Organisational Behaviour

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UNIT-I NOTE-03

B. Com. 3rd Year/ VI Semester Date: 19/04/2021

CLASSIFICATION OF ORGANISATIONS
Organizations are basically clasified on the basis of relationships. There
are two types of organizations formed on the basis of relationships in an
organization.

1. Formal Organisation

2. Informal Organisation

MEANING OF FORMAL ORGANISATION:

Formal organisation is a well-defined structure of authority and
responsibility that defines delegation of authority and relationships
amongst the organisational members. It works along pre-defined set of
policies, plans, procedures, schedules and programmes. Most of the
decisions in formal organisation are based on pre-determined policies.

Formal organisation is “a system of well-defined jobs, each bearing a

definite measure of authority, responsibility and accountability, the
whole consciously designed to enable the people of the enterprise to work
most effectively together in accomplishing their objectives.”

It is a deliberately designed structure with formal authority,

responsibility, rules, regulations and channels of communication. Some
degree of formalization is necessary for organisations to function
effectively; to avoid taking time-consuming decisions, to handle
conflicting situations and exercise control over the activities of
subordinates.

B. Com. 3rd Year/ VI Semester, Dept. of commerce, JNRM, Port Blair-744104

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FEATURES OF FORMAL ORGANISATION:

Formal organisation has the following features:

1. Deliberately created structure: It is a deliberately created structure

that defines official relationships amongst people working at different job
positions.

2. Job-oriented:

It focuses more on jobs than people. It allocates jobs to people and

defines the structure of relationships to achieve the formal organisational
objectives.

3. Division of work:

Work is divided into smaller units and assigned to individuals on the

basis of their skills and abilities. Division of work results in
specialisation and increases organisational output.

4. Departmentation:

Departmentation is the foundation of organisation structure, that is,

organisation structure depends upon departmentation. Departmentation
refers to division of work into smaller units and their re-grouping into
bigger units (departments) on the basis of similarity of activities. The
functional departmentation divides organisation structure into
production, finance, personnel and marketing departments.
Departmentation helps in fixing responsibility of various departmental
heads.

5. Formal authority:

People exercise authority by virtue of their position in the organisational

hierarchy. Authority is linked to position and through it, in the person
occupying the position. It involves the right to command, to perform, to
make decisions and spend resources.

6. Delegation:

Work is officially delegated from top to lower levels. The work load is
divided into units, a part is assigned to subordinates with authority to

B. Com. 3rd Year/ VI Semester, Dept. of commerce, JNRM, Port Blair-744104

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carry out the assigned task. The concept of division of work and its
assignment to people down the scalar chain is called delegation.

“Delegation is the process by which a manager assigns tasks and

authority to subordinates who accept responsibility for those jobs.”

“Delegation is a process the manager uses in distributing work to the

subordinates.”

7. Coordination:

Managers integrate the activities of individuals and units into a

concerted effort so that departments and individuals work towards a
common goal. Managers coordinate the activities of organisation by
communicating organisational goals to each department, setting
departmental goals and linking the performance of each department with
others so that all the departments collectively contribute to
organisational goals. Coordination is “the process of linking the activities
of the various departments of the organisation”.

8. Principles of organising:

Formal organisation is based on formal principles of organising, that is,

unity of objectives, organisational efficiency, division of labour, authority
– responsibility, delegation, scalar chain, span of control, unity of
command, balance, flexibility, continuity, exception, simplicity,
departmentation, decentralisation, unity of direction and co-operation.

MERITS OF FORMAL ORGANISATION:

Formal organisation has the following merits:

1. It clearly defines objectives of the organisation and authority-

responsibility relationships amongst people to attain those objectives.

2. It results in optimum utilisation of scarce organisational resources.

3. Division of work and relationships amongst people develops effective

system of communication in the organisation.

4. The organisational hierarchy avoids overlapping of activities between

two individuals or two departments. Two individuals are not assigned the
same task.

B. Com. 3rd Year/ VI Semester, Dept. of commerce, JNRM, Port Blair-744104

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5. Career advancement and promotional avenues are clearly defined in

the formal structure of organisation.

6. The rate of absenteeism and labour turnover (the rate at which people
join and leave the organisation) remains low. (Because of clear objectives,
policies, strategies etc.).

7. Formal organisation integrates formal goals of the organisation with

goals of individuals working in the organisation. There is, thus, synthesis
of individual, group and organisational goals.

LIMITATIONS OF FORMAL ORGANISATION:

Though formal structure of relationships helps to achieve organisational

goals, it suffers from the following limitations:

1. Loss of initiative:

As too much emphasis is placed upon formal rules and regulations,

workers do not use their creative and innovative skills to perform
organisational tasks. There is loss of initiative and innovative abilities
due to strict adherence to rules.

2. Unsatisfied social needs:

Man is a social being. He needs to interact with people and share his
feelings at-work and off-work with others. In a formally designed
organisation structure, social needs remain unsatisfied as people are
related to each other through a formal chain of command to discuss only
official matters with each other. Social interactions are altogether
ignored.

TYPES OF FORMAL ORGANISATION

B. Com. 3rd Year/ VI Semester, Dept. of commerce, JNRM, Port Blair-744104

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Line
Organizati
on
Line and
Virtual
Staff
Organizati
Organizati
on
on
Types of
formal
organization
Matrix Functional
Organizati Organizati
on Project on
Managem
ent
Organizati
on

MEANING OF INFORMAL ORGANIZATION

It refers to a network of personal and social relationships which

spontaneously originates within the formal set up. Informal organizations
develop relationships which are built on likes, dislikes, feelings and
emotions. Therefore, the network of social groups based on friendships
can be called as informal organizations. There is no conscious effort
made to have informal organization. It emerges from the formal
organization and it is not based on any rules and regulations as in case
of formal organization

DIFFERENCE BETWEEN FORMAL AND INFORMAL ORGANISATION

BASIS FOR
FORMAL ORGANIZATION INFORMAL ORGANIZATION
COMPARISON

Meaning An organization type in which An organization formed within

the job of each member is the formal organization as a
clearly defined, whose network of interpersonal
authority, responsibility and relationship, when people
accountability are fixed is interact with each other, is
formal organization. known as informal
communication.

Creation Deliberately by top Spontaneously by members.

management.

Purpose To fulfill, the ultimate To satisfy their social and

objective of the organization. psychological needs.

Nature Stable, it continues for a long Not stable

time.

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BASIS FOR
FORMAL ORGANIZATION INFORMAL ORGANIZATION
COMPARISON

Communication Official communication Grapevine

Control Rules and Regulations Norms, values and beliefs

mechanism

Focus on Work performance Interpersonal relationship

Authority Members are bound by All members are equal.

hierarchical structure.

Size Large Small

Types of Formal Organisation are Discussed below:

1. Line Organization

This is the simplest form of organizational structure commonly adopted

by small companies. It has well-defined authority levels in the
hierarchical structure. Power flows from the top down to different
operational levels or workers.

The line authority is also known as direct operative authority; it is the

right of superiors to exercise authority over subordinates. Military
organisation is a typical example of line authority where a single head
commands and issues orders. Managers in line authority are known as
line managers. They respect the scalar chain. The authority, orders,
commands and instructions flow from top to bottom in a line and
responsibility flows from bottom to top in a line.

The hierarchical structure clearly defines authority, responsibility, and

accountability at each level.

Due to its simplicity, authority and responsibilities are transparent and

easily traceable. Communication is fast and easy because employees get
quick feedback and respond fast.

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2. Line and Staff Organization

The Line and Staff Organization is a modification of the Line

Organization. Here, functional specialists work with line managers to
guide and advise them.

This structure is more common in present-day, and most of the larger

enterprises adopt this type of set up.

The staff consists of two categories; the general and the specialized team.

General Staff

The general staff consists of the ordinary employees that assist the top
management. These staff aren’t experts

Specialized Staff

This team consists of experts that offer services to the organization. Their
roles can be advisory, control (as in quality control), or service (such as
maintenance).

The Line and Staff Organization uses the expertise of specialists. So the
line managers become better in several fields.
B. Com. 3rd Year/ VI Semester, Dept. of commerce, JNRM, Port Blair-744104
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 Advantages

 Staff can make quality decisions, get support from specialists, and
enjoy better coordination.
 Get training to enhance skills, get an opportunity to work in
research & development.

Disadvantages

 Increased confusion and conflicts among the staff

 Higher costs on hiring specialist
 A tendency to develop personal image within the group

3. Functional Organization

The Functional Organization groups workers based on their area of

specialization. This structure is an extension of the Line Organization.
The functional manager leads the team and manages all the operations
or businesses.

The Functional Organization manager enforces directives within a clearly

defined scope of authority. This concept originated with Fredrick W.
Taylor.

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Here you classify workers according to their functional roles and

department. Some of the general departments under this are

    - Finance

    - HR

    - Sales

    - Customer service

    - Supply Chain, etc.,

The organization's head is the president, followed by the vice president,

and the chain goes on. Furthermore, the leaders of departments foresee
their departmental performance. So they collectively help the
organization control quality and uniformity.

The structure positions departments vertically and disconnected from

others. Hence the name “silos.” The department heads manage
communication between the top management and his subordinates.

This type of organization is suitable for manufacturing or engineering

companies. It supports ongoing operations and practices for producing
standard products.

 Advantages

Some of the main benefits of this type of organization are:

B. Com. 3rd Year/ VI Semester, Dept. of commerce, JNRM, Port Blair-744104

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 It groups employees based on functional skills for a higher degree of

performance.
 Employees have experience in the same field, resulting in higher
output. Also, they deliver high-quality services and results.
 Accountability is evident, as the roles and responsibilities are
clearly defined.
 Hierarchy is visible and no need for multiple reporting
 No duplication of work as each department is different. Also, the job
description is clear.
 Career path for the staff is clear and visible

Disadvantages

 Employees get bored from the routine and lose enthusiasm.

 It limits the management skills of functional managers. Hence, they
face restrictions on their growth path and remain specialists. So
they're not prepared for top management posts.
 Departments are more concerned with their departmental goals.
Hence may be less responsive to the organization’s overall
objectives.
 Hiring costs are too high as high-skilled employees cost more.
 It causes conflicts in making critical decisions as a result of
bureaucratic hierarchy. Functional managers have full authority
and may make arbitrary decisions.

4. Divisional Organization

This type of organization often resembles a Functional Organization. The

team members work in different departments. This setup splits the
employees into segments based on products, markets, or services.

This design focuses on service lines like products, customers, area, and
time. Since they operate as small organizations, they're called “self-
contained structures.”

So they work independently on divisional goals. But all divisions

collectively meet the organizational policies and business objectives.

This type of organization is suitable for companies that

    - Operate in different geographical locations,

    - Have chain stores with subsidiaries, and

B. Com. 3rd Year/ VI Semester, Dept. of commerce, JNRM, Port Blair-744104
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    - Banking and insurance business

Advantages

• People work in different geographical locations and enjoy different

work environments

• Share ideas and enhance skills, thereby creating a collaborative

work culture. Thus enhancing overall productivity.

Disadvantages

• This structure affects the integration of the organization as a whole.

• The autonomous nature often results in duplication of functions

and resources.

• Segmentation creates boundaries among divisions and may lead to

poor inter-unit coordination

5. Project Organization

B. Com. 3rd Year/ VI Semester, Dept. of commerce, JNRM, Port Blair-744104

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Project organization is a temporary setup formed for specific projects. It's

also called “projectized organizational structure.” The project
manager assigned for the project is the head of this structure.

Once the project is complete, you may choose to dismantle this setup or
move it to form a new project. In the case of a new project, the project
manager might have to reshuffle the staff to fit the new plan. You’ll hire
resources or specialists from different functional departments.

As a project manager, you can use allotted resources until completion

and closeout. You're accountable for all the activities and timely
completion of the project. In other words, you must spend based on the
project budget.

The manager assigns clearly defined tasks to each of the team members,
along with the complete schedule.

These types of organizations are useful when:

    - The project scope is complete, and objectives are clearly defined

    - Project is unique and independent

 Advantages

 Easy to communicate, hence can stay up to date

B. Com. 3rd Year/ VI Semester, Dept. of commerce, JNRM, Port Blair-744104
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 The team can have a strong sense of identity as all are working
together to achieve a common goal
 Manage resources efficiently and effectively

Disadvantages

 No clear growth path for the team once the project gets completed
 It's expensive because the organization dedicates all the specialists
for one single project. 

6. Matrix Organization

Matrix Structure allows employees from different departments to come

together temporarily to work on special project teams. The purpose of
this kind of structure is to allow companies the flexibility to respond
quickly to a customer need by creating a team of people who devote all of
their time to a project. Once the team completes the project, the team
members return to their departments or join a new project team.
Companies that undertake very large projects often use the matrix
structure. Boeing, for example, regularly assigns employees to project
teams it creates to design new aircraft. Large high-tech firms also
frequently use the matrix structure.

The matrix structure groups employees by both function and product

simultaneously. A matrix organization frequently uses teams of
employees to accomplish work, in order to take advantage of the
strengths, as well as make up for the weaknesses, of functional and
decentralized forms.

B. Com. 3rd Year/ VI Semester, Dept. of commerce, JNRM, Port Blair-744104

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 Advantages

 It helps in sharing resources efficiently

 Decision making is balanced and flexible
 Staff members can communicate with each other across boundaries
 Pleasant environment
 It has a clear career graph and job security; hence, members would
be more loyal to the organization

Disadvantages

 The dual reporting structure add confusion and results in conflicts

 Create issues when there is no coordination between functional and
project managers
 Resources may be under-utilized if you don't assign them with skill-
related tasks
 Costly to maintain as it has many managers
 You need to maintain resources throughout the project, no matter
how long it takes

7. Virtual Organization

B. Com. 3rd Year/ VI Semester, Dept. of commerce, JNRM, Port Blair-744104

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A virtual organization is a recent development that involves different

locations. When your team executes a project in one area, you can
manage it from any other place. So you can distribute resources to your
project team regardless of location.

You can connect all the locations virtually. The other names for this
organizational structure are:

    - Digital organization

    - Network organization, or

    - Modular organization

ICT (Information and Communication Technology) is the backbone of

virtual organizations. This organization is a social network without
vertical and horizontal boundaries.

Resources aren't tied to a particular workstation (desk). Also, you can

work from any mobile device. You can manage every project activity,
including meetings, virtually.

The team reports digitally except on a few occasions that need physical
meetings. Hence, it's common to hear of virtual offices, virtual teams,
and virtual leadership

This setup is most suitable for software or IT companies.

B. Com. 3rd Year/ VI Semester, Dept. of commerce, JNRM, Port Blair-744104

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Advantages

 Faster and cost-effective as there are no boundaries to work and

communication.
 Lower operating costs as no permanent set up required (no need for
office premises)
 Have several options like flexitime, part-time work, job-sharing, and
home-based working, hence increased
 Employee satisfaction and efficiency
 Can have a larger talent pool

Disadvantages

 No physical contact or communication, thus, lacks team integrity

 Difficult to restrict information sharing as your locations are
different
 You have to spread resources across various locations and time
zones
 Resources require training for virtual interaction
 Different time zones cause delayed responses

B. Com. 3rd Year/ VI Semester, Dept. of commerce, JNRM, Port Blair-744104