Module-IV

FORMAL ORGANIZATION:
Formal organisation is a planned structure which represents the officially
established pattern of relationships among individuals, groups, sections, units,
departments and divisions so as to accomplish the goals of the enterprise.
Typically, it is represented by a chart and set forth in organisation manuals, position
descriptions, and other formalised documents.
The formal organisation provides a broad framework and delineates certain
prescribed functions and the relationships between them.
Formal organisation may be defined as a system of consciously coordinated
activities of two or more persons towards a given objective. It is a group working
together cooperatively under authority toward goals that mutually benefit the
participants and the organisation. Moreover, stable and consistent relationships
promote order and facilitate planning and controlling functions.
Formal organisation may also be defined as
(i) the pattern of formal relationships and duties, the organisation charts, job
descriptions and positions guides; and
(ii) formal rules, policies, work procedures and similar devices adopted by
management to guide employee behaviour in certain ways within the
structure of formal relationships.
INFORMAL ORGANIZATION
Informal organisation refers to relationships between individuals in the
organisation based on interest, personal attitudes, emotions, prejudices, likes,
dislikes, physical location, similarity of work, etc.
The informal organisation comes into existence because of the limitations of the
formal structure. It represents natural grouping of people in working situation. The
birth of small groups in an organisation is a natural phenomenon.
The informal groups may also overlap because an individual may be a member of
more than one informal group in many cases. Informal groups came into being to
support and supplement the formal organisation indeed.
the formal and informal organisations are inextricably interlinked. The difference
between the two aspects of organisational life is only analytical and it should not
be given undue emphasis.

DIFFERENCE BETWEEN FORMAL& INFOMAL ORGANIZATION:

Difference between Formal and Informal Organisations The formal and informal
organisations differ from each other in the following respects:
1) Origin: Formal organisations are created by conscious managerial decisions. But
informal organisations arise spontaneously within the formal organisation because
of the natural tendency of the individuals to associate and interact. Management
has no hand either in the emergence or abolition of informal groups.
2) Purpose: Formal organisations are created for realising certain well-defined
objectives. But informal organisations are created by organisational members for
their social and psychological satisfaction.
3) Activities: Activities in case of formal organisation are differentiated and
integrated around the objectives of the enterprise and are formalised into work-
units or departments on a horizontal basis. In case of informal organisation, there
are no specific activities. They arise from time to time as a result of interactions and
sentiments of the individuals. Informal groups may be based on common values,
language, culture or any other factor.
4) Structure: Formal organisation is hierarchical, pyramid shaped in structure with
well-defined positions, roles and superior-subordinate relationships. It involves
enforcement of organisational order through a set of policies, procedures and
rules, emphasises on status differentiation based on authority, upward and
downward oriented communication system, etc. On the other hand, informal
organisation is non-hierarchical; it looks like a complicated social network of
interpersonal relationships. Informal organisation is loosely structured, with only
unwritten norms of behaviour enforced by consent. Communication is informal and
multidimensional. There are no rigid status differentials.
5) Membership: In a formal organisation every individual belongs to one work
group only and works under one superior. But in case of an informal organisation,
a person can be a member of more than one group, according to his choice. He may
be a leader in one group and a follower in another. There is no rigidity about group
membership.
6) Orientation: In case of formal organisation, values, goals and tasks are
dominantly economic and technical, and they concern productivity, profitability,
efficiency, survival and growth. But in case of informal organisation values, goals,
and tasks are predominantly psycho-social, centred around individual and group
satisfaction, affiliation cohesiveness and friendship.
7) Norms of behaviour: In a formal organisation, individuals are required to behave
in the prescribed manner in their work situation. They are expected 45 to behave
in a rational manner. Deviations from the standard are dealt with Organising
according to the organisational rules and regulations. There is also a system of
rewards and punishments. But in case of informal organisation, individual
behaviour and group behaviour influence each other. Moreover, behaviour is more
natural and socialised. Informal groups develop their own norms of behaviour and
system of rewards and punishments.
Line Organisation
Line Organisation It represents a direct vertical relationship through which activity
flows. It is also known as scalar or military organisation. The line of authority flows
from top to bottom throughout the organisation. The quantum of authority is
highest at the top and reduces at each successive level down the hierarchy. Every
person in the organisation is in the direct chain of command as shown below. The
line of authority consists of an uninterrupted series of authority steps and forms a
hierarchical arrangement. The line of authority not only becomes the avenue of
command to operating personnel, but also provides the channel of communication,
coordination and accountability in the enterprise.
Merits of line organisation:
i) It is very simple to establish and can be easily understood by the employees.
ii) There is a clear-cut identification of authority and responsibility relationship.
iii) It ensures better discipline in the enterprise because every individual knows
to whom he is responsible.
iv) It facilitates prompt decision making because there is definite authority at
every level. An executive cannot shift his decision-making to others nor can
the blame be shifted.
v) It facilitates unity of command and thus conforms to the scalar principle of
organisation.
Demerits of line organisation:
i) There is concentration of authority at the top. If the top-level executives are
not capable persons, the enterprise will not be successful.
ii) With growth, the line organisation makes the top executive overloaded with
work.
iii) There is practically no communication from bottom upward because of
concentration of authority at the higher levels. If superiors take wrong
decision, it would be carried out without anybody having the courage to
point out its deficiencies.
iv) Line organisation is not suitable in a big organisation because there is lack
of specialisation. Many jobs create problems of their own which may not be
within the competence of the superior and require handling by specialists.
LINE & STAFF ORGANIZATION:
Line and Staff Organisation In line and staff organisation, line authority moves
down in the same manner as in the line organisation, but in addition, specialists
(known as ‘staff’) are attached to line managers to advise them on important
matters. Those specialists stand ready to advise and assist line men as and when
required, which enable the line officials to carry out their activities better. The staff
officers do not have any power of command in the organisation as they are
employed only to provide advice to the line officers. Staff means a supporting
function intended to help the line managers. In most organisations, the use of staff
can be traced to the need for helping handling details, gathering data for decisions
and offering advice on specific managerial problems. Staff investigates, supplies
information and makes recommendations to managers who take decisions. Line
and staff structure is shown below

Merits of line and staff organisation: The line and staff organisation have all the
benefits of line organisations. In addition, it has the following advantages.
i) Line managers get the benefit of specialised knowledge of staff
specialists.
ii) Many problems that are ignored or poorly handled in line organisation
can be properly resolved in the line and staff organisation with the help
of staff specialists.
iii) Staff specialists relieve the line managers from the botheration of
concentrating on the specialised functions like budgeting selection and
training, public relations, etc.
 iv) Staff specialists help the line executives in taking better decisions by
providing them with adequate information of the right type at the right
moment and render expert advice.
v) Line and staff organisation is more flexible as compared to the line
organisation. General staff can be employed to help line managers at the
various levels.
Demerits of line and staff organisation: The biggest drawback from which this form
of organisation suffers is the conflict between line and staff. The major source of
line owned staff conflict is the difference in their viewpoints and perception.
Conflict arises when any of them fails to appreciate the viewpoint of the other.
When a conflict between line and staff arises both the parties try to explain the
causes of conflict in terms of behaviour of the others. The important causes of line
and staff conflict as reported by line men are as follows:
i) Staff officers encroach upon the line authority. They interfere in the work
of line managers and try to tell them how to do their work.
ii) Staff specialists may be professionals and may not be well acquainted
with the practical problems of the enterprise.
iii) Since staff men are not directly accountable for any result, they are
generally overzealous and recommend a course of action which is not
practical.
iv) Staff men generally fail to view the whole organisation objectively as they
are specialists in particular areas.
v) Staff men have the tendency to take credit for the decisions which prove
successful and lay the blame on line men in case the decisions do not
prove successful.

ORGANIZATION STRUCTURE
Organisation structure may be defined as the established pattern of relationships
among the component parts of the organisation. Organisation structure in this
sense refers to the network of relationships among individuals and positions in an
organisation. It describes the organisation framework. Just as human beings have
skeletons that define their parameters, organisations have structures that define
their parameters. It is like the architectural plan of a building. Just as the architect
considers various factors like cost, space, special features needed etc. While
designing a good structure, the managers too must look into factors like benefits
of specialisation, communication problems, problems in creating authority levels
etc., before designing the organisation structure. The manager determines the
work activities to get the job done, writes job descriptions, and organises people
into groups and assigns them to superiors. He then fixes goals and deadlines and
establishes standards of performance. Operations are controlled through a
reporting system. The whole structure takes the shape of a pyramid. The structural
organisation implies the following activities;
i) The formal relationships with well-defined duties and responsibilities
ii) he hierarchical relationships between superior and subordinates within
the organisation.
iii) The tasks or activities assigned to different persons and the departments.
iv) iv) Coordination of the various tasks and activities; v) A set of policies,
procedures, standards and methods of evaluation of performance which
are formulated to guide the people and their activities.
Types of Organisation Structure
Different types of Organisation structure can be distinguished on the basis of
arrangement of activities. Accordingly, three broad types of structural forms
are:
1) Functional,
2) Divisional, and
3) Adaptive
Functional structure
When units and sub-units of activities are created in an organisation on the basis
of functions, it is known as functional structure. Thus, in any industrial
organisation, specialised functions like manufacturing, marketing, finance and
personnel are constituted as separate units of the organisation. All activities
connected with each such function are placed in the same unit.
The main advantage of the functional structure of organisation is that there is
functional specialisation in each unit, which leads to operational efficiency of
people engaged, and the organisation as a whole derives the benefit of
specialised operations.
The heads of the functional units are in direct touch with the chief executive
who can sort out inter-functional problems, if any, and also coordinate the
interrelated functions. The chief executive is also able to be in direct touch with
lower-level subordinates and thereby have full knowledge of the state of affairs
in the organisation.

CEO

R&D MARKETING FINANCE Manufacturing

Designe Sales Accounting Prduction

Testing Advertising Purchasing Distribution

the functional arrangement may be well suited to small and medium size
organisations, it is incapable of handling the problems of an organisation as it
grows in size and complexity.
Advantages of a Functional Structure
When employees who have similar skills and experiences are grouped together,
it makes production more efficient and of a higher quality. Roles and tasks do not
change very much so there is little time spent learning, and accountability is clear.
Since the hierarchy is simple, employees know the one manager they are to answer
to, instead of multiple people. This streamlines communication and reduces
confusion among employees. Employees can feel confident about what they're
doing because it is standardized. They are more likely to feel a loyalty to their
department and the organization as a whole. This increases morale and work ethic,
as there is more job security. There is a clear path of growth for employees which
provides motivation, and they are more likely to be corporative with people in their
department. A functional organizational structure provides a perfect environment
for learning for new employees to be taught the real-world application of
theoretical information.
Disadvantages of the Functional Organizational Structure
Employees may find it boring to repeat the same task over and over, and become
less enthusiastic over time. If promotions are not handled well, an employee may
be discouraged if a lower-performing peer is promoted over them. Problems may
arise among management if department heads are only focused on their
department and do not communicate effectively with other departments. This can
cause poor communication and "silos" that are too independent from one another.
If employees and management are only loyal to their teams, there will be a lack
of teamwork and coordination.
Divisional structure:

The divisional organisation structure is more suited to very large enterprise

particularly those which deal in multiple products to serve more than one
distinctive market. the divisional organizational structure organizes the activities
of a business around geographical, market, or product and service groups. Thus,
a company organized on divisional lines could have operating groups for the
United States or Europe, or for commercial customers, or for the green widget
product line. Each such division contains a complete set of functions. Thus, the
green widget division would handle its own accounting activities, sales and
marketing, engineering, production, and so forth.

Advantages of the Divisional Organization Structure

• Accountability: This approach makes it much easier to assign

responsibility for actions and results. In particular, a division is run by its
own management group, which looks out for the best interests of the
division.
 • Competition: The divisional structure works well in markets where there
is a great deal of competition, where local managers can quickly shift the
direction of their businesses to respond to changes in local conditions.
• Culture: You can use this structure to create a culture at the divisional
level that most closely meets the needs of the local market. For example,
a retail division could have a culture specifically designed to increase the
level of service to customers.
• Local decisions: The divisional structure allows decision-making to be
shifted downward in the organization, which may improve the company's
ability to respond to local market conditions.
• Multiple offerings: When a company has a large number of product
offerings, or different markets that it services, and they are not similar, it
makes more sense to adopt the divisional structure.
Disadvantages of the Divisional Organization Structure

The key points against the divisional structure involve the cost of duplicating
functions and a reduced focus on the overall direction of the company. The
disadvantages are:

• Cost: When you set up a complete set of functions within each division,
there are likely to be more employees in total than would be the case if
the business had instead been organized under a purely functional
structure. Also, there must still be a corporate organization, which adds
more overhead cost to the business.
• Economies of scale: The company as a whole may not be able to take
advantage of economies of scale, unless purchases are integrated across
the entire organization.
• Inefficiencies: When there are a number of functional areas spread
among many divisions, no one functional area will be as efficient as would
have been the case if there had instead been one central organization for
each function.
 • Rivalries: The various divisions may have no incentive to work together,
and may even work at cross-purposes, as some managers undercut the
actions of other divisions in order to gain localized advantages.
• Silos: All skills are compartmentalized by division, so it can be difficult to
transfer skills or best practices across the organization. It is also more
difficult to cross-sell products and services between the divisions.
• Strategic focus: Each division will tend to have its own strategic direction,
which may differ from the strategic direction of the company as a whole.

Matrix Organization

A matrix organization is more complex and complicated than these three. In a matrix
organization, the structure of the company represents a grid-like structure or a
matrix.

This is a fairly new and evolving organizational structure, which was first developed
in the West. It is somewhat a combination of functional organization and project
management structure.

In a modern matrix organization, there is a grid structure rather than the traditional
hierarchy structure. There are still departments according to functions like IT
department, finance department etc.

These are the vertical structures of the grid. Then there is also a project division,
which forms the horizontal chain of command in the grid. So in this structure, an
employee will have two reporting authorities – his functional (departmental)
manager and his project manager.

So in this structure, a group of employees from various departments comes together

to form another group assigned to a particular project or a particular product. And
they are headed by a project manager who then directly reports to the CEO or COO.
At the same time, these employees also report to the departmental managers or
department heads.
Advantages:

1.Collaboration between different departments

Perhaps the biggest advantage of a matrix structure is that is brings together highly
skilled team members from different departments, allowing the organization to
capitalize on the resources it already has rather than seeking expertise and
recruiting project team members from outside of the organization.

3. Allows interdepartmental communication

The matrix structure also allows for better interdepartmental communication and
collaboration. By allowing different departments to work together, the matrix
structure fosters a more open work environment, ultimately making the
organization more dynamic.

4. Employees can develop new skill sets

The matrix structure can offer employees the opportunity to strengthen their
interpersonal skills, communication skills and new skill sets due to the nature of
utilizing more than one manager. Working outside of a traditional or hierarchal
structure can benefit employees by helping them develop new skill sets and gain
valuable experience from working with different departments.

5. Team members and managers keep their functional roles

Projects will always continue to come to an end, but project team members and
managers may keep their functional roles throughout the project. When a project
ends, both managers and team members can avoid misconceptions about their job
security or searching for new projects as a contractor, as they may simply assume
their functional roles. Additionally, team members may also participate in future
projects.

Disadvantages
1. Managerial roles may not be clearly defined

One common disadvantage of the matrix structure can appear as confusion

between managers who are involved with projects that are outlined by the matrix.
Since the power dynamics between the functional manager and the project
manager may not be as clearly defined within the matrix, confusion about the
specific managerial roles may arise.

2. Team roles may not be clearly defined

Another issue is when team members’ roles aren’t clearly defined in the project or
the division of responsibilities between employees’ functional roles and project
roles isn’t clear.

3. The decision-making process can be slowed down

Because of the nature of the matrix involving more than one manager, decisions
that may be required to pass through both managers can sometimes take longer to
process than a traditional structure. Furthermore, with the integration of multiple
managers and team members, decisions that require multiple steps, for instance,
in quality assurance, can be slowed down when guided by the matrix.
4. Too much work can cause overload.

The matrix organization structure can also sometimes lead to work overload on
team members, since their project workload is often in addition to their regular
functional duties. Employees might suffer burnout or overlook or fail to complete
tasks or have their quality of work suffer due to time constraints.

5. Measuring employee performance might become difficult.

Oftentimes, when implementing a matrix structure, it may be difficult to gauge

employee performance when working on a project. This is in part because team
members may be essentially performing more than one role, both functionally and
the tasks within the project.

Network Organizational Structure:

The network structure is a newer type of organizational structure often viewed as

less hierarchical, more decentralized, and more flexible than other structures. In
this structure, managers coordinate and control relations that are both internal and
external to the firm.

The concept underlying the network structure is the social network—a social
structure of interactions. At the organizational level, social networks can include
intra-organizational or inter-organizational ties representing either formal or
informal relationships. At the industry level, complex networks can include
technological and innovation networks that may span several geographic areas and
organizations. From a management perspective, the network structure is unique
among other organizational structures that focus on the internal dynamics within
the firm.

A network organization sounds complex, but it is at its core a simple concept. Take,
for example, a T-shirt design company. Because the company leaders are mainly
interested in design, they may not want to get too heavily involved in either
manufacturing or retail; however, both aspects of the business are necessary to
complete their operations. To maintain control of their product, they may rent
retail space through their network and purchase product from a variety of partner
organizations that have their own manufacturing facilities

Advantages of a Network Structure

• Communication is less siloed and flows freely

• It facilitates opening up more opportunities for innovation
• As the network structure is decentralized, it has fewer tiers in its
organizational makeup, a wider span of control, and a bottom-up flow of
decision making and ideas.

Disadvantages of a Network Structure

• More flexible structure sometime can lead to a more complex set of

relationships in the organization.
• lines of accountability may be less clear, and reliance on external vendors
can be sometime costly affair.

virtual organisation?

A virtual organisation is referred to as a flexible network of entities that are linked

by computing technologies to share knowledge and skills. This electronic network
goes beyond organisational and geographical boundaries. It is often considered a
boundary-less organisation in which vertical and horizontal barriers are removed.

It takes the help of information and communication technologies to reach common

or shared interest. In a virtual organisation, members accept the help of
telecommuting by using internet, phone, and e-mails to undertake their work.
These types of organisations exist through information technology tools as they do
not have a base or geographical location.

In a virtual organisation, the vast majority of the employees work entirely online
from dispersed geographical locations. It uses informatics tool to sustain, maintain
and enable the sharing of resources in distributed work environments.
In today’s modern and competitive world, you will find more than enough new
start-ups that are operating as virtual organisations. Even established companies
are integrating them into their organisational design and also in hiring processes.
As per a recent survey, virtual organisations are some of the biggest drivers of
transformation, and there are considerable benefits in its formation.

Advantages:

1. Higher employee satisfaction

The traditional employee used to work from a physical set-up office space. They
were happy to do a nine-to-five job and leave the office work behind afterwards.
The new concept of the modern world is quite different. Employees do not want
to be bound in the constraints of time. They are happy working from home with
adjusted timings so that they can complete other urgent work in the meantime.

2. Boost in employee efficiency

An essential advantage of virtual organisation is an increase in

employee efficiency. It has been proved through surveys that the amount of work
done in a virtual organisation is considerably more than what one could
accomplish in a physical organisation at the same time.

3. Broader talent pool

Virtual organisation does not need its employees to come and work from a
specific address. This proves beneficial for such companies as they can hire
employees from any part of the world very quickly without worrying about simple
facts like how to raise visa or how to manage transportation to reach the office on
time.

4. Improved scalability

Physical office space needs overhead costs, but a virtual organisation does not
require any such expenses. The company has enough free capital to improve its
growth potential and scalability. It is a proven fact that virtual organisation teams
are more agile and willing to work for more hours than the employees in a typical
traditional workplace

5.Balance in life

A virtual organisation offers the employees a golden chance to accommodate and

balance their professional and personal life

Disadvantages:

1. Lack of solidarity

In a physical space you will feel the team bonding that nudges employees to work
harder for the team. This type of warmth and bonding is absent in employees
working for a virtual organisation.

2. Reputational risks

People are still not comfortable in dealing with companies that do not have a
physical presence. They vary from remote employees, and this is why they do not
take such companies seriously.

3. Less communication

Virtual organisation has the best possible means to have an open channel that will
facilitate increased communication between all the members. The fact is quite
different from the assumption as the remote teams are simply not interested in
passing any information as they are still unknown for each other.

Learning Organization:

Learning organisation is the one that has developed the capacity to continuously
learn, adapt, and change. Organisations operate in the dynamic environment.
There are continuous innovations in information and computer technologies.
Markets are global and customers are spread worldwide. Though the world has
become global, customers all over the world are not the same. They are guided by
their country’s culture, attitudes and beliefs.

In order to be successful, organisations should learn and respond to changes

quickly. They learn about effectively challenging conventional wisdom, manage
the organisation’s knowledge base and make the desired changes. All
organisational members take active part in identifying and resolving work- related
issues. In a learning organisation, employees practice knowledge management.

They continuously acquire, share and apply new knowledge in making decisions.
In today’s world of competition, organisations that learn and apply new concepts
have edge over competitors. “All organisations learn, whether they consciously
choose to or not — it is a fundamental requirement for their sustained existence”.

merits:
1. The organisation experiments, tries and permits more failures. This
provides extensive information to make decisions.

2. The organisation interacts with customers and maintains a rich and

informal environment conducive to growth and success. Knowledge of
customer requirement is important for company’s fortunes.
3. Learning enhances company’s speed, innovativeness and adaptability.
4. The organisation can anticipate and adapt changing market conditions. It
reaches the market with innovative products faster than competitors.
5. The organisation maximises responsiveness to customers’ needs. This
provides competitive advantage to the company

Principles underlying designing of a structure

The best organizational structure for a business arranges jobs in a way that helps
a company accomplish its strategic goals. The right arrangement allows for the
best use of resources and establishes fruitful working relationships throughout a
company. Some structures are more mechanistic in nature, with hierarchical
management levels and top-down leadership. Others tend to be more organic.
These have fewer rules, less centralized authority and less bureaucracy. To
determine which is appropriate, management must consider several factors.
Step 1
Review the company strategy. A company focusing on quality control, for
instance, might be more likely to favour a more mechanistic approach since it
allows for greater oversight. Structure must always follow from a company's
strategy.
Step 2
Consider how dynamic, flexible and agile the company needs to be to compete.
Next, determine the stability of the market and industry. A rapidly changing
environment will favour the organic structure because it tends to be more
adaptable to change. An organization operating in a stable environment,
meanwhile, can benefit from a mechanized structure.
Step 3
Consider the organization’s size and age. Small, young organizations require less
of a management hierarchy than do larger, older organizations.
Step 4
Consider different organizational structures. The functional structure typically
departmentalizes jobs based on work classifications such as marketing or
production. Similarly, the matrix structure, which combines the team and
functional approaches; and the divisional structure, which departmentalizes
according to geography, product niche or customer.
Step 5
Review your analysis from the previous steps to determine whether the company
is better served with a mechanistic or organic approach to structure, or something
in between.
Step 6
Create an organizational chart of the structure or structures the company is
considering. Graphically representing the company this way will clarify issues such
as who reports to whom, where responsibility will fall, the need to add or cut
employees or management levels, and changes that might have to be made in
procedures.
Delegation of Authority
To delegate means to grant or confer, hence the manager who delegates grants or
confers (authority) on others (subordinates) to accomplish certain duties in the
form of work.

According to O. Jeff. Harris it is an authorisation to a subordinate manager to act in

a certain manner independently. The delegation of authority is the delivery by one
individual to another of the right to act, to make decisions, to acquire resources
and to perform other tasks in order to fulfil job responsibilities.

L.A. Allen has defined delegation as ''the entrustment of a part of the work, or
responsibility and authority to another, and the creation of accountability for
performance''. Responsibility is the work assigned to a position. Authority is the
sum of powers and rights entrusted to make possible the performance of the work
delegated. Accountability is the obligation to carry out responsibility and exercise
authority in terms of performance standards established. It is the obligation of an
individual to render an account of the fulfilment of his responsibilities to the boss
to whom he reports.

Delegation of Authority Just as no one person in an enterprise can do all the tasks
necessary for accomplishment of goals so it is impossible, as an enterprise grows,
for one person to exercise all the authority for making decisions. As you know that,
there is a limit to the number of persons, managers can effectively supervise and
for whom they can make decisions. Once this limit is passed, authority must be
delegated to subordinates, who will make decisions within the area of their
assigned duties. Then the question is how is authority delegated when decision-
making power is vested in a subordinate by his superior. Clearly, superiors cannot
delegate authority they do not have. It is equally clear that superiors cannot
delegate all their authority without, in effect, transferring their position to their
subordinates. The entire process of delegation involves four steps. They are:

1) The determination of results expected from persons in a position

2) The assignment of tasks to persons;
3) The delegation of authority for accomplishing these tasks;
4) The holding of people responsible for the accomplishment of these tasks.
Thus, delegation is the process that a manager follows in dividing the work assigned
to him so that he performs that part, which because of his position he can perform
effectively. But there is a difference between delegation and work assignment.
Delegation constitutes a master agent relationship while work assignment
constitutes master servant relationship. An employee’s work assignment may be
reflected in his job description while delegated duties may not form the part of the
employee’s normal duties. Delegation is legitimate authorisation to a manager or
employee to act in specified ways. It enables him to function independently
without reference to the supervisor but within the limits set by the supervisor and
the normal framework of organisational objectives, policies, rules and procedures.

From the above discussion, it is clear that delegation involves;

a) entrustment of work to another for performance

b) grant of power, right or authority to be exercised to perform the work,

c) creation of an obligation on the part of the person accepting delegation.

Principles of Delegation

Delegation is one of the most important elements in the organising process. It is

through delegation that interrelationships are created in any organisation. There
are certain principles which may be followed as guidelines for effective delegation.
These principles are:

Principle of delegation by results: The purpose of delegation is to get work done

through another more effectively and efficiently than it may be accomplished by
the delegator himself in a given situation. It is, therefore, essential that the
assignment of task or duty and the entrustment of authority should be done
keeping in view the results expected.

Delegation by result implies that goals have already been set and properly
communicated to the delegate and understood by him and that the job assigned
fits the objectives.

Principles of competence: The person selected as a delegatee should be

competent for the task assigned to him.
Principle of trust and confidence: It is necessary that there is an atmosphere of
trust and confidence in the organisation as a whole and that there is a feeling of
trust between the delegator and the delegatee. The delegatee should enjoy mental
freedom in his work. He would be able to use his initiative and drive in work if he is
mentally free.

Principle of parity between authority and responsibility: Authority delegated

should be adequate in relation to the responsibility. It is logical that the
responsibility for actions cannot be greater than the authority delegated, nor
should it be less. Principle of unity of command:

The principle of unity of command describes the authority-responsibility

relationships. The principle states that each subordinate should have only one boss
to whom he should be accountable to avoid confusion and conflict. In delegation,
it is assumed that the right of discretion over a particular activity will flow from a
single superior to a subordinate.

Principle of absolute responsibility: Responsibility is an obligation which can

neither be delegated nor be temporarily shifted. No superior can escape the
responsibility for the activities of his subordinates through delegation, because it is
the superior who has delegated the authority and has assigned duties. Similarly,
the responsibility of the subordinate to his superior for performance of the
delegated duties is absolute and cannot be shifted.

Principle of adequate communication: There should be free flow of information

between superior and subordinate. This enables the subordinate to take decisions
and interpret correctly the nature of the task to be completed with the nature and
degree of authority vested in him. Principle of effective control: As the delegator
delegates his authority but not the responsibility, he should ensure that the
authority delegated is properly used.

Principle of reward: Effective delegation and proper exercise of authority should

be rewarded. A rational rewarded system of reward would act as an incentive to
subordinates to willingly take the responsibility and assume authority and also
create a healthy environment within the organisation.
Principle of receptiveness: Delegation needs and it also creates an understanding
between the superior and subordinate. Decision-making involves some discretion.
This means that no two decisions or two persons can exactly be the same. It is
therefore, necessary that the superior who delegates authority accommodates the
ideas of his subordinates.

Delegation of authority is closely related to the concepts of centralisation and

decentralisation of authority. Let us learn them in detail.

Centralisation
Centralisation is the reservation or withholding of authority by individual managers
within the organisation. According to Henry Fayol, ‘everything that goes to increase
the importance of the subordinate’s role is decentralisation, everything which goes
to reduce it is centralisation'' In centralisation little delegation of authority is the
rule; power and discretion are concentrated in a few executives. Control and
decision making reside at the top levels of management. However, absolute
centralisation is untenable because it would mean that subordinates have no
duties, power or authority. Centralisation may be essential in small organisations
to survive in a highly competitive world. But as the organisation becomes more
complex in terms of increasing size, interdependence of work-flow, complexity of
tasks and spatial physical barriers within and among groups, a function requisite
for efficiency is to move decision-making centres to the operating level. Thus, the
larger the size of an organisation, the more urgent is the need for decentralisation.
This does not mean that decentralisation is good and centralisation is bad.

Decentralisation: Decentralisation is the systematic effort to delegate to the lowest

levels, all authority - except that which can be exercised at central points. It is the
pushing down of authority and power of decision-making to the lower levels of
organisation. The centres of decision-making are dispersed throughout the
organisation. The essence of decentralisation is the transference of authority from
a higher level to a lower level. It is a fundamental principle of democratic
management where each individual is respected for his inherent worth, and
constitution.
Distinction between Delegation of Authority and Decentralisation

Although decentralisation is closely related to delegation, there are some

differences between decentralisation and delegation which are discussed below.

1) Delegation is a process of systematic transfer of authority while

decentralisation is the end result of planned delegation.
2) Delegation refers to the transfer of authority from one individual to another.
Decentralisation refers to the systematic delegation of authority to all units in
an organisation-wide context.
3) Delegation can take place from one person to another and be a complete
process. But decentralisation is complete only when the fullest possible
delegation is made to all or to most of the people
4) ) Delegation is between a superior and a subordinate while decentralisation is
company-wide delegation as between top management and divisions or
departments.
5) Delegation is necessary for effective management because no individual
manager can afford to look after everything. But decentralisation is optional,
necessitated by the growth of the organisation.
6) In delegation, operational control is exercised by the delegatee but in,
decentralisation, the overall control is by the top management.

Merits and Limitations of Decentralisation

Merits

1) Facilitates growing and complex organisation: Centralisation of authority may

be desirable under certain special circumstances to accomplish specific results or
when the company is small. But when organisation grows in size and becomes
complex, even a hardcore autocratic manager is forced to delegate some authority
and bring about decentralisation.

2) Reduces the burden of executives: Decentralisation is always preferable when

an organisation has grown in size and complexity, and there is a need to reduce the
burden of the top executives.
3) Facilitates diversification: Decentralisation is required when business needs to
be expanded by diversifying its activities or product lines.

4) Quick decision making: Decentralisation facilitates consultative as well as quick

decision-making at the action point. This promotes interaction among the different
functionaries giving them an opportunity for self-development and training and
stimulating them to put in their best effort in the growth and development of the
organisation as whole.

Limitations

1) Leads to disintegration: Extreme decentralisation, however, may not be a cure.

It may lead to looseness and also ultimately to the disintegration of the
organisation. It may bring about the diseconomy of scale with the increase in the
overhead expenses of each decentralised unit. The duplication in functions may
further add to the total cost.

2) Does not suit specialised services: For specialised services like accounting
personnel, research and development etc., decentralisation is unwarranted.
Moreover, there are certain areas of control and responsibility like setting up
overall organisational objectives, long-term planning, formulation of policy, capital
investment etc. which need to be under central control only.

3) Conflict: Decentralisation puts increased pressure on divisional heads to realise

profits at any cost. This encourages the managers to become department
conscious. Sometimes the top management deliberately encourages competition
between different departments to increase the profitability. This competition
results in bitter inter-divisional rivalries and conflict.