Revision: Principles and Functions of Management >> Organising Business Studies Commerce (English Medium) Class 12 CBSE

Decentralisation refers to the dispersal of decision-making power among the middle-level and lower-level managers. The extent of decentralisation varies from one organisation to another.

• The formal organisation is a system of well-defined jobs, each bearing a definite measure of authority, responsibility and accountability. - Louis Allen
• Formal organisation is a system of consciously coordinated activities of two or more persons toward a common objective. - Chester Barnand

• Decentralisation refers to systematic effort to delegate to the lowest level all authority except that which can be exercised at central points. - Louis Allen
• Everything which goes to increase the importance of a subordinate’s role is decentralisation, everything that goes to reduce it is centralisation. - Henri Fayol

• An informal organisation is an aggregate of interpersonal relationships without any conscious purpose but which may contribute to joint results. - Chester Barnand
• Informal organisation is a network of personal and social relations not established or required by the formal organisation but arising spontaneously as people associate with one another. - Keith Davis

• Delegation is the process a manager follows in dividing the work assigned to him so that he performs that part which only he because of his unique organisational placement, can perform effectively and so that he can get others to help with what remains. - Louis Allen
• Delegation of authority merely means the granting of authority to subordinates to operate within prescribed limits. - Theo Haimman

• Organising can be defined as a process that initiates the implementation of plans by clarifying jobs and working relationships and effectively deploying resources for the attainment of identified and desired results (goals).
• Organising is the process of identifying and grouping the work to be performed, defining and delegating responsibility and authority, and establishing relationships for the purpose of enabling people to work most effectively together in accomplishing objectives. -Louis Allen
• Organising is the process of defining and grouping the activities of the enterprise and establishing authority relationships among them. - Theo Haimman

• Functional structure groups similar or related jobs into separate departments like production, marketing, finance, and HR.
• It promotes specialisation, as employees perform similar tasks and become experts in their field.
• It improves efficiency, control, and coordination within each department.
• It reduces duplication of work and lowers cost due to economies of scale.
• It may create coordination problems and conflicts between departments due to different interests.
• It is most suitable for large organisations requiring a high degree of specialisation.

• Divisional structure is formed by creating separate divisions based on product lines or categories.
• Each division is headed by a divisional manager who is responsible for its performance and profit or loss.
• Every division is multifunctional, performing functions like production, marketing, and finance within itself.
• It promotes product specialisation and develops managerial skills for higher positions.
• It ensures better accountability as revenues and costs can be easily identified for each division.
• It allows flexibility, quick decision-making, and easy expansion by adding new divisions.
• It may lead to higher costs and conflicts between divisions due to duplication of activities and competition for resources.

• Effective Management – Reduces manager’s workload and allows focus on important tasks.
• Employee Development – Helps employees develop skills and prepares them for higher positions.
• Motivation of Employees – Builds confidence, trust, and self-esteem among subordinates.
• Facilitates Growth – Creates trained employees who can handle expansion and new projects.
• Basis of Management Hierarchy – Establishes superior–subordinate relationships and clear reporting lines.
• Better Coordination – Clearly defines authority, responsibility, and accountability, reducing confusion and duplication of work.

• Meaning – Decentralisation refers to the delegation of decision-making authority to lower levels of management.
• Sharing of Authority – Decision-making power is distributed throughout different levels of the organisation.
• Opposite of Centralisation – In centralisation, authority remains with top management; in decentralisation, it is delegated downward.
• Suitable for Large Organisations – As organisations grow in size and complexity, decentralisation becomes necessary.
• Balance Required – No organisation is completely centralised or decentralised; a balance between both is essential.

• Identification and Division of Work – Work is divided into small and manageable tasks to avoid duplication.
• Departmentalisation – Similar activities are grouped together into departments for specialisation.
• Assignment of Duties – Tasks are assigned to employees according to their skills and abilities.
• Establishing Authority and Reporting Relationships – Clear authority and hierarchy are created so employees know whom to report to and who is responsible.

• Organisation structure is the framework within which managerial and operational tasks are performed.
• It is the outcome of the organising process and defines relationships between people, work, and resources.
• It ensures proper coordination of human, physical, and financial resources to achieve goals.
• Span of management refers to the number of subordinates a superior can effectively manage and determines management levels.
• A proper structure ensures smooth communication and better control in the organisation.

• Meaning – Formal organisation is the structure designed by management to achieve specific goals.
• Clear Authority and Responsibility – It clearly defines who reports to whom and specifies duties.
• Based on Rules and Procedures – Work is carried out according to fixed rules and guidelines.
• Coordination of Activities – Ensures proper coordination and integration of departmental efforts.
• Advantages – Fixes responsibility, avoids duplication of work, maintains unity of command, and provides stability.
• Limitation – Delay in Communication – Following the chain of command may slow down decision-making.
• Limitation – Rigid Structure – Gives less importance to creativity and human relationships.

• Meaning – Informal organisation is a network of social relationships that develops naturally among employees.
• Origin – It arises from personal interactions within the formal organisation.
• No Fixed Structure – It has no written rules, fixed hierarchy, or definite communication channels.
• Advantages – Fast Communication – Information spreads quickly and feedback is received faster.
• Social Satisfaction – Fulfils social needs and gives employees a sense of belonging.
• Disadvantages – Rumours and Resistance – May spread rumours and oppose management changes.
• Group Pressure – Members may be pressured to follow group norms, even if against organisational interests.

• Meaning – Delegation is the downward transfer of authority from a superior to a subordinate.
• Need for Delegation – A manager cannot perform all tasks alone due to heavy workload.
• Improves Efficiency – It allows managers to focus on important tasks and achieve organisational goals.
• Employee Development – Provides subordinates with recognition, responsibility, and opportunities to develop initiative.
• Accountability Remains – Even after delegation, the manager remains accountable for the final performance.

• Develops Initiative – Encourages self-reliance and confidence among subordinates by giving them decision-making power.
• Develops Managerial Talent – Provides practical experience and prepares employees for higher positions.
• Quick Decision Making – Decisions are taken at lower levels, leading to faster action and better adaptability.
• Relief to Top Management – Reduces workload of top managers, allowing them to focus on important policy matters.
• Facilitates Growth – Promotes departmental autonomy and healthy competition, increasing productivity and expansion.
• Better Control – Makes it easier to evaluate performance and fix accountability at each level.
• Requires Balance – Should be balanced with centralisation to avoid misuse and ensure unity in major policy decisions.