelve blind people and

the elephant.
• In this form procedures are overly complicated,
wasteful and time-consuming—a weakness sometimes
called as “organizational arthritis”.

The structure is

rigid and resists adaptation.

• In this form because of “common pot” accounting it is
difficult to judge whether the activities of a particular
department are worth their cost.

Products
Under this method, for each major product, a separate
semi-autonomous department is created and is put

under the charge of a manager who may also be made
responsible for producing a profit of a given magnitude.
Within each department, all the needed manufacturing,

engineering, marketing, manpower and other facilities
are

assembled.

detergents,
products),

Hindustan

toiletries,

Lever

chemicals

(manufacturing

and

agro-based

Richardson Hindustan (manufacturing a range of Vicks
products, Clearasil cream and soap), and Johnson and
Johnson (manufacturing a range of products for

children and surgical sutures) have product-based
departments

Advantages
• This form relieves top management of operating task
responsibility. It can therefore better concentrate on such
centralized activities like finance, R&D and control.

• This form enables top management to compare the
performance

of

different

products

and

invest

more

resources in profitable products and withdraw resources

from unprofitable ones.

•

In this form, since the responsibility for each product’s
performance is entrusted to a particular departmental head,
he is better stimulated for improving his performance.

•

In this form, those who work within a department derive

greater satisfaction from identification with a recognizable
goal.

Customers
An enterprise may be divided into a number of departments on
the basis of the customers that it services. For example, an
electronics firm may have separate departments for military,
industrial and consumer customers.

A big automobile

servicing enterprise may have separate departments for
servicing cars, heavy vehicles and scooters or an educational
institution may have separate departments for day, evening
and correspondence courses to impart education to full-time
students, locally employed students and outstation students.

Regions or Territory
When

several

organization

production

are

or

marketing

geographically

units

dispersed

in

of

an

various

locations, it is logical to departmentalize those units on a
geographical

basis.

The

Indian

Railways

are

departmentalized on this basis. Northern Railways, Western
Railways, Southern Railways, Eastern Railways, Central
Railways, etc. are departments in this sense.

The Food

Corporation of India has also geographical organization with
several zonal offices at different places and a head office in
New Delhi.

Advantages
• It motivates each regional head to achieve high performance.
• It provides each regional head an opportunity to adapt to his
local situation and customer need with speed and accuracy.
• It affords valuable top-management training and experience
to middle-level executives.
• It enables the organization to take advantage of locational
factors, such as availability of raw materials, labour, market,
etc.
• It enables the organization to compare regional performances
and invest more resources in profitable regions and withdraw
resources from unprofitable ones.

(Functional Departmentalisation)
General Manager
Fig. 7.3 A typical matrix organization

Contract
Administration

R&D
(Pr
od
uc
t
De
pa
rt
m
en
tal
isa
tio
n)

A
Project
Manager

R &D
Group

Contract
Admn. Group

Engineering
Group
Engg.
Group

Mfg.
Group
Mfg.
Group

A

Project
Manager

B
Project
Manager

C

R&D
Group

R&D
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group


Slide 17

ORGANISATI
ON

An organization is the pattern of ways in which
large numbers of people, too many to have
intimate face to face contact with all others, and
engaged

in

a

complexity

of

tasks,

relate

themselves to each other in the conscious,
systematic establishment and accomplishment
of mutually agreed purposes.

In terms of all the above definitions, corporations,

armies, schools, hospitals, churches, prisons, etc.
all are organizations.

But tribes, ethnic and friendship groups and
families are not organizations because they do not

involve

any

significant

amount

of

conscious

planning, coordination or deliberate structuring.

1.

A purpose, goal or
goals which has
already indicated in
a previous chapter
are the task of
planning.

2.

A clear concept of
the major duties
or activities
required to
achiever the
purpose.

Characteristics

of
an Organisation

3. Classification of
activities into jobs

4. Establishment of
relationships
between
these jobs.

Typology of Organisations
All organizations appear alike.

But this is not so.

Every organization has certain unique combination of
the above characteristics which distinguish it from all
other

organizations.

Blau

and

Scott5 classify

organizations into four categories using the criterion
of cui bono—who benefits:

1. Organisations which benefit their owners.
business organizations fall in this category.

All

2. Organisations which benefit their members. A wide
class of unions, cooperatives and clubs come under
this category.
3. Organisations which benefit their clients. Examples
are insurance companies, private schools, etc.
4. Organisations which benefit the whole society
(commonwealth
organizations)
such
as
governmental departments.

Consideration of Objectives

The first step in organizing is to know the objectives
of the enterprise. Objectives determine the various
activities which need to be performed and the type of
organization which needs to be built for this purpose.
Consideration of objectives is the first step in the
process of organizing.

A

Grouping of Activities into
Departments

B

C

The next step is to identify the activities necessary to
achieve them and to group the closely related and
similar activities into departments and sections. For
example, the activities of a manufacturing concern may
be grouped into such departments as production,
marketing, financing and personnel.

Deciding which Departments
will be Key Departments
Which department needs to be emphasised how much
will depend, of course, on the company’s objectives and
the way it seeks to be distinctive.

For example, a

company which believes that advertising is a primary
key to success will set up a separate advertising
department that reports directly to the president. But

another

company

which

considers

it

much

less

important may only create a separate section for it under
its sales department.

Determining Levels at which Various Types of
Decisions are to be Made
After deciding the relative importance of various departments,
the levels at which various major and minor decisions are to be

made must be determined. Each firm must decide for itself as to
how much decentralization of authority and responsibility it
wants to have. Extreme decentralization may lead to loss of

control and effective coordination as a result of which the firm as
a whole may fail to achieve its overall objectives.

Extreme

centralization, on the other hand, may lead to wrong decisions at

wrong times and complete breakdown of the morale of
employees.

Determining the Span of Management
The next step to be taken in designing a structure is
to determine the number of subordinates who
should report directly to each executive.

Setting up a Coordination Mechanism

First of all comes activities analysis. A thorough and
careful activities analysis clarifies as to what work has

to be performed, what kinds of work belong together,
and what emphasis each activity is to be given in the

organization structure.

Next

comes

decision

analysis.

Although

it

is

impossible for anyone to anticipate the contents of
future decisions, one can predict their kinds and
decide their places so that when they rise in future.
Finally, an analysis should be made of the various
relationships between the tasks of a manager and

those of his subordinates, peers and superiors.

SPAN OF MANAGEMENT
Meaning and Importance :
The term “span of management” is also referred to as
span of control, span of supervision, span of authority
or span of responsibility.

It indicates the number of

subordinates who report directly to a manager.

Span of management is important for two reasons.
• First, span of management affects the efficient

utilization of managers and the effective performance
of their subordinates.

• Second, there is a relationship between span of
management and organisational structure.

PRINCIPLES OF ORGANISING
• Objectives : The objectives of the enterprise influence

the organization structure and hence the objectives of
the enterprise should first be clearly defined. Then
every part of the organization should be geared to the
achievement of these objectives.

• Specialisation Effective organization must promote
specialization. The activities of the enterprise should be
divided according to functions and assigned to persons

according to their specialization.
• Span of Control As there is a limit to the number of
persons that can be supervised effectively by one boss,
the span of control should be as far as possible, the
minimum. That means, an executive should be asked to
supervise a reasonable number of subordinates only
say six.

• Exception As the executives at the higher levels have
limited time, only exceptionally complex problems
should be referred to them and routine matters should
be dealt with by the subordinates at lower levels. This
will enable the executives at higher levels to devote time
to more important and crucial issues.
• Scalar Principle This principle is sometimes known as
the “chain of command”. The line of authority from the

chief executive at the top to the first-line supervisor at
the bottom must be clearly defined.

• Unity of Command Each subordinate should have only
one superior whose command he has to obey. Dual
subordination

must

be

avoided,

for

it

causes

uneasiness, disorder, indiscipline and undermining of
authority.
• Delegation Proper authority should be delegated at the

lower levels of organization also.

The authority

delegated should be equal to responsibility, i.e. each
manager should have enough authority to accomplish

the task assigned to him.

• Responsibility The superior should be held responsible
for the acts of his subordinates. No superior should be
allowed to avoid responsibility by delegating authority
to his subordinates.
• Authority The authority is the tool by which a manager is
able to accomplish the desired objective.

Hence, the

authority of each manager must be clearly defined.
Further, the authority should be equal to responsibility.
• Efficiency The organization structure should enable the
enterprise to function efficiently and accomplish its
objectives with the lowest possible cost.

• Simplicity The organization structure should be as

simple as possible and the organization levels should,
as far as possible, be minimum. A large number of
levels of organization means difficulty of effective

communication and coordination.
• Flexibility The organization should be flexible, should

be adaptable to changing circumstances and permit
expansion and replacement without dislocation and
disruption of the basic design.

• Balance There should be a reasonable balance in the
size of various departments, between centralization
and decentralization, between the principle of span of

control and the short chain of command, and among
all types of factors such as human, technical and
financial.
• Unity of Direction There should be one objective and
one plan for a group of activities having the same
objective. Unity of direction facilitates unification and
coordination of activities at various levels.

• Personal Ability As people constitute an organization,
there is need for proper selection, placement and

training of staff.

Further, the organization structure

must ensure optimum use of human resources and
encourage management development programmes.

DEPARTMENTALISATION
Departmentalisation is one important step of building an
organization.

The aim is to take advantage of the

division of labour and specialization upto a certain limit.

There are several bases for departmentalization, each of
which

is

suitable

for

strategies and purposes.

particular

corporate

sizes,

Functions
By

far

the

most

widely

used

base

for

departmentalization is function. Each major function

of the enterprise is grouped into a department.

Advantages
• Everybody in this form of organization understands his own task
and feels highly secure both in his work and in his relationships.

•It promotes excellence in performance because of development of
expertise through specialization.
•It leads to improved planning and control of the key functions.
•It ensures economy, there is only one department related to one
function for the entire function. Manpower and other resources of
the company are effectively utilized by time-sharing them across
products or projects.

Drawbacks
• It fosters sub-goal loyalties. It is difficult for any one
to understand the task of the whole and to relate his
own work to it.
• It does not offer a good training ground for the overall
development of a manager.

• It is unsuitable for organizations which are large in
size, complexity or innovative scope.

• In

this

form

customer

needs

evoke

conflicting

interpretations like the story of twelve blind people and

the elephant.
• In this form procedures are overly complicated,
wasteful and time-consuming—a weakness sometimes
called as “organizational arthritis”.

The structure is

rigid and resists adaptation.

• In this form because of “common pot” accounting it is
difficult to judge whether the activities of a particular
department are worth their cost.

Products
Under this method, for each major product, a separate
semi-autonomous department is created and is put

under the charge of a manager who may also be made
responsible for producing a profit of a given magnitude.
Within each department, all the needed manufacturing,

engineering, marketing, manpower and other facilities
are

assembled.

detergents,
products),

Hindustan

toiletries,

Lever

chemicals

(manufacturing

and

agro-based

Richardson Hindustan (manufacturing a range of Vicks
products, Clearasil cream and soap), and Johnson and
Johnson (manufacturing a range of products for

children and surgical sutures) have product-based
departments

Advantages
• This form relieves top management of operating task
responsibility. It can therefore better concentrate on such
centralized activities like finance, R&D and control.

• This form enables top management to compare the
performance

of

different

products

and

invest

more

resources in profitable products and withdraw resources

from unprofitable ones.

•

In this form, since the responsibility for each product’s
performance is entrusted to a particular departmental head,
he is better stimulated for improving his performance.

•

In this form, those who work within a department derive

greater satisfaction from identification with a recognizable
goal.

Customers
An enterprise may be divided into a number of departments on
the basis of the customers that it services. For example, an
electronics firm may have separate departments for military,
industrial and consumer customers.

A big automobile

servicing enterprise may have separate departments for
servicing cars, heavy vehicles and scooters or an educational
institution may have separate departments for day, evening
and correspondence courses to impart education to full-time
students, locally employed students and outstation students.

Regions or Territory
When

several

organization

production

are

or

marketing

geographically

units

dispersed

in

of

an

various

locations, it is logical to departmentalize those units on a
geographical

basis.

The

Indian

Railways

are

departmentalized on this basis. Northern Railways, Western
Railways, Southern Railways, Eastern Railways, Central
Railways, etc. are departments in this sense.

The Food

Corporation of India has also geographical organization with
several zonal offices at different places and a head office in
New Delhi.

Advantages
• It motivates each regional head to achieve high performance.
• It provides each regional head an opportunity to adapt to his
local situation and customer need with speed and accuracy.
• It affords valuable top-management training and experience
to middle-level executives.
• It enables the organization to take advantage of locational
factors, such as availability of raw materials, labour, market,
etc.
• It enables the organization to compare regional performances
and invest more resources in profitable regions and withdraw
resources from unprofitable ones.

(Functional Departmentalisation)
General Manager
Fig. 7.3 A typical matrix organization

Contract
Administration

R&D
(Pr
od
uc
t
De
pa
rt
m
en
tal
isa
tio
n)

A
Project
Manager

R &D
Group

Contract
Admn. Group

Engineering
Group
Engg.
Group

Mfg.
Group
Mfg.
Group

A

Project
Manager

B
Project
Manager

C

R&D
Group

R&D
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group


Slide 18

ORGANISATI
ON

An organization is the pattern of ways in which
large numbers of people, too many to have
intimate face to face contact with all others, and
engaged

in

a

complexity

of

tasks,

relate

themselves to each other in the conscious,
systematic establishment and accomplishment
of mutually agreed purposes.

In terms of all the above definitions, corporations,

armies, schools, hospitals, churches, prisons, etc.
all are organizations.

But tribes, ethnic and friendship groups and
families are not organizations because they do not

involve

any

significant

amount

of

conscious

planning, coordination or deliberate structuring.

1.

A purpose, goal or
goals which has
already indicated in
a previous chapter
are the task of
planning.

2.

A clear concept of
the major duties
or activities
required to
achiever the
purpose.

Characteristics

of
an Organisation

3. Classification of
activities into jobs

4. Establishment of
relationships
between
these jobs.

Typology of Organisations
All organizations appear alike.

But this is not so.

Every organization has certain unique combination of
the above characteristics which distinguish it from all
other

organizations.

Blau

and

Scott5 classify

organizations into four categories using the criterion
of cui bono—who benefits:

1. Organisations which benefit their owners.
business organizations fall in this category.

All

2. Organisations which benefit their members. A wide
class of unions, cooperatives and clubs come under
this category.
3. Organisations which benefit their clients. Examples
are insurance companies, private schools, etc.
4. Organisations which benefit the whole society
(commonwealth
organizations)
such
as
governmental departments.

Consideration of Objectives

The first step in organizing is to know the objectives
of the enterprise. Objectives determine the various
activities which need to be performed and the type of
organization which needs to be built for this purpose.
Consideration of objectives is the first step in the
process of organizing.

A

Grouping of Activities into
Departments

B

C

The next step is to identify the activities necessary to
achieve them and to group the closely related and
similar activities into departments and sections. For
example, the activities of a manufacturing concern may
be grouped into such departments as production,
marketing, financing and personnel.

Deciding which Departments
will be Key Departments
Which department needs to be emphasised how much
will depend, of course, on the company’s objectives and
the way it seeks to be distinctive.

For example, a

company which believes that advertising is a primary
key to success will set up a separate advertising
department that reports directly to the president. But

another

company

which

considers

it

much

less

important may only create a separate section for it under
its sales department.

Determining Levels at which Various Types of
Decisions are to be Made
After deciding the relative importance of various departments,
the levels at which various major and minor decisions are to be

made must be determined. Each firm must decide for itself as to
how much decentralization of authority and responsibility it
wants to have. Extreme decentralization may lead to loss of

control and effective coordination as a result of which the firm as
a whole may fail to achieve its overall objectives.

Extreme

centralization, on the other hand, may lead to wrong decisions at

wrong times and complete breakdown of the morale of
employees.

Determining the Span of Management
The next step to be taken in designing a structure is
to determine the number of subordinates who
should report directly to each executive.

Setting up a Coordination Mechanism

First of all comes activities analysis. A thorough and
careful activities analysis clarifies as to what work has

to be performed, what kinds of work belong together,
and what emphasis each activity is to be given in the

organization structure.

Next

comes

decision

analysis.

Although

it

is

impossible for anyone to anticipate the contents of
future decisions, one can predict their kinds and
decide their places so that when they rise in future.
Finally, an analysis should be made of the various
relationships between the tasks of a manager and

those of his subordinates, peers and superiors.

SPAN OF MANAGEMENT
Meaning and Importance :
The term “span of management” is also referred to as
span of control, span of supervision, span of authority
or span of responsibility.

It indicates the number of

subordinates who report directly to a manager.

Span of management is important for two reasons.
• First, span of management affects the efficient

utilization of managers and the effective performance
of their subordinates.

• Second, there is a relationship between span of
management and organisational structure.

PRINCIPLES OF ORGANISING
• Objectives : The objectives of the enterprise influence

the organization structure and hence the objectives of
the enterprise should first be clearly defined. Then
every part of the organization should be geared to the
achievement of these objectives.

• Specialisation Effective organization must promote
specialization. The activities of the enterprise should be
divided according to functions and assigned to persons

according to their specialization.
• Span of Control As there is a limit to the number of
persons that can be supervised effectively by one boss,
the span of control should be as far as possible, the
minimum. That means, an executive should be asked to
supervise a reasonable number of subordinates only
say six.

• Exception As the executives at the higher levels have
limited time, only exceptionally complex problems
should be referred to them and routine matters should
be dealt with by the subordinates at lower levels. This
will enable the executives at higher levels to devote time
to more important and crucial issues.
• Scalar Principle This principle is sometimes known as
the “chain of command”. The line of authority from the

chief executive at the top to the first-line supervisor at
the bottom must be clearly defined.

• Unity of Command Each subordinate should have only
one superior whose command he has to obey. Dual
subordination

must

be

avoided,

for

it

causes

uneasiness, disorder, indiscipline and undermining of
authority.
• Delegation Proper authority should be delegated at the

lower levels of organization also.

The authority

delegated should be equal to responsibility, i.e. each
manager should have enough authority to accomplish

the task assigned to him.

• Responsibility The superior should be held responsible
for the acts of his subordinates. No superior should be
allowed to avoid responsibility by delegating authority
to his subordinates.
• Authority The authority is the tool by which a manager is
able to accomplish the desired objective.

Hence, the

authority of each manager must be clearly defined.
Further, the authority should be equal to responsibility.
• Efficiency The organization structure should enable the
enterprise to function efficiently and accomplish its
objectives with the lowest possible cost.

• Simplicity The organization structure should be as

simple as possible and the organization levels should,
as far as possible, be minimum. A large number of
levels of organization means difficulty of effective

communication and coordination.
• Flexibility The organization should be flexible, should

be adaptable to changing circumstances and permit
expansion and replacement without dislocation and
disruption of the basic design.

• Balance There should be a reasonable balance in the
size of various departments, between centralization
and decentralization, between the principle of span of

control and the short chain of command, and among
all types of factors such as human, technical and
financial.
• Unity of Direction There should be one objective and
one plan for a group of activities having the same
objective. Unity of direction facilitates unification and
coordination of activities at various levels.

• Personal Ability As people constitute an organization,
there is need for proper selection, placement and

training of staff.

Further, the organization structure

must ensure optimum use of human resources and
encourage management development programmes.

DEPARTMENTALISATION
Departmentalisation is one important step of building an
organization.

The aim is to take advantage of the

division of labour and specialization upto a certain limit.

There are several bases for departmentalization, each of
which

is

suitable

for

strategies and purposes.

particular

corporate

sizes,

Functions
By

far

the

most

widely

used

base

for

departmentalization is function. Each major function

of the enterprise is grouped into a department.

Advantages
• Everybody in this form of organization understands his own task
and feels highly secure both in his work and in his relationships.

•It promotes excellence in performance because of development of
expertise through specialization.
•It leads to improved planning and control of the key functions.
•It ensures economy, there is only one department related to one
function for the entire function. Manpower and other resources of
the company are effectively utilized by time-sharing them across
products or projects.

Drawbacks
• It fosters sub-goal loyalties. It is difficult for any one
to understand the task of the whole and to relate his
own work to it.
• It does not offer a good training ground for the overall
development of a manager.

• It is unsuitable for organizations which are large in
size, complexity or innovative scope.

• In

this

form

customer

needs

evoke

conflicting

interpretations like the story of twelve blind people and

the elephant.
• In this form procedures are overly complicated,
wasteful and time-consuming—a weakness sometimes
called as “organizational arthritis”.

The structure is

rigid and resists adaptation.

• In this form because of “common pot” accounting it is
difficult to judge whether the activities of a particular
department are worth their cost.

Products
Under this method, for each major product, a separate
semi-autonomous department is created and is put

under the charge of a manager who may also be made
responsible for producing a profit of a given magnitude.
Within each department, all the needed manufacturing,

engineering, marketing, manpower and other facilities
are

assembled.

detergents,
products),

Hindustan

toiletries,

Lever

chemicals

(manufacturing

and

agro-based

Richardson Hindustan (manufacturing a range of Vicks
products, Clearasil cream and soap), and Johnson and
Johnson (manufacturing a range of products for

children and surgical sutures) have product-based
departments

Advantages
• This form relieves top management of operating task
responsibility. It can therefore better concentrate on such
centralized activities like finance, R&D and control.

• This form enables top management to compare the
performance

of

different

products

and

invest

more

resources in profitable products and withdraw resources

from unprofitable ones.

•

In this form, since the responsibility for each product’s
performance is entrusted to a particular departmental head,
he is better stimulated for improving his performance.

•

In this form, those who work within a department derive

greater satisfaction from identification with a recognizable
goal.

Customers
An enterprise may be divided into a number of departments on
the basis of the customers that it services. For example, an
electronics firm may have separate departments for military,
industrial and consumer customers.

A big automobile

servicing enterprise may have separate departments for
servicing cars, heavy vehicles and scooters or an educational
institution may have separate departments for day, evening
and correspondence courses to impart education to full-time
students, locally employed students and outstation students.

Regions or Territory
When

several

organization

production

are

or

marketing

geographically

units

dispersed

in

of

an

various

locations, it is logical to departmentalize those units on a
geographical

basis.

The

Indian

Railways

are

departmentalized on this basis. Northern Railways, Western
Railways, Southern Railways, Eastern Railways, Central
Railways, etc. are departments in this sense.

The Food

Corporation of India has also geographical organization with
several zonal offices at different places and a head office in
New Delhi.

Advantages
• It motivates each regional head to achieve high performance.
• It provides each regional head an opportunity to adapt to his
local situation and customer need with speed and accuracy.
• It affords valuable top-management training and experience
to middle-level executives.
• It enables the organization to take advantage of locational
factors, such as availability of raw materials, labour, market,
etc.
• It enables the organization to compare regional performances
and invest more resources in profitable regions and withdraw
resources from unprofitable ones.

(Functional Departmentalisation)
General Manager
Fig. 7.3 A typical matrix organization

Contract
Administration

R&D
(Pr
od
uc
t
De
pa
rt
m
en
tal
isa
tio
n)

A
Project
Manager

R &D
Group

Contract
Admn. Group

Engineering
Group
Engg.
Group

Mfg.
Group
Mfg.
Group

A

Project
Manager

B
Project
Manager

C

R&D
Group

R&D
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group


Slide 19

ORGANISATI
ON

An organization is the pattern of ways in which
large numbers of people, too many to have
intimate face to face contact with all others, and
engaged

in

a

complexity

of

tasks,

relate

themselves to each other in the conscious,
systematic establishment and accomplishment
of mutually agreed purposes.

In terms of all the above definitions, corporations,

armies, schools, hospitals, churches, prisons, etc.
all are organizations.

But tribes, ethnic and friendship groups and
families are not organizations because they do not

involve

any

significant

amount

of

conscious

planning, coordination or deliberate structuring.

1.

A purpose, goal or
goals which has
already indicated in
a previous chapter
are the task of
planning.

2.

A clear concept of
the major duties
or activities
required to
achiever the
purpose.

Characteristics

of
an Organisation

3. Classification of
activities into jobs

4. Establishment of
relationships
between
these jobs.

Typology of Organisations
All organizations appear alike.

But this is not so.

Every organization has certain unique combination of
the above characteristics which distinguish it from all
other

organizations.

Blau

and

Scott5 classify

organizations into four categories using the criterion
of cui bono—who benefits:

1. Organisations which benefit their owners.
business organizations fall in this category.

All

2. Organisations which benefit their members. A wide
class of unions, cooperatives and clubs come under
this category.
3. Organisations which benefit their clients. Examples
are insurance companies, private schools, etc.
4. Organisations which benefit the whole society
(commonwealth
organizations)
such
as
governmental departments.

Consideration of Objectives

The first step in organizing is to know the objectives
of the enterprise. Objectives determine the various
activities which need to be performed and the type of
organization which needs to be built for this purpose.
Consideration of objectives is the first step in the
process of organizing.

A

Grouping of Activities into
Departments

B

C

The next step is to identify the activities necessary to
achieve them and to group the closely related and
similar activities into departments and sections. For
example, the activities of a manufacturing concern may
be grouped into such departments as production,
marketing, financing and personnel.

Deciding which Departments
will be Key Departments
Which department needs to be emphasised how much
will depend, of course, on the company’s objectives and
the way it seeks to be distinctive.

For example, a

company which believes that advertising is a primary
key to success will set up a separate advertising
department that reports directly to the president. But

another

company

which

considers

it

much

less

important may only create a separate section for it under
its sales department.

Determining Levels at which Various Types of
Decisions are to be Made
After deciding the relative importance of various departments,
the levels at which various major and minor decisions are to be

made must be determined. Each firm must decide for itself as to
how much decentralization of authority and responsibility it
wants to have. Extreme decentralization may lead to loss of

control and effective coordination as a result of which the firm as
a whole may fail to achieve its overall objectives.

Extreme

centralization, on the other hand, may lead to wrong decisions at

wrong times and complete breakdown of the morale of
employees.

Determining the Span of Management
The next step to be taken in designing a structure is
to determine the number of subordinates who
should report directly to each executive.

Setting up a Coordination Mechanism

First of all comes activities analysis. A thorough and
careful activities analysis clarifies as to what work has

to be performed, what kinds of work belong together,
and what emphasis each activity is to be given in the

organization structure.

Next

comes

decision

analysis.

Although

it

is

impossible for anyone to anticipate the contents of
future decisions, one can predict their kinds and
decide their places so that when they rise in future.
Finally, an analysis should be made of the various
relationships between the tasks of a manager and

those of his subordinates, peers and superiors.

SPAN OF MANAGEMENT
Meaning and Importance :
The term “span of management” is also referred to as
span of control, span of supervision, span of authority
or span of responsibility.

It indicates the number of

subordinates who report directly to a manager.

Span of management is important for two reasons.
• First, span of management affects the efficient

utilization of managers and the effective performance
of their subordinates.

• Second, there is a relationship between span of
management and organisational structure.

PRINCIPLES OF ORGANISING
• Objectives : The objectives of the enterprise influence

the organization structure and hence the objectives of
the enterprise should first be clearly defined. Then
every part of the organization should be geared to the
achievement of these objectives.

• Specialisation Effective organization must promote
specialization. The activities of the enterprise should be
divided according to functions and assigned to persons

according to their specialization.
• Span of Control As there is a limit to the number of
persons that can be supervised effectively by one boss,
the span of control should be as far as possible, the
minimum. That means, an executive should be asked to
supervise a reasonable number of subordinates only
say six.

• Exception As the executives at the higher levels have
limited time, only exceptionally complex problems
should be referred to them and routine matters should
be dealt with by the subordinates at lower levels. This
will enable the executives at higher levels to devote time
to more important and crucial issues.
• Scalar Principle This principle is sometimes known as
the “chain of command”. The line of authority from the

chief executive at the top to the first-line supervisor at
the bottom must be clearly defined.

• Unity of Command Each subordinate should have only
one superior whose command he has to obey. Dual
subordination

must

be

avoided,

for

it

causes

uneasiness, disorder, indiscipline and undermining of
authority.
• Delegation Proper authority should be delegated at the

lower levels of organization also.

The authority

delegated should be equal to responsibility, i.e. each
manager should have enough authority to accomplish

the task assigned to him.

• Responsibility The superior should be held responsible
for the acts of his subordinates. No superior should be
allowed to avoid responsibility by delegating authority
to his subordinates.
• Authority The authority is the tool by which a manager is
able to accomplish the desired objective.

Hence, the

authority of each manager must be clearly defined.
Further, the authority should be equal to responsibility.
• Efficiency The organization structure should enable the
enterprise to function efficiently and accomplish its
objectives with the lowest possible cost.

• Simplicity The organization structure should be as

simple as possible and the organization levels should,
as far as possible, be minimum. A large number of
levels of organization means difficulty of effective

communication and coordination.
• Flexibility The organization should be flexible, should

be adaptable to changing circumstances and permit
expansion and replacement without dislocation and
disruption of the basic design.

• Balance There should be a reasonable balance in the
size of various departments, between centralization
and decentralization, between the principle of span of

control and the short chain of command, and among
all types of factors such as human, technical and
financial.
• Unity of Direction There should be one objective and
one plan for a group of activities having the same
objective. Unity of direction facilitates unification and
coordination of activities at various levels.

• Personal Ability As people constitute an organization,
there is need for proper selection, placement and

training of staff.

Further, the organization structure

must ensure optimum use of human resources and
encourage management development programmes.

DEPARTMENTALISATION
Departmentalisation is one important step of building an
organization.

The aim is to take advantage of the

division of labour and specialization upto a certain limit.

There are several bases for departmentalization, each of
which

is

suitable

for

strategies and purposes.

particular

corporate

sizes,

Functions
By

far

the

most

widely

used

base

for

departmentalization is function. Each major function

of the enterprise is grouped into a department.

Advantages
• Everybody in this form of organization understands his own task
and feels highly secure both in his work and in his relationships.

•It promotes excellence in performance because of development of
expertise through specialization.
•It leads to improved planning and control of the key functions.
•It ensures economy, there is only one department related to one
function for the entire function. Manpower and other resources of
the company are effectively utilized by time-sharing them across
products or projects.

Drawbacks
• It fosters sub-goal loyalties. It is difficult for any one
to understand the task of the whole and to relate his
own work to it.
• It does not offer a good training ground for the overall
development of a manager.

• It is unsuitable for organizations which are large in
size, complexity or innovative scope.

• In

this

form

customer

needs

evoke

conflicting

interpretations like the story of twelve blind people and

the elephant.
• In this form procedures are overly complicated,
wasteful and time-consuming—a weakness sometimes
called as “organizational arthritis”.

The structure is

rigid and resists adaptation.

• In this form because of “common pot” accounting it is
difficult to judge whether the activities of a particular
department are worth their cost.

Products
Under this method, for each major product, a separate
semi-autonomous department is created and is put

under the charge of a manager who may also be made
responsible for producing a profit of a given magnitude.
Within each department, all the needed manufacturing,

engineering, marketing, manpower and other facilities
are

assembled.

detergents,
products),

Hindustan

toiletries,

Lever

chemicals

(manufacturing

and

agro-based

Richardson Hindustan (manufacturing a range of Vicks
products, Clearasil cream and soap), and Johnson and
Johnson (manufacturing a range of products for

children and surgical sutures) have product-based
departments

Advantages
• This form relieves top management of operating task
responsibility. It can therefore better concentrate on such
centralized activities like finance, R&D and control.

• This form enables top management to compare the
performance

of

different

products

and

invest

more

resources in profitable products and withdraw resources

from unprofitable ones.

•

In this form, since the responsibility for each product’s
performance is entrusted to a particular departmental head,
he is better stimulated for improving his performance.

•

In this form, those who work within a department derive

greater satisfaction from identification with a recognizable
goal.

Customers
An enterprise may be divided into a number of departments on
the basis of the customers that it services. For example, an
electronics firm may have separate departments for military,
industrial and consumer customers.

A big automobile

servicing enterprise may have separate departments for
servicing cars, heavy vehicles and scooters or an educational
institution may have separate departments for day, evening
and correspondence courses to impart education to full-time
students, locally employed students and outstation students.

Regions or Territory
When

several

organization

production

are

or

marketing

geographically

units

dispersed

in

of

an

various

locations, it is logical to departmentalize those units on a
geographical

basis.

The

Indian

Railways

are

departmentalized on this basis. Northern Railways, Western
Railways, Southern Railways, Eastern Railways, Central
Railways, etc. are departments in this sense.

The Food

Corporation of India has also geographical organization with
several zonal offices at different places and a head office in
New Delhi.

Advantages
• It motivates each regional head to achieve high performance.
• It provides each regional head an opportunity to adapt to his
local situation and customer need with speed and accuracy.
• It affords valuable top-management training and experience
to middle-level executives.
• It enables the organization to take advantage of locational
factors, such as availability of raw materials, labour, market,
etc.
• It enables the organization to compare regional performances
and invest more resources in profitable regions and withdraw
resources from unprofitable ones.

(Functional Departmentalisation)
General Manager
Fig. 7.3 A typical matrix organization

Contract
Administration

R&D
(Pr
od
uc
t
De
pa
rt
m
en
tal
isa
tio
n)

A
Project
Manager

R &D
Group

Contract
Admn. Group

Engineering
Group
Engg.
Group

Mfg.
Group
Mfg.
Group

A

Project
Manager

B
Project
Manager

C

R&D
Group

R&D
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group


Slide 20

ORGANISATI
ON

An organization is the pattern of ways in which
large numbers of people, too many to have
intimate face to face contact with all others, and
engaged

in

a

complexity

of

tasks,

relate

themselves to each other in the conscious,
systematic establishment and accomplishment
of mutually agreed purposes.

In terms of all the above definitions, corporations,

armies, schools, hospitals, churches, prisons, etc.
all are organizations.

But tribes, ethnic and friendship groups and
families are not organizations because they do not

involve

any

significant

amount

of

conscious

planning, coordination or deliberate structuring.

1.

A purpose, goal or
goals which has
already indicated in
a previous chapter
are the task of
planning.

2.

A clear concept of
the major duties
or activities
required to
achiever the
purpose.

Characteristics

of
an Organisation

3. Classification of
activities into jobs

4. Establishment of
relationships
between
these jobs.

Typology of Organisations
All organizations appear alike.

But this is not so.

Every organization has certain unique combination of
the above characteristics which distinguish it from all
other

organizations.

Blau

and

Scott5 classify

organizations into four categories using the criterion
of cui bono—who benefits:

1. Organisations which benefit their owners.
business organizations fall in this category.

All

2. Organisations which benefit their members. A wide
class of unions, cooperatives and clubs come under
this category.
3. Organisations which benefit their clients. Examples
are insurance companies, private schools, etc.
4. Organisations which benefit the whole society
(commonwealth
organizations)
such
as
governmental departments.

Consideration of Objectives

The first step in organizing is to know the objectives
of the enterprise. Objectives determine the various
activities which need to be performed and the type of
organization which needs to be built for this purpose.
Consideration of objectives is the first step in the
process of organizing.

A

Grouping of Activities into
Departments

B

C

The next step is to identify the activities necessary to
achieve them and to group the closely related and
similar activities into departments and sections. For
example, the activities of a manufacturing concern may
be grouped into such departments as production,
marketing, financing and personnel.

Deciding which Departments
will be Key Departments
Which department needs to be emphasised how much
will depend, of course, on the company’s objectives and
the way it seeks to be distinctive.

For example, a

company which believes that advertising is a primary
key to success will set up a separate advertising
department that reports directly to the president. But

another

company

which

considers

it

much

less

important may only create a separate section for it under
its sales department.

Determining Levels at which Various Types of
Decisions are to be Made
After deciding the relative importance of various departments,
the levels at which various major and minor decisions are to be

made must be determined. Each firm must decide for itself as to
how much decentralization of authority and responsibility it
wants to have. Extreme decentralization may lead to loss of

control and effective coordination as a result of which the firm as
a whole may fail to achieve its overall objectives.

Extreme

centralization, on the other hand, may lead to wrong decisions at

wrong times and complete breakdown of the morale of
employees.

Determining the Span of Management
The next step to be taken in designing a structure is
to determine the number of subordinates who
should report directly to each executive.

Setting up a Coordination Mechanism

First of all comes activities analysis. A thorough and
careful activities analysis clarifies as to what work has

to be performed, what kinds of work belong together,
and what emphasis each activity is to be given in the

organization structure.

Next

comes

decision

analysis.

Although

it

is

impossible for anyone to anticipate the contents of
future decisions, one can predict their kinds and
decide their places so that when they rise in future.
Finally, an analysis should be made of the various
relationships between the tasks of a manager and

those of his subordinates, peers and superiors.

SPAN OF MANAGEMENT
Meaning and Importance :
The term “span of management” is also referred to as
span of control, span of supervision, span of authority
or span of responsibility.

It indicates the number of

subordinates who report directly to a manager.

Span of management is important for two reasons.
• First, span of management affects the efficient

utilization of managers and the effective performance
of their subordinates.

• Second, there is a relationship between span of
management and organisational structure.

PRINCIPLES OF ORGANISING
• Objectives : The objectives of the enterprise influence

the organization structure and hence the objectives of
the enterprise should first be clearly defined. Then
every part of the organization should be geared to the
achievement of these objectives.

• Specialisation Effective organization must promote
specialization. The activities of the enterprise should be
divided according to functions and assigned to persons

according to their specialization.
• Span of Control As there is a limit to the number of
persons that can be supervised effectively by one boss,
the span of control should be as far as possible, the
minimum. That means, an executive should be asked to
supervise a reasonable number of subordinates only
say six.

• Exception As the executives at the higher levels have
limited time, only exceptionally complex problems
should be referred to them and routine matters should
be dealt with by the subordinates at lower levels. This
will enable the executives at higher levels to devote time
to more important and crucial issues.
• Scalar Principle This principle is sometimes known as
the “chain of command”. The line of authority from the

chief executive at the top to the first-line supervisor at
the bottom must be clearly defined.

• Unity of Command Each subordinate should have only
one superior whose command he has to obey. Dual
subordination

must

be

avoided,

for

it

causes

uneasiness, disorder, indiscipline and undermining of
authority.
• Delegation Proper authority should be delegated at the

lower levels of organization also.

The authority

delegated should be equal to responsibility, i.e. each
manager should have enough authority to accomplish

the task assigned to him.

• Responsibility The superior should be held responsible
for the acts of his subordinates. No superior should be
allowed to avoid responsibility by delegating authority
to his subordinates.
• Authority The authority is the tool by which a manager is
able to accomplish the desired objective.

Hence, the

authority of each manager must be clearly defined.
Further, the authority should be equal to responsibility.
• Efficiency The organization structure should enable the
enterprise to function efficiently and accomplish its
objectives with the lowest possible cost.

• Simplicity The organization structure should be as

simple as possible and the organization levels should,
as far as possible, be minimum. A large number of
levels of organization means difficulty of effective

communication and coordination.
• Flexibility The organization should be flexible, should

be adaptable to changing circumstances and permit
expansion and replacement without dislocation and
disruption of the basic design.

• Balance There should be a reasonable balance in the
size of various departments, between centralization
and decentralization, between the principle of span of

control and the short chain of command, and among
all types of factors such as human, technical and
financial.
• Unity of Direction There should be one objective and
one plan for a group of activities having the same
objective. Unity of direction facilitates unification and
coordination of activities at various levels.

• Personal Ability As people constitute an organization,
there is need for proper selection, placement and

training of staff.

Further, the organization structure

must ensure optimum use of human resources and
encourage management development programmes.

DEPARTMENTALISATION
Departmentalisation is one important step of building an
organization.

The aim is to take advantage of the

division of labour and specialization upto a certain limit.

There are several bases for departmentalization, each of
which

is

suitable

for

strategies and purposes.

particular

corporate

sizes,

Functions
By

far

the

most

widely

used

base

for

departmentalization is function. Each major function

of the enterprise is grouped into a department.

Advantages
• Everybody in this form of organization understands his own task
and feels highly secure both in his work and in his relationships.

•It promotes excellence in performance because of development of
expertise through specialization.
•It leads to improved planning and control of the key functions.
•It ensures economy, there is only one department related to one
function for the entire function. Manpower and other resources of
the company are effectively utilized by time-sharing them across
products or projects.

Drawbacks
• It fosters sub-goal loyalties. It is difficult for any one
to understand the task of the whole and to relate his
own work to it.
• It does not offer a good training ground for the overall
development of a manager.

• It is unsuitable for organizations which are large in
size, complexity or innovative scope.

• In

this

form

customer

needs

evoke

conflicting

interpretations like the story of twelve blind people and

the elephant.
• In this form procedures are overly complicated,
wasteful and time-consuming—a weakness sometimes
called as “organizational arthritis”.

The structure is

rigid and resists adaptation.

• In this form because of “common pot” accounting it is
difficult to judge whether the activities of a particular
department are worth their cost.

Products
Under this method, for each major product, a separate
semi-autonomous department is created and is put

under the charge of a manager who may also be made
responsible for producing a profit of a given magnitude.
Within each department, all the needed manufacturing,

engineering, marketing, manpower and other facilities
are

assembled.

detergents,
products),

Hindustan

toiletries,

Lever

chemicals

(manufacturing

and

agro-based

Richardson Hindustan (manufacturing a range of Vicks
products, Clearasil cream and soap), and Johnson and
Johnson (manufacturing a range of products for

children and surgical sutures) have product-based
departments

Advantages
• This form relieves top management of operating task
responsibility. It can therefore better concentrate on such
centralized activities like finance, R&D and control.

• This form enables top management to compare the
performance

of

different

products

and

invest

more

resources in profitable products and withdraw resources

from unprofitable ones.

•

In this form, since the responsibility for each product’s
performance is entrusted to a particular departmental head,
he is better stimulated for improving his performance.

•

In this form, those who work within a department derive

greater satisfaction from identification with a recognizable
goal.

Customers
An enterprise may be divided into a number of departments on
the basis of the customers that it services. For example, an
electronics firm may have separate departments for military,
industrial and consumer customers.

A big automobile

servicing enterprise may have separate departments for
servicing cars, heavy vehicles and scooters or an educational
institution may have separate departments for day, evening
and correspondence courses to impart education to full-time
students, locally employed students and outstation students.

Regions or Territory
When

several

organization

production

are

or

marketing

geographically

units

dispersed

in

of

an

various

locations, it is logical to departmentalize those units on a
geographical

basis.

The

Indian

Railways

are

departmentalized on this basis. Northern Railways, Western
Railways, Southern Railways, Eastern Railways, Central
Railways, etc. are departments in this sense.

The Food

Corporation of India has also geographical organization with
several zonal offices at different places and a head office in
New Delhi.

Advantages
• It motivates each regional head to achieve high performance.
• It provides each regional head an opportunity to adapt to his
local situation and customer need with speed and accuracy.
• It affords valuable top-management training and experience
to middle-level executives.
• It enables the organization to take advantage of locational
factors, such as availability of raw materials, labour, market,
etc.
• It enables the organization to compare regional performances
and invest more resources in profitable regions and withdraw
resources from unprofitable ones.

(Functional Departmentalisation)
General Manager
Fig. 7.3 A typical matrix organization

Contract
Administration

R&D
(Pr
od
uc
t
De
pa
rt
m
en
tal
isa
tio
n)

A
Project
Manager

R &D
Group

Contract
Admn. Group

Engineering
Group
Engg.
Group

Mfg.
Group
Mfg.
Group

A

Project
Manager

B
Project
Manager

C

R&D
Group

R&D
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group


Slide 21

ORGANISATI
ON

An organization is the pattern of ways in which
large numbers of people, too many to have
intimate face to face contact with all others, and
engaged

in

a

complexity

of

tasks,

relate

themselves to each other in the conscious,
systematic establishment and accomplishment
of mutually agreed purposes.

In terms of all the above definitions, corporations,

armies, schools, hospitals, churches, prisons, etc.
all are organizations.

But tribes, ethnic and friendship groups and
families are not organizations because they do not

involve

any

significant

amount

of

conscious

planning, coordination or deliberate structuring.

1.

A purpose, goal or
goals which has
already indicated in
a previous chapter
are the task of
planning.

2.

A clear concept of
the major duties
or activities
required to
achiever the
purpose.

Characteristics

of
an Organisation

3. Classification of
activities into jobs

4. Establishment of
relationships
between
these jobs.

Typology of Organisations
All organizations appear alike.

But this is not so.

Every organization has certain unique combination of
the above characteristics which distinguish it from all
other

organizations.

Blau

and

Scott5 classify

organizations into four categories using the criterion
of cui bono—who benefits:

1. Organisations which benefit their owners.
business organizations fall in this category.

All

2. Organisations which benefit their members. A wide
class of unions, cooperatives and clubs come under
this category.
3. Organisations which benefit their clients. Examples
are insurance companies, private schools, etc.
4. Organisations which benefit the whole society
(commonwealth
organizations)
such
as
governmental departments.

Consideration of Objectives

The first step in organizing is to know the objectives
of the enterprise. Objectives determine the various
activities which need to be performed and the type of
organization which needs to be built for this purpose.
Consideration of objectives is the first step in the
process of organizing.

A

Grouping of Activities into
Departments

B

C

The next step is to identify the activities necessary to
achieve them and to group the closely related and
similar activities into departments and sections. For
example, the activities of a manufacturing concern may
be grouped into such departments as production,
marketing, financing and personnel.

Deciding which Departments
will be Key Departments
Which department needs to be emphasised how much
will depend, of course, on the company’s objectives and
the way it seeks to be distinctive.

For example, a

company which believes that advertising is a primary
key to success will set up a separate advertising
department that reports directly to the president. But

another

company

which

considers

it

much

less

important may only create a separate section for it under
its sales department.

Determining Levels at which Various Types of
Decisions are to be Made
After deciding the relative importance of various departments,
the levels at which various major and minor decisions are to be

made must be determined. Each firm must decide for itself as to
how much decentralization of authority and responsibility it
wants to have. Extreme decentralization may lead to loss of

control and effective coordination as a result of which the firm as
a whole may fail to achieve its overall objectives.

Extreme

centralization, on the other hand, may lead to wrong decisions at

wrong times and complete breakdown of the morale of
employees.

Determining the Span of Management
The next step to be taken in designing a structure is
to determine the number of subordinates who
should report directly to each executive.

Setting up a Coordination Mechanism

First of all comes activities analysis. A thorough and
careful activities analysis clarifies as to what work has

to be performed, what kinds of work belong together,
and what emphasis each activity is to be given in the

organization structure.

Next

comes

decision

analysis.

Although

it

is

impossible for anyone to anticipate the contents of
future decisions, one can predict their kinds and
decide their places so that when they rise in future.
Finally, an analysis should be made of the various
relationships between the tasks of a manager and

those of his subordinates, peers and superiors.

SPAN OF MANAGEMENT
Meaning and Importance :
The term “span of management” is also referred to as
span of control, span of supervision, span of authority
or span of responsibility.

It indicates the number of

subordinates who report directly to a manager.

Span of management is important for two reasons.
• First, span of management affects the efficient

utilization of managers and the effective performance
of their subordinates.

• Second, there is a relationship between span of
management and organisational structure.

PRINCIPLES OF ORGANISING
• Objectives : The objectives of the enterprise influence

the organization structure and hence the objectives of
the enterprise should first be clearly defined. Then
every part of the organization should be geared to the
achievement of these objectives.

• Specialisation Effective organization must promote
specialization. The activities of the enterprise should be
divided according to functions and assigned to persons

according to their specialization.
• Span of Control As there is a limit to the number of
persons that can be supervised effectively by one boss,
the span of control should be as far as possible, the
minimum. That means, an executive should be asked to
supervise a reasonable number of subordinates only
say six.

• Exception As the executives at the higher levels have
limited time, only exceptionally complex problems
should be referred to them and routine matters should
be dealt with by the subordinates at lower levels. This
will enable the executives at higher levels to devote time
to more important and crucial issues.
• Scalar Principle This principle is sometimes known as
the “chain of command”. The line of authority from the

chief executive at the top to the first-line supervisor at
the bottom must be clearly defined.

• Unity of Command Each subordinate should have only
one superior whose command he has to obey. Dual
subordination

must

be

avoided,

for

it

causes

uneasiness, disorder, indiscipline and undermining of
authority.
• Delegation Proper authority should be delegated at the

lower levels of organization also.

The authority

delegated should be equal to responsibility, i.e. each
manager should have enough authority to accomplish

the task assigned to him.

• Responsibility The superior should be held responsible
for the acts of his subordinates. No superior should be
allowed to avoid responsibility by delegating authority
to his subordinates.
• Authority The authority is the tool by which a manager is
able to accomplish the desired objective.

Hence, the

authority of each manager must be clearly defined.
Further, the authority should be equal to responsibility.
• Efficiency The organization structure should enable the
enterprise to function efficiently and accomplish its
objectives with the lowest possible cost.

• Simplicity The organization structure should be as

simple as possible and the organization levels should,
as far as possible, be minimum. A large number of
levels of organization means difficulty of effective

communication and coordination.
• Flexibility The organization should be flexible, should

be adaptable to changing circumstances and permit
expansion and replacement without dislocation and
disruption of the basic design.

• Balance There should be a reasonable balance in the
size of various departments, between centralization
and decentralization, between the principle of span of

control and the short chain of command, and among
all types of factors such as human, technical and
financial.
• Unity of Direction There should be one objective and
one plan for a group of activities having the same
objective. Unity of direction facilitates unification and
coordination of activities at various levels.

• Personal Ability As people constitute an organization,
there is need for proper selection, placement and

training of staff.

Further, the organization structure

must ensure optimum use of human resources and
encourage management development programmes.

DEPARTMENTALISATION
Departmentalisation is one important step of building an
organization.

The aim is to take advantage of the

division of labour and specialization upto a certain limit.

There are several bases for departmentalization, each of
which

is

suitable

for

strategies and purposes.

particular

corporate

sizes,

Functions
By

far

the

most

widely

used

base

for

departmentalization is function. Each major function

of the enterprise is grouped into a department.

Advantages
• Everybody in this form of organization understands his own task
and feels highly secure both in his work and in his relationships.

•It promotes excellence in performance because of development of
expertise through specialization.
•It leads to improved planning and control of the key functions.
•It ensures economy, there is only one department related to one
function for the entire function. Manpower and other resources of
the company are effectively utilized by time-sharing them across
products or projects.

Drawbacks
• It fosters sub-goal loyalties. It is difficult for any one
to understand the task of the whole and to relate his
own work to it.
• It does not offer a good training ground for the overall
development of a manager.

• It is unsuitable for organizations which are large in
size, complexity or innovative scope.

• In

this

form

customer

needs

evoke

conflicting

interpretations like the story of twelve blind people and

the elephant.
• In this form procedures are overly complicated,
wasteful and time-consuming—a weakness sometimes
called as “organizational arthritis”.

The structure is

rigid and resists adaptation.

• In this form because of “common pot” accounting it is
difficult to judge whether the activities of a particular
department are worth their cost.

Products
Under this method, for each major product, a separate
semi-autonomous department is created and is put

under the charge of a manager who may also be made
responsible for producing a profit of a given magnitude.
Within each department, all the needed manufacturing,

engineering, marketing, manpower and other facilities
are

assembled.

detergents,
products),

Hindustan

toiletries,

Lever

chemicals

(manufacturing

and

agro-based

Richardson Hindustan (manufacturing a range of Vicks
products, Clearasil cream and soap), and Johnson and
Johnson (manufacturing a range of products for

children and surgical sutures) have product-based
departments

Advantages
• This form relieves top management of operating task
responsibility. It can therefore better concentrate on such
centralized activities like finance, R&D and control.

• This form enables top management to compare the
performance

of

different

products

and

invest

more

resources in profitable products and withdraw resources

from unprofitable ones.

•

In this form, since the responsibility for each product’s
performance is entrusted to a particular departmental head,
he is better stimulated for improving his performance.

•

In this form, those who work within a department derive

greater satisfaction from identification with a recognizable
goal.

Customers
An enterprise may be divided into a number of departments on
the basis of the customers that it services. For example, an
electronics firm may have separate departments for military,
industrial and consumer customers.

A big automobile

servicing enterprise may have separate departments for
servicing cars, heavy vehicles and scooters or an educational
institution may have separate departments for day, evening
and correspondence courses to impart education to full-time
students, locally employed students and outstation students.

Regions or Territory
When

several

organization

production

are

or

marketing

geographically

units

dispersed

in

of

an

various

locations, it is logical to departmentalize those units on a
geographical

basis.

The

Indian

Railways

are

departmentalized on this basis. Northern Railways, Western
Railways, Southern Railways, Eastern Railways, Central
Railways, etc. are departments in this sense.

The Food

Corporation of India has also geographical organization with
several zonal offices at different places and a head office in
New Delhi.

Advantages
• It motivates each regional head to achieve high performance.
• It provides each regional head an opportunity to adapt to his
local situation and customer need with speed and accuracy.
• It affords valuable top-management training and experience
to middle-level executives.
• It enables the organization to take advantage of locational
factors, such as availability of raw materials, labour, market,
etc.
• It enables the organization to compare regional performances
and invest more resources in profitable regions and withdraw
resources from unprofitable ones.

(Functional Departmentalisation)
General Manager
Fig. 7.3 A typical matrix organization

Contract
Administration

R&D
(Pr
od
uc
t
De
pa
rt
m
en
tal
isa
tio
n)

A
Project
Manager

R &D
Group

Contract
Admn. Group

Engineering
Group
Engg.
Group

Mfg.
Group
Mfg.
Group

A

Project
Manager

B
Project
Manager

C

R&D
Group

R&D
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group


Slide 22

ORGANISATI
ON

An organization is the pattern of ways in which
large numbers of people, too many to have
intimate face to face contact with all others, and
engaged

in

a

complexity

of

tasks,

relate

themselves to each other in the conscious,
systematic establishment and accomplishment
of mutually agreed purposes.

In terms of all the above definitions, corporations,

armies, schools, hospitals, churches, prisons, etc.
all are organizations.

But tribes, ethnic and friendship groups and
families are not organizations because they do not

involve

any

significant

amount

of

conscious

planning, coordination or deliberate structuring.

1.

A purpose, goal or
goals which has
already indicated in
a previous chapter
are the task of
planning.

2.

A clear concept of
the major duties
or activities
required to
achiever the
purpose.

Characteristics

of
an Organisation

3. Classification of
activities into jobs

4. Establishment of
relationships
between
these jobs.

Typology of Organisations
All organizations appear alike.

But this is not so.

Every organization has certain unique combination of
the above characteristics which distinguish it from all
other

organizations.

Blau

and

Scott5 classify

organizations into four categories using the criterion
of cui bono—who benefits:

1. Organisations which benefit their owners.
business organizations fall in this category.

All

2. Organisations which benefit their members. A wide
class of unions, cooperatives and clubs come under
this category.
3. Organisations which benefit their clients. Examples
are insurance companies, private schools, etc.
4. Organisations which benefit the whole society
(commonwealth
organizations)
such
as
governmental departments.

Consideration of Objectives

The first step in organizing is to know the objectives
of the enterprise. Objectives determine the various
activities which need to be performed and the type of
organization which needs to be built for this purpose.
Consideration of objectives is the first step in the
process of organizing.

A

Grouping of Activities into
Departments

B

C

The next step is to identify the activities necessary to
achieve them and to group the closely related and
similar activities into departments and sections. For
example, the activities of a manufacturing concern may
be grouped into such departments as production,
marketing, financing and personnel.

Deciding which Departments
will be Key Departments
Which department needs to be emphasised how much
will depend, of course, on the company’s objectives and
the way it seeks to be distinctive.

For example, a

company which believes that advertising is a primary
key to success will set up a separate advertising
department that reports directly to the president. But

another

company

which

considers

it

much

less

important may only create a separate section for it under
its sales department.

Determining Levels at which Various Types of
Decisions are to be Made
After deciding the relative importance of various departments,
the levels at which various major and minor decisions are to be

made must be determined. Each firm must decide for itself as to
how much decentralization of authority and responsibility it
wants to have. Extreme decentralization may lead to loss of

control and effective coordination as a result of which the firm as
a whole may fail to achieve its overall objectives.

Extreme

centralization, on the other hand, may lead to wrong decisions at

wrong times and complete breakdown of the morale of
employees.

Determining the Span of Management
The next step to be taken in designing a structure is
to determine the number of subordinates who
should report directly to each executive.

Setting up a Coordination Mechanism

First of all comes activities analysis. A thorough and
careful activities analysis clarifies as to what work has

to be performed, what kinds of work belong together,
and what emphasis each activity is to be given in the

organization structure.

Next

comes

decision

analysis.

Although

it

is

impossible for anyone to anticipate the contents of
future decisions, one can predict their kinds and
decide their places so that when they rise in future.
Finally, an analysis should be made of the various
relationships between the tasks of a manager and

those of his subordinates, peers and superiors.

SPAN OF MANAGEMENT
Meaning and Importance :
The term “span of management” is also referred to as
span of control, span of supervision, span of authority
or span of responsibility.

It indicates the number of

subordinates who report directly to a manager.

Span of management is important for two reasons.
• First, span of management affects the efficient

utilization of managers and the effective performance
of their subordinates.

• Second, there is a relationship between span of
management and organisational structure.

PRINCIPLES OF ORGANISING
• Objectives : The objectives of the enterprise influence

the organization structure and hence the objectives of
the enterprise should first be clearly defined. Then
every part of the organization should be geared to the
achievement of these objectives.

• Specialisation Effective organization must promote
specialization. The activities of the enterprise should be
divided according to functions and assigned to persons

according to their specialization.
• Span of Control As there is a limit to the number of
persons that can be supervised effectively by one boss,
the span of control should be as far as possible, the
minimum. That means, an executive should be asked to
supervise a reasonable number of subordinates only
say six.

• Exception As the executives at the higher levels have
limited time, only exceptionally complex problems
should be referred to them and routine matters should
be dealt with by the subordinates at lower levels. This
will enable the executives at higher levels to devote time
to more important and crucial issues.
• Scalar Principle This principle is sometimes known as
the “chain of command”. The line of authority from the

chief executive at the top to the first-line supervisor at
the bottom must be clearly defined.

• Unity of Command Each subordinate should have only
one superior whose command he has to obey. Dual
subordination

must

be

avoided,

for

it

causes

uneasiness, disorder, indiscipline and undermining of
authority.
• Delegation Proper authority should be delegated at the

lower levels of organization also.

The authority

delegated should be equal to responsibility, i.e. each
manager should have enough authority to accomplish

the task assigned to him.

• Responsibility The superior should be held responsible
for the acts of his subordinates. No superior should be
allowed to avoid responsibility by delegating authority
to his subordinates.
• Authority The authority is the tool by which a manager is
able to accomplish the desired objective.

Hence, the

authority of each manager must be clearly defined.
Further, the authority should be equal to responsibility.
• Efficiency The organization structure should enable the
enterprise to function efficiently and accomplish its
objectives with the lowest possible cost.

• Simplicity The organization structure should be as

simple as possible and the organization levels should,
as far as possible, be minimum. A large number of
levels of organization means difficulty of effective

communication and coordination.
• Flexibility The organization should be flexible, should

be adaptable to changing circumstances and permit
expansion and replacement without dislocation and
disruption of the basic design.

• Balance There should be a reasonable balance in the
size of various departments, between centralization
and decentralization, between the principle of span of

control and the short chain of command, and among
all types of factors such as human, technical and
financial.
• Unity of Direction There should be one objective and
one plan for a group of activities having the same
objective. Unity of direction facilitates unification and
coordination of activities at various levels.

• Personal Ability As people constitute an organization,
there is need for proper selection, placement and

training of staff.

Further, the organization structure

must ensure optimum use of human resources and
encourage management development programmes.

DEPARTMENTALISATION
Departmentalisation is one important step of building an
organization.

The aim is to take advantage of the

division of labour and specialization upto a certain limit.

There are several bases for departmentalization, each of
which

is

suitable

for

strategies and purposes.

particular

corporate

sizes,

Functions
By

far

the

most

widely

used

base

for

departmentalization is function. Each major function

of the enterprise is grouped into a department.

Advantages
• Everybody in this form of organization understands his own task
and feels highly secure both in his work and in his relationships.

•It promotes excellence in performance because of development of
expertise through specialization.
•It leads to improved planning and control of the key functions.
•It ensures economy, there is only one department related to one
function for the entire function. Manpower and other resources of
the company are effectively utilized by time-sharing them across
products or projects.

Drawbacks
• It fosters sub-goal loyalties. It is difficult for any one
to understand the task of the whole and to relate his
own work to it.
• It does not offer a good training ground for the overall
development of a manager.

• It is unsuitable for organizations which are large in
size, complexity or innovative scope.

• In

this

form

customer

needs

evoke

conflicting

interpretations like the story of twelve blind people and

the elephant.
• In this form procedures are overly complicated,
wasteful and time-consuming—a weakness sometimes
called as “organizational arthritis”.

The structure is

rigid and resists adaptation.

• In this form because of “common pot” accounting it is
difficult to judge whether the activities of a particular
department are worth their cost.

Products
Under this method, for each major product, a separate
semi-autonomous department is created and is put

under the charge of a manager who may also be made
responsible for producing a profit of a given magnitude.
Within each department, all the needed manufacturing,

engineering, marketing, manpower and other facilities
are

assembled.

detergents,
products),

Hindustan

toiletries,

Lever

chemicals

(manufacturing

and

agro-based

Richardson Hindustan (manufacturing a range of Vicks
products, Clearasil cream and soap), and Johnson and
Johnson (manufacturing a range of products for

children and surgical sutures) have product-based
departments

Advantages
• This form relieves top management of operating task
responsibility. It can therefore better concentrate on such
centralized activities like finance, R&D and control.

• This form enables top management to compare the
performance

of

different

products

and

invest

more

resources in profitable products and withdraw resources

from unprofitable ones.

•

In this form, since the responsibility for each product’s
performance is entrusted to a particular departmental head,
he is better stimulated for improving his performance.

•

In this form, those who work within a department derive

greater satisfaction from identification with a recognizable
goal.

Customers
An enterprise may be divided into a number of departments on
the basis of the customers that it services. For example, an
electronics firm may have separate departments for military,
industrial and consumer customers.

A big automobile

servicing enterprise may have separate departments for
servicing cars, heavy vehicles and scooters or an educational
institution may have separate departments for day, evening
and correspondence courses to impart education to full-time
students, locally employed students and outstation students.

Regions or Territory
When

several

organization

production

are

or

marketing

geographically

units

dispersed

in

of

an

various

locations, it is logical to departmentalize those units on a
geographical

basis.

The

Indian

Railways

are

departmentalized on this basis. Northern Railways, Western
Railways, Southern Railways, Eastern Railways, Central
Railways, etc. are departments in this sense.

The Food

Corporation of India has also geographical organization with
several zonal offices at different places and a head office in
New Delhi.

Advantages
• It motivates each regional head to achieve high performance.
• It provides each regional head an opportunity to adapt to his
local situation and customer need with speed and accuracy.
• It affords valuable top-management training and experience
to middle-level executives.
• It enables the organization to take advantage of locational
factors, such as availability of raw materials, labour, market,
etc.
• It enables the organization to compare regional performances
and invest more resources in profitable regions and withdraw
resources from unprofitable ones.

(Functional Departmentalisation)
General Manager
Fig. 7.3 A typical matrix organization

Contract
Administration

R&D
(Pr
od
uc
t
De
pa
rt
m
en
tal
isa
tio
n)

A
Project
Manager

R &D
Group

Contract
Admn. Group

Engineering
Group
Engg.
Group

Mfg.
Group
Mfg.
Group

A

Project
Manager

B
Project
Manager

C

R&D
Group

R&D
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group


Slide 23

ORGANISATI
ON

An organization is the pattern of ways in which
large numbers of people, too many to have
intimate face to face contact with all others, and
engaged

in

a

complexity

of

tasks,

relate

themselves to each other in the conscious,
systematic establishment and accomplishment
of mutually agreed purposes.

In terms of all the above definitions, corporations,

armies, schools, hospitals, churches, prisons, etc.
all are organizations.

But tribes, ethnic and friendship groups and
families are not organizations because they do not

involve

any

significant

amount

of

conscious

planning, coordination or deliberate structuring.

1.

A purpose, goal or
goals which has
already indicated in
a previous chapter
are the task of
planning.

2.

A clear concept of
the major duties
or activities
required to
achiever the
purpose.

Characteristics

of
an Organisation

3. Classification of
activities into jobs

4. Establishment of
relationships
between
these jobs.

Typology of Organisations
All organizations appear alike.

But this is not so.

Every organization has certain unique combination of
the above characteristics which distinguish it from all
other

organizations.

Blau

and

Scott5 classify

organizations into four categories using the criterion
of cui bono—who benefits:

1. Organisations which benefit their owners.
business organizations fall in this category.

All

2. Organisations which benefit their members. A wide
class of unions, cooperatives and clubs come under
this category.
3. Organisations which benefit their clients. Examples
are insurance companies, private schools, etc.
4. Organisations which benefit the whole society
(commonwealth
organizations)
such
as
governmental departments.

Consideration of Objectives

The first step in organizing is to know the objectives
of the enterprise. Objectives determine the various
activities which need to be performed and the type of
organization which needs to be built for this purpose.
Consideration of objectives is the first step in the
process of organizing.

A

Grouping of Activities into
Departments

B

C

The next step is to identify the activities necessary to
achieve them and to group the closely related and
similar activities into departments and sections. For
example, the activities of a manufacturing concern may
be grouped into such departments as production,
marketing, financing and personnel.

Deciding which Departments
will be Key Departments
Which department needs to be emphasised how much
will depend, of course, on the company’s objectives and
the way it seeks to be distinctive.

For example, a

company which believes that advertising is a primary
key to success will set up a separate advertising
department that reports directly to the president. But

another

company

which

considers

it

much

less

important may only create a separate section for it under
its sales department.

Determining Levels at which Various Types of
Decisions are to be Made
After deciding the relative importance of various departments,
the levels at which various major and minor decisions are to be

made must be determined. Each firm must decide for itself as to
how much decentralization of authority and responsibility it
wants to have. Extreme decentralization may lead to loss of

control and effective coordination as a result of which the firm as
a whole may fail to achieve its overall objectives.

Extreme

centralization, on the other hand, may lead to wrong decisions at

wrong times and complete breakdown of the morale of
employees.

Determining the Span of Management
The next step to be taken in designing a structure is
to determine the number of subordinates who
should report directly to each executive.

Setting up a Coordination Mechanism

First of all comes activities analysis. A thorough and
careful activities analysis clarifies as to what work has

to be performed, what kinds of work belong together,
and what emphasis each activity is to be given in the

organization structure.

Next

comes

decision

analysis.

Although

it

is

impossible for anyone to anticipate the contents of
future decisions, one can predict their kinds and
decide their places so that when they rise in future.
Finally, an analysis should be made of the various
relationships between the tasks of a manager and

those of his subordinates, peers and superiors.

SPAN OF MANAGEMENT
Meaning and Importance :
The term “span of management” is also referred to as
span of control, span of supervision, span of authority
or span of responsibility.

It indicates the number of

subordinates who report directly to a manager.

Span of management is important for two reasons.
• First, span of management affects the efficient

utilization of managers and the effective performance
of their subordinates.

• Second, there is a relationship between span of
management and organisational structure.

PRINCIPLES OF ORGANISING
• Objectives : The objectives of the enterprise influence

the organization structure and hence the objectives of
the enterprise should first be clearly defined. Then
every part of the organization should be geared to the
achievement of these objectives.

• Specialisation Effective organization must promote
specialization. The activities of the enterprise should be
divided according to functions and assigned to persons

according to their specialization.
• Span of Control As there is a limit to the number of
persons that can be supervised effectively by one boss,
the span of control should be as far as possible, the
minimum. That means, an executive should be asked to
supervise a reasonable number of subordinates only
say six.

• Exception As the executives at the higher levels have
limited time, only exceptionally complex problems
should be referred to them and routine matters should
be dealt with by the subordinates at lower levels. This
will enable the executives at higher levels to devote time
to more important and crucial issues.
• Scalar Principle This principle is sometimes known as
the “chain of command”. The line of authority from the

chief executive at the top to the first-line supervisor at
the bottom must be clearly defined.

• Unity of Command Each subordinate should have only
one superior whose command he has to obey. Dual
subordination

must

be

avoided,

for

it

causes

uneasiness, disorder, indiscipline and undermining of
authority.
• Delegation Proper authority should be delegated at the

lower levels of organization also.

The authority

delegated should be equal to responsibility, i.e. each
manager should have enough authority to accomplish

the task assigned to him.

• Responsibility The superior should be held responsible
for the acts of his subordinates. No superior should be
allowed to avoid responsibility by delegating authority
to his subordinates.
• Authority The authority is the tool by which a manager is
able to accomplish the desired objective.

Hence, the

authority of each manager must be clearly defined.
Further, the authority should be equal to responsibility.
• Efficiency The organization structure should enable the
enterprise to function efficiently and accomplish its
objectives with the lowest possible cost.

• Simplicity The organization structure should be as

simple as possible and the organization levels should,
as far as possible, be minimum. A large number of
levels of organization means difficulty of effective

communication and coordination.
• Flexibility The organization should be flexible, should

be adaptable to changing circumstances and permit
expansion and replacement without dislocation and
disruption of the basic design.

• Balance There should be a reasonable balance in the
size of various departments, between centralization
and decentralization, between the principle of span of

control and the short chain of command, and among
all types of factors such as human, technical and
financial.
• Unity of Direction There should be one objective and
one plan for a group of activities having the same
objective. Unity of direction facilitates unification and
coordination of activities at various levels.

• Personal Ability As people constitute an organization,
there is need for proper selection, placement and

training of staff.

Further, the organization structure

must ensure optimum use of human resources and
encourage management development programmes.

DEPARTMENTALISATION
Departmentalisation is one important step of building an
organization.

The aim is to take advantage of the

division of labour and specialization upto a certain limit.

There are several bases for departmentalization, each of
which

is

suitable

for

strategies and purposes.

particular

corporate

sizes,

Functions
By

far

the

most

widely

used

base

for

departmentalization is function. Each major function

of the enterprise is grouped into a department.

Advantages
• Everybody in this form of organization understands his own task
and feels highly secure both in his work and in his relationships.

•It promotes excellence in performance because of development of
expertise through specialization.
•It leads to improved planning and control of the key functions.
•It ensures economy, there is only one department related to one
function for the entire function. Manpower and other resources of
the company are effectively utilized by time-sharing them across
products or projects.

Drawbacks
• It fosters sub-goal loyalties. It is difficult for any one
to understand the task of the whole and to relate his
own work to it.
• It does not offer a good training ground for the overall
development of a manager.

• It is unsuitable for organizations which are large in
size, complexity or innovative scope.

• In

this

form

customer

needs

evoke

conflicting

interpretations like the story of twelve blind people and

the elephant.
• In this form procedures are overly complicated,
wasteful and time-consuming—a weakness sometimes
called as “organizational arthritis”.

The structure is

rigid and resists adaptation.

• In this form because of “common pot” accounting it is
difficult to judge whether the activities of a particular
department are worth their cost.

Products
Under this method, for each major product, a separate
semi-autonomous department is created and is put

under the charge of a manager who may also be made
responsible for producing a profit of a given magnitude.
Within each department, all the needed manufacturing,

engineering, marketing, manpower and other facilities
are

assembled.

detergents,
products),

Hindustan

toiletries,

Lever

chemicals

(manufacturing

and

agro-based

Richardson Hindustan (manufacturing a range of Vicks
products, Clearasil cream and soap), and Johnson and
Johnson (manufacturing a range of products for

children and surgical sutures) have product-based
departments

Advantages
• This form relieves top management of operating task
responsibility. It can therefore better concentrate on such
centralized activities like finance, R&D and control.

• This form enables top management to compare the
performance

of

different

products

and

invest

more

resources in profitable products and withdraw resources

from unprofitable ones.

•

In this form, since the responsibility for each product’s
performance is entrusted to a particular departmental head,
he is better stimulated for improving his performance.

•

In this form, those who work within a department derive

greater satisfaction from identification with a recognizable
goal.

Customers
An enterprise may be divided into a number of departments on
the basis of the customers that it services. For example, an
electronics firm may have separate departments for military,
industrial and consumer customers.

A big automobile

servicing enterprise may have separate departments for
servicing cars, heavy vehicles and scooters or an educational
institution may have separate departments for day, evening
and correspondence courses to impart education to full-time
students, locally employed students and outstation students.

Regions or Territory
When

several

organization

production

are

or

marketing

geographically

units

dispersed

in

of

an

various

locations, it is logical to departmentalize those units on a
geographical

basis.

The

Indian

Railways

are

departmentalized on this basis. Northern Railways, Western
Railways, Southern Railways, Eastern Railways, Central
Railways, etc. are departments in this sense.

The Food

Corporation of India has also geographical organization with
several zonal offices at different places and a head office in
New Delhi.

Advantages
• It motivates each regional head to achieve high performance.
• It provides each regional head an opportunity to adapt to his
local situation and customer need with speed and accuracy.
• It affords valuable top-management training and experience
to middle-level executives.
• It enables the organization to take advantage of locational
factors, such as availability of raw materials, labour, market,
etc.
• It enables the organization to compare regional performances
and invest more resources in profitable regions and withdraw
resources from unprofitable ones.

(Functional Departmentalisation)
General Manager
Fig. 7.3 A typical matrix organization

Contract
Administration

R&D
(Pr
od
uc
t
De
pa
rt
m
en
tal
isa
tio
n)

A
Project
Manager

R &D
Group

Contract
Admn. Group

Engineering
Group
Engg.
Group

Mfg.
Group
Mfg.
Group

A

Project
Manager

B
Project
Manager

C

R&D
Group

R&D
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group


Slide 24

ORGANISATI
ON

An organization is the pattern of ways in which
large numbers of people, too many to have
intimate face to face contact with all others, and
engaged

in

a

complexity

of

tasks,

relate

themselves to each other in the conscious,
systematic establishment and accomplishment
of mutually agreed purposes.

In terms of all the above definitions, corporations,

armies, schools, hospitals, churches, prisons, etc.
all are organizations.

But tribes, ethnic and friendship groups and
families are not organizations because they do not

involve

any

significant

amount

of

conscious

planning, coordination or deliberate structuring.

1.

A purpose, goal or
goals which has
already indicated in
a previous chapter
are the task of
planning.

2.

A clear concept of
the major duties
or activities
required to
achiever the
purpose.

Characteristics

of
an Organisation

3. Classification of
activities into jobs

4. Establishment of
relationships
between
these jobs.

Typology of Organisations
All organizations appear alike.

But this is not so.

Every organization has certain unique combination of
the above characteristics which distinguish it from all
other

organizations.

Blau

and

Scott5 classify

organizations into four categories using the criterion
of cui bono—who benefits:

1. Organisations which benefit their owners.
business organizations fall in this category.

All

2. Organisations which benefit their members. A wide
class of unions, cooperatives and clubs come under
this category.
3. Organisations which benefit their clients. Examples
are insurance companies, private schools, etc.
4. Organisations which benefit the whole society
(commonwealth
organizations)
such
as
governmental departments.

Consideration of Objectives

The first step in organizing is to know the objectives
of the enterprise. Objectives determine the various
activities which need to be performed and the type of
organization which needs to be built for this purpose.
Consideration of objectives is the first step in the
process of organizing.

A

Grouping of Activities into
Departments

B

C

The next step is to identify the activities necessary to
achieve them and to group the closely related and
similar activities into departments and sections. For
example, the activities of a manufacturing concern may
be grouped into such departments as production,
marketing, financing and personnel.

Deciding which Departments
will be Key Departments
Which department needs to be emphasised how much
will depend, of course, on the company’s objectives and
the way it seeks to be distinctive.

For example, a

company which believes that advertising is a primary
key to success will set up a separate advertising
department that reports directly to the president. But

another

company

which

considers

it

much

less

important may only create a separate section for it under
its sales department.

Determining Levels at which Various Types of
Decisions are to be Made
After deciding the relative importance of various departments,
the levels at which various major and minor decisions are to be

made must be determined. Each firm must decide for itself as to
how much decentralization of authority and responsibility it
wants to have. Extreme decentralization may lead to loss of

control and effective coordination as a result of which the firm as
a whole may fail to achieve its overall objectives.

Extreme

centralization, on the other hand, may lead to wrong decisions at

wrong times and complete breakdown of the morale of
employees.

Determining the Span of Management
The next step to be taken in designing a structure is
to determine the number of subordinates who
should report directly to each executive.

Setting up a Coordination Mechanism

First of all comes activities analysis. A thorough and
careful activities analysis clarifies as to what work has

to be performed, what kinds of work belong together,
and what emphasis each activity is to be given in the

organization structure.

Next

comes

decision

analysis.

Although

it

is

impossible for anyone to anticipate the contents of
future decisions, one can predict their kinds and
decide their places so that when they rise in future.
Finally, an analysis should be made of the various
relationships between the tasks of a manager and

those of his subordinates, peers and superiors.

SPAN OF MANAGEMENT
Meaning and Importance :
The term “span of management” is also referred to as
span of control, span of supervision, span of authority
or span of responsibility.

It indicates the number of

subordinates who report directly to a manager.

Span of management is important for two reasons.
• First, span of management affects the efficient

utilization of managers and the effective performance
of their subordinates.

• Second, there is a relationship between span of
management and organisational structure.

PRINCIPLES OF ORGANISING
• Objectives : The objectives of the enterprise influence

the organization structure and hence the objectives of
the enterprise should first be clearly defined. Then
every part of the organization should be geared to the
achievement of these objectives.

• Specialisation Effective organization must promote
specialization. The activities of the enterprise should be
divided according to functions and assigned to persons

according to their specialization.
• Span of Control As there is a limit to the number of
persons that can be supervised effectively by one boss,
the span of control should be as far as possible, the
minimum. That means, an executive should be asked to
supervise a reasonable number of subordinates only
say six.

• Exception As the executives at the higher levels have
limited time, only exceptionally complex problems
should be referred to them and routine matters should
be dealt with by the subordinates at lower levels. This
will enable the executives at higher levels to devote time
to more important and crucial issues.
• Scalar Principle This principle is sometimes known as
the “chain of command”. The line of authority from the

chief executive at the top to the first-line supervisor at
the bottom must be clearly defined.

• Unity of Command Each subordinate should have only
one superior whose command he has to obey. Dual
subordination

must

be

avoided,

for

it

causes

uneasiness, disorder, indiscipline and undermining of
authority.
• Delegation Proper authority should be delegated at the

lower levels of organization also.

The authority

delegated should be equal to responsibility, i.e. each
manager should have enough authority to accomplish

the task assigned to him.

• Responsibility The superior should be held responsible
for the acts of his subordinates. No superior should be
allowed to avoid responsibility by delegating authority
to his subordinates.
• Authority The authority is the tool by which a manager is
able to accomplish the desired objective.

Hence, the

authority of each manager must be clearly defined.
Further, the authority should be equal to responsibility.
• Efficiency The organization structure should enable the
enterprise to function efficiently and accomplish its
objectives with the lowest possible cost.

• Simplicity The organization structure should be as

simple as possible and the organization levels should,
as far as possible, be minimum. A large number of
levels of organization means difficulty of effective

communication and coordination.
• Flexibility The organization should be flexible, should

be adaptable to changing circumstances and permit
expansion and replacement without dislocation and
disruption of the basic design.

• Balance There should be a reasonable balance in the
size of various departments, between centralization
and decentralization, between the principle of span of

control and the short chain of command, and among
all types of factors such as human, technical and
financial.
• Unity of Direction There should be one objective and
one plan for a group of activities having the same
objective. Unity of direction facilitates unification and
coordination of activities at various levels.

• Personal Ability As people constitute an organization,
there is need for proper selection, placement and

training of staff.

Further, the organization structure

must ensure optimum use of human resources and
encourage management development programmes.

DEPARTMENTALISATION
Departmentalisation is one important step of building an
organization.

The aim is to take advantage of the

division of labour and specialization upto a certain limit.

There are several bases for departmentalization, each of
which

is

suitable

for

strategies and purposes.

particular

corporate

sizes,

Functions
By

far

the

most

widely

used

base

for

departmentalization is function. Each major function

of the enterprise is grouped into a department.

Advantages
• Everybody in this form of organization understands his own task
and feels highly secure both in his work and in his relationships.

•It promotes excellence in performance because of development of
expertise through specialization.
•It leads to improved planning and control of the key functions.
•It ensures economy, there is only one department related to one
function for the entire function. Manpower and other resources of
the company are effectively utilized by time-sharing them across
products or projects.

Drawbacks
• It fosters sub-goal loyalties. It is difficult for any one
to understand the task of the whole and to relate his
own work to it.
• It does not offer a good training ground for the overall
development of a manager.

• It is unsuitable for organizations which are large in
size, complexity or innovative scope.

• In

this

form

customer

needs

evoke

conflicting

interpretations like the story of twelve blind people and

the elephant.
• In this form procedures are overly complicated,
wasteful and time-consuming—a weakness sometimes
called as “organizational arthritis”.

The structure is

rigid and resists adaptation.

• In this form because of “common pot” accounting it is
difficult to judge whether the activities of a particular
department are worth their cost.

Products
Under this method, for each major product, a separate
semi-autonomous department is created and is put

under the charge of a manager who may also be made
responsible for producing a profit of a given magnitude.
Within each department, all the needed manufacturing,

engineering, marketing, manpower and other facilities
are

assembled.

detergents,
products),

Hindustan

toiletries,

Lever

chemicals

(manufacturing

and

agro-based

Richardson Hindustan (manufacturing a range of Vicks
products, Clearasil cream and soap), and Johnson and
Johnson (manufacturing a range of products for

children and surgical sutures) have product-based
departments

Advantages
• This form relieves top management of operating task
responsibility. It can therefore better concentrate on such
centralized activities like finance, R&D and control.

• This form enables top management to compare the
performance

of

different

products

and

invest

more

resources in profitable products and withdraw resources

from unprofitable ones.

•

In this form, since the responsibility for each product’s
performance is entrusted to a particular departmental head,
he is better stimulated for improving his performance.

•

In this form, those who work within a department derive

greater satisfaction from identification with a recognizable
goal.

Customers
An enterprise may be divided into a number of departments on
the basis of the customers that it services. For example, an
electronics firm may have separate departments for military,
industrial and consumer customers.

A big automobile

servicing enterprise may have separate departments for
servicing cars, heavy vehicles and scooters or an educational
institution may have separate departments for day, evening
and correspondence courses to impart education to full-time
students, locally employed students and outstation students.

Regions or Territory
When

several

organization

production

are

or

marketing

geographically

units

dispersed

in

of

an

various

locations, it is logical to departmentalize those units on a
geographical

basis.

The

Indian

Railways

are

departmentalized on this basis. Northern Railways, Western
Railways, Southern Railways, Eastern Railways, Central
Railways, etc. are departments in this sense.

The Food

Corporation of India has also geographical organization with
several zonal offices at different places and a head office in
New Delhi.

Advantages
• It motivates each regional head to achieve high performance.
• It provides each regional head an opportunity to adapt to his
local situation and customer need with speed and accuracy.
• It affords valuable top-management training and experience
to middle-level executives.
• It enables the organization to take advantage of locational
factors, such as availability of raw materials, labour, market,
etc.
• It enables the organization to compare regional performances
and invest more resources in profitable regions and withdraw
resources from unprofitable ones.

(Functional Departmentalisation)
General Manager
Fig. 7.3 A typical matrix organization

Contract
Administration

R&D
(Pr
od
uc
t
De
pa
rt
m
en
tal
isa
tio
n)

A
Project
Manager

R &D
Group

Contract
Admn. Group

Engineering
Group
Engg.
Group

Mfg.
Group
Mfg.
Group

A

Project
Manager

B
Project
Manager

C

R&D
Group

R&D
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group


Slide 25

ORGANISATI
ON

An organization is the pattern of ways in which
large numbers of people, too many to have
intimate face to face contact with all others, and
engaged

in

a

complexity

of

tasks,

relate

themselves to each other in the conscious,
systematic establishment and accomplishment
of mutually agreed purposes.

In terms of all the above definitions, corporations,

armies, schools, hospitals, churches, prisons, etc.
all are organizations.

But tribes, ethnic and friendship groups and
families are not organizations because they do not

involve

any

significant

amount

of

conscious

planning, coordination or deliberate structuring.

1.

A purpose, goal or
goals which has
already indicated in
a previous chapter
are the task of
planning.

2.

A clear concept of
the major duties
or activities
required to
achiever the
purpose.

Characteristics

of
an Organisation

3. Classification of
activities into jobs

4. Establishment of
relationships
between
these jobs.

Typology of Organisations
All organizations appear alike.

But this is not so.

Every organization has certain unique combination of
the above characteristics which distinguish it from all
other

organizations.

Blau

and

Scott5 classify

organizations into four categories using the criterion
of cui bono—who benefits:

1. Organisations which benefit their owners.
business organizations fall in this category.

All

2. Organisations which benefit their members. A wide
class of unions, cooperatives and clubs come under
this category.
3. Organisations which benefit their clients. Examples
are insurance companies, private schools, etc.
4. Organisations which benefit the whole society
(commonwealth
organizations)
such
as
governmental departments.

Consideration of Objectives

The first step in organizing is to know the objectives
of the enterprise. Objectives determine the various
activities which need to be performed and the type of
organization which needs to be built for this purpose.
Consideration of objectives is the first step in the
process of organizing.

A

Grouping of Activities into
Departments

B

C

The next step is to identify the activities necessary to
achieve them and to group the closely related and
similar activities into departments and sections. For
example, the activities of a manufacturing concern may
be grouped into such departments as production,
marketing, financing and personnel.

Deciding which Departments
will be Key Departments
Which department needs to be emphasised how much
will depend, of course, on the company’s objectives and
the way it seeks to be distinctive.

For example, a

company which believes that advertising is a primary
key to success will set up a separate advertising
department that reports directly to the president. But

another

company

which

considers

it

much

less

important may only create a separate section for it under
its sales department.

Determining Levels at which Various Types of
Decisions are to be Made
After deciding the relative importance of various departments,
the levels at which various major and minor decisions are to be

made must be determined. Each firm must decide for itself as to
how much decentralization of authority and responsibility it
wants to have. Extreme decentralization may lead to loss of

control and effective coordination as a result of which the firm as
a whole may fail to achieve its overall objectives.

Extreme

centralization, on the other hand, may lead to wrong decisions at

wrong times and complete breakdown of the morale of
employees.

Determining the Span of Management
The next step to be taken in designing a structure is
to determine the number of subordinates who
should report directly to each executive.

Setting up a Coordination Mechanism

First of all comes activities analysis. A thorough and
careful activities analysis clarifies as to what work has

to be performed, what kinds of work belong together,
and what emphasis each activity is to be given in the

organization structure.

Next

comes

decision

analysis.

Although

it

is

impossible for anyone to anticipate the contents of
future decisions, one can predict their kinds and
decide their places so that when they rise in future.
Finally, an analysis should be made of the various
relationships between the tasks of a manager and

those of his subordinates, peers and superiors.

SPAN OF MANAGEMENT
Meaning and Importance :
The term “span of management” is also referred to as
span of control, span of supervision, span of authority
or span of responsibility.

It indicates the number of

subordinates who report directly to a manager.

Span of management is important for two reasons.
• First, span of management affects the efficient

utilization of managers and the effective performance
of their subordinates.

• Second, there is a relationship between span of
management and organisational structure.

PRINCIPLES OF ORGANISING
• Objectives : The objectives of the enterprise influence

the organization structure and hence the objectives of
the enterprise should first be clearly defined. Then
every part of the organization should be geared to the
achievement of these objectives.

• Specialisation Effective organization must promote
specialization. The activities of the enterprise should be
divided according to functions and assigned to persons

according to their specialization.
• Span of Control As there is a limit to the number of
persons that can be supervised effectively by one boss,
the span of control should be as far as possible, the
minimum. That means, an executive should be asked to
supervise a reasonable number of subordinates only
say six.

• Exception As the executives at the higher levels have
limited time, only exceptionally complex problems
should be referred to them and routine matters should
be dealt with by the subordinates at lower levels. This
will enable the executives at higher levels to devote time
to more important and crucial issues.
• Scalar Principle This principle is sometimes known as
the “chain of command”. The line of authority from the

chief executive at the top to the first-line supervisor at
the bottom must be clearly defined.

• Unity of Command Each subordinate should have only
one superior whose command he has to obey. Dual
subordination

must

be

avoided,

for

it

causes

uneasiness, disorder, indiscipline and undermining of
authority.
• Delegation Proper authority should be delegated at the

lower levels of organization also.

The authority

delegated should be equal to responsibility, i.e. each
manager should have enough authority to accomplish

the task assigned to him.

• Responsibility The superior should be held responsible
for the acts of his subordinates. No superior should be
allowed to avoid responsibility by delegating authority
to his subordinates.
• Authority The authority is the tool by which a manager is
able to accomplish the desired objective.

Hence, the

authority of each manager must be clearly defined.
Further, the authority should be equal to responsibility.
• Efficiency The organization structure should enable the
enterprise to function efficiently and accomplish its
objectives with the lowest possible cost.

• Simplicity The organization structure should be as

simple as possible and the organization levels should,
as far as possible, be minimum. A large number of
levels of organization means difficulty of effective

communication and coordination.
• Flexibility The organization should be flexible, should

be adaptable to changing circumstances and permit
expansion and replacement without dislocation and
disruption of the basic design.

• Balance There should be a reasonable balance in the
size of various departments, between centralization
and decentralization, between the principle of span of

control and the short chain of command, and among
all types of factors such as human, technical and
financial.
• Unity of Direction There should be one objective and
one plan for a group of activities having the same
objective. Unity of direction facilitates unification and
coordination of activities at various levels.

• Personal Ability As people constitute an organization,
there is need for proper selection, placement and

training of staff.

Further, the organization structure

must ensure optimum use of human resources and
encourage management development programmes.

DEPARTMENTALISATION
Departmentalisation is one important step of building an
organization.

The aim is to take advantage of the

division of labour and specialization upto a certain limit.

There are several bases for departmentalization, each of
which

is

suitable

for

strategies and purposes.

particular

corporate

sizes,

Functions
By

far

the

most

widely

used

base

for

departmentalization is function. Each major function

of the enterprise is grouped into a department.

Advantages
• Everybody in this form of organization understands his own task
and feels highly secure both in his work and in his relationships.

•It promotes excellence in performance because of development of
expertise through specialization.
•It leads to improved planning and control of the key functions.
•It ensures economy, there is only one department related to one
function for the entire function. Manpower and other resources of
the company are effectively utilized by time-sharing them across
products or projects.

Drawbacks
• It fosters sub-goal loyalties. It is difficult for any one
to understand the task of the whole and to relate his
own work to it.
• It does not offer a good training ground for the overall
development of a manager.

• It is unsuitable for organizations which are large in
size, complexity or innovative scope.

• In

this

form

customer

needs

evoke

conflicting

interpretations like the story of twelve blind people and

the elephant.
• In this form procedures are overly complicated,
wasteful and time-consuming—a weakness sometimes
called as “organizational arthritis”.

The structure is

rigid and resists adaptation.

• In this form because of “common pot” accounting it is
difficult to judge whether the activities of a particular
department are worth their cost.

Products
Under this method, for each major product, a separate
semi-autonomous department is created and is put

under the charge of a manager who may also be made
responsible for producing a profit of a given magnitude.
Within each department, all the needed manufacturing,

engineering, marketing, manpower and other facilities
are

assembled.

detergents,
products),

Hindustan

toiletries,

Lever

chemicals

(manufacturing

and

agro-based

Richardson Hindustan (manufacturing a range of Vicks
products, Clearasil cream and soap), and Johnson and
Johnson (manufacturing a range of products for

children and surgical sutures) have product-based
departments

Advantages
• This form relieves top management of operating task
responsibility. It can therefore better concentrate on such
centralized activities like finance, R&D and control.

• This form enables top management to compare the
performance

of

different

products

and

invest

more

resources in profitable products and withdraw resources

from unprofitable ones.

•

In this form, since the responsibility for each product’s
performance is entrusted to a particular departmental head,
he is better stimulated for improving his performance.

•

In this form, those who work within a department derive

greater satisfaction from identification with a recognizable
goal.

Customers
An enterprise may be divided into a number of departments on
the basis of the customers that it services. For example, an
electronics firm may have separate departments for military,
industrial and consumer customers.

A big automobile

servicing enterprise may have separate departments for
servicing cars, heavy vehicles and scooters or an educational
institution may have separate departments for day, evening
and correspondence courses to impart education to full-time
students, locally employed students and outstation students.

Regions or Territory
When

several

organization

production

are

or

marketing

geographically

units

dispersed

in

of

an

various

locations, it is logical to departmentalize those units on a
geographical

basis.

The

Indian

Railways

are

departmentalized on this basis. Northern Railways, Western
Railways, Southern Railways, Eastern Railways, Central
Railways, etc. are departments in this sense.

The Food

Corporation of India has also geographical organization with
several zonal offices at different places and a head office in
New Delhi.

Advantages
• It motivates each regional head to achieve high performance.
• It provides each regional head an opportunity to adapt to his
local situation and customer need with speed and accuracy.
• It affords valuable top-management training and experience
to middle-level executives.
• It enables the organization to take advantage of locational
factors, such as availability of raw materials, labour, market,
etc.
• It enables the organization to compare regional performances
and invest more resources in profitable regions and withdraw
resources from unprofitable ones.

(Functional Departmentalisation)
General Manager
Fig. 7.3 A typical matrix organization

Contract
Administration

R&D
(Pr
od
uc
t
De
pa
rt
m
en
tal
isa
tio
n)

A
Project
Manager

R &D
Group

Contract
Admn. Group

Engineering
Group
Engg.
Group

Mfg.
Group
Mfg.
Group

A

Project
Manager

B
Project
Manager

C

R&D
Group

R&D
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group


Slide 26

ORGANISATI
ON

An organization is the pattern of ways in which
large numbers of people, too many to have
intimate face to face contact with all others, and
engaged

in

a

complexity

of

tasks,

relate

themselves to each other in the conscious,
systematic establishment and accomplishment
of mutually agreed purposes.

In terms of all the above definitions, corporations,

armies, schools, hospitals, churches, prisons, etc.
all are organizations.

But tribes, ethnic and friendship groups and
families are not organizations because they do not

involve

any

significant

amount

of

conscious

planning, coordination or deliberate structuring.

1.

A purpose, goal or
goals which has
already indicated in
a previous chapter
are the task of
planning.

2.

A clear concept of
the major duties
or activities
required to
achiever the
purpose.

Characteristics

of
an Organisation

3. Classification of
activities into jobs

4. Establishment of
relationships
between
these jobs.

Typology of Organisations
All organizations appear alike.

But this is not so.

Every organization has certain unique combination of
the above characteristics which distinguish it from all
other

organizations.

Blau

and

Scott5 classify

organizations into four categories using the criterion
of cui bono—who benefits:

1. Organisations which benefit their owners.
business organizations fall in this category.

All

2. Organisations which benefit their members. A wide
class of unions, cooperatives and clubs come under
this category.
3. Organisations which benefit their clients. Examples
are insurance companies, private schools, etc.
4. Organisations which benefit the whole society
(commonwealth
organizations)
such
as
governmental departments.

Consideration of Objectives

The first step in organizing is to know the objectives
of the enterprise. Objectives determine the various
activities which need to be performed and the type of
organization which needs to be built for this purpose.
Consideration of objectives is the first step in the
process of organizing.

A

Grouping of Activities into
Departments

B

C

The next step is to identify the activities necessary to
achieve them and to group the closely related and
similar activities into departments and sections. For
example, the activities of a manufacturing concern may
be grouped into such departments as production,
marketing, financing and personnel.

Deciding which Departments
will be Key Departments
Which department needs to be emphasised how much
will depend, of course, on the company’s objectives and
the way it seeks to be distinctive.

For example, a

company which believes that advertising is a primary
key to success will set up a separate advertising
department that reports directly to the president. But

another

company

which

considers

it

much

less

important may only create a separate section for it under
its sales department.

Determining Levels at which Various Types of
Decisions are to be Made
After deciding the relative importance of various departments,
the levels at which various major and minor decisions are to be

made must be determined. Each firm must decide for itself as to
how much decentralization of authority and responsibility it
wants to have. Extreme decentralization may lead to loss of

control and effective coordination as a result of which the firm as
a whole may fail to achieve its overall objectives.

Extreme

centralization, on the other hand, may lead to wrong decisions at

wrong times and complete breakdown of the morale of
employees.

Determining the Span of Management
The next step to be taken in designing a structure is
to determine the number of subordinates who
should report directly to each executive.

Setting up a Coordination Mechanism

First of all comes activities analysis. A thorough and
careful activities analysis clarifies as to what work has

to be performed, what kinds of work belong together,
and what emphasis each activity is to be given in the

organization structure.

Next

comes

decision

analysis.

Although

it

is

impossible for anyone to anticipate the contents of
future decisions, one can predict their kinds and
decide their places so that when they rise in future.
Finally, an analysis should be made of the various
relationships between the tasks of a manager and

those of his subordinates, peers and superiors.

SPAN OF MANAGEMENT
Meaning and Importance :
The term “span of management” is also referred to as
span of control, span of supervision, span of authority
or span of responsibility.

It indicates the number of

subordinates who report directly to a manager.

Span of management is important for two reasons.
• First, span of management affects the efficient

utilization of managers and the effective performance
of their subordinates.

• Second, there is a relationship between span of
management and organisational structure.

PRINCIPLES OF ORGANISING
• Objectives : The objectives of the enterprise influence

the organization structure and hence the objectives of
the enterprise should first be clearly defined. Then
every part of the organization should be geared to the
achievement of these objectives.

• Specialisation Effective organization must promote
specialization. The activities of the enterprise should be
divided according to functions and assigned to persons

according to their specialization.
• Span of Control As there is a limit to the number of
persons that can be supervised effectively by one boss,
the span of control should be as far as possible, the
minimum. That means, an executive should be asked to
supervise a reasonable number of subordinates only
say six.

• Exception As the executives at the higher levels have
limited time, only exceptionally complex problems
should be referred to them and routine matters should
be dealt with by the subordinates at lower levels. This
will enable the executives at higher levels to devote time
to more important and crucial issues.
• Scalar Principle This principle is sometimes known as
the “chain of command”. The line of authority from the

chief executive at the top to the first-line supervisor at
the bottom must be clearly defined.

• Unity of Command Each subordinate should have only
one superior whose command he has to obey. Dual
subordination

must

be

avoided,

for

it

causes

uneasiness, disorder, indiscipline and undermining of
authority.
• Delegation Proper authority should be delegated at the

lower levels of organization also.

The authority

delegated should be equal to responsibility, i.e. each
manager should have enough authority to accomplish

the task assigned to him.

• Responsibility The superior should be held responsible
for the acts of his subordinates. No superior should be
allowed to avoid responsibility by delegating authority
to his subordinates.
• Authority The authority is the tool by which a manager is
able to accomplish the desired objective.

Hence, the

authority of each manager must be clearly defined.
Further, the authority should be equal to responsibility.
• Efficiency The organization structure should enable the
enterprise to function efficiently and accomplish its
objectives with the lowest possible cost.

• Simplicity The organization structure should be as

simple as possible and the organization levels should,
as far as possible, be minimum. A large number of
levels of organization means difficulty of effective

communication and coordination.
• Flexibility The organization should be flexible, should

be adaptable to changing circumstances and permit
expansion and replacement without dislocation and
disruption of the basic design.

• Balance There should be a reasonable balance in the
size of various departments, between centralization
and decentralization, between the principle of span of

control and the short chain of command, and among
all types of factors such as human, technical and
financial.
• Unity of Direction There should be one objective and
one plan for a group of activities having the same
objective. Unity of direction facilitates unification and
coordination of activities at various levels.

• Personal Ability As people constitute an organization,
there is need for proper selection, placement and

training of staff.

Further, the organization structure

must ensure optimum use of human resources and
encourage management development programmes.

DEPARTMENTALISATION
Departmentalisation is one important step of building an
organization.

The aim is to take advantage of the

division of labour and specialization upto a certain limit.

There are several bases for departmentalization, each of
which

is

suitable

for

strategies and purposes.

particular

corporate

sizes,

Functions
By

far

the

most

widely

used

base

for

departmentalization is function. Each major function

of the enterprise is grouped into a department.

Advantages
• Everybody in this form of organization understands his own task
and feels highly secure both in his work and in his relationships.

•It promotes excellence in performance because of development of
expertise through specialization.
•It leads to improved planning and control of the key functions.
•It ensures economy, there is only one department related to one
function for the entire function. Manpower and other resources of
the company are effectively utilized by time-sharing them across
products or projects.

Drawbacks
• It fosters sub-goal loyalties. It is difficult for any one
to understand the task of the whole and to relate his
own work to it.
• It does not offer a good training ground for the overall
development of a manager.

• It is unsuitable for organizations which are large in
size, complexity or innovative scope.

• In

this

form

customer

needs

evoke

conflicting

interpretations like the story of twelve blind people and

the elephant.
• In this form procedures are overly complicated,
wasteful and time-consuming—a weakness sometimes
called as “organizational arthritis”.

The structure is

rigid and resists adaptation.

• In this form because of “common pot” accounting it is
difficult to judge whether the activities of a particular
department are worth their cost.

Products
Under this method, for each major product, a separate
semi-autonomous department is created and is put

under the charge of a manager who may also be made
responsible for producing a profit of a given magnitude.
Within each department, all the needed manufacturing,

engineering, marketing, manpower and other facilities
are

assembled.

detergents,
products),

Hindustan

toiletries,

Lever

chemicals

(manufacturing

and

agro-based

Richardson Hindustan (manufacturing a range of Vicks
products, Clearasil cream and soap), and Johnson and
Johnson (manufacturing a range of products for

children and surgical sutures) have product-based
departments

Advantages
• This form relieves top management of operating task
responsibility. It can therefore better concentrate on such
centralized activities like finance, R&D and control.

• This form enables top management to compare the
performance

of

different

products

and

invest

more

resources in profitable products and withdraw resources

from unprofitable ones.

•

In this form, since the responsibility for each product’s
performance is entrusted to a particular departmental head,
he is better stimulated for improving his performance.

•

In this form, those who work within a department derive

greater satisfaction from identification with a recognizable
goal.

Customers
An enterprise may be divided into a number of departments on
the basis of the customers that it services. For example, an
electronics firm may have separate departments for military,
industrial and consumer customers.

A big automobile

servicing enterprise may have separate departments for
servicing cars, heavy vehicles and scooters or an educational
institution may have separate departments for day, evening
and correspondence courses to impart education to full-time
students, locally employed students and outstation students.

Regions or Territory
When

several

organization

production

are

or

marketing

geographically

units

dispersed

in

of

an

various

locations, it is logical to departmentalize those units on a
geographical

basis.

The

Indian

Railways

are

departmentalized on this basis. Northern Railways, Western
Railways, Southern Railways, Eastern Railways, Central
Railways, etc. are departments in this sense.

The Food

Corporation of India has also geographical organization with
several zonal offices at different places and a head office in
New Delhi.

Advantages
• It motivates each regional head to achieve high performance.
• It provides each regional head an opportunity to adapt to his
local situation and customer need with speed and accuracy.
• It affords valuable top-management training and experience
to middle-level executives.
• It enables the organization to take advantage of locational
factors, such as availability of raw materials, labour, market,
etc.
• It enables the organization to compare regional performances
and invest more resources in profitable regions and withdraw
resources from unprofitable ones.

(Functional Departmentalisation)
General Manager
Fig. 7.3 A typical matrix organization

Contract
Administration

R&D
(Pr
od
uc
t
De
pa
rt
m
en
tal
isa
tio
n)

A
Project
Manager

R &D
Group

Contract
Admn. Group

Engineering
Group
Engg.
Group

Mfg.
Group
Mfg.
Group

A

Project
Manager

B
Project
Manager

C

R&D
Group

R&D
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group


Slide 27

ORGANISATI
ON

An organization is the pattern of ways in which
large numbers of people, too many to have
intimate face to face contact with all others, and
engaged

in

a

complexity

of

tasks,

relate

themselves to each other in the conscious,
systematic establishment and accomplishment
of mutually agreed purposes.

In terms of all the above definitions, corporations,

armies, schools, hospitals, churches, prisons, etc.
all are organizations.

But tribes, ethnic and friendship groups and
families are not organizations because they do not

involve

any

significant

amount

of

conscious

planning, coordination or deliberate structuring.

1.

A purpose, goal or
goals which has
already indicated in
a previous chapter
are the task of
planning.

2.

A clear concept of
the major duties
or activities
required to
achiever the
purpose.

Characteristics

of
an Organisation

3. Classification of
activities into jobs

4. Establishment of
relationships
between
these jobs.

Typology of Organisations
All organizations appear alike.

But this is not so.

Every organization has certain unique combination of
the above characteristics which distinguish it from all
other

organizations.

Blau

and

Scott5 classify

organizations into four categories using the criterion
of cui bono—who benefits:

1. Organisations which benefit their owners.
business organizations fall in this category.

All

2. Organisations which benefit their members. A wide
class of unions, cooperatives and clubs come under
this category.
3. Organisations which benefit their clients. Examples
are insurance companies, private schools, etc.
4. Organisations which benefit the whole society
(commonwealth
organizations)
such
as
governmental departments.

Consideration of Objectives

The first step in organizing is to know the objectives
of the enterprise. Objectives determine the various
activities which need to be performed and the type of
organization which needs to be built for this purpose.
Consideration of objectives is the first step in the
process of organizing.

A

Grouping of Activities into
Departments

B

C

The next step is to identify the activities necessary to
achieve them and to group the closely related and
similar activities into departments and sections. For
example, the activities of a manufacturing concern may
be grouped into such departments as production,
marketing, financing and personnel.

Deciding which Departments
will be Key Departments
Which department needs to be emphasised how much
will depend, of course, on the company’s objectives and
the way it seeks to be distinctive.

For example, a

company which believes that advertising is a primary
key to success will set up a separate advertising
department that reports directly to the president. But

another

company

which

considers

it

much

less

important may only create a separate section for it under
its sales department.

Determining Levels at which Various Types of
Decisions are to be Made
After deciding the relative importance of various departments,
the levels at which various major and minor decisions are to be

made must be determined. Each firm must decide for itself as to
how much decentralization of authority and responsibility it
wants to have. Extreme decentralization may lead to loss of

control and effective coordination as a result of which the firm as
a whole may fail to achieve its overall objectives.

Extreme

centralization, on the other hand, may lead to wrong decisions at

wrong times and complete breakdown of the morale of
employees.

Determining the Span of Management
The next step to be taken in designing a structure is
to determine the number of subordinates who
should report directly to each executive.

Setting up a Coordination Mechanism

First of all comes activities analysis. A thorough and
careful activities analysis clarifies as to what work has

to be performed, what kinds of work belong together,
and what emphasis each activity is to be given in the

organization structure.

Next

comes

decision

analysis.

Although

it

is

impossible for anyone to anticipate the contents of
future decisions, one can predict their kinds and
decide their places so that when they rise in future.
Finally, an analysis should be made of the various
relationships between the tasks of a manager and

those of his subordinates, peers and superiors.

SPAN OF MANAGEMENT
Meaning and Importance :
The term “span of management” is also referred to as
span of control, span of supervision, span of authority
or span of responsibility.

It indicates the number of

subordinates who report directly to a manager.

Span of management is important for two reasons.
• First, span of management affects the efficient

utilization of managers and the effective performance
of their subordinates.

• Second, there is a relationship between span of
management and organisational structure.

PRINCIPLES OF ORGANISING
• Objectives : The objectives of the enterprise influence

the organization structure and hence the objectives of
the enterprise should first be clearly defined. Then
every part of the organization should be geared to the
achievement of these objectives.

• Specialisation Effective organization must promote
specialization. The activities of the enterprise should be
divided according to functions and assigned to persons

according to their specialization.
• Span of Control As there is a limit to the number of
persons that can be supervised effectively by one boss,
the span of control should be as far as possible, the
minimum. That means, an executive should be asked to
supervise a reasonable number of subordinates only
say six.

• Exception As the executives at the higher levels have
limited time, only exceptionally complex problems
should be referred to them and routine matters should
be dealt with by the subordinates at lower levels. This
will enable the executives at higher levels to devote time
to more important and crucial issues.
• Scalar Principle This principle is sometimes known as
the “chain of command”. The line of authority from the

chief executive at the top to the first-line supervisor at
the bottom must be clearly defined.

• Unity of Command Each subordinate should have only
one superior whose command he has to obey. Dual
subordination

must

be

avoided,

for

it

causes

uneasiness, disorder, indiscipline and undermining of
authority.
• Delegation Proper authority should be delegated at the

lower levels of organization also.

The authority

delegated should be equal to responsibility, i.e. each
manager should have enough authority to accomplish

the task assigned to him.

• Responsibility The superior should be held responsible
for the acts of his subordinates. No superior should be
allowed to avoid responsibility by delegating authority
to his subordinates.
• Authority The authority is the tool by which a manager is
able to accomplish the desired objective.

Hence, the

authority of each manager must be clearly defined.
Further, the authority should be equal to responsibility.
• Efficiency The organization structure should enable the
enterprise to function efficiently and accomplish its
objectives with the lowest possible cost.

• Simplicity The organization structure should be as

simple as possible and the organization levels should,
as far as possible, be minimum. A large number of
levels of organization means difficulty of effective

communication and coordination.
• Flexibility The organization should be flexible, should

be adaptable to changing circumstances and permit
expansion and replacement without dislocation and
disruption of the basic design.

• Balance There should be a reasonable balance in the
size of various departments, between centralization
and decentralization, between the principle of span of

control and the short chain of command, and among
all types of factors such as human, technical and
financial.
• Unity of Direction There should be one objective and
one plan for a group of activities having the same
objective. Unity of direction facilitates unification and
coordination of activities at various levels.

• Personal Ability As people constitute an organization,
there is need for proper selection, placement and

training of staff.

Further, the organization structure

must ensure optimum use of human resources and
encourage management development programmes.

DEPARTMENTALISATION
Departmentalisation is one important step of building an
organization.

The aim is to take advantage of the

division of labour and specialization upto a certain limit.

There are several bases for departmentalization, each of
which

is

suitable

for

strategies and purposes.

particular

corporate

sizes,

Functions
By

far

the

most

widely

used

base

for

departmentalization is function. Each major function

of the enterprise is grouped into a department.

Advantages
• Everybody in this form of organization understands his own task
and feels highly secure both in his work and in his relationships.

•It promotes excellence in performance because of development of
expertise through specialization.
•It leads to improved planning and control of the key functions.
•It ensures economy, there is only one department related to one
function for the entire function. Manpower and other resources of
the company are effectively utilized by time-sharing them across
products or projects.

Drawbacks
• It fosters sub-goal loyalties. It is difficult for any one
to understand the task of the whole and to relate his
own work to it.
• It does not offer a good training ground for the overall
development of a manager.

• It is unsuitable for organizations which are large in
size, complexity or innovative scope.

• In

this

form

customer

needs

evoke

conflicting

interpretations like the story of twelve blind people and

the elephant.
• In this form procedures are overly complicated,
wasteful and time-consuming—a weakness sometimes
called as “organizational arthritis”.

The structure is

rigid and resists adaptation.

• In this form because of “common pot” accounting it is
difficult to judge whether the activities of a particular
department are worth their cost.

Products
Under this method, for each major product, a separate
semi-autonomous department is created and is put

under the charge of a manager who may also be made
responsible for producing a profit of a given magnitude.
Within each department, all the needed manufacturing,

engineering, marketing, manpower and other facilities
are

assembled.

detergents,
products),

Hindustan

toiletries,

Lever

chemicals

(manufacturing

and

agro-based

Richardson Hindustan (manufacturing a range of Vicks
products, Clearasil cream and soap), and Johnson and
Johnson (manufacturing a range of products for

children and surgical sutures) have product-based
departments

Advantages
• This form relieves top management of operating task
responsibility. It can therefore better concentrate on such
centralized activities like finance, R&D and control.

• This form enables top management to compare the
performance

of

different

products

and

invest

more

resources in profitable products and withdraw resources

from unprofitable ones.

•

In this form, since the responsibility for each product’s
performance is entrusted to a particular departmental head,
he is better stimulated for improving his performance.

•

In this form, those who work within a department derive

greater satisfaction from identification with a recognizable
goal.

Customers
An enterprise may be divided into a number of departments on
the basis of the customers that it services. For example, an
electronics firm may have separate departments for military,
industrial and consumer customers.

A big automobile

servicing enterprise may have separate departments for
servicing cars, heavy vehicles and scooters or an educational
institution may have separate departments for day, evening
and correspondence courses to impart education to full-time
students, locally employed students and outstation students.

Regions or Territory
When

several

organization

production

are

or

marketing

geographically

units

dispersed

in

of

an

various

locations, it is logical to departmentalize those units on a
geographical

basis.

The

Indian

Railways

are

departmentalized on this basis. Northern Railways, Western
Railways, Southern Railways, Eastern Railways, Central
Railways, etc. are departments in this sense.

The Food

Corporation of India has also geographical organization with
several zonal offices at different places and a head office in
New Delhi.

Advantages
• It motivates each regional head to achieve high performance.
• It provides each regional head an opportunity to adapt to his
local situation and customer need with speed and accuracy.
• It affords valuable top-management training and experience
to middle-level executives.
• It enables the organization to take advantage of locational
factors, such as availability of raw materials, labour, market,
etc.
• It enables the organization to compare regional performances
and invest more resources in profitable regions and withdraw
resources from unprofitable ones.

(Functional Departmentalisation)
General Manager
Fig. 7.3 A typical matrix organization

Contract
Administration

R&D
(Pr
od
uc
t
De
pa
rt
m
en
tal
isa
tio
n)

A
Project
Manager

R &D
Group

Contract
Admn. Group

Engineering
Group
Engg.
Group

Mfg.
Group
Mfg.
Group

A

Project
Manager

B
Project
Manager

C

R&D
Group

R&D
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group


Slide 28

ORGANISATI
ON

An organization is the pattern of ways in which
large numbers of people, too many to have
intimate face to face contact with all others, and
engaged

in

a

complexity

of

tasks,

relate

themselves to each other in the conscious,
systematic establishment and accomplishment
of mutually agreed purposes.

In terms of all the above definitions, corporations,

armies, schools, hospitals, churches, prisons, etc.
all are organizations.

But tribes, ethnic and friendship groups and
families are not organizations because they do not

involve

any

significant

amount

of

conscious

planning, coordination or deliberate structuring.

1.

A purpose, goal or
goals which has
already indicated in
a previous chapter
are the task of
planning.

2.

A clear concept of
the major duties
or activities
required to
achiever the
purpose.

Characteristics

of
an Organisation

3. Classification of
activities into jobs

4. Establishment of
relationships
between
these jobs.

Typology of Organisations
All organizations appear alike.

But this is not so.

Every organization has certain unique combination of
the above characteristics which distinguish it from all
other

organizations.

Blau

and

Scott5 classify

organizations into four categories using the criterion
of cui bono—who benefits:

1. Organisations which benefit their owners.
business organizations fall in this category.

All

2. Organisations which benefit their members. A wide
class of unions, cooperatives and clubs come under
this category.
3. Organisations which benefit their clients. Examples
are insurance companies, private schools, etc.
4. Organisations which benefit the whole society
(commonwealth
organizations)
such
as
governmental departments.

Consideration of Objectives

The first step in organizing is to know the objectives
of the enterprise. Objectives determine the various
activities which need to be performed and the type of
organization which needs to be built for this purpose.
Consideration of objectives is the first step in the
process of organizing.

A

Grouping of Activities into
Departments

B

C

The next step is to identify the activities necessary to
achieve them and to group the closely related and
similar activities into departments and sections. For
example, the activities of a manufacturing concern may
be grouped into such departments as production,
marketing, financing and personnel.

Deciding which Departments
will be Key Departments
Which department needs to be emphasised how much
will depend, of course, on the company’s objectives and
the way it seeks to be distinctive.

For example, a

company which believes that advertising is a primary
key to success will set up a separate advertising
department that reports directly to the president. But

another

company

which

considers

it

much

less

important may only create a separate section for it under
its sales department.

Determining Levels at which Various Types of
Decisions are to be Made
After deciding the relative importance of various departments,
the levels at which various major and minor decisions are to be

made must be determined. Each firm must decide for itself as to
how much decentralization of authority and responsibility it
wants to have. Extreme decentralization may lead to loss of

control and effective coordination as a result of which the firm as
a whole may fail to achieve its overall objectives.

Extreme

centralization, on the other hand, may lead to wrong decisions at

wrong times and complete breakdown of the morale of
employees.

Determining the Span of Management
The next step to be taken in designing a structure is
to determine the number of subordinates who
should report directly to each executive.

Setting up a Coordination Mechanism

First of all comes activities analysis. A thorough and
careful activities analysis clarifies as to what work has

to be performed, what kinds of work belong together,
and what emphasis each activity is to be given in the

organization structure.

Next

comes

decision

analysis.

Although

it

is

impossible for anyone to anticipate the contents of
future decisions, one can predict their kinds and
decide their places so that when they rise in future.
Finally, an analysis should be made of the various
relationships between the tasks of a manager and

those of his subordinates, peers and superiors.

SPAN OF MANAGEMENT
Meaning and Importance :
The term “span of management” is also referred to as
span of control, span of supervision, span of authority
or span of responsibility.

It indicates the number of

subordinates who report directly to a manager.

Span of management is important for two reasons.
• First, span of management affects the efficient

utilization of managers and the effective performance
of their subordinates.

• Second, there is a relationship between span of
management and organisational structure.

PRINCIPLES OF ORGANISING
• Objectives : The objectives of the enterprise influence

the organization structure and hence the objectives of
the enterprise should first be clearly defined. Then
every part of the organization should be geared to the
achievement of these objectives.

• Specialisation Effective organization must promote
specialization. The activities of the enterprise should be
divided according to functions and assigned to persons

according to their specialization.
• Span of Control As there is a limit to the number of
persons that can be supervised effectively by one boss,
the span of control should be as far as possible, the
minimum. That means, an executive should be asked to
supervise a reasonable number of subordinates only
say six.

• Exception As the executives at the higher levels have
limited time, only exceptionally complex problems
should be referred to them and routine matters should
be dealt with by the subordinates at lower levels. This
will enable the executives at higher levels to devote time
to more important and crucial issues.
• Scalar Principle This principle is sometimes known as
the “chain of command”. The line of authority from the

chief executive at the top to the first-line supervisor at
the bottom must be clearly defined.

• Unity of Command Each subordinate should have only
one superior whose command he has to obey. Dual
subordination

must

be

avoided,

for

it

causes

uneasiness, disorder, indiscipline and undermining of
authority.
• Delegation Proper authority should be delegated at the

lower levels of organization also.

The authority

delegated should be equal to responsibility, i.e. each
manager should have enough authority to accomplish

the task assigned to him.

• Responsibility The superior should be held responsible
for the acts of his subordinates. No superior should be
allowed to avoid responsibility by delegating authority
to his subordinates.
• Authority The authority is the tool by which a manager is
able to accomplish the desired objective.

Hence, the

authority of each manager must be clearly defined.
Further, the authority should be equal to responsibility.
• Efficiency The organization structure should enable the
enterprise to function efficiently and accomplish its
objectives with the lowest possible cost.

• Simplicity The organization structure should be as

simple as possible and the organization levels should,
as far as possible, be minimum. A large number of
levels of organization means difficulty of effective

communication and coordination.
• Flexibility The organization should be flexible, should

be adaptable to changing circumstances and permit
expansion and replacement without dislocation and
disruption of the basic design.

• Balance There should be a reasonable balance in the
size of various departments, between centralization
and decentralization, between the principle of span of

control and the short chain of command, and among
all types of factors such as human, technical and
financial.
• Unity of Direction There should be one objective and
one plan for a group of activities having the same
objective. Unity of direction facilitates unification and
coordination of activities at various levels.

• Personal Ability As people constitute an organization,
there is need for proper selection, placement and

training of staff.

Further, the organization structure

must ensure optimum use of human resources and
encourage management development programmes.

DEPARTMENTALISATION
Departmentalisation is one important step of building an
organization.

The aim is to take advantage of the

division of labour and specialization upto a certain limit.

There are several bases for departmentalization, each of
which

is

suitable

for

strategies and purposes.

particular

corporate

sizes,

Functions
By

far

the

most

widely

used

base

for

departmentalization is function. Each major function

of the enterprise is grouped into a department.

Advantages
• Everybody in this form of organization understands his own task
and feels highly secure both in his work and in his relationships.

•It promotes excellence in performance because of development of
expertise through specialization.
•It leads to improved planning and control of the key functions.
•It ensures economy, there is only one department related to one
function for the entire function. Manpower and other resources of
the company are effectively utilized by time-sharing them across
products or projects.

Drawbacks
• It fosters sub-goal loyalties. It is difficult for any one
to understand the task of the whole and to relate his
own work to it.
• It does not offer a good training ground for the overall
development of a manager.

• It is unsuitable for organizations which are large in
size, complexity or innovative scope.

• In

this

form

customer

needs

evoke

conflicting

interpretations like the story of twelve blind people and

the elephant.
• In this form procedures are overly complicated,
wasteful and time-consuming—a weakness sometimes
called as “organizational arthritis”.

The structure is

rigid and resists adaptation.

• In this form because of “common pot” accounting it is
difficult to judge whether the activities of a particular
department are worth their cost.

Products
Under this method, for each major product, a separate
semi-autonomous department is created and is put

under the charge of a manager who may also be made
responsible for producing a profit of a given magnitude.
Within each department, all the needed manufacturing,

engineering, marketing, manpower and other facilities
are

assembled.

detergents,
products),

Hindustan

toiletries,

Lever

chemicals

(manufacturing

and

agro-based

Richardson Hindustan (manufacturing a range of Vicks
products, Clearasil cream and soap), and Johnson and
Johnson (manufacturing a range of products for

children and surgical sutures) have product-based
departments

Advantages
• This form relieves top management of operating task
responsibility. It can therefore better concentrate on such
centralized activities like finance, R&D and control.

• This form enables top management to compare the
performance

of

different

products

and

invest

more

resources in profitable products and withdraw resources

from unprofitable ones.

•

In this form, since the responsibility for each product’s
performance is entrusted to a particular departmental head,
he is better stimulated for improving his performance.

•

In this form, those who work within a department derive

greater satisfaction from identification with a recognizable
goal.

Customers
An enterprise may be divided into a number of departments on
the basis of the customers that it services. For example, an
electronics firm may have separate departments for military,
industrial and consumer customers.

A big automobile

servicing enterprise may have separate departments for
servicing cars, heavy vehicles and scooters or an educational
institution may have separate departments for day, evening
and correspondence courses to impart education to full-time
students, locally employed students and outstation students.

Regions or Territory
When

several

organization

production

are

or

marketing

geographically

units

dispersed

in

of

an

various

locations, it is logical to departmentalize those units on a
geographical

basis.

The

Indian

Railways

are

departmentalized on this basis. Northern Railways, Western
Railways, Southern Railways, Eastern Railways, Central
Railways, etc. are departments in this sense.

The Food

Corporation of India has also geographical organization with
several zonal offices at different places and a head office in
New Delhi.

Advantages
• It motivates each regional head to achieve high performance.
• It provides each regional head an opportunity to adapt to his
local situation and customer need with speed and accuracy.
• It affords valuable top-management training and experience
to middle-level executives.
• It enables the organization to take advantage of locational
factors, such as availability of raw materials, labour, market,
etc.
• It enables the organization to compare regional performances
and invest more resources in profitable regions and withdraw
resources from unprofitable ones.

(Functional Departmentalisation)
General Manager
Fig. 7.3 A typical matrix organization

Contract
Administration

R&D
(Pr
od
uc
t
De
pa
rt
m
en
tal
isa
tio
n)

A
Project
Manager

R &D
Group

Contract
Admn. Group

Engineering
Group
Engg.
Group

Mfg.
Group
Mfg.
Group

A

Project
Manager

B
Project
Manager

C

R&D
Group

R&D
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group


Slide 29

ORGANISATI
ON

An organization is the pattern of ways in which
large numbers of people, too many to have
intimate face to face contact with all others, and
engaged

in

a

complexity

of

tasks,

relate

themselves to each other in the conscious,
systematic establishment and accomplishment
of mutually agreed purposes.

In terms of all the above definitions, corporations,

armies, schools, hospitals, churches, prisons, etc.
all are organizations.

But tribes, ethnic and friendship groups and
families are not organizations because they do not

involve

any

significant

amount

of

conscious

planning, coordination or deliberate structuring.

1.

A purpose, goal or
goals which has
already indicated in
a previous chapter
are the task of
planning.

2.

A clear concept of
the major duties
or activities
required to
achiever the
purpose.

Characteristics

of
an Organisation

3. Classification of
activities into jobs

4. Establishment of
relationships
between
these jobs.

Typology of Organisations
All organizations appear alike.

But this is not so.

Every organization has certain unique combination of
the above characteristics which distinguish it from all
other

organizations.

Blau

and

Scott5 classify

organizations into four categories using the criterion
of cui bono—who benefits:

1. Organisations which benefit their owners.
business organizations fall in this category.

All

2. Organisations which benefit their members. A wide
class of unions, cooperatives and clubs come under
this category.
3. Organisations which benefit their clients. Examples
are insurance companies, private schools, etc.
4. Organisations which benefit the whole society
(commonwealth
organizations)
such
as
governmental departments.

Consideration of Objectives

The first step in organizing is to know the objectives
of the enterprise. Objectives determine the various
activities which need to be performed and the type of
organization which needs to be built for this purpose.
Consideration of objectives is the first step in the
process of organizing.

A

Grouping of Activities into
Departments

B

C

The next step is to identify the activities necessary to
achieve them and to group the closely related and
similar activities into departments and sections. For
example, the activities of a manufacturing concern may
be grouped into such departments as production,
marketing, financing and personnel.

Deciding which Departments
will be Key Departments
Which department needs to be emphasised how much
will depend, of course, on the company’s objectives and
the way it seeks to be distinctive.

For example, a

company which believes that advertising is a primary
key to success will set up a separate advertising
department that reports directly to the president. But

another

company

which

considers

it

much

less

important may only create a separate section for it under
its sales department.

Determining Levels at which Various Types of
Decisions are to be Made
After deciding the relative importance of various departments,
the levels at which various major and minor decisions are to be

made must be determined. Each firm must decide for itself as to
how much decentralization of authority and responsibility it
wants to have. Extreme decentralization may lead to loss of

control and effective coordination as a result of which the firm as
a whole may fail to achieve its overall objectives.

Extreme

centralization, on the other hand, may lead to wrong decisions at

wrong times and complete breakdown of the morale of
employees.

Determining the Span of Management
The next step to be taken in designing a structure is
to determine the number of subordinates who
should report directly to each executive.

Setting up a Coordination Mechanism

First of all comes activities analysis. A thorough and
careful activities analysis clarifies as to what work has

to be performed, what kinds of work belong together,
and what emphasis each activity is to be given in the

organization structure.

Next

comes

decision

analysis.

Although

it

is

impossible for anyone to anticipate the contents of
future decisions, one can predict their kinds and
decide their places so that when they rise in future.
Finally, an analysis should be made of the various
relationships between the tasks of a manager and

those of his subordinates, peers and superiors.

SPAN OF MANAGEMENT
Meaning and Importance :
The term “span of management” is also referred to as
span of control, span of supervision, span of authority
or span of responsibility.

It indicates the number of

subordinates who report directly to a manager.

Span of management is important for two reasons.
• First, span of management affects the efficient

utilization of managers and the effective performance
of their subordinates.

• Second, there is a relationship between span of
management and organisational structure.

PRINCIPLES OF ORGANISING
• Objectives : The objectives of the enterprise influence

the organization structure and hence the objectives of
the enterprise should first be clearly defined. Then
every part of the organization should be geared to the
achievement of these objectives.

• Specialisation Effective organization must promote
specialization. The activities of the enterprise should be
divided according to functions and assigned to persons

according to their specialization.
• Span of Control As there is a limit to the number of
persons that can be supervised effectively by one boss,
the span of control should be as far as possible, the
minimum. That means, an executive should be asked to
supervise a reasonable number of subordinates only
say six.

• Exception As the executives at the higher levels have
limited time, only exceptionally complex problems
should be referred to them and routine matters should
be dealt with by the subordinates at lower levels. This
will enable the executives at higher levels to devote time
to more important and crucial issues.
• Scalar Principle This principle is sometimes known as
the “chain of command”. The line of authority from the

chief executive at the top to the first-line supervisor at
the bottom must be clearly defined.

• Unity of Command Each subordinate should have only
one superior whose command he has to obey. Dual
subordination

must

be

avoided,

for

it

causes

uneasiness, disorder, indiscipline and undermining of
authority.
• Delegation Proper authority should be delegated at the

lower levels of organization also.

The authority

delegated should be equal to responsibility, i.e. each
manager should have enough authority to accomplish

the task assigned to him.

• Responsibility The superior should be held responsible
for the acts of his subordinates. No superior should be
allowed to avoid responsibility by delegating authority
to his subordinates.
• Authority The authority is the tool by which a manager is
able to accomplish the desired objective.

Hence, the

authority of each manager must be clearly defined.
Further, the authority should be equal to responsibility.
• Efficiency The organization structure should enable the
enterprise to function efficiently and accomplish its
objectives with the lowest possible cost.

• Simplicity The organization structure should be as

simple as possible and the organization levels should,
as far as possible, be minimum. A large number of
levels of organization means difficulty of effective

communication and coordination.
• Flexibility The organization should be flexible, should

be adaptable to changing circumstances and permit
expansion and replacement without dislocation and
disruption of the basic design.

• Balance There should be a reasonable balance in the
size of various departments, between centralization
and decentralization, between the principle of span of

control and the short chain of command, and among
all types of factors such as human, technical and
financial.
• Unity of Direction There should be one objective and
one plan for a group of activities having the same
objective. Unity of direction facilitates unification and
coordination of activities at various levels.

• Personal Ability As people constitute an organization,
there is need for proper selection, placement and

training of staff.

Further, the organization structure

must ensure optimum use of human resources and
encourage management development programmes.

DEPARTMENTALISATION
Departmentalisation is one important step of building an
organization.

The aim is to take advantage of the

division of labour and specialization upto a certain limit.

There are several bases for departmentalization, each of
which

is

suitable

for

strategies and purposes.

particular

corporate

sizes,

Functions
By

far

the

most

widely

used

base

for

departmentalization is function. Each major function

of the enterprise is grouped into a department.

Advantages
• Everybody in this form of organization understands his own task
and feels highly secure both in his work and in his relationships.

•It promotes excellence in performance because of development of
expertise through specialization.
•It leads to improved planning and control of the key functions.
•It ensures economy, there is only one department related to one
function for the entire function. Manpower and other resources of
the company are effectively utilized by time-sharing them across
products or projects.

Drawbacks
• It fosters sub-goal loyalties. It is difficult for any one
to understand the task of the whole and to relate his
own work to it.
• It does not offer a good training ground for the overall
development of a manager.

• It is unsuitable for organizations which are large in
size, complexity or innovative scope.

• In

this

form

customer

needs

evoke

conflicting

interpretations like the story of twelve blind people and

the elephant.
• In this form procedures are overly complicated,
wasteful and time-consuming—a weakness sometimes
called as “organizational arthritis”.

The structure is

rigid and resists adaptation.

• In this form because of “common pot” accounting it is
difficult to judge whether the activities of a particular
department are worth their cost.

Products
Under this method, for each major product, a separate
semi-autonomous department is created and is put

under the charge of a manager who may also be made
responsible for producing a profit of a given magnitude.
Within each department, all the needed manufacturing,

engineering, marketing, manpower and other facilities
are

assembled.

detergents,
products),

Hindustan

toiletries,

Lever

chemicals

(manufacturing

and

agro-based

Richardson Hindustan (manufacturing a range of Vicks
products, Clearasil cream and soap), and Johnson and
Johnson (manufacturing a range of products for

children and surgical sutures) have product-based
departments

Advantages
• This form relieves top management of operating task
responsibility. It can therefore better concentrate on such
centralized activities like finance, R&D and control.

• This form enables top management to compare the
performance

of

different

products

and

invest

more

resources in profitable products and withdraw resources

from unprofitable ones.

•

In this form, since the responsibility for each product’s
performance is entrusted to a particular departmental head,
he is better stimulated for improving his performance.

•

In this form, those who work within a department derive

greater satisfaction from identification with a recognizable
goal.

Customers
An enterprise may be divided into a number of departments on
the basis of the customers that it services. For example, an
electronics firm may have separate departments for military,
industrial and consumer customers.

A big automobile

servicing enterprise may have separate departments for
servicing cars, heavy vehicles and scooters or an educational
institution may have separate departments for day, evening
and correspondence courses to impart education to full-time
students, locally employed students and outstation students.

Regions or Territory
When

several

organization

production

are

or

marketing

geographically

units

dispersed

in

of

an

various

locations, it is logical to departmentalize those units on a
geographical

basis.

The

Indian

Railways

are

departmentalized on this basis. Northern Railways, Western
Railways, Southern Railways, Eastern Railways, Central
Railways, etc. are departments in this sense.

The Food

Corporation of India has also geographical organization with
several zonal offices at different places and a head office in
New Delhi.

Advantages
• It motivates each regional head to achieve high performance.
• It provides each regional head an opportunity to adapt to his
local situation and customer need with speed and accuracy.
• It affords valuable top-management training and experience
to middle-level executives.
• It enables the organization to take advantage of locational
factors, such as availability of raw materials, labour, market,
etc.
• It enables the organization to compare regional performances
and invest more resources in profitable regions and withdraw
resources from unprofitable ones.

(Functional Departmentalisation)
General Manager
Fig. 7.3 A typical matrix organization

Contract
Administration

R&D
(Pr
od
uc
t
De
pa
rt
m
en
tal
isa
tio
n)

A
Project
Manager

R &D
Group

Contract
Admn. Group

Engineering
Group
Engg.
Group

Mfg.
Group
Mfg.
Group

A

Project
Manager

B
Project
Manager

C

R&D
Group

R&D
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group


Slide 30

ORGANISATI
ON

An organization is the pattern of ways in which
large numbers of people, too many to have
intimate face to face contact with all others, and
engaged

in

a

complexity

of

tasks,

relate

themselves to each other in the conscious,
systematic establishment and accomplishment
of mutually agreed purposes.

In terms of all the above definitions, corporations,

armies, schools, hospitals, churches, prisons, etc.
all are organizations.

But tribes, ethnic and friendship groups and
families are not organizations because they do not

involve

any

significant

amount

of

conscious

planning, coordination or deliberate structuring.

1.

A purpose, goal or
goals which has
already indicated in
a previous chapter
are the task of
planning.

2.

A clear concept of
the major duties
or activities
required to
achiever the
purpose.

Characteristics

of
an Organisation

3. Classification of
activities into jobs

4. Establishment of
relationships
between
these jobs.

Typology of Organisations
All organizations appear alike.

But this is not so.

Every organization has certain unique combination of
the above characteristics which distinguish it from all
other

organizations.

Blau

and

Scott5 classify

organizations into four categories using the criterion
of cui bono—who benefits:

1. Organisations which benefit their owners.
business organizations fall in this category.

All

2. Organisations which benefit their members. A wide
class of unions, cooperatives and clubs come under
this category.
3. Organisations which benefit their clients. Examples
are insurance companies, private schools, etc.
4. Organisations which benefit the whole society
(commonwealth
organizations)
such
as
governmental departments.

Consideration of Objectives

The first step in organizing is to know the objectives
of the enterprise. Objectives determine the various
activities which need to be performed and the type of
organization which needs to be built for this purpose.
Consideration of objectives is the first step in the
process of organizing.

A

Grouping of Activities into
Departments

B

C

The next step is to identify the activities necessary to
achieve them and to group the closely related and
similar activities into departments and sections. For
example, the activities of a manufacturing concern may
be grouped into such departments as production,
marketing, financing and personnel.

Deciding which Departments
will be Key Departments
Which department needs to be emphasised how much
will depend, of course, on the company’s objectives and
the way it seeks to be distinctive.

For example, a

company which believes that advertising is a primary
key to success will set up a separate advertising
department that reports directly to the president. But

another

company

which

considers

it

much

less

important may only create a separate section for it under
its sales department.

Determining Levels at which Various Types of
Decisions are to be Made
After deciding the relative importance of various departments,
the levels at which various major and minor decisions are to be

made must be determined. Each firm must decide for itself as to
how much decentralization of authority and responsibility it
wants to have. Extreme decentralization may lead to loss of

control and effective coordination as a result of which the firm as
a whole may fail to achieve its overall objectives.

Extreme

centralization, on the other hand, may lead to wrong decisions at

wrong times and complete breakdown of the morale of
employees.

Determining the Span of Management
The next step to be taken in designing a structure is
to determine the number of subordinates who
should report directly to each executive.

Setting up a Coordination Mechanism

First of all comes activities analysis. A thorough and
careful activities analysis clarifies as to what work has

to be performed, what kinds of work belong together,
and what emphasis each activity is to be given in the

organization structure.

Next

comes

decision

analysis.

Although

it

is

impossible for anyone to anticipate the contents of
future decisions, one can predict their kinds and
decide their places so that when they rise in future.
Finally, an analysis should be made of the various
relationships between the tasks of a manager and

those of his subordinates, peers and superiors.

SPAN OF MANAGEMENT
Meaning and Importance :
The term “span of management” is also referred to as
span of control, span of supervision, span of authority
or span of responsibility.

It indicates the number of

subordinates who report directly to a manager.

Span of management is important for two reasons.
• First, span of management affects the efficient

utilization of managers and the effective performance
of their subordinates.

• Second, there is a relationship between span of
management and organisational structure.

PRINCIPLES OF ORGANISING
• Objectives : The objectives of the enterprise influence

the organization structure and hence the objectives of
the enterprise should first be clearly defined. Then
every part of the organization should be geared to the
achievement of these objectives.

• Specialisation Effective organization must promote
specialization. The activities of the enterprise should be
divided according to functions and assigned to persons

according to their specialization.
• Span of Control As there is a limit to the number of
persons that can be supervised effectively by one boss,
the span of control should be as far as possible, the
minimum. That means, an executive should be asked to
supervise a reasonable number of subordinates only
say six.

• Exception As the executives at the higher levels have
limited time, only exceptionally complex problems
should be referred to them and routine matters should
be dealt with by the subordinates at lower levels. This
will enable the executives at higher levels to devote time
to more important and crucial issues.
• Scalar Principle This principle is sometimes known as
the “chain of command”. The line of authority from the

chief executive at the top to the first-line supervisor at
the bottom must be clearly defined.

• Unity of Command Each subordinate should have only
one superior whose command he has to obey. Dual
subordination

must

be

avoided,

for

it

causes

uneasiness, disorder, indiscipline and undermining of
authority.
• Delegation Proper authority should be delegated at the

lower levels of organization also.

The authority

delegated should be equal to responsibility, i.e. each
manager should have enough authority to accomplish

the task assigned to him.

• Responsibility The superior should be held responsible
for the acts of his subordinates. No superior should be
allowed to avoid responsibility by delegating authority
to his subordinates.
• Authority The authority is the tool by which a manager is
able to accomplish the desired objective.

Hence, the

authority of each manager must be clearly defined.
Further, the authority should be equal to responsibility.
• Efficiency The organization structure should enable the
enterprise to function efficiently and accomplish its
objectives with the lowest possible cost.

• Simplicity The organization structure should be as

simple as possible and the organization levels should,
as far as possible, be minimum. A large number of
levels of organization means difficulty of effective

communication and coordination.
• Flexibility The organization should be flexible, should

be adaptable to changing circumstances and permit
expansion and replacement without dislocation and
disruption of the basic design.

• Balance There should be a reasonable balance in the
size of various departments, between centralization
and decentralization, between the principle of span of

control and the short chain of command, and among
all types of factors such as human, technical and
financial.
• Unity of Direction There should be one objective and
one plan for a group of activities having the same
objective. Unity of direction facilitates unification and
coordination of activities at various levels.

• Personal Ability As people constitute an organization,
there is need for proper selection, placement and

training of staff.

Further, the organization structure

must ensure optimum use of human resources and
encourage management development programmes.

DEPARTMENTALISATION
Departmentalisation is one important step of building an
organization.

The aim is to take advantage of the

division of labour and specialization upto a certain limit.

There are several bases for departmentalization, each of
which

is

suitable

for

strategies and purposes.

particular

corporate

sizes,

Functions
By

far

the

most

widely

used

base

for

departmentalization is function. Each major function

of the enterprise is grouped into a department.

Advantages
• Everybody in this form of organization understands his own task
and feels highly secure both in his work and in his relationships.

•It promotes excellence in performance because of development of
expertise through specialization.
•It leads to improved planning and control of the key functions.
•It ensures economy, there is only one department related to one
function for the entire function. Manpower and other resources of
the company are effectively utilized by time-sharing them across
products or projects.

Drawbacks
• It fosters sub-goal loyalties. It is difficult for any one
to understand the task of the whole and to relate his
own work to it.
• It does not offer a good training ground for the overall
development of a manager.

• It is unsuitable for organizations which are large in
size, complexity or innovative scope.

• In

this

form

customer

needs

evoke

conflicting

interpretations like the story of twelve blind people and

the elephant.
• In this form procedures are overly complicated,
wasteful and time-consuming—a weakness sometimes
called as “organizational arthritis”.

The structure is

rigid and resists adaptation.

• In this form because of “common pot” accounting it is
difficult to judge whether the activities of a particular
department are worth their cost.

Products
Under this method, for each major product, a separate
semi-autonomous department is created and is put

under the charge of a manager who may also be made
responsible for producing a profit of a given magnitude.
Within each department, all the needed manufacturing,

engineering, marketing, manpower and other facilities
are

assembled.

detergents,
products),

Hindustan

toiletries,

Lever

chemicals

(manufacturing

and

agro-based

Richardson Hindustan (manufacturing a range of Vicks
products, Clearasil cream and soap), and Johnson and
Johnson (manufacturing a range of products for

children and surgical sutures) have product-based
departments

Advantages
• This form relieves top management of operating task
responsibility. It can therefore better concentrate on such
centralized activities like finance, R&D and control.

• This form enables top management to compare the
performance

of

different

products

and

invest

more

resources in profitable products and withdraw resources

from unprofitable ones.

•

In this form, since the responsibility for each product’s
performance is entrusted to a particular departmental head,
he is better stimulated for improving his performance.

•

In this form, those who work within a department derive

greater satisfaction from identification with a recognizable
goal.

Customers
An enterprise may be divided into a number of departments on
the basis of the customers that it services. For example, an
electronics firm may have separate departments for military,
industrial and consumer customers.

A big automobile

servicing enterprise may have separate departments for
servicing cars, heavy vehicles and scooters or an educational
institution may have separate departments for day, evening
and correspondence courses to impart education to full-time
students, locally employed students and outstation students.

Regions or Territory
When

several

organization

production

are

or

marketing

geographically

units

dispersed

in

of

an

various

locations, it is logical to departmentalize those units on a
geographical

basis.

The

Indian

Railways

are

departmentalized on this basis. Northern Railways, Western
Railways, Southern Railways, Eastern Railways, Central
Railways, etc. are departments in this sense.

The Food

Corporation of India has also geographical organization with
several zonal offices at different places and a head office in
New Delhi.

Advantages
• It motivates each regional head to achieve high performance.
• It provides each regional head an opportunity to adapt to his
local situation and customer need with speed and accuracy.
• It affords valuable top-management training and experience
to middle-level executives.
• It enables the organization to take advantage of locational
factors, such as availability of raw materials, labour, market,
etc.
• It enables the organization to compare regional performances
and invest more resources in profitable regions and withdraw
resources from unprofitable ones.

(Functional Departmentalisation)
General Manager
Fig. 7.3 A typical matrix organization

Contract
Administration

R&D
(Pr
od
uc
t
De
pa
rt
m
en
tal
isa
tio
n)

A
Project
Manager

R &D
Group

Contract
Admn. Group

Engineering
Group
Engg.
Group

Mfg.
Group
Mfg.
Group

A

Project
Manager

B
Project
Manager

C

R&D
Group

R&D
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group


Slide 31

ORGANISATI
ON

An organization is the pattern of ways in which
large numbers of people, too many to have
intimate face to face contact with all others, and
engaged

in

a

complexity

of

tasks,

relate

themselves to each other in the conscious,
systematic establishment and accomplishment
of mutually agreed purposes.

In terms of all the above definitions, corporations,

armies, schools, hospitals, churches, prisons, etc.
all are organizations.

But tribes, ethnic and friendship groups and
families are not organizations because they do not

involve

any

significant

amount

of

conscious

planning, coordination or deliberate structuring.

1.

A purpose, goal or
goals which has
already indicated in
a previous chapter
are the task of
planning.

2.

A clear concept of
the major duties
or activities
required to
achiever the
purpose.

Characteristics

of
an Organisation

3. Classification of
activities into jobs

4. Establishment of
relationships
between
these jobs.

Typology of Organisations
All organizations appear alike.

But this is not so.

Every organization has certain unique combination of
the above characteristics which distinguish it from all
other

organizations.

Blau

and

Scott5 classify

organizations into four categories using the criterion
of cui bono—who benefits:

1. Organisations which benefit their owners.
business organizations fall in this category.

All

2. Organisations which benefit their members. A wide
class of unions, cooperatives and clubs come under
this category.
3. Organisations which benefit their clients. Examples
are insurance companies, private schools, etc.
4. Organisations which benefit the whole society
(commonwealth
organizations)
such
as
governmental departments.

Consideration of Objectives

The first step in organizing is to know the objectives
of the enterprise. Objectives determine the various
activities which need to be performed and the type of
organization which needs to be built for this purpose.
Consideration of objectives is the first step in the
process of organizing.

A

Grouping of Activities into
Departments

B

C

The next step is to identify the activities necessary to
achieve them and to group the closely related and
similar activities into departments and sections. For
example, the activities of a manufacturing concern may
be grouped into such departments as production,
marketing, financing and personnel.

Deciding which Departments
will be Key Departments
Which department needs to be emphasised how much
will depend, of course, on the company’s objectives and
the way it seeks to be distinctive.

For example, a

company which believes that advertising is a primary
key to success will set up a separate advertising
department that reports directly to the president. But

another

company

which

considers

it

much

less

important may only create a separate section for it under
its sales department.

Determining Levels at which Various Types of
Decisions are to be Made
After deciding the relative importance of various departments,
the levels at which various major and minor decisions are to be

made must be determined. Each firm must decide for itself as to
how much decentralization of authority and responsibility it
wants to have. Extreme decentralization may lead to loss of

control and effective coordination as a result of which the firm as
a whole may fail to achieve its overall objectives.

Extreme

centralization, on the other hand, may lead to wrong decisions at

wrong times and complete breakdown of the morale of
employees.

Determining the Span of Management
The next step to be taken in designing a structure is
to determine the number of subordinates who
should report directly to each executive.

Setting up a Coordination Mechanism

First of all comes activities analysis. A thorough and
careful activities analysis clarifies as to what work has

to be performed, what kinds of work belong together,
and what emphasis each activity is to be given in the

organization structure.

Next

comes

decision

analysis.

Although

it

is

impossible for anyone to anticipate the contents of
future decisions, one can predict their kinds and
decide their places so that when they rise in future.
Finally, an analysis should be made of the various
relationships between the tasks of a manager and

those of his subordinates, peers and superiors.

SPAN OF MANAGEMENT
Meaning and Importance :
The term “span of management” is also referred to as
span of control, span of supervision, span of authority
or span of responsibility.

It indicates the number of

subordinates who report directly to a manager.

Span of management is important for two reasons.
• First, span of management affects the efficient

utilization of managers and the effective performance
of their subordinates.

• Second, there is a relationship between span of
management and organisational structure.

PRINCIPLES OF ORGANISING
• Objectives : The objectives of the enterprise influence

the organization structure and hence the objectives of
the enterprise should first be clearly defined. Then
every part of the organization should be geared to the
achievement of these objectives.

• Specialisation Effective organization must promote
specialization. The activities of the enterprise should be
divided according to functions and assigned to persons

according to their specialization.
• Span of Control As there is a limit to the number of
persons that can be supervised effectively by one boss,
the span of control should be as far as possible, the
minimum. That means, an executive should be asked to
supervise a reasonable number of subordinates only
say six.

• Exception As the executives at the higher levels have
limited time, only exceptionally complex problems
should be referred to them and routine matters should
be dealt with by the subordinates at lower levels. This
will enable the executives at higher levels to devote time
to more important and crucial issues.
• Scalar Principle This principle is sometimes known as
the “chain of command”. The line of authority from the

chief executive at the top to the first-line supervisor at
the bottom must be clearly defined.

• Unity of Command Each subordinate should have only
one superior whose command he has to obey. Dual
subordination

must

be

avoided,

for

it

causes

uneasiness, disorder, indiscipline and undermining of
authority.
• Delegation Proper authority should be delegated at the

lower levels of organization also.

The authority

delegated should be equal to responsibility, i.e. each
manager should have enough authority to accomplish

the task assigned to him.

• Responsibility The superior should be held responsible
for the acts of his subordinates. No superior should be
allowed to avoid responsibility by delegating authority
to his subordinates.
• Authority The authority is the tool by which a manager is
able to accomplish the desired objective.

Hence, the

authority of each manager must be clearly defined.
Further, the authority should be equal to responsibility.
• Efficiency The organization structure should enable the
enterprise to function efficiently and accomplish its
objectives with the lowest possible cost.

• Simplicity The organization structure should be as

simple as possible and the organization levels should,
as far as possible, be minimum. A large number of
levels of organization means difficulty of effective

communication and coordination.
• Flexibility The organization should be flexible, should

be adaptable to changing circumstances and permit
expansion and replacement without dislocation and
disruption of the basic design.

• Balance There should be a reasonable balance in the
size of various departments, between centralization
and decentralization, between the principle of span of

control and the short chain of command, and among
all types of factors such as human, technical and
financial.
• Unity of Direction There should be one objective and
one plan for a group of activities having the same
objective. Unity of direction facilitates unification and
coordination of activities at various levels.

• Personal Ability As people constitute an organization,
there is need for proper selection, placement and

training of staff.

Further, the organization structure

must ensure optimum use of human resources and
encourage management development programmes.

DEPARTMENTALISATION
Departmentalisation is one important step of building an
organization.

The aim is to take advantage of the

division of labour and specialization upto a certain limit.

There are several bases for departmentalization, each of
which

is

suitable

for

strategies and purposes.

particular

corporate

sizes,

Functions
By

far

the

most

widely

used

base

for

departmentalization is function. Each major function

of the enterprise is grouped into a department.

Advantages
• Everybody in this form of organization understands his own task
and feels highly secure both in his work and in his relationships.

•It promotes excellence in performance because of development of
expertise through specialization.
•It leads to improved planning and control of the key functions.
•It ensures economy, there is only one department related to one
function for the entire function. Manpower and other resources of
the company are effectively utilized by time-sharing them across
products or projects.

Drawbacks
• It fosters sub-goal loyalties. It is difficult for any one
to understand the task of the whole and to relate his
own work to it.
• It does not offer a good training ground for the overall
development of a manager.

• It is unsuitable for organizations which are large in
size, complexity or innovative scope.

• In

this

form

customer

needs

evoke

conflicting

interpretations like the story of twelve blind people and

the elephant.
• In this form procedures are overly complicated,
wasteful and time-consuming—a weakness sometimes
called as “organizational arthritis”.

The structure is

rigid and resists adaptation.

• In this form because of “common pot” accounting it is
difficult to judge whether the activities of a particular
department are worth their cost.

Products
Under this method, for each major product, a separate
semi-autonomous department is created and is put

under the charge of a manager who may also be made
responsible for producing a profit of a given magnitude.
Within each department, all the needed manufacturing,

engineering, marketing, manpower and other facilities
are

assembled.

detergents,
products),

Hindustan

toiletries,

Lever

chemicals

(manufacturing

and

agro-based

Richardson Hindustan (manufacturing a range of Vicks
products, Clearasil cream and soap), and Johnson and
Johnson (manufacturing a range of products for

children and surgical sutures) have product-based
departments

Advantages
• This form relieves top management of operating task
responsibility. It can therefore better concentrate on such
centralized activities like finance, R&D and control.

• This form enables top management to compare the
performance

of

different

products

and

invest

more

resources in profitable products and withdraw resources

from unprofitable ones.

•

In this form, since the responsibility for each product’s
performance is entrusted to a particular departmental head,
he is better stimulated for improving his performance.

•

In this form, those who work within a department derive

greater satisfaction from identification with a recognizable
goal.

Customers
An enterprise may be divided into a number of departments on
the basis of the customers that it services. For example, an
electronics firm may have separate departments for military,
industrial and consumer customers.

A big automobile

servicing enterprise may have separate departments for
servicing cars, heavy vehicles and scooters or an educational
institution may have separate departments for day, evening
and correspondence courses to impart education to full-time
students, locally employed students and outstation students.

Regions or Territory
When

several

organization

production

are

or

marketing

geographically

units

dispersed

in

of

an

various

locations, it is logical to departmentalize those units on a
geographical

basis.

The

Indian

Railways

are

departmentalized on this basis. Northern Railways, Western
Railways, Southern Railways, Eastern Railways, Central
Railways, etc. are departments in this sense.

The Food

Corporation of India has also geographical organization with
several zonal offices at different places and a head office in
New Delhi.

Advantages
• It motivates each regional head to achieve high performance.
• It provides each regional head an opportunity to adapt to his
local situation and customer need with speed and accuracy.
• It affords valuable top-management training and experience
to middle-level executives.
• It enables the organization to take advantage of locational
factors, such as availability of raw materials, labour, market,
etc.
• It enables the organization to compare regional performances
and invest more resources in profitable regions and withdraw
resources from unprofitable ones.

(Functional Departmentalisation)
General Manager
Fig. 7.3 A typical matrix organization

Contract
Administration

R&D
(Pr
od
uc
t
De
pa
rt
m
en
tal
isa
tio
n)

A
Project
Manager

R &D
Group

Contract
Admn. Group

Engineering
Group
Engg.
Group

Mfg.
Group
Mfg.
Group

A

Project
Manager

B
Project
Manager

C

R&D
Group

R&D
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group


Slide 32

ORGANISATI
ON

An organization is the pattern of ways in which
large numbers of people, too many to have
intimate face to face contact with all others, and
engaged

in

a

complexity

of

tasks,

relate

themselves to each other in the conscious,
systematic establishment and accomplishment
of mutually agreed purposes.

In terms of all the above definitions, corporations,

armies, schools, hospitals, churches, prisons, etc.
all are organizations.

But tribes, ethnic and friendship groups and
families are not organizations because they do not

involve

any

significant

amount

of

conscious

planning, coordination or deliberate structuring.

1.

A purpose, goal or
goals which has
already indicated in
a previous chapter
are the task of
planning.

2.

A clear concept of
the major duties
or activities
required to
achiever the
purpose.

Characteristics

of
an Organisation

3. Classification of
activities into jobs

4. Establishment of
relationships
between
these jobs.

Typology of Organisations
All organizations appear alike.

But this is not so.

Every organization has certain unique combination of
the above characteristics which distinguish it from all
other

organizations.

Blau

and

Scott5 classify

organizations into four categories using the criterion
of cui bono—who benefits:

1. Organisations which benefit their owners.
business organizations fall in this category.

All

2. Organisations which benefit their members. A wide
class of unions, cooperatives and clubs come under
this category.
3. Organisations which benefit their clients. Examples
are insurance companies, private schools, etc.
4. Organisations which benefit the whole society
(commonwealth
organizations)
such
as
governmental departments.

Consideration of Objectives

The first step in organizing is to know the objectives
of the enterprise. Objectives determine the various
activities which need to be performed and the type of
organization which needs to be built for this purpose.
Consideration of objectives is the first step in the
process of organizing.

A

Grouping of Activities into
Departments

B

C

The next step is to identify the activities necessary to
achieve them and to group the closely related and
similar activities into departments and sections. For
example, the activities of a manufacturing concern may
be grouped into such departments as production,
marketing, financing and personnel.

Deciding which Departments
will be Key Departments
Which department needs to be emphasised how much
will depend, of course, on the company’s objectives and
the way it seeks to be distinctive.

For example, a

company which believes that advertising is a primary
key to success will set up a separate advertising
department that reports directly to the president. But

another

company

which

considers

it

much

less

important may only create a separate section for it under
its sales department.

Determining Levels at which Various Types of
Decisions are to be Made
After deciding the relative importance of various departments,
the levels at which various major and minor decisions are to be

made must be determined. Each firm must decide for itself as to
how much decentralization of authority and responsibility it
wants to have. Extreme decentralization may lead to loss of

control and effective coordination as a result of which the firm as
a whole may fail to achieve its overall objectives.

Extreme

centralization, on the other hand, may lead to wrong decisions at

wrong times and complete breakdown of the morale of
employees.

Determining the Span of Management
The next step to be taken in designing a structure is
to determine the number of subordinates who
should report directly to each executive.

Setting up a Coordination Mechanism

First of all comes activities analysis. A thorough and
careful activities analysis clarifies as to what work has

to be performed, what kinds of work belong together,
and what emphasis each activity is to be given in the

organization structure.

Next

comes

decision

analysis.

Although

it

is

impossible for anyone to anticipate the contents of
future decisions, one can predict their kinds and
decide their places so that when they rise in future.
Finally, an analysis should be made of the various
relationships between the tasks of a manager and

those of his subordinates, peers and superiors.

SPAN OF MANAGEMENT
Meaning and Importance :
The term “span of management” is also referred to as
span of control, span of supervision, span of authority
or span of responsibility.

It indicates the number of

subordinates who report directly to a manager.

Span of management is important for two reasons.
• First, span of management affects the efficient

utilization of managers and the effective performance
of their subordinates.

• Second, there is a relationship between span of
management and organisational structure.

PRINCIPLES OF ORGANISING
• Objectives : The objectives of the enterprise influence

the organization structure and hence the objectives of
the enterprise should first be clearly defined. Then
every part of the organization should be geared to the
achievement of these objectives.

• Specialisation Effective organization must promote
specialization. The activities of the enterprise should be
divided according to functions and assigned to persons

according to their specialization.
• Span of Control As there is a limit to the number of
persons that can be supervised effectively by one boss,
the span of control should be as far as possible, the
minimum. That means, an executive should be asked to
supervise a reasonable number of subordinates only
say six.

• Exception As the executives at the higher levels have
limited time, only exceptionally complex problems
should be referred to them and routine matters should
be dealt with by the subordinates at lower levels. This
will enable the executives at higher levels to devote time
to more important and crucial issues.
• Scalar Principle This principle is sometimes known as
the “chain of command”. The line of authority from the

chief executive at the top to the first-line supervisor at
the bottom must be clearly defined.

• Unity of Command Each subordinate should have only
one superior whose command he has to obey. Dual
subordination

must

be

avoided,

for

it

causes

uneasiness, disorder, indiscipline and undermining of
authority.
• Delegation Proper authority should be delegated at the

lower levels of organization also.

The authority

delegated should be equal to responsibility, i.e. each
manager should have enough authority to accomplish

the task assigned to him.

• Responsibility The superior should be held responsible
for the acts of his subordinates. No superior should be
allowed to avoid responsibility by delegating authority
to his subordinates.
• Authority The authority is the tool by which a manager is
able to accomplish the desired objective.

Hence, the

authority of each manager must be clearly defined.
Further, the authority should be equal to responsibility.
• Efficiency The organization structure should enable the
enterprise to function efficiently and accomplish its
objectives with the lowest possible cost.

• Simplicity The organization structure should be as

simple as possible and the organization levels should,
as far as possible, be minimum. A large number of
levels of organization means difficulty of effective

communication and coordination.
• Flexibility The organization should be flexible, should

be adaptable to changing circumstances and permit
expansion and replacement without dislocation and
disruption of the basic design.

• Balance There should be a reasonable balance in the
size of various departments, between centralization
and decentralization, between the principle of span of

control and the short chain of command, and among
all types of factors such as human, technical and
financial.
• Unity of Direction There should be one objective and
one plan for a group of activities having the same
objective. Unity of direction facilitates unification and
coordination of activities at various levels.

• Personal Ability As people constitute an organization,
there is need for proper selection, placement and

training of staff.

Further, the organization structure

must ensure optimum use of human resources and
encourage management development programmes.

DEPARTMENTALISATION
Departmentalisation is one important step of building an
organization.

The aim is to take advantage of the

division of labour and specialization upto a certain limit.

There are several bases for departmentalization, each of
which

is

suitable

for

strategies and purposes.

particular

corporate

sizes,

Functions
By

far

the

most

widely

used

base

for

departmentalization is function. Each major function

of the enterprise is grouped into a department.

Advantages
• Everybody in this form of organization understands his own task
and feels highly secure both in his work and in his relationships.

•It promotes excellence in performance because of development of
expertise through specialization.
•It leads to improved planning and control of the key functions.
•It ensures economy, there is only one department related to one
function for the entire function. Manpower and other resources of
the company are effectively utilized by time-sharing them across
products or projects.

Drawbacks
• It fosters sub-goal loyalties. It is difficult for any one
to understand the task of the whole and to relate his
own work to it.
• It does not offer a good training ground for the overall
development of a manager.

• It is unsuitable for organizations which are large in
size, complexity or innovative scope.

• In

this

form

customer

needs

evoke

conflicting

interpretations like the story of twelve blind people and

the elephant.
• In this form procedures are overly complicated,
wasteful and time-consuming—a weakness sometimes
called as “organizational arthritis”.

The structure is

rigid and resists adaptation.

• In this form because of “common pot” accounting it is
difficult to judge whether the activities of a particular
department are worth their cost.

Products
Under this method, for each major product, a separate
semi-autonomous department is created and is put

under the charge of a manager who may also be made
responsible for producing a profit of a given magnitude.
Within each department, all the needed manufacturing,

engineering, marketing, manpower and other facilities
are

assembled.

detergents,
products),

Hindustan

toiletries,

Lever

chemicals

(manufacturing

and

agro-based

Richardson Hindustan (manufacturing a range of Vicks
products, Clearasil cream and soap), and Johnson and
Johnson (manufacturing a range of products for

children and surgical sutures) have product-based
departments

Advantages
• This form relieves top management of operating task
responsibility. It can therefore better concentrate on such
centralized activities like finance, R&D and control.

• This form enables top management to compare the
performance

of

different

products

and

invest

more

resources in profitable products and withdraw resources

from unprofitable ones.

•

In this form, since the responsibility for each product’s
performance is entrusted to a particular departmental head,
he is better stimulated for improving his performance.

•

In this form, those who work within a department derive

greater satisfaction from identification with a recognizable
goal.

Customers
An enterprise may be divided into a number of departments on
the basis of the customers that it services. For example, an
electronics firm may have separate departments for military,
industrial and consumer customers.

A big automobile

servicing enterprise may have separate departments for
servicing cars, heavy vehicles and scooters or an educational
institution may have separate departments for day, evening
and correspondence courses to impart education to full-time
students, locally employed students and outstation students.

Regions or Territory
When

several

organization

production

are

or

marketing

geographically

units

dispersed

in

of

an

various

locations, it is logical to departmentalize those units on a
geographical

basis.

The

Indian

Railways

are

departmentalized on this basis. Northern Railways, Western
Railways, Southern Railways, Eastern Railways, Central
Railways, etc. are departments in this sense.

The Food

Corporation of India has also geographical organization with
several zonal offices at different places and a head office in
New Delhi.

Advantages
• It motivates each regional head to achieve high performance.
• It provides each regional head an opportunity to adapt to his
local situation and customer need with speed and accuracy.
• It affords valuable top-management training and experience
to middle-level executives.
• It enables the organization to take advantage of locational
factors, such as availability of raw materials, labour, market,
etc.
• It enables the organization to compare regional performances
and invest more resources in profitable regions and withdraw
resources from unprofitable ones.

(Functional Departmentalisation)
General Manager
Fig. 7.3 A typical matrix organization

Contract
Administration

R&D
(Pr
od
uc
t
De
pa
rt
m
en
tal
isa
tio
n)

A
Project
Manager

R &D
Group

Contract
Admn. Group

Engineering
Group
Engg.
Group

Mfg.
Group
Mfg.
Group

A

Project
Manager

B
Project
Manager

C

R&D
Group

R&D
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group


Slide 33

ORGANISATI
ON

An organization is the pattern of ways in which
large numbers of people, too many to have
intimate face to face contact with all others, and
engaged

in

a

complexity

of

tasks,

relate

themselves to each other in the conscious,
systematic establishment and accomplishment
of mutually agreed purposes.

In terms of all the above definitions, corporations,

armies, schools, hospitals, churches, prisons, etc.
all are organizations.

But tribes, ethnic and friendship groups and
families are not organizations because they do not

involve

any

significant

amount

of

conscious

planning, coordination or deliberate structuring.

1.

A purpose, goal or
goals which has
already indicated in
a previous chapter
are the task of
planning.

2.

A clear concept of
the major duties
or activities
required to
achiever the
purpose.

Characteristics

of
an Organisation

3. Classification of
activities into jobs

4. Establishment of
relationships
between
these jobs.

Typology of Organisations
All organizations appear alike.

But this is not so.

Every organization has certain unique combination of
the above characteristics which distinguish it from all
other

organizations.

Blau

and

Scott5 classify

organizations into four categories using the criterion
of cui bono—who benefits:

1. Organisations which benefit their owners.
business organizations fall in this category.

All

2. Organisations which benefit their members. A wide
class of unions, cooperatives and clubs come under
this category.
3. Organisations which benefit their clients. Examples
are insurance companies, private schools, etc.
4. Organisations which benefit the whole society
(commonwealth
organizations)
such
as
governmental departments.

Consideration of Objectives

The first step in organizing is to know the objectives
of the enterprise. Objectives determine the various
activities which need to be performed and the type of
organization which needs to be built for this purpose.
Consideration of objectives is the first step in the
process of organizing.

A

Grouping of Activities into
Departments

B

C

The next step is to identify the activities necessary to
achieve them and to group the closely related and
similar activities into departments and sections. For
example, the activities of a manufacturing concern may
be grouped into such departments as production,
marketing, financing and personnel.

Deciding which Departments
will be Key Departments
Which department needs to be emphasised how much
will depend, of course, on the company’s objectives and
the way it seeks to be distinctive.

For example, a

company which believes that advertising is a primary
key to success will set up a separate advertising
department that reports directly to the president. But

another

company

which

considers

it

much

less

important may only create a separate section for it under
its sales department.

Determining Levels at which Various Types of
Decisions are to be Made
After deciding the relative importance of various departments,
the levels at which various major and minor decisions are to be

made must be determined. Each firm must decide for itself as to
how much decentralization of authority and responsibility it
wants to have. Extreme decentralization may lead to loss of

control and effective coordination as a result of which the firm as
a whole may fail to achieve its overall objectives.

Extreme

centralization, on the other hand, may lead to wrong decisions at

wrong times and complete breakdown of the morale of
employees.

Determining the Span of Management
The next step to be taken in designing a structure is
to determine the number of subordinates who
should report directly to each executive.

Setting up a Coordination Mechanism

First of all comes activities analysis. A thorough and
careful activities analysis clarifies as to what work has

to be performed, what kinds of work belong together,
and what emphasis each activity is to be given in the

organization structure.

Next

comes

decision

analysis.

Although

it

is

impossible for anyone to anticipate the contents of
future decisions, one can predict their kinds and
decide their places so that when they rise in future.
Finally, an analysis should be made of the various
relationships between the tasks of a manager and

those of his subordinates, peers and superiors.

SPAN OF MANAGEMENT
Meaning and Importance :
The term “span of management” is also referred to as
span of control, span of supervision, span of authority
or span of responsibility.

It indicates the number of

subordinates who report directly to a manager.

Span of management is important for two reasons.
• First, span of management affects the efficient

utilization of managers and the effective performance
of their subordinates.

• Second, there is a relationship between span of
management and organisational structure.

PRINCIPLES OF ORGANISING
• Objectives : The objectives of the enterprise influence

the organization structure and hence the objectives of
the enterprise should first be clearly defined. Then
every part of the organization should be geared to the
achievement of these objectives.

• Specialisation Effective organization must promote
specialization. The activities of the enterprise should be
divided according to functions and assigned to persons

according to their specialization.
• Span of Control As there is a limit to the number of
persons that can be supervised effectively by one boss,
the span of control should be as far as possible, the
minimum. That means, an executive should be asked to
supervise a reasonable number of subordinates only
say six.

• Exception As the executives at the higher levels have
limited time, only exceptionally complex problems
should be referred to them and routine matters should
be dealt with by the subordinates at lower levels. This
will enable the executives at higher levels to devote time
to more important and crucial issues.
• Scalar Principle This principle is sometimes known as
the “chain of command”. The line of authority from the

chief executive at the top to the first-line supervisor at
the bottom must be clearly defined.

• Unity of Command Each subordinate should have only
one superior whose command he has to obey. Dual
subordination

must

be

avoided,

for

it

causes

uneasiness, disorder, indiscipline and undermining of
authority.
• Delegation Proper authority should be delegated at the

lower levels of organization also.

The authority

delegated should be equal to responsibility, i.e. each
manager should have enough authority to accomplish

the task assigned to him.

• Responsibility The superior should be held responsible
for the acts of his subordinates. No superior should be
allowed to avoid responsibility by delegating authority
to his subordinates.
• Authority The authority is the tool by which a manager is
able to accomplish the desired objective.

Hence, the

authority of each manager must be clearly defined.
Further, the authority should be equal to responsibility.
• Efficiency The organization structure should enable the
enterprise to function efficiently and accomplish its
objectives with the lowest possible cost.

• Simplicity The organization structure should be as

simple as possible and the organization levels should,
as far as possible, be minimum. A large number of
levels of organization means difficulty of effective

communication and coordination.
• Flexibility The organization should be flexible, should

be adaptable to changing circumstances and permit
expansion and replacement without dislocation and
disruption of the basic design.

• Balance There should be a reasonable balance in the
size of various departments, between centralization
and decentralization, between the principle of span of

control and the short chain of command, and among
all types of factors such as human, technical and
financial.
• Unity of Direction There should be one objective and
one plan for a group of activities having the same
objective. Unity of direction facilitates unification and
coordination of activities at various levels.

• Personal Ability As people constitute an organization,
there is need for proper selection, placement and

training of staff.

Further, the organization structure

must ensure optimum use of human resources and
encourage management development programmes.

DEPARTMENTALISATION
Departmentalisation is one important step of building an
organization.

The aim is to take advantage of the

division of labour and specialization upto a certain limit.

There are several bases for departmentalization, each of
which

is

suitable

for

strategies and purposes.

particular

corporate

sizes,

Functions
By

far

the

most

widely

used

base

for

departmentalization is function. Each major function

of the enterprise is grouped into a department.

Advantages
• Everybody in this form of organization understands his own task
and feels highly secure both in his work and in his relationships.

•It promotes excellence in performance because of development of
expertise through specialization.
•It leads to improved planning and control of the key functions.
•It ensures economy, there is only one department related to one
function for the entire function. Manpower and other resources of
the company are effectively utilized by time-sharing them across
products or projects.

Drawbacks
• It fosters sub-goal loyalties. It is difficult for any one
to understand the task of the whole and to relate his
own work to it.
• It does not offer a good training ground for the overall
development of a manager.

• It is unsuitable for organizations which are large in
size, complexity or innovative scope.

• In

this

form

customer

needs

evoke

conflicting

interpretations like the story of twelve blind people and

the elephant.
• In this form procedures are overly complicated,
wasteful and time-consuming—a weakness sometimes
called as “organizational arthritis”.

The structure is

rigid and resists adaptation.

• In this form because of “common pot” accounting it is
difficult to judge whether the activities of a particular
department are worth their cost.

Products
Under this method, for each major product, a separate
semi-autonomous department is created and is put

under the charge of a manager who may also be made
responsible for producing a profit of a given magnitude.
Within each department, all the needed manufacturing,

engineering, marketing, manpower and other facilities
are

assembled.

detergents,
products),

Hindustan

toiletries,

Lever

chemicals

(manufacturing

and

agro-based

Richardson Hindustan (manufacturing a range of Vicks
products, Clearasil cream and soap), and Johnson and
Johnson (manufacturing a range of products for

children and surgical sutures) have product-based
departments

Advantages
• This form relieves top management of operating task
responsibility. It can therefore better concentrate on such
centralized activities like finance, R&D and control.

• This form enables top management to compare the
performance

of

different

products

and

invest

more

resources in profitable products and withdraw resources

from unprofitable ones.

•

In this form, since the responsibility for each product’s
performance is entrusted to a particular departmental head,
he is better stimulated for improving his performance.

•

In this form, those who work within a department derive

greater satisfaction from identification with a recognizable
goal.

Customers
An enterprise may be divided into a number of departments on
the basis of the customers that it services. For example, an
electronics firm may have separate departments for military,
industrial and consumer customers.

A big automobile

servicing enterprise may have separate departments for
servicing cars, heavy vehicles and scooters or an educational
institution may have separate departments for day, evening
and correspondence courses to impart education to full-time
students, locally employed students and outstation students.

Regions or Territory
When

several

organization

production

are

or

marketing

geographically

units

dispersed

in

of

an

various

locations, it is logical to departmentalize those units on a
geographical

basis.

The

Indian

Railways

are

departmentalized on this basis. Northern Railways, Western
Railways, Southern Railways, Eastern Railways, Central
Railways, etc. are departments in this sense.

The Food

Corporation of India has also geographical organization with
several zonal offices at different places and a head office in
New Delhi.

Advantages
• It motivates each regional head to achieve high performance.
• It provides each regional head an opportunity to adapt to his
local situation and customer need with speed and accuracy.
• It affords valuable top-management training and experience
to middle-level executives.
• It enables the organization to take advantage of locational
factors, such as availability of raw materials, labour, market,
etc.
• It enables the organization to compare regional performances
and invest more resources in profitable regions and withdraw
resources from unprofitable ones.

(Functional Departmentalisation)
General Manager
Fig. 7.3 A typical matrix organization

Contract
Administration

R&D
(Pr
od
uc
t
De
pa
rt
m
en
tal
isa
tio
n)

A
Project
Manager

R &D
Group

Contract
Admn. Group

Engineering
Group
Engg.
Group

Mfg.
Group
Mfg.
Group

A

Project
Manager

B
Project
Manager

C

R&D
Group

R&D
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group


Slide 34

ORGANISATI
ON

An organization is the pattern of ways in which
large numbers of people, too many to have
intimate face to face contact with all others, and
engaged

in

a

complexity

of

tasks,

relate

themselves to each other in the conscious,
systematic establishment and accomplishment
of mutually agreed purposes.

In terms of all the above definitions, corporations,

armies, schools, hospitals, churches, prisons, etc.
all are organizations.

But tribes, ethnic and friendship groups and
families are not organizations because they do not

involve

any

significant

amount

of

conscious

planning, coordination or deliberate structuring.

1.

A purpose, goal or
goals which has
already indicated in
a previous chapter
are the task of
planning.

2.

A clear concept of
the major duties
or activities
required to
achiever the
purpose.

Characteristics

of
an Organisation

3. Classification of
activities into jobs

4. Establishment of
relationships
between
these jobs.

Typology of Organisations
All organizations appear alike.

But this is not so.

Every organization has certain unique combination of
the above characteristics which distinguish it from all
other

organizations.

Blau

and

Scott5 classify

organizations into four categories using the criterion
of cui bono—who benefits:

1. Organisations which benefit their owners.
business organizations fall in this category.

All

2. Organisations which benefit their members. A wide
class of unions, cooperatives and clubs come under
this category.
3. Organisations which benefit their clients. Examples
are insurance companies, private schools, etc.
4. Organisations which benefit the whole society
(commonwealth
organizations)
such
as
governmental departments.

Consideration of Objectives

The first step in organizing is to know the objectives
of the enterprise. Objectives determine the various
activities which need to be performed and the type of
organization which needs to be built for this purpose.
Consideration of objectives is the first step in the
process of organizing.

A

Grouping of Activities into
Departments

B

C

The next step is to identify the activities necessary to
achieve them and to group the closely related and
similar activities into departments and sections. For
example, the activities of a manufacturing concern may
be grouped into such departments as production,
marketing, financing and personnel.

Deciding which Departments
will be Key Departments
Which department needs to be emphasised how much
will depend, of course, on the company’s objectives and
the way it seeks to be distinctive.

For example, a

company which believes that advertising is a primary
key to success will set up a separate advertising
department that reports directly to the president. But

another

company

which

considers

it

much

less

important may only create a separate section for it under
its sales department.

Determining Levels at which Various Types of
Decisions are to be Made
After deciding the relative importance of various departments,
the levels at which various major and minor decisions are to be

made must be determined. Each firm must decide for itself as to
how much decentralization of authority and responsibility it
wants to have. Extreme decentralization may lead to loss of

control and effective coordination as a result of which the firm as
a whole may fail to achieve its overall objectives.

Extreme

centralization, on the other hand, may lead to wrong decisions at

wrong times and complete breakdown of the morale of
employees.

Determining the Span of Management
The next step to be taken in designing a structure is
to determine the number of subordinates who
should report directly to each executive.

Setting up a Coordination Mechanism

First of all comes activities analysis. A thorough and
careful activities analysis clarifies as to what work has

to be performed, what kinds of work belong together,
and what emphasis each activity is to be given in the

organization structure.

Next

comes

decision

analysis.

Although

it

is

impossible for anyone to anticipate the contents of
future decisions, one can predict their kinds and
decide their places so that when they rise in future.
Finally, an analysis should be made of the various
relationships between the tasks of a manager and

those of his subordinates, peers and superiors.

SPAN OF MANAGEMENT
Meaning and Importance :
The term “span of management” is also referred to as
span of control, span of supervision, span of authority
or span of responsibility.

It indicates the number of

subordinates who report directly to a manager.

Span of management is important for two reasons.
• First, span of management affects the efficient

utilization of managers and the effective performance
of their subordinates.

• Second, there is a relationship between span of
management and organisational structure.

PRINCIPLES OF ORGANISING
• Objectives : The objectives of the enterprise influence

the organization structure and hence the objectives of
the enterprise should first be clearly defined. Then
every part of the organization should be geared to the
achievement of these objectives.

• Specialisation Effective organization must promote
specialization. The activities of the enterprise should be
divided according to functions and assigned to persons

according to their specialization.
• Span of Control As there is a limit to the number of
persons that can be supervised effectively by one boss,
the span of control should be as far as possible, the
minimum. That means, an executive should be asked to
supervise a reasonable number of subordinates only
say six.

• Exception As the executives at the higher levels have
limited time, only exceptionally complex problems
should be referred to them and routine matters should
be dealt with by the subordinates at lower levels. This
will enable the executives at higher levels to devote time
to more important and crucial issues.
• Scalar Principle This principle is sometimes known as
the “chain of command”. The line of authority from the

chief executive at the top to the first-line supervisor at
the bottom must be clearly defined.

• Unity of Command Each subordinate should have only
one superior whose command he has to obey. Dual
subordination

must

be

avoided,

for

it

causes

uneasiness, disorder, indiscipline and undermining of
authority.
• Delegation Proper authority should be delegated at the

lower levels of organization also.

The authority

delegated should be equal to responsibility, i.e. each
manager should have enough authority to accomplish

the task assigned to him.

• Responsibility The superior should be held responsible
for the acts of his subordinates. No superior should be
allowed to avoid responsibility by delegating authority
to his subordinates.
• Authority The authority is the tool by which a manager is
able to accomplish the desired objective.

Hence, the

authority of each manager must be clearly defined.
Further, the authority should be equal to responsibility.
• Efficiency The organization structure should enable the
enterprise to function efficiently and accomplish its
objectives with the lowest possible cost.

• Simplicity The organization structure should be as

simple as possible and the organization levels should,
as far as possible, be minimum. A large number of
levels of organization means difficulty of effective

communication and coordination.
• Flexibility The organization should be flexible, should

be adaptable to changing circumstances and permit
expansion and replacement without dislocation and
disruption of the basic design.

• Balance There should be a reasonable balance in the
size of various departments, between centralization
and decentralization, between the principle of span of

control and the short chain of command, and among
all types of factors such as human, technical and
financial.
• Unity of Direction There should be one objective and
one plan for a group of activities having the same
objective. Unity of direction facilitates unification and
coordination of activities at various levels.

• Personal Ability As people constitute an organization,
there is need for proper selection, placement and

training of staff.

Further, the organization structure

must ensure optimum use of human resources and
encourage management development programmes.

DEPARTMENTALISATION
Departmentalisation is one important step of building an
organization.

The aim is to take advantage of the

division of labour and specialization upto a certain limit.

There are several bases for departmentalization, each of
which

is

suitable

for

strategies and purposes.

particular

corporate

sizes,

Functions
By

far

the

most

widely

used

base

for

departmentalization is function. Each major function

of the enterprise is grouped into a department.

Advantages
• Everybody in this form of organization understands his own task
and feels highly secure both in his work and in his relationships.

•It promotes excellence in performance because of development of
expertise through specialization.
•It leads to improved planning and control of the key functions.
•It ensures economy, there is only one department related to one
function for the entire function. Manpower and other resources of
the company are effectively utilized by time-sharing them across
products or projects.

Drawbacks
• It fosters sub-goal loyalties. It is difficult for any one
to understand the task of the whole and to relate his
own work to it.
• It does not offer a good training ground for the overall
development of a manager.

• It is unsuitable for organizations which are large in
size, complexity or innovative scope.

• In

this

form

customer

needs

evoke

conflicting

interpretations like the story of twelve blind people and

the elephant.
• In this form procedures are overly complicated,
wasteful and time-consuming—a weakness sometimes
called as “organizational arthritis”.

The structure is

rigid and resists adaptation.

• In this form because of “common pot” accounting it is
difficult to judge whether the activities of a particular
department are worth their cost.

Products
Under this method, for each major product, a separate
semi-autonomous department is created and is put

under the charge of a manager who may also be made
responsible for producing a profit of a given magnitude.
Within each department, all the needed manufacturing,

engineering, marketing, manpower and other facilities
are

assembled.

detergents,
products),

Hindustan

toiletries,

Lever

chemicals

(manufacturing

and

agro-based

Richardson Hindustan (manufacturing a range of Vicks
products, Clearasil cream and soap), and Johnson and
Johnson (manufacturing a range of products for

children and surgical sutures) have product-based
departments

Advantages
• This form relieves top management of operating task
responsibility. It can therefore better concentrate on such
centralized activities like finance, R&D and control.

• This form enables top management to compare the
performance

of

different

products

and

invest

more

resources in profitable products and withdraw resources

from unprofitable ones.

•

In this form, since the responsibility for each product’s
performance is entrusted to a particular departmental head,
he is better stimulated for improving his performance.

•

In this form, those who work within a department derive

greater satisfaction from identification with a recognizable
goal.

Customers
An enterprise may be divided into a number of departments on
the basis of the customers that it services. For example, an
electronics firm may have separate departments for military,
industrial and consumer customers.

A big automobile

servicing enterprise may have separate departments for
servicing cars, heavy vehicles and scooters or an educational
institution may have separate departments for day, evening
and correspondence courses to impart education to full-time
students, locally employed students and outstation students.

Regions or Territory
When

several

organization

production

are

or

marketing

geographically

units

dispersed

in

of

an

various

locations, it is logical to departmentalize those units on a
geographical

basis.

The

Indian

Railways

are

departmentalized on this basis. Northern Railways, Western
Railways, Southern Railways, Eastern Railways, Central
Railways, etc. are departments in this sense.

The Food

Corporation of India has also geographical organization with
several zonal offices at different places and a head office in
New Delhi.

Advantages
• It motivates each regional head to achieve high performance.
• It provides each regional head an opportunity to adapt to his
local situation and customer need with speed and accuracy.
• It affords valuable top-management training and experience
to middle-level executives.
• It enables the organization to take advantage of locational
factors, such as availability of raw materials, labour, market,
etc.
• It enables the organization to compare regional performances
and invest more resources in profitable regions and withdraw
resources from unprofitable ones.

(Functional Departmentalisation)
General Manager
Fig. 7.3 A typical matrix organization

Contract
Administration

R&D
(Pr
od
uc
t
De
pa
rt
m
en
tal
isa
tio
n)

A
Project
Manager

R &D
Group

Contract
Admn. Group

Engineering
Group
Engg.
Group

Mfg.
Group
Mfg.
Group

A

Project
Manager

B
Project
Manager

C

R&D
Group

R&D
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group


Slide 35

ORGANISATI
ON

An organization is the pattern of ways in which
large numbers of people, too many to have
intimate face to face contact with all others, and
engaged

in

a

complexity

of

tasks,

relate

themselves to each other in the conscious,
systematic establishment and accomplishment
of mutually agreed purposes.

In terms of all the above definitions, corporations,

armies, schools, hospitals, churches, prisons, etc.
all are organizations.

But tribes, ethnic and friendship groups and
families are not organizations because they do not

involve

any

significant

amount

of

conscious

planning, coordination or deliberate structuring.

1.

A purpose, goal or
goals which has
already indicated in
a previous chapter
are the task of
planning.

2.

A clear concept of
the major duties
or activities
required to
achiever the
purpose.

Characteristics

of
an Organisation

3. Classification of
activities into jobs

4. Establishment of
relationships
between
these jobs.

Typology of Organisations
All organizations appear alike.

But this is not so.

Every organization has certain unique combination of
the above characteristics which distinguish it from all
other

organizations.

Blau

and

Scott5 classify

organizations into four categories using the criterion
of cui bono—who benefits:

1. Organisations which benefit their owners.
business organizations fall in this category.

All

2. Organisations which benefit their members. A wide
class of unions, cooperatives and clubs come under
this category.
3. Organisations which benefit their clients. Examples
are insurance companies, private schools, etc.
4. Organisations which benefit the whole society
(commonwealth
organizations)
such
as
governmental departments.

Consideration of Objectives

The first step in organizing is to know the objectives
of the enterprise. Objectives determine the various
activities which need to be performed and the type of
organization which needs to be built for this purpose.
Consideration of objectives is the first step in the
process of organizing.

A

Grouping of Activities into
Departments

B

C

The next step is to identify the activities necessary to
achieve them and to group the closely related and
similar activities into departments and sections. For
example, the activities of a manufacturing concern may
be grouped into such departments as production,
marketing, financing and personnel.

Deciding which Departments
will be Key Departments
Which department needs to be emphasised how much
will depend, of course, on the company’s objectives and
the way it seeks to be distinctive.

For example, a

company which believes that advertising is a primary
key to success will set up a separate advertising
department that reports directly to the president. But

another

company

which

considers

it

much

less

important may only create a separate section for it under
its sales department.

Determining Levels at which Various Types of
Decisions are to be Made
After deciding the relative importance of various departments,
the levels at which various major and minor decisions are to be

made must be determined. Each firm must decide for itself as to
how much decentralization of authority and responsibility it
wants to have. Extreme decentralization may lead to loss of

control and effective coordination as a result of which the firm as
a whole may fail to achieve its overall objectives.

Extreme

centralization, on the other hand, may lead to wrong decisions at

wrong times and complete breakdown of the morale of
employees.

Determining the Span of Management
The next step to be taken in designing a structure is
to determine the number of subordinates who
should report directly to each executive.

Setting up a Coordination Mechanism

First of all comes activities analysis. A thorough and
careful activities analysis clarifies as to what work has

to be performed, what kinds of work belong together,
and what emphasis each activity is to be given in the

organization structure.

Next

comes

decision

analysis.

Although

it

is

impossible for anyone to anticipate the contents of
future decisions, one can predict their kinds and
decide their places so that when they rise in future.
Finally, an analysis should be made of the various
relationships between the tasks of a manager and

those of his subordinates, peers and superiors.

SPAN OF MANAGEMENT
Meaning and Importance :
The term “span of management” is also referred to as
span of control, span of supervision, span of authority
or span of responsibility.

It indicates the number of

subordinates who report directly to a manager.

Span of management is important for two reasons.
• First, span of management affects the efficient

utilization of managers and the effective performance
of their subordinates.

• Second, there is a relationship between span of
management and organisational structure.

PRINCIPLES OF ORGANISING
• Objectives : The objectives of the enterprise influence

the organization structure and hence the objectives of
the enterprise should first be clearly defined. Then
every part of the organization should be geared to the
achievement of these objectives.

• Specialisation Effective organization must promote
specialization. The activities of the enterprise should be
divided according to functions and assigned to persons

according to their specialization.
• Span of Control As there is a limit to the number of
persons that can be supervised effectively by one boss,
the span of control should be as far as possible, the
minimum. That means, an executive should be asked to
supervise a reasonable number of subordinates only
say six.

• Exception As the executives at the higher levels have
limited time, only exceptionally complex problems
should be referred to them and routine matters should
be dealt with by the subordinates at lower levels. This
will enable the executives at higher levels to devote time
to more important and crucial issues.
• Scalar Principle This principle is sometimes known as
the “chain of command”. The line of authority from the

chief executive at the top to the first-line supervisor at
the bottom must be clearly defined.

• Unity of Command Each subordinate should have only
one superior whose command he has to obey. Dual
subordination

must

be

avoided,

for

it

causes

uneasiness, disorder, indiscipline and undermining of
authority.
• Delegation Proper authority should be delegated at the

lower levels of organization also.

The authority

delegated should be equal to responsibility, i.e. each
manager should have enough authority to accomplish

the task assigned to him.

• Responsibility The superior should be held responsible
for the acts of his subordinates. No superior should be
allowed to avoid responsibility by delegating authority
to his subordinates.
• Authority The authority is the tool by which a manager is
able to accomplish the desired objective.

Hence, the

authority of each manager must be clearly defined.
Further, the authority should be equal to responsibility.
• Efficiency The organization structure should enable the
enterprise to function efficiently and accomplish its
objectives with the lowest possible cost.

• Simplicity The organization structure should be as

simple as possible and the organization levels should,
as far as possible, be minimum. A large number of
levels of organization means difficulty of effective

communication and coordination.
• Flexibility The organization should be flexible, should

be adaptable to changing circumstances and permit
expansion and replacement without dislocation and
disruption of the basic design.

• Balance There should be a reasonable balance in the
size of various departments, between centralization
and decentralization, between the principle of span of

control and the short chain of command, and among
all types of factors such as human, technical and
financial.
• Unity of Direction There should be one objective and
one plan for a group of activities having the same
objective. Unity of direction facilitates unification and
coordination of activities at various levels.

• Personal Ability As people constitute an organization,
there is need for proper selection, placement and

training of staff.

Further, the organization structure

must ensure optimum use of human resources and
encourage management development programmes.

DEPARTMENTALISATION
Departmentalisation is one important step of building an
organization.

The aim is to take advantage of the

division of labour and specialization upto a certain limit.

There are several bases for departmentalization, each of
which

is

suitable

for

strategies and purposes.

particular

corporate

sizes,

Functions
By

far

the

most

widely

used

base

for

departmentalization is function. Each major function

of the enterprise is grouped into a department.

Advantages
• Everybody in this form of organization understands his own task
and feels highly secure both in his work and in his relationships.

•It promotes excellence in performance because of development of
expertise through specialization.
•It leads to improved planning and control of the key functions.
•It ensures economy, there is only one department related to one
function for the entire function. Manpower and other resources of
the company are effectively utilized by time-sharing them across
products or projects.

Drawbacks
• It fosters sub-goal loyalties. It is difficult for any one
to understand the task of the whole and to relate his
own work to it.
• It does not offer a good training ground for the overall
development of a manager.

• It is unsuitable for organizations which are large in
size, complexity or innovative scope.

• In

this

form

customer

needs

evoke

conflicting

interpretations like the story of twelve blind people and

the elephant.
• In this form procedures are overly complicated,
wasteful and time-consuming—a weakness sometimes
called as “organizational arthritis”.

The structure is

rigid and resists adaptation.

• In this form because of “common pot” accounting it is
difficult to judge whether the activities of a particular
department are worth their cost.

Products
Under this method, for each major product, a separate
semi-autonomous department is created and is put

under the charge of a manager who may also be made
responsible for producing a profit of a given magnitude.
Within each department, all the needed manufacturing,

engineering, marketing, manpower and other facilities
are

assembled.

detergents,
products),

Hindustan

toiletries,

Lever

chemicals

(manufacturing

and

agro-based

Richardson Hindustan (manufacturing a range of Vicks
products, Clearasil cream and soap), and Johnson and
Johnson (manufacturing a range of products for

children and surgical sutures) have product-based
departments

Advantages
• This form relieves top management of operating task
responsibility. It can therefore better concentrate on such
centralized activities like finance, R&D and control.

• This form enables top management to compare the
performance

of

different

products

and

invest

more

resources in profitable products and withdraw resources

from unprofitable ones.

•

In this form, since the responsibility for each product’s
performance is entrusted to a particular departmental head,
he is better stimulated for improving his performance.

•

In this form, those who work within a department derive

greater satisfaction from identification with a recognizable
goal.

Customers
An enterprise may be divided into a number of departments on
the basis of the customers that it services. For example, an
electronics firm may have separate departments for military,
industrial and consumer customers.

A big automobile

servicing enterprise may have separate departments for
servicing cars, heavy vehicles and scooters or an educational
institution may have separate departments for day, evening
and correspondence courses to impart education to full-time
students, locally employed students and outstation students.

Regions or Territory
When

several

organization

production

are

or

marketing

geographically

units

dispersed

in

of

an

various

locations, it is logical to departmentalize those units on a
geographical

basis.

The

Indian

Railways

are

departmentalized on this basis. Northern Railways, Western
Railways, Southern Railways, Eastern Railways, Central
Railways, etc. are departments in this sense.

The Food

Corporation of India has also geographical organization with
several zonal offices at different places and a head office in
New Delhi.

Advantages
• It motivates each regional head to achieve high performance.
• It provides each regional head an opportunity to adapt to his
local situation and customer need with speed and accuracy.
• It affords valuable top-management training and experience
to middle-level executives.
• It enables the organization to take advantage of locational
factors, such as availability of raw materials, labour, market,
etc.
• It enables the organization to compare regional performances
and invest more resources in profitable regions and withdraw
resources from unprofitable ones.

(Functional Departmentalisation)
General Manager
Fig. 7.3 A typical matrix organization

Contract
Administration

R&D
(Pr
od
uc
t
De
pa
rt
m
en
tal
isa
tio
n)

A
Project
Manager

R &D
Group

Contract
Admn. Group

Engineering
Group
Engg.
Group

Mfg.
Group
Mfg.
Group

A

Project
Manager

B
Project
Manager

C

R&D
Group

R&D
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group


Slide 36

ORGANISATI
ON

An organization is the pattern of ways in which
large numbers of people, too many to have
intimate face to face contact with all others, and
engaged

in

a

complexity

of

tasks,

relate

themselves to each other in the conscious,
systematic establishment and accomplishment
of mutually agreed purposes.

In terms of all the above definitions, corporations,

armies, schools, hospitals, churches, prisons, etc.
all are organizations.

But tribes, ethnic and friendship groups and
families are not organizations because they do not

involve

any

significant

amount

of

conscious

planning, coordination or deliberate structuring.

1.

A purpose, goal or
goals which has
already indicated in
a previous chapter
are the task of
planning.

2.

A clear concept of
the major duties
or activities
required to
achiever the
purpose.

Characteristics

of
an Organisation

3. Classification of
activities into jobs

4. Establishment of
relationships
between
these jobs.

Typology of Organisations
All organizations appear alike.

But this is not so.

Every organization has certain unique combination of
the above characteristics which distinguish it from all
other

organizations.

Blau

and

Scott5 classify

organizations into four categories using the criterion
of cui bono—who benefits:

1. Organisations which benefit their owners.
business organizations fall in this category.

All

2. Organisations which benefit their members. A wide
class of unions, cooperatives and clubs come under
this category.
3. Organisations which benefit their clients. Examples
are insurance companies, private schools, etc.
4. Organisations which benefit the whole society
(commonwealth
organizations)
such
as
governmental departments.

Consideration of Objectives

The first step in organizing is to know the objectives
of the enterprise. Objectives determine the various
activities which need to be performed and the type of
organization which needs to be built for this purpose.
Consideration of objectives is the first step in the
process of organizing.

A

Grouping of Activities into
Departments

B

C

The next step is to identify the activities necessary to
achieve them and to group the closely related and
similar activities into departments and sections. For
example, the activities of a manufacturing concern may
be grouped into such departments as production,
marketing, financing and personnel.

Deciding which Departments
will be Key Departments
Which department needs to be emphasised how much
will depend, of course, on the company’s objectives and
the way it seeks to be distinctive.

For example, a

company which believes that advertising is a primary
key to success will set up a separate advertising
department that reports directly to the president. But

another

company

which

considers

it

much

less

important may only create a separate section for it under
its sales department.

Determining Levels at which Various Types of
Decisions are to be Made
After deciding the relative importance of various departments,
the levels at which various major and minor decisions are to be

made must be determined. Each firm must decide for itself as to
how much decentralization of authority and responsibility it
wants to have. Extreme decentralization may lead to loss of

control and effective coordination as a result of which the firm as
a whole may fail to achieve its overall objectives.

Extreme

centralization, on the other hand, may lead to wrong decisions at

wrong times and complete breakdown of the morale of
employees.

Determining the Span of Management
The next step to be taken in designing a structure is
to determine the number of subordinates who
should report directly to each executive.

Setting up a Coordination Mechanism

First of all comes activities analysis. A thorough and
careful activities analysis clarifies as to what work has

to be performed, what kinds of work belong together,
and what emphasis each activity is to be given in the

organization structure.

Next

comes

decision

analysis.

Although

it

is

impossible for anyone to anticipate the contents of
future decisions, one can predict their kinds and
decide their places so that when they rise in future.
Finally, an analysis should be made of the various
relationships between the tasks of a manager and

those of his subordinates, peers and superiors.

SPAN OF MANAGEMENT
Meaning and Importance :
The term “span of management” is also referred to as
span of control, span of supervision, span of authority
or span of responsibility.

It indicates the number of

subordinates who report directly to a manager.

Span of management is important for two reasons.
• First, span of management affects the efficient

utilization of managers and the effective performance
of their subordinates.

• Second, there is a relationship between span of
management and organisational structure.

PRINCIPLES OF ORGANISING
• Objectives : The objectives of the enterprise influence

the organization structure and hence the objectives of
the enterprise should first be clearly defined. Then
every part of the organization should be geared to the
achievement of these objectives.

• Specialisation Effective organization must promote
specialization. The activities of the enterprise should be
divided according to functions and assigned to persons

according to their specialization.
• Span of Control As there is a limit to the number of
persons that can be supervised effectively by one boss,
the span of control should be as far as possible, the
minimum. That means, an executive should be asked to
supervise a reasonable number of subordinates only
say six.

• Exception As the executives at the higher levels have
limited time, only exceptionally complex problems
should be referred to them and routine matters should
be dealt with by the subordinates at lower levels. This
will enable the executives at higher levels to devote time
to more important and crucial issues.
• Scalar Principle This principle is sometimes known as
the “chain of command”. The line of authority from the

chief executive at the top to the first-line supervisor at
the bottom must be clearly defined.

• Unity of Command Each subordinate should have only
one superior whose command he has to obey. Dual
subordination

must

be

avoided,

for

it

causes

uneasiness, disorder, indiscipline and undermining of
authority.
• Delegation Proper authority should be delegated at the

lower levels of organization also.

The authority

delegated should be equal to responsibility, i.e. each
manager should have enough authority to accomplish

the task assigned to him.

• Responsibility The superior should be held responsible
for the acts of his subordinates. No superior should be
allowed to avoid responsibility by delegating authority
to his subordinates.
• Authority The authority is the tool by which a manager is
able to accomplish the desired objective.

Hence, the

authority of each manager must be clearly defined.
Further, the authority should be equal to responsibility.
• Efficiency The organization structure should enable the
enterprise to function efficiently and accomplish its
objectives with the lowest possible cost.

• Simplicity The organization structure should be as

simple as possible and the organization levels should,
as far as possible, be minimum. A large number of
levels of organization means difficulty of effective

communication and coordination.
• Flexibility The organization should be flexible, should

be adaptable to changing circumstances and permit
expansion and replacement without dislocation and
disruption of the basic design.

• Balance There should be a reasonable balance in the
size of various departments, between centralization
and decentralization, between the principle of span of

control and the short chain of command, and among
all types of factors such as human, technical and
financial.
• Unity of Direction There should be one objective and
one plan for a group of activities having the same
objective. Unity of direction facilitates unification and
coordination of activities at various levels.

• Personal Ability As people constitute an organization,
there is need for proper selection, placement and

training of staff.

Further, the organization structure

must ensure optimum use of human resources and
encourage management development programmes.

DEPARTMENTALISATION
Departmentalisation is one important step of building an
organization.

The aim is to take advantage of the

division of labour and specialization upto a certain limit.

There are several bases for departmentalization, each of
which

is

suitable

for

strategies and purposes.

particular

corporate

sizes,

Functions
By

far

the

most

widely

used

base

for

departmentalization is function. Each major function

of the enterprise is grouped into a department.

Advantages
• Everybody in this form of organization understands his own task
and feels highly secure both in his work and in his relationships.

•It promotes excellence in performance because of development of
expertise through specialization.
•It leads to improved planning and control of the key functions.
•It ensures economy, there is only one department related to one
function for the entire function. Manpower and other resources of
the company are effectively utilized by time-sharing them across
products or projects.

Drawbacks
• It fosters sub-goal loyalties. It is difficult for any one
to understand the task of the whole and to relate his
own work to it.
• It does not offer a good training ground for the overall
development of a manager.

• It is unsuitable for organizations which are large in
size, complexity or innovative scope.

• In

this

form

customer

needs

evoke

conflicting

interpretations like the story of twelve blind people and

the elephant.
• In this form procedures are overly complicated,
wasteful and time-consuming—a weakness sometimes
called as “organizational arthritis”.

The structure is

rigid and resists adaptation.

• In this form because of “common pot” accounting it is
difficult to judge whether the activities of a particular
department are worth their cost.

Products
Under this method, for each major product, a separate
semi-autonomous department is created and is put

under the charge of a manager who may also be made
responsible for producing a profit of a given magnitude.
Within each department, all the needed manufacturing,

engineering, marketing, manpower and other facilities
are

assembled.

detergents,
products),

Hindustan

toiletries,

Lever

chemicals

(manufacturing

and

agro-based

Richardson Hindustan (manufacturing a range of Vicks
products, Clearasil cream and soap), and Johnson and
Johnson (manufacturing a range of products for

children and surgical sutures) have product-based
departments

Advantages
• This form relieves top management of operating task
responsibility. It can therefore better concentrate on such
centralized activities like finance, R&D and control.

• This form enables top management to compare the
performance

of

different

products

and

invest

more

resources in profitable products and withdraw resources

from unprofitable ones.

•

In this form, since the responsibility for each product’s
performance is entrusted to a particular departmental head,
he is better stimulated for improving his performance.

•

In this form, those who work within a department derive

greater satisfaction from identification with a recognizable
goal.

Customers
An enterprise may be divided into a number of departments on
the basis of the customers that it services. For example, an
electronics firm may have separate departments for military,
industrial and consumer customers.

A big automobile

servicing enterprise may have separate departments for
servicing cars, heavy vehicles and scooters or an educational
institution may have separate departments for day, evening
and correspondence courses to impart education to full-time
students, locally employed students and outstation students.

Regions or Territory
When

several

organization

production

are

or

marketing

geographically

units

dispersed

in

of

an

various

locations, it is logical to departmentalize those units on a
geographical

basis.

The

Indian

Railways

are

departmentalized on this basis. Northern Railways, Western
Railways, Southern Railways, Eastern Railways, Central
Railways, etc. are departments in this sense.

The Food

Corporation of India has also geographical organization with
several zonal offices at different places and a head office in
New Delhi.

Advantages
• It motivates each regional head to achieve high performance.
• It provides each regional head an opportunity to adapt to his
local situation and customer need with speed and accuracy.
• It affords valuable top-management training and experience
to middle-level executives.
• It enables the organization to take advantage of locational
factors, such as availability of raw materials, labour, market,
etc.
• It enables the organization to compare regional performances
and invest more resources in profitable regions and withdraw
resources from unprofitable ones.

(Functional Departmentalisation)
General Manager
Fig. 7.3 A typical matrix organization

Contract
Administration

R&D
(Pr
od
uc
t
De
pa
rt
m
en
tal
isa
tio
n)

A
Project
Manager

R &D
Group

Contract
Admn. Group

Engineering
Group
Engg.
Group

Mfg.
Group
Mfg.
Group

A

Project
Manager

B
Project
Manager

C

R&D
Group

R&D
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group

Contract
Admn. Group

Engg.
Group

Mfg.
Group