- Less burden on top management: Routine decisions go to lower levels, so top executives can focus on important policies.
- Motivates subordinates: Gives independence, participation, status, improving morale, teamwork and job satisfaction.
- Better & faster decisions: Decisions are taken by people close to the work, so they are more practical and reduce delays/red-tapism.
- Encourages innovation: Divisions get autonomy for creativity, healthy competition, and supports growth/diversification.
- Develops future managers: Subordinates practise decision-making, improving managerial skills and solving succession issues.
- Improves communication & control: Fewer levels can make communication quicker; lower managers can supervise effectively and control through standards/MBO.
- Main limitations: May cause lack of coordination and uniformity, higher costs (duplication, more managers), often not suitable for small firms, and may be limited by external factors (competition, unions, government, etc.).
Definitions [4]
Definitions: Organisation Structure
- According to Koontz and O'Donnell, "Organisation is a structural relationship by which an enterprise is bound together and the framework in which individual effort is coordinated".
- According to Peter Drucker, "Organisation structure is an indispensable means and the wrong structure will seriously impair business performance and even destroy it".
Definitions: Organisation
- Organising involves the establishment of an intentional structure of roles through determination and enumeration of the activities required to achieve the goals of an enterprise and each part of it, the grouping of these activities, the assignment of such groups of activities to managers, the delegation of authority to carry them out, and provision for coordination of authority and informational relationships, horizontally and vertically, in the organisation structure. - Koontz and O'Donnell
- Organising is the process of defining and grouping the activities of the enterprise and establishing the authority relationships among them. In performing the organising function, the manager defines, departmentalises and assigns activities so that they can be most effectively executed. - Theo Haimann
- Organising is the process of establishing effective authority relationships among selected works, persons and workplaces in order for the group to work together efficiently. - George R. Terry
Definition: Line Organisation
- According to Lundy, "Line organisation is characterised by direct lines of authority flowing from top to the bottom of the organisational hierarchy and lines of responsibility flowing in an opposite but equally direct manner".
- In the words of Allen, "Organisationally the line is the chain of command that extends from the board of directors through the various delegations and redelegations of authority and responsibility to the point where the primary activities of the company are performed".
Definition: Delegation of Authority
- Delegation of authority merely means granting of authority to subordinates to operate within prescribed limits. - Theo Haimann
- Authority is delegated when enterprise discretion is vested in a subordinate by a superior. The entire process of delegation involves the determination of results expected, assignment of tasks, transfer of authority for accomplishment of these tasks, and exaction of responsibility for their accomplishment. - Koontz and O'Donnell
- Delegation is that part of the organising process by which an executive makes it possible for others to share the work of carrying out the company's purpose. It also includes the process of assigning duties, responsibilities and authority to those who he expects will aid him in doing the work. - D.E. McFarland
- Delegation is the ability to get results through others. It is the dynamics of management. It 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 and so that he can effectively get others to help him with what remains. - Louis A. Allen
- Delegation takes place when one person gives another the right to perform work on his behalf and in his name and the second person accepts a corresponding duty or obligation to do what is required of him. - D.S. Hiner
Key Points
Key Points: Merits and Demerits of Decentralisation
Key Points: Distinction between Centralisation and Decentralisation
| Point | Centralisation | Decentralisation |
|---|---|---|
| 1. Meaning | Authority concentrated at top | Authority spread at all levels |
| 2. Role of subordinates | Minimum role | Maximum role |
| 3. Main purpose | Control & coordination | Fast decisions + motivate/develop staff |
| 4. Burden on top executives | Heavy | Low |
| 5. Suitable for | Small organisations | Large organisations |
Key Points: Informal Organisation
- Meaning: Informal organisation is the network of social/friendly relationships among members within a formal organisation.
- Formation: It arises naturally and spontaneously when people interact regularly and share common interests (e.g., cricket, dance).
- Nature: It reflects human and social relationships and is based on common taste, language, culture, religion, etc.
- Features: Membership is voluntary, there are no written rules (group norms guide behaviour), and it is not shown on organisation charts.
- Role: It meets social and psychological needs of people and can cut across departments.
Key Points: Distinction between Formal and Informal Organisations
| Basis | Formal Organisation | Informal Organisation |
|---|---|---|
| 1. Formation | Created deliberately by management | Develops naturally from social interaction |
| 2. Purpose | Achieve organisational goals (profit, growth) | Satisfy social needs (belonging, status) |
| 3. Structure | Clear, pyramid, shown in chart | No fixed structure, cannot be charted |
| 4. Leadership | Leaders are appointed managers | Leaders are chosen by members |
| 5. Communication | Official channels (fixed flow) | Grapevine (informal channels) |
| 6. Rules/Behaviour | Written rules, penalties for violation | Unwritten norms, social disapproval |
| 7. Focus & stability | Focus on job efficiency, more stable | Focus on member needs, changes easily |
Key Points: Elements of Delegation > Accountability
- Meaning: Accountability means personal answerability for final results; a person must report how he used the authority given to him.
- Depends on authority & responsibility: A person is accountable only for assigned work; extent of accountability matches the authority/responsibility given.
- Upward flow: Accountability always moves upward (subordinate → superior) and needs a formal report.
- Cannot be delegated: Accountability is non-delegable; even after delegating, a manager remains accountable to his superior for his work and his subordinates’ work.
- Link with authority & responsibility: Authority is delegated, responsibility is assumed, accountability is imposed; responsibility comes from authority, and accountability comes from responsibility.
Key Points: Management of Informal Organisation
- Informal organisation is natural: Management cannot create or destroy it, so it must work with it (both formal + informal are necessary).
- Use group norms positively: Managers should ensure informal norms support efficient work.
- Support employee needs: Encourage informal groups to give members security, status and social satisfaction.
- Use informal communication: Managers can use the grapevine to pass useful information quickly and unofficially.
- Use groups for better results: Use informal groups for problem-solving, decision-making, conflict handling, and involve informal leaders during change/development plans.
Key Points: Meaning of Organisation Structure
- Meaning: Organisation structure is a framework of job positions with defined roles, duties, authority and responsibility to achieve goals.
- Purpose: It is a mechanism to coordinate individual efforts, and it helps the flow of work and communication.
- Shape: Organisation structure is generally pyramid-shaped (narrow top, broad bottom).
- Basic features: It needs two or more people, common objectives, and division of work for efficiency.
- Working system: It depends on communication, cooperative efforts, and rules/regulations that define formal authority relationships.
Key Points: Importance of Organisation
- Specialisation: Organising divides work into small jobs and departments, so work becomes faster and more efficient.
- Best use of human resources: Clear jobs help place the right person for the right job, give satisfaction, and avoid duplication/overlap.
- Coordination & communication: Defined authority–responsibility creates coordination, reduces confusion/conflict, and gives clear lines of communication.
- Security & support: Organisation gives each person a fixed position/status, creating security and satisfaction.
- Growth & diversification: A sound structure helps the business expand, control more activities, and grow from small to big.
- Adaptation to change: A flexible structure helps adjust to changes in technology, products, markets, and work continues even if people change.
- Training & aid to management: Delegation develops managerial talent, encourages initiative, helps rewards/promotion, and keeps focus on enterprise objectives (brings order out of chaos).
Key Points: Steps in the Process of Organising
- Division of work: Break total work into specific jobs/tasks to ensure specialisation; activities depend on the type of organisation.
- Grouping (Departmentation): Combine similar jobs into departments/divisions (by function, product, territory, customer, process) for unity and coordination.
- Assigning duties: Give each group of activities to the most suitable person based on qualification, experience and ability (right job–right person).
- Delegation of authority: Provide needed authority with responsibility; creates the chain of command and hierarchy (authority flows top to bottom).
- Coordination + types of organisation: Synchronise efforts, define relationships and reporting lines; organisation includes formal relationships (created by authority) and informal relationships (social interactions).
Key Points: Formal Organisation
- Meaning: Formal organisation is the official structure designed by management to achieve organisational goals.
- Nature: It consists of clearly defined jobs/positions with fixed authority and responsibility, and people work under rules and procedures.
- Key features: Created deliberately by top management, based on division of labour, built through delegation of authority, and shown on an organisation chart.
- Relationships: Has official communication lines and a superior–subordinate chain (scalar chain).
- Focus: Focuses on jobs and work, not on the individuals doing them.
- Advantages: Clear duties reduce duplication, unity of command is maintained, responsibility is easy to fix, provides stability and a framework for activities.
- Disadvantages: Can cause rigidity and reduce creativity, communication delays due to chain of command, may ignore human relations, and doesn’t fully show actual working (informal side).
Key Points: Advantages and Disadvantages of Informal Organisation
- Sense of belonging: Informal groups give employees belonging and self-worth which formal setup may not provide.
- Relief from monotony: Social interaction reduces boredom and improves social satisfaction.
- Helps solve work problems: Members share job knowledge and help each other in work.
- Protection from pressure: Acts as a check on unfair/arbitrary actions and protects members from top pressure.
- Fast communication (grapevine): Provides quick information, emotional support, and feedback to management.
- Creativity & leadership: Encourages innovation, personality development, and leadership skills.
- Limitations: Can create conflicting norms, resistance to change, role conflict, forced conformity, and spread rumours that harm the organisation.
Key Points: Line Organisation
- Meaning: Line organisation has a direct chain of command where authority flows top to bottom in a straight scalar chain.
- Key feature: Unity of command—each subordinate reports to only one immediate superior; superiors have full control over subordinates.
- Structure: Each department is self-contained; there are no staff/advisory specialists and same-level managers work independently.
- Types: Pure line (similar work at a level) and Departmental line (separate departments doing different work; inter-department relations must be clear).
- Merits: Simple, quick decisions, unified control & discipline, fixed responsibility, economical (no staff experts), easier coordination, and develops executives (all-round experience).
- Demerits: Line organisation can cause overburdening, lack of specialisation, autocratic leadership, staffing difficulty, rigidity/instability, and it is suitable mainly for small/routine firms.
Key Points: Line and Staff Organisation
- Meaning: Line managers are in the main chain of command (do core work). Staff are specialists appointed to give expert advice.
- Authority: Staff are advisory only—they cannot command line employees; their advice is not binding on line managers.
- Purpose: Line & staff organisation combines unity of command (line) with specialisation (staff) to improve efficiency.
- When needed: Staff positions are created when managers’ work increases and they need expert guidance beyond their own ability.
- Merits: Planned specialisation, better decisions, discipline (unity of command), clear responsibility, flexibility for expansion, and executive development.
- Demerits: Conflicts between line and staff, lack of clear duty division → poor coordination, staff may be ineffective (no accountability/authority), and it is costly.
Key Points: Line VS Line & Staff Organisation
| Basis | Line Organisation | Line & Staff Organisation |
|---|---|---|
| Nature | Simple | Complex |
| Relationships | One chain (one type) | Two types (line + staff) |
| Specialisation | Absent | Present |
| Cost | Economical | Costly |
| Conflict | Usually absent | Possible/present |
| Top executive burden | High | Low (staff support) |
| Coordination & suitability | Easy; best for small firms | Difficult; best for large firms |
Key Points: Functional Structure
- Meaning: In a functional structure, activities are grouped into departments based on major functions (e.g., production, sales, finance, personnel).
- How it works: Each function can be further divided into sub-functions (e.g., quality control, maintenance); it is the most common form used in organisations.
- Advantages: Functional structure gives specialisation, improves efficiency, avoids duplication, and makes supervision/control and training easier.
- Disadvantages: Departments may think only about their own function (narrow view), responsibility may be unclear, coordination between departments becomes difficult as it grows, decision-making can slow, and rivalry/conflicts may increase.
Key Points: Divisional Structure
- Meaning: In divisional structure, activities are grouped into product-based divisions; each division handles production, sales and finance of its product line.
- When useful: Best for product expansion/diversification and complex products needing heavy investment (e.g., automobile, electronics).
- Advantages: Better coordination within a product line, focus on each product, divisional performance is easy to measure, and responsibility is fixed on divisional head.
- More benefits: Helps growth by adding new divisions, develops managers for top jobs, and gives faster decisions because divisions are semi-autonomous.
- Disadvantages + suitability: Costs can be high due to duplication, loss of centralisation benefits, possible under-utilisation, division rivalry/conflicts; overall suitable for large firms with many different products.
Key Points: Distinction between Functional Structure and Divisional Structure
| Basis | Functional Structure | Divisional Structure |
|---|---|---|
| 1. Basis of formation | By functions (production, sales, finance etc.) | By product lines (each product = division) |
| 2. Specialisation | Functional specialisation | Product specialisation |
| 3. Coordination | Difficult | Simple (within product division) |
| 4. Cost | Economical | Expensive (more units) |
| 5. Profit responsibility | Profit can’t be fixed on one department | Profit responsibility fixed on each division |
| 6. Managers & autonomy | General manager growth less; autonomy less | Develops general managers; autonomy more |
| 7. Control & usefulness | Control simpler; useful for all firms | Control harder; best for diversified firms |
Key Points: Delegation of Authority
- Meaning: Delegation means a manager assigns duties to subordinates and gives them authority to do the work, while holding them responsible.
- Partial sharing: The manager does not give all authority—he keeps key decision-making and supervision/control powers.
- Limits + downward flow: Delegation is within defined limits and is a downward transfer (superior → subordinate); only a person who has authority can delegate.
- Responsibility stays: Delegation is not abdication—the superior remains finally responsible and can reduce/withdraw authority anytime.
- Systematic process: Delegation should be planned, creates hierarchy/scalar chain, and is essential for organising and managing.
- Relief + quick decisions: It reduces burden on top executives and allows faster decisions at lower levels (better local knowledge).
- Benefits for growth & people: It promotes specialisation, motivates subordinates, develops future managers, and supports growth/diversification of the organisation.
Key Points: Elements of Delegation of Authority
- Delegation has 3 elements: Assign duties → Grant authority → Fix responsibility/accountability.
- Assign tasks/duties: Manager clearly tells the subordinate what work to do and expected results (best stated as targets like “100 units/day”).
- Grant authority: Subordinate gets the right to decide and act, use resources, and represent the superior—without authority, duty is meaningless.
- Define limits: The scope/limits of authority must be clearly stated while delegating.
- Responsibility & accountability: Subordinate is obliged to perform the duty and is answerable for results; responsibility to the superior is absolute and cannot be shifted.
Key Points: Centralisation and Decentralisation of Authority > Decentralisation
- Meaning: Decentralisation means systematic dispersal of authority to different departments and levels for decisions at their level.
- Key idea (Louis Allen): Delegate authority to the lowest possible level, except what must be kept at the centre.
- Role of top management: Top management keeps major policy decisions, and overall coordination and control.
- More than transfer: It is a management philosophy—selective dispersal of authority, not just giving power downwards.
- Relative & balance: No firm is fully centralised or decentralised; both exist together, and the degree varies (Fayol: more subordinate role = decentralisation).
Key Points: Elements of Delegation > Authority
- Meaning: Authority is the legitimate right to take decisions and give orders (Fayol: right to give orders and exact obedience).
- Main features: It helps achieve organisational goals by commanding, controlling and enforcing decisions, and it creates the superior–subordinate relationship to maintain order.
- Limits + flow: Authority is limited (position + legal/social limits) and in formal organisation it flows top to bottom (highest at top, decreases down the chain).
- Delegable & key to manager: Authority is the key to a manager’s job and can be delegated to subordinates for getting work done.
- Types/Sources: (i) Formal authority (from position, delegated), (ii) Competence/technical authority (from knowledge/skill), (iii) Acceptance authority (when people accept/obey due to trust or rewards/penalties).
Key Points: Authority and Power- A Comparison
| Point | Authority | Power |
|---|---|---|
| 1. Meaning | Right to do something | Ability to do something |
| 2. Source | From position (institutional) | From many sources (personal etc.) |
| 3. Flow / Delegation | Flows downward; can be delegated | Flows any direction; cannot be delegated |
| 4. Legitimacy | Legitimate (linked to post) | May be illegitimate |
| 5. Visibility / scope | Seen on organisation chart; narrower | Not seen on chart; broader, works even when authority fails |
Key Points: Elements of Delegation > Responsibility
- Meaning: Responsibility is the obligation to perform assigned duties to the best of one’s ability.
- Person-based: Responsibility is always of human beings (not machines/non-living things).
- Upward flow: It flows upward—from subordinate to superior, and arises only when a superior assigns a duty.
- Absolute & non-delegable: Responsibility is personal and absolute, so it cannot be delegated or reduced by passing work further.
- Unitary: An employee should be responsible to only one superior at a time for a given duty.
Key Points: Distinction between Authority and Responsibility
- Meaning: Authority = legal right to command; Responsibility = duty/obligation to perform assigned work.
- Origin: Authority comes from position/contract/law (impersonal); responsibility comes from a superior–subordinate relationship (personal).
- Delegation: Authority can be delegated; responsibility is absolute and cannot be delegated.
- Flow: Authority flows downward (superior → subordinate); responsibility flows upward (subordinate → superior).
- Duration/ending: Authority is usually longer-lasting and can end by notice; responsibility usually ends after the task is completed and cannot be ended so easily.
Key Points: Centralisation and Decentralisation of Authority > Centralisation
- Link with delegation: Centralisation and decentralisation show how authority is distributed among managers at different levels (they are related to delegation).
- Meaning of centralisation: Centralisation means keeping decision-making power at the top level (systematic concentration of authority).
- Who takes decisions: In a centralised organisation, one or a few top managers take almost all important decisions.
- Low delegation: Middle and lower managers get very little authority and depend on top management for instructions and guidance in daily work.
- Strict control: Top management maintains tight supervision and control; lower-level managers have little freedom/initiative.
Key Points: Distinction between Delegation and Decentralisation
| Basis | Delegation | Decentralisation |
|---|---|---|
| Meaning / Nature | Process (cause): manager gives some authority to a subordinate | Result (effect): authority is spread across many levels |
| Scope | Narrow: between one manager and his immediate subordinates | Wide: authority dispersed at all levels/functions |
| Completion | Can be done fully in one unit (manager → subordinate) | Complete only when maximum authority is given down to the lowest level |
| Status / Significance | Essential technique (manager cannot do everything alone) | Optional philosophy/policy chosen by top management |
| Freedom of action | Less freedom due to close supervision/control by manager | More freedom; lower managers work within broad guidelines, less close control |
