UNIT 2 PLANNING, DECISION MAKING AND ORGANISING: Nature and purpose of Planning, types of

Planning, objectives, setting objectives, policies, Strategic Management, Planning Tools and Techniques,
Decision making steps and processes. Nature and purpose of Organizing, formal and informal organization,
organization structure, types, line and faculty authority, departmentalization, delegation of authority,
centralization and Decentralization, job design.

PLANNING
 Planning is deciding in advance what to do, how to do it, when to do and who is to do. it
bridges the gap from where we are to where we want to go – Knootz O Donnel
 Planning is deciding the best alternative among others to perform different managerial
operations in order to achieve the predetermined goal--- Henry Fayol
 Planning is the process of thinking through and making explicit the strategy, actions, and
relationship necessary to accomplish an overall objective or purpose. --- Cleland and King

NATURE OF PLANNING: (CHARACTERISTICS OR FACTORS OF PLANNING)

 Planning is the primary function of management: planning is the starting point of
management, which gives meaning to all other managerial activities. For Eg. : Organization
set 10,000 no to produce products.
 It is goal oriented: planning helps to attain the goal is the most effecting and efficient manner.
 It is all pervasive: planning is done everywhere in all the levels all the managers and
departments.
 It is an intellectual activity: planning is a mental activity. It involves application of mind and
intelligence to attain.
 It is future oriented: planning is required to attain the future goals of an organization.
 It requires an integrated approach: planning links between the plans of different
departments.
 It is a continuous process : planning is required as long as we live in the world

IMPORTANCE OF PLANNING (MERITS OR ADVANTAGES)

 It focuses on objective: once the objective of the business has been fixed the next step is to
prepare plan for its effective accomplishment. E.g. the annual target of the production
 department of a business cannot be achieved in a week. It should be divided into monthly,
quarterly and half weekly targets etc.
 It helps to avoid no work or work pressure situations – planning helps to distribute work
evenly throughout the year.
 It helps to avoid wastage of resources: by planning employees and executives know
beforehand what they have to do.
 It ensures efficiency as well as effectiveness doing right things.
 It reduces risk and uncertainty – planning is for future and future is uncertain . But in planning
the future uncertainties are anticipated and adequate provisions are made to overcome.
 It provides for co-ordination
 It facilitates control planning without control is useless and control without planning is
meaningless
 Planning provides scope for decentralization

PROCESS OF PLANNING (STEPS INVOLVED IN PLANNING / STAGES INVOLVED

IN PLANNING)
1. Identifying business opportunities: it is necessary to make an analysis of both the internal
and external environment to know the trends in the near future. Business activities are
influenced by internal as well as external factors, regulations, technological changes,
competition etc. the businessmen therefore have to look for opportunities always by
observing the business environment.
2. Establishment of objectives: planning process is to establish the organization objectives
in tune with the opportunities identified, taking into account the resources available. The
overall objective of the organization must be stated along the specific objectives of
departments
3. Determination of Planning Premises: planning premises are the assumptions about the
future happenings. As planning is for future and future is uncertain, certain assumptions
about the future become necessary Eg. Employee attitude technology uses, managerial
decisions making process etc. are some of the factors influencing the internal
 environment of business. The external environment is like demand, buyer behavior,
competitors action, government regulations, suppliers actions
4. Identifying the alternative course of action: there are always alternative ways ofcarrying
out any task just as here are different routes to reach a destination point. To attain the
objective of a business different course of action may be available.
Eg. To maximize profits any of the following method used.
1. large scale production
2. curtailing the cost of production and distribution
3. maximizing sales
4. Increasing the market share and so on.
5. Evaluating alternative courses of action: once the alternative courses of action are
identified, the next step is to evaluate the same. Evaluating means studying the merits and
demerits of each alternative should be examined carefully to decide on its suitability.
6. Selecting the best course of action: once the alternative course of action has been
evaluated the next step is to select the best. The one finally selected should help the
organization in making an optimum use of the available resources and help to attain the
objective.
7. Formulation of derivative plans: after the basic plan of the organization has been
determined the next step is to prepare the subsidiary plans to support the basic plan.
8. Periodic evaluation and review: once the implementation of the plan starts it becomes
necessary to evaluate performance of periodic intervals to ensure that the activities of the
originations precede in the right direction and as laid down in the plan.

TYPES OF PLANS
CLASSIFICATION OF PLANS ACCORDING TO TIME
I) long term planning: this plan is usually 5 to 15 years. It is also called as strategic planning. It
prepares the business to face the effects of long term changes.
a) Introduction of a new product
b) entering a new market
c) changing the technique of production
d) increasing the scale of production
II). Medium term planning: it is known as tactical planning, the period covered by the medium
term plan is usually 1 – 5 years.
The plan is needed for
1. Making additions to an Existing plant.
2. Expanding the factory
3. appointment if additional staff to cope with the volume of work
III). Short term planning: it is known as operational planning
the period covered is less than one year.
- purchase of raw materials
- Arranging for employee training etc.
LIMITATIONS OF PLANNING
1. Uncertain Nature: future happenings cannot be accurately foreseen. Eg. natural
calamities, floods earthquake etc.
2. Expensive: preparation and implementation of plan is expensive.
3. Rigidity: strictness and lack of flexibility leads to monotony.
4. loss of initiative :
5. Ignorance of subordinates interests
STEPS TO MAKE PLANNING EFFECTIVE
1. The success of planning depends upon the effectiveness of the forecast. If the forecast is
accurate the plan will be success.
2. Flexibility must be introduced in the plan whenever necessary so that the employees will
work with interest.
3. All the members’ ideas and views taken into consideration for making the plans then the
employees will be interested.
4. The plan should not be prepared to focus on the financial goal alone. There should be for
development of employees.
5. The plan must be realistic. It should take into account the capabilities of employees.
6. The plan must be communicated to subordinates.
METHODS OF PLANNING
Repeated use plans Single use plans
a) Objectives a) Programmes
b) Policies b) Budgets
c) Procedures
d) Rules
e) Strategies
1. OBJECTIVES: aims, goals, targets, missions, etc. objective is the destination point. The
important are,
 profit maximization
 a higher market share
 customer satisfaction
 Product diversification
Advantages of Objectives
 Objectives give focus to the activities of the organization.
 Planning depends on the objectives of an organization
 Integration of the activities of an organization is based on objectives
 Objectives provide the necessary yardstick for measurement of performance.
Disadvantages of objectives:
 Certain objectives cannot be measured quantitatively Eg. employee attitude
 In the name of objective there may be a tendering to exploit its workers this results
frustration among the workers.
MANAGEMENT BY OBJECTIVES (MBO)
It is a technique by which the superior and the subordinate jointly identify the objectives desired
to be achieved by the subordinate in tune with the overall results expected.
Stages involved in the process of MBO
1. Define organization goals
Setting objectives is not only critical to the success of any company, but it also serves a variety
of purposes. It needs to include several different types of managers in setting goals. The objectives
set by the supervisors are provisional, based on an interpretation and evaluation of
what the company can and should achieve within a specified time.

2. Define employee objectives

Once the employees are briefed about the general objectives, plan, and the strategies to follow, the
managers can start working with their subordinates on establishing their personal objectives. This
will be a one-on-one discussion where the subordinates will let the managers know about their
targets and which goals they can accomplish within a specific time and with what resources. They
can then share some tentative thoughts about which goals the organization or department can find
feasible.
3. Continuous monitoring performance and progress
Though the management by objectives approach is necessary for increasing the effectiveness of
managers, it is equally essential for monitoring the performance and progress of each employee in
the organization.
4. Performance evaluation
Within the MBO framework, the performance review is achieved by the participation of the
managers concerned.
5. Providing feedback
In the management by objectives approach, the most essential step is the continuous feedback on
the results and objectives, as it enables the employees to track and make corrections to their
actions. The ongoing feedback is complemented by frequent formal evaluation meetings in
which superiors and subordinates may discuss progress towards objectives, leading to more
feedback.
6. Performance appraisal
Performance reviews are a routine review of the success of employees within MBO
organizations.
Advantages of MBO
 It promotes better communication relationship between the superior and subordinates.
 It gives the subordinate an opportunity to fix his target, in consultation with his superior.
 Subordinate fix the target based on his own potentials.
 They feel they are motivated and take lot of effort to achieve the target.
 Periodical review helps him to go on his right direction.

Disadvantages of MBO
 The superior and subordinates have to meet several times to set the objectives.
 Periodical review of the performance consumes more time and paper work.
 MBO has not much to do with the lower levels of management.
POLICIES
A policy serves as a valuable guide to the managers when they take certain important decisions,
policies provide ready answers to question pertaining to certain issues. They prescribe the limits
within which the decisions have to be made.
Eg: employee promotion whether seniority or merit or both.
Essentials if a good policy
 It should be clear and definite; it should not give scope for misinterpretation.
 The policy should be logical.
 The policy based on ethical and moral values.
 Should be fair to all the employees.
 policy should be revised periodically
Factors determining the formulation of policies
 The beliefs and value of the owners of business
 Government regulations, Availability of funds
  Technology to adopted, Market trends
 Reactions of trade unions, General business environment
Merits of policies
 Policy guide managers to take bold decisions
 They save time by providing a ready solution to certain problems
 They ensure consistency in decision making
 Policies prevent the managers from misusing their authority
Limitations of policies
 Policies cannot provide solutions to all organizational problems
 Policies provide guidelines not solutions.
 It is necessary to review the policy periodically otherwise it becomes outdated.
 We cannot blindly apply the policies.
 Policies do not allow the managers to think originally
TYPES OF POLICIES
1. Formulated Policy: A formulated policy is one which is specified by the organization for
providing guidelines to its members. Every organization formulates various policies on
different aspects. This policy flows from higher level to lower levels in an origination.
2. Implied Policy: sometimes policies may not be clearly stated and the actions of managers
particularly at the higher levels provide guidelines for actions at lower levels. These actions
might constitute the policy. Sometimes the organization has clearly expressed policies for its
image, but it is not able to enforce these. In such a case the action of a decision maker depends
on his own guidelines and prejudices.
3. Imposed Policy: This arises from the influence of some outsider agencies. Such agencies may
be government which provides policies for all public sector organizations. Theseagencies may
either provide complete guidelines on a subject matter or provide a broad framework for
devising specific policies. For Eg. in public sector commercial banks recruitment and selection
is done by banking service commission and individual banks do not have and control.
4. Appealed Policy: An appealed policy arises from the appeal made by a subordinate a manger
to his superior for deciding an important case. The need for such an appeal may arisebecause
the particular case has not been covered by any policy. The appeal is then taken
 upward and the decision is made on the case sets precedent which becomes policy providing
guidelines for deciding similar cased in future.
PROCEDURES
A procedure will lay down the manner in which certain work has to be performed. It prescribes
sequence of operations to be carried out to complete a given task.
Advantages
1. It prescribes the sequence of operations to be performed.
2. They facilitate systematic performance of the work.
3. They ensure that the work proceeds in the right direction.
4. Procedures ensure consistency and uniformity of action
5. It secures proper coordination.
Disadvantages
1. The procedural formalities make delay in the performance of the work.
2. A few procedures result in confusion.
RULES
Rules are the do`s and don’ts. They are always rigidly enforced. There is always a fine or penalty
for the violation of rules. Eg. no smoking in the workplace, Wear uniform while in the factory.
STRATEGIES
Strategies means plan of action to counter the opponents attack. It is a tactics adopted to counter
competitor’s actions. Organization adopts strategy when they are in crisis.
1. Fall in sales.
2. Competitive pressures
3. Trade union demands etc.
SINGLE USE PLANS
These plans are meant for a specific purpose as soon as that purpose has been served the plan
becomes useless and given up.

PROGRAMMES
it specifies the date and time by which the activities of the organization will be carried out.
Eg: To produce 5000 color television sets by 31st march 2010. To sell 10000 motorcycle before
31 Dec 2009
Advantages
 It ensures commitment
 No wastage of time
 Employees work with motivation
 They coordinate the work
BUDGETS
A budget is the financial plan of a business. It is expressed in numerical terms. A budget is a
statement of projected activities of a business in the near future.
Advantages
 It helps to determine its future course of action.
 A budget is always prepared for a specific period of time.
 Before preparing the budget the past happenings the present needs and future trends are
taken into account.
DECISION MAKING
DEFINITION OF DECISION-MAKING
A decision may be defined as "a course of action which is consciously chosen from among a set of
alternatives to achieve a desired result." It represents a well-balanced judgment and a commitment
to action.
According to Trewatha & Newport, "Decision-making involves the selection of a course of action
from among two or more possible alternatives in order to arrive at a solution for a given problem".
CHARACTERISTICS OF DECISION MAKING
 Decision making implies choice: Decision making is choosing from among two or
more alternative courses of action. Thus, it is the process of selection of one solution
out of many available. For any business problem, alternative solutions are available.
Managers have to consider these alternatives and select the best one for actual
execution. Continuous activity/process:Decision-making is a continuous and dynamic
process. It pervades all organizational activity. Managers have to take decisions on
various policy and administrative matters. It is a never ending activity in business
management.
 Mental/intellectual activity: Decision-making is a mental as well as intellectual
 activity/process and requires knowledge, skills, experience and maturity on the part
of decision- maker. It is essentially a human activity.
 Based on reliable information/feedback: Good decisions are always based on
reliable information. The quality of decision-making at all levels of the Organisation
can be improved with the support of an effective and efficient management information
system (MIS).
 Goal oriented process: Decision-making aims at providing a solution to a given
problem/ difficulty before a business enterprise. It is a goal-oriented process and
provides solutions to problems faced by a business unit.
 Means and not the end: Decision-making is a means for solving a problem or for
achieving a target/objective and not the end in itself.
 Time-consuming activity: Decision-making is a time-consuming activity as various
aspects need careful consideration before taking final decision. For decision makers,
various steps are required to be completed. This makes decision- making a time
consuming activity.
 Pervasive process: Decision-making process is all pervasive. This means managers
working at all levels have to take decisions on matters within their jurisdiction.
ADVANTAGES OF DECISION MAKING
 Decision making is the primary function of management: The functions of
management starts only when the top-level management takes strategic decisions. Without
decisions, actions will not be possible and the resources will not be put to use. Thus
decision-makingis the primary function of management.
 Decision-making facilitates the entire management process: Decision-making
creates properbackground for the first management activity called planning. Planning gives
concrete shapeto broad decisions about business objectives taken by the top-level
management. In addition, decision-making is necessary while conducting other
management functions such as organizing,staffing, coordinating and communicating.
 Decision-making is a continuous managerial function: Managers working at all levels will
have to take decisions as regards the functions assigned to them. Continuous decision making is a
must in the case of all managers/executives. Follow-up actions are not possible unless
decisionsare taken.
 Decision-making is essential to face new problems and challenges: Decisions are
required to be taken regularly as new problems, difficulties and challenges develop before
abusiness enterprise. This may be due to changes in the external environment. New
products may come in the market, new competitors may enter the market and government
policies may change. All this leads to change in the environment around the business unit.
Such change leads to new problems and new decisions are needed.
 Decision-making is a delicate and responsible job: Managers have to take quick and
correctdecisions while discharging their duties. In fact, they are paid for their skill, maturity
and capacity of decision-making. Management activities are possible only when suitable
decisions are taken. Correct decisions provide opportunities of growth while wrong
decisions lead to loss and instability to a business unit.
STEPS INVOLVED IN DECISION MAKING PROCESS
Decision-making involves a number of steps which need to be taken in a logical manner. The
scientific method of decision-making involves the following six steps:
a. Defining / Identifying the managerial problem,
b. Analyzing the problem,
c. Developing alternative solutions,
d. Selecting the best solution out of the available alternatives,
e. Converting the decision into action, and
f. Ensuring feedback for follow-up.
The figure given below suggests the steps in the decision-making process:-
 Identifying the Problem: Identification of the real problem before a business enterprise
is the first step in the process of decision-making. It is rightly said that a problem well-
defined is a problem half-solved. Information relevant to the problem should be gathered
so that critical analysis of the problem is possible. This is how the problem can be
diagnosed.
 Analyzing the Problem: After defining the problem, the next step in the decision-
making process is to analyze the problem in depth. This is necessary to classify the
problem in order to know who must take the decision and who must be informed about
thedecision taken. Here, the following four factors should be kept in mind: (i) Futurity
of the decision, (ii) the scope of its impact, (iii) number of qualitative considerations
involved, and (iv) uniqueness of the decision.
 Collecting Relevant Data: After defining the problem and analyzing its nature, the next
step is to obtain the relevant information/ data about it. There is information flood in the
business world due to new developments in the field of information technology. All
available information should be utilized fully for analysis of the problem. This brings clarity to
all aspects of the problem.
 Developing Alternative Solutions: After the problem has been defined, diagnosed
on the basis of relevant information, the manager has to determine available
alternativencourses of action that could be used to solve the problem at hand. Only realistic
alternatives should be considered. It is equally important to take into account time and
costconstraints and psychological barriers that will restrict that number of alternatives
 Selecting the Best Solution: After preparing alternative solutions, the next step
 in the decision-making process is to select an alternative that seems to be most rational
for solving the problem. The alternative thus selected must be communicated to those
who are likely to be affected by it. Acceptance of the decision by group members is
always desirable and useful for its effective implementation.
 Converting Decision into Action: After the selection of the best decision, the next step
is to convert the selected decision into an effective action. Without such action, the
decision will remain merely a declaration of good intentions. Here, the managerhas
to convert 'his decision into 'their decision' through his leadership.
 Ensuring Feedback: Feedback is the last step in the decision-making process. Here,
the manager has to make built-in arrangements to ensure feedback for continuously
testing actual developments against the expectations. It is like checking the effectiveness
of follow-up measures. Feedback is possible in the form of organized information,
reports and personal observations. Feedback is necessary to decide whether the decision
already takenshould be continued or be modified in the light of changed conditions.
TYPES OF DECISIONS
 Programmed and Non-programmed Decisions
Programmed or structured are those decisions, which are well defined and some specified
procedure or some decision rule might be applied to reach a decision. Such decisions are
routine and repetitive and require little time for developing alternatives in the design phase.
Programmed or structured decisions have traditionally been made through habit, by
operating procedures or with other accepted tools. Whereas, Non- programmed
Decisions, which are not well defined and have not pre-specified procedures decision rule
are known as unstructured or non-programmed decisions.

 Routine ad Strategic Decisions

These decisions are also known as Operating Decisions. They occur repetitively and
are regular in nature. These decisions are made to govern the day-to- day operations of the
businesses. These decisions are generally taken at lower levels of the management whereas
strategic decisions are also known as Policy decisions. These are not repetitive in nature
nor follow a routine manner. These are related to the long-term functioning of the
company. The making of these decisions is guided by policy manuals but require
 high expertise and strategic knowledge. Since their impact is organization-wide they are
taken athigher level of management.
 Organizational and Personal Decisions
Organizational decisions are made to further the interests of the organization. Such
decisions are made by managers in their official capacity. These decisions are based on
rationality, judgment and experience whereas Personal Decisions while makingpersonal
decisions, personal interests are kept in mind. Such decisions are made by managers on
their own behalf. There is no scope for delegation of such decisions in management.
 Individual or Group Decisions
Individual Decision Making: without a group's input or a decision made regardless of the group's
opinion is, naturally, an individual decision. This is the more traditional decision making approach
and can work effectively for a manager when the group's input is not required or in certain cases,
desired.
Group Decision Making: There are several models of group decision making that you can put to
use. Two examples are consensus and consultation. Consensus decision making involves posing
several options to the group and using the most popular option to make a decision. Consultation
takes the opinions of the group into consideration when making a decision. Both methods require
the group's participation and call for a manager who respects the opinions and input of the group
in the decision making process.
ADVANTAGES OF GROUP DECISION MAKING:
An individual can make a decision quicker than group can, of course, since only one person needs
to be consulted. Group decision making, though it can be an arduous process, can help cement the
group by allowing input from all members of the group.
DISADVANTAGES OF GROUP DECISION MAKING:
There are times when each decision making method is not appropriate. Avoid individual decision
making if the decision directly affects the group. For example, making a blanket decision that
everyone must work weekends will meet with opposition for reasons ranging from religious to
other personal obligations.
PROBLEMS INVOLED IN DECISION MAKING:
 Information overload. Having a lot of information is often viewed as beneficial, but if that
information is not collated properly or only available via a multitude of methods, processing it all
can become overwhelming. You should be accustomed to accessing the kind of data that
 iskey to your decision-making options, or you might feel misguided and confused.

 Not having enough information. Of course, extremes are never good: not having
enoughinformation to support your decision is not good either; and you should definitely
be up to speed withall the relevant information in order to come up with the best solution
for any issue. 
 Misidentifying the problem. In many cases, the issues surrounding your decision will be
obvious.However, there will be times when the decision is complex and you aren’t sure
where the main issue lies, as the actual cause may be elusive. Being able to conduct
thorough research, receive useful dataand speak with internal experts could be ways to
mitigate this situation. 
 Overconfidence in the outcome. We are not by any way devaluing the importance of
positive thinking, but rather that you should identify realistic, viable, achievable options
rather than ones thatare overly optimistic and unrealistic. 
 Impulsiveness. Stress, time constraints or any other circumstance such as the pressure to
decide upon a course of action can compromise the desired results if decisions are taken
too quickly. You might inadvertently skip important data or forget about the impact of
some action or other on the team. 
 Opinions and objectivity. It is natural to involve other people in the decision-making
process, butyou need to avoid falling for something similar to the halo effect
(preconceived ideas and prejudicesbased solely upon appearances). Try and be coolly
objective in your decision-making—compliance, safety and the business should be the
priority—that’s something you can only achieve with objective data.
- ORGANIZING
Organizing 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.
PROCESS OF ORGANIZING
1. Division of work: first step in organising is to divide the work to be done into specific
activities which are grouped into jobs that consist of certain tasks.
2. Grouping Jobs & departmentalization: is to combine or group similar jobs into larger
units called departments, divisions or sections.
 3. Assignment of Duties: once the departments have been formed each employee is placed
under the charge of an individual.
4. Establishing Authority Relationships: The various members of the organisation who
performs the job, are linked by authority responsibility relations.
IMPORTANCE OF ORGANIZING
1. Benefits of specialization
2. Role clarity
3. Clarifies Authority and Responsibility
4. Avoiding Duplication of work
5. Coordination
ORGANISATION
According to Allen, “Organization 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.”
IMPORTANCE OF ORGANISATION
• Vital for implementing plans
• Specialization
• Optimum use of resources
• Team work
• Communication relationship
• Creativity
• Coordination
• Continuity
TYPES OF ORGANISATION
 Formal Organisation
o 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.
 Informal Organisation
o Keith Davis defines informal organisation as “a network of personal and social
 relations not established or required by formal organisation but arising
spontaneously as people associate with one another.”
DIFFERENCE BETWEEN FORMAL AND INFORMAL ORGANISATION
Formal Organization InFormal Organization
1. It is consciously and deliberately 1. It arises spontaneously
created.
2. Authority and responsibility are vital 2. It is only personal factors such as
for its functions. friendship , trust , confidence that
3. Rules and regulations are important are important.
4. It can be shown an organization 3. Personal relationship between
chart. individuals is more important.
5. Authority flows downwards and 4. It cannot be shown
responsibilities flow upwards. 5. There is no flow of authority
6. It is created only to attain the 6. It is created to fulfill the social
organization objectives. needs of an individual
7. Designations and official positions 7. Designation and official positions
are very important. are unimportant
8. It is permanent and stable 8. It is unstable.

ORGANISATION STRUCTURE
An organization structure explains the position and official relationships between the various
individuals working in an organization. It helps to understand an organization better.

FORMS OF ORGANISATION STRUCTURE

Designing of the organisation structure is ordinarily considered to be a matter of choice among a
large number of alternatives. There are three traditional forms: line, line and staff, and functional
organisation, and two newer forms-committee and matrix organisations. In fact, no particular form
is the best and, in practice, an admixture of all these or of some is found. The various types of
Organisation Structure are
• Line Organization Structure
• Line and staff Organization structure
• Functional Organization structure
• Committee Organization structure
• Project Organization structure
• Matrix Organization structure
LINE ORGANISATION
This is also known as scalar, military, departmental, or vertical organisation an perhaps is the
oldest form. This concept holds that in any organisation or hierarchy derived from a scalar
process, there must be a single head who commands it.
It is perhaps the oldest and the simple’s organisational structure. In this kind of structure every
manager exercises a direct authority over his subordinate who in turn directly reports to their
superiors.
 There is a hierarchical arrangement of authority.
 Each department is self-contained and works independently of other departments.
 Lines of authority are vertical i.e. from top to bottom.
 There are no staff specialists.

Fig 3.1 Line Organisation Structure

Advantages of Line Organisation
• There is no complicated relationship in this organization . it can easily be understood by
anyone.
• It clearly defines the authority and responsibility of each individual.
• Each person knows clearly whom he should report to and who should report to him.
• There is unity of command i.e. a subordinate gets orders from one superior only.
• It provides scope for better supervision. This ensures greater discipline.
Disadvantages of Line Organisation
• It lacks specialization.
• The line managers are overburdened with lot of work. Eg. the marketing manager has to
monitor sales and assess the performance of the sales man.
• It is always downward communication as result the subordinates may loose initiative.
• The line managers enjoy monopoly in the matter of decision making.
LINE AND STAFF ORGANISATION
It is a combination of line and functional structures. In this organisation a structure, the authority
flows in a vertical line and get the help of staff specialist who are in advisory. When the line
executives need advice, information about any specific area, these staff specialists are consulted.
For example Chief accountant has command authority over accountants and clerks in the
accounts departments but he has only advisory relationship with other departments like
production or sales.
 Fig 3.2 Line and Staff Organisation
Advantages of Line and Staff Organisation
• Staff experts provide support to the line personnel. This provides line executives to
perform well.
• The line executive gets relief from work burden.
• The suggestion given by the staff experts helps to take better decisions.
Disadvantages of Line and Staff Organisation
• Conflicts often arise between the line and staff executives.
• The staff experts do not have the authority to make decisions they can only
FUNCTIONAL ORGANISATION STRUCTURE
Functional organisation structure is were “authority rests with the functional heads; the structure
is sectioned by departmental groups”. The organisation is divided into a number of functional
areas. This organisation has grouping of activities in accordance with the functions of an
organisation such as production, marketing, finance, human resource and so on. The specialist in
charge of a functional department has the authority over all other employees for his function.
It is a kind of Formal Organisation whose structure is based on organising resources to perform
specialized tasks or activities in order to attain the goals of organisation.
This structure emerges from the idea that the organisation must perform certain functions in order
to carry on its operations.
Functional structure is created by grouping the activities on the basis of functions required for the
achievement of organisational objectives. For this purpose, all the functions required are classified
as shown below: -
Characteristics of Functional Organisation
1. Functional authority relationship
2. Limited span of management
3. Line and staff division
4. Organisation growth through emphasis on sub goals
5. Specialisation on functional areas
 Fig: 3.3 Functional Organisation Structure
Advantages of functional organisation structure
• It promotes specialization, each department specialize in a particular line of work
• Each functional head looks after specific activities so no burden.
• Better control.
• Each individual concentrates on a particular task so maximum efficiency
Disadvantages of functional organisation structure
• More number of departments and divisions
• Difficult to control and co-ordinate
• Delay in arriving in decisions
However, it is much suitable for large organisations where there is ample scope for specialization.
Once harmony and proper coordination among different functions is achieved, it could lead to sure
success for an organisation.
COMMITTEE ORGANISATION STRUCTURE
Organisation committees are quite popular at different levels for various functions. The board of
directors is a committee.
Similarly, there may be executive committee, finance committee, audit committee, bonus
committee, planning committee, grievance committee, etc. Exact definition of a committee is
difficult because there are many different kinds of committees and the concept of a committee
may be defined as a group of persons in an organization to another. However, a committee may
be defined as a group of persons in an organization for taking or recommending certain decisions.

CHARACTERISTICS OF COMMITTEE ORGANISATION

On the basic of the definition, following broad characteristics of a committee any be spelled out.
 A committee is a group of persons there should be at least two persons. There is no
limitation on the maximum number of persons. However, if number of persons rises above
seven, communication tends to become centralized because committee members do not
have adequate opportunity to communicate directly with one another.
 A committee is charged with dealing with specific problems and it cannot go in for actions
in all spheres of activities. There are strictly defined jurisdictions within which a committee
is expected to justify its existence. Beyond these limited spheres a committee is doomed to
fail as an organ of action.
 Members of the committee have authority to go into details of the problems. Thisauthority
usually is expressed in terms of one vote for each member.
 A committee have the authority either to take a final decision or it may merely decision or
it may merely deliberate on problems without authority to decide.
 A committee may be constituted at any level of organisation. Moreover, the members of a
committee may be drawn from various levels. Usually in such a case, all the members of
the committee enjoy equal authority.

TYPES OF COMMITTEES
• Standing Committee: Is never dissolved, there may be changes in membership. The
committee remains always. Eg. The board of directors in a company.
• Temporary Committee: This is created for a specific purpose. As soon as the purpose has
been accomplished the committee stands dissolved. Eg. if there is a strike in the
organization, then a committee is formed
• Executive Committee: Executive committee is one that has power to make important
decisions for the enterprise. Eg. board of directors.
 • Advisory Committee: This committee can only make suggestions. It does not have the
powers to make decisions.
• Formal committee: This is one that is constituted as per the values and policies of the
organization. It has hierarchy. It functions according to the lines of authority.
• Informal committee: This is the one that is not constituted as per the rules and policies
of the organization. Such a committee is the outcome of informal meetings of the workers
to discuss their work related problems.
Advantages of Committee Organisation:
• Scope for group judgment
• Committee members feel motivated when they participate in the discussion
• Problems that cannot be solved by individual will have to be referred to a committee.
Disadvantages of Committee Organisation:
• Expensive
• More time for discussions
• Sometimes compromise decision made.
MATRIX ORGANISATION STRUCTURE
 Matrix organisation combines two structures – functional departmentation and project
structure.
 Functional department is a permanent feature of the matrix structure and retains authority
for overall operation of the functional units.
 Project teams are created whenever specific projects require a high degree of technical skill
and other resources for a temporary period.
 Project team form the horizontal chain and functional departments create a vertical chain
of command.
 Members of a particular team are drawn from the functional departments and are placed
under the direction of a project manager who has the overall responsibility of a particular
project.
 Fig 3.4 Matrix Organisation Structure
Advantage of Matrix Organisation
• It gives motivation for the personnel.
• It promotes communication.
Disadvantages
• It goes against the principles of unity of command
• Dual command may result in confusion.
• Quick decisions may not be possible.
PROJECT ORGANISATION STRUCTURE
The project structure consists of a number of horizontal organisational units to complete projects
of a long duration. A team of specialists from different areas is created for each project. Usually
this team is managed by the project manager. The project staff is separate from and independent
of the functional departments.
Advantages of Project Organisation Structure
• It can be designed to suit individual projects
• It makes use of specialized knowledge and skill whenever required.
• It fixes responsibility on individuals on the work done by them.
Disadvantages of Project Organisation Structure
• The project manager may have tough time dealing with specialists from different fields.
• Decision making is difficult.
• The time within which the project has to be completed will put pressure on every
individual.
SPAN OF CONTROL
Span of management refers to the number of subordinates a manager can effectively handle,
manage. A manager will be able to perform his basic work of guiding his subordinates and making
them work only if he has the right number of such subordinates under him. The more people under
the control of one manager - the wider the span of control. Less means a narrow span of control.
Span of Management is also known as span of control.
Eg. Class teacher– students, family–children
TYPES OF SPAN OF CONTROL
NARROW SPAN OF CONTROL

Fig 3.5 Narrow Span of control

The advantages of a narrow span of control :
• A narrow span of control allows a manager to communicate quickly with the employees
under them and control them more easily.
• Feedback of ideas from the workers will be more effective
WIDER SPAN OF CONTROL

Fig 3.6 Wider Span of control

Advantages of wide span of control
• There are less layers of management to pass a message through, so the message reaches
more employees faster.
• It costs less money to run a wider span of control because a business does not need to
employ as many managers
SPAN OF CONTROL WITH ORGANISATION STRUCTURE

Fig 3.7 Flat and tall Organisation structure

FACTORS DETERMINING SPAN OF MANAGEMENT
 Capacity of Superior: Here the capacity means the ability of a superior to comprehend
the problems quickly and gel up with the staff such that he gets respect from all. Also, the
communication skills, decision-making ability, controlling power, leadership skills are
important determinants of supervisory capacity. Thus, a superior possessing such capacity
can manage more subordinates as compared to an individual who lack these abilities.
 Capacity of Subordinate: If the subordinate is trained and efficient in discharging his
functions without much help from the superior, the organization can have a wide span.
 This means a superior can manage a large number of subordinates as he will be required
just to give the broad guidelines and devote less time on each.
 Nature of Work: If the subordinates are required to do a routine job, with which they are
well versed, then the manager can have a wider span. But, if the work is complex and the
manager is required to give directions, then the span has to be narrower. Also, the change
in the policies affects the span of management. If the policies change frequently, then the
manager needs to devote more time and hence the span would be narrow whereas if the
policies remain stable, then a manager can focus on a large number of subordinates.
Likewise, policies technology also plays a crucial role in determining the span.
 Degree of Decentralization: If the manager delegates authority to the subordinates, then
he is required to give less attention to them. Thus, higher the degree of decentralization,
the wider is the span of management. But in case, subordinates do not have enough
authority, then the manager is frequently consulted for the clarifications, and as a result
superior spends a lot of time in this.
 Planning: If the subordinates are well informed about their job roles, then they will do
their work without consulting the manager again and again. This is possible only because
of the standing plans that they follow in their repetitive decisions. Through a proper plan,
the burden of a manager reduces manifold and can have a wider span of management.
 Staff Assistance: The use of staff assistance can help the manager in reducing his
workload by performing certain managerial tasks such as collecting information,
processing communications and issuing orders, on his behalf. By doing so, the managers
can save their time and the degree of span can be increased
 Supervision from Others: The classical approach to the span of management, i.e., each
person should have a single supervisor is changing these days. Now the subordinates are
being supervised by other managers in the organization such as staff personnel. This has
helped the manager to have a large number of subordinates under him.
 Communication Techniques: The mode of communication also determines the span of
management. If in the manager is required to do a face-to-face communication with each
subordinate, then more time will be consumed. As a result, the manager cannot have a
wider span. But in case, the communication is in writing and is collected through a staff
personnel; the manager can save a lot of time and can have many subordinates under him.
DEPARTMENTATION
• It is the process of dividing and grouping the activities and employees of an enterprise into
departments. E.g. production department will look after.
• Departmentation is process of grouping activities and people onto department make it
possible to expend organization. After reviewing the plan, usually the first step in the
organization process is departmentalization. Once job have been classified through work
specialization, they are grouped so those common tasks can be coordinated.
Departmentation is the biases on which work or individuals are grouped into manageable
units. There are five traditional methods for grouping work activities.
TYPES OF DEPARTMENTATION
• Departmentation by function
• Departmentation by products
• Departmentation by Territory
• Departmentation by Process
• Departmentation by customers
• Departmentation by Time and Numbers
DEPARTMENTATION BY FUNCTION
It is grouping activities on the basis on function of an enterprise. The basic enterprise functions
are production, selling, and financing functional departmentation is bases for organizing activities
and in organizational structure. It organizes by function to be performed. The function reflects the
nature of the business. The advantage of this type of grouping is obtaining efficiencies from
consolidating similar specialties and people with common skills, knowledge and orientations
together in common units

Fig 3.8 Departmentation by Functions

• ADVANTAGES
• It is logical reflection of function.
• Maintains power of major functions.
• Simplifies training.
• DISADVANTAGES
• De-emphasis of overall company objectives.
• Reduces coordination between function.
• Slow adoption to change in environment.
• DEPARTMENTATION BY PRODUCT
This type of departmentation used in organization where more than one product is producing.
In this department all the sources and authority are placed under the control of one manager.
Departmentation by product assembles all functions needed to make and market a particular
product are placed under one executive. For instance, major department stores are structured
around product groups such as home accessories, appliances woman’s clothing, men’s clothing
and children clothing.

Fig 3.9 Departmentation by Products

• ADVANDTAGES
• Places attention on production.
 • Increase growth of product.
• Places responsibility for profit at division level.
• DISADVANTAGES
• Requires more persons with general manager abilities.
• Presents problems of top management control
DEPARTMENTATION BY PROCESS
This type of departmentation is found in production and operative levels. Such type of
departmentation can be found in paint or electroplating process. Departmentalization by process
groups jobs on the basis of product or customer flow. Each process requires particular skills and
offers a basis for homogeneous categorizing of work activities. A patient preparing for an
operation would first engage in preliminary diagnostic tests, and then go through the admitting
process, undergo a procedure in surgery, receiver post operative care, be discharged and perhaps
receive out-patient attention. These services are each administered by different departments.

Fig 3.10 : Departmentation by Process

ADVANTAGES
 It simplifies training.
 Achieve economic advantage.
 Uses specialized technology.
DISADVANTAGES
 Coordination of departments is difficult.
 Responsibility for profit is at the top.
DEPARTMENTATION BY TERRITORY
Departmentation by geography is followed where geographic marked appear to offer advantages.
Geographic department most often use in sales and production, it is not use in finance.
Departmentalization by geographical regions groups jobs on the basis of territory or geography.
For example Merek, a major pharmaceutical company, have its domestic sales departmentalized
by regions such as Northeast, Southeast, & Northwest

Fig 3.11 Departmentation by territory

ADVANTAGES
 It emphasis on local markets and problems.
 Improves coordination in a region.
 Better face to face communication.
DISADVANTAGES
 Increases problem of top management control.
 Requires more persons with general manager abilities.
DEPARTMENTATION BY CUSTOMER
Departmentalization by customer groups jobs on the basis of a common set of needs or problems
of specific customers. For instance, a plumbing firm may group its work according to whether it
is serving private sector, public sector, government, or not- for-profit organizations. A current
departmentalization trend is to structure work according to customer, using cross-functional teams.
This group is chosen from different functions to work together across various departments
to interdependently create new products or services. For example, a cross-functional team
consisting of managers from accounting, finance and marketing is created to prepare a technology
plan.
There is different difficult decision to be made in separating some type of customer departments
from product departments. Business owners and managers arrange activities on the basis of
customer requirements.

Fig 3.12 Departmentation by customers

ADVANTAGES
 Departmentation by customer emphasis on customer needs.
 It develops experience in customer area.
DISADVANTAGES
 It may be difficult to analysis customer demands.
 It requires managers and staff expert in customer problems.
 Customer groups may not always be clearly defined.
DEPARTMENTATION BY NUMBERS
Departmentation by number is telling off persons who are to perform the same duties and putting
them under the superior of a manager the essential fact is not what these people do, where they
work? Or what they work with, it is that the success of the understanding depends only on the
number of persons include in it. This method is rapidly applying in army.
DISADVANTAGES
 There are many reason of decline of departmentation by numbers.
 It has declined due to advance technology and demand of specialized and different skills.
  A second reason is groups composed of specialized personnel are more efficient than
those based on number.
 Departmentation by number is useful only at the lowest level of the organization.
 Departmentation by number fails to produce good results
DEPARTMENTATION BY TIME
It is grouping activities on the basis of time. It is oldest form of departmentation and it is generally
used in low level of departmentation. It is particularly applied in hospitals and steel manufacturing
enterprise where continue process of service and manufacturing is used.
ADVANTAGES
 It is process of working and services throughout 24 hours.
 It is continuing service process.
 Expensive machinery is used in shifts.
DISADVANTAGES
 There is lacking supervision at night.
DELEGATION
Delegation is commonly defined as the shifting of authority and responsibility for particular
functions, tasks or decisions from one person to another.
ELEMENTS OF DELEGATION
• Authority is the power to give orders and get it obeyed or in other words it is the power
to take decisions.
• Responsibility means state of being accountable or answerable for any obligation, trust,
debt or something or in other words it means obligation to complete a job assigned on time
and in best way.
• Accountability means giving explanations for any variance in the actual performance from
the expectations set. Accountability can not be delegated. For example, if ’A’ is given a
task with sufficient authority, and ’A’ delegates this task to B and asks him to ensure that
task is done well, responsibility rest with ’B’, but accountability still rest with ’A’. The top
level management is most accountable.
STEPS IN DELEGATION OF AUTHORITY
1. Assignment of duties
2. Granting of authority
 3. Creating Responsibility and Accountability
DIFFERENCE BETWEEN AUTHORITY AND RESPONSIBILTY
Basis Authority Responsibility
Meaning It means the right to take decisions It means the obligation to perform
and command subordinates the assigned task
Origin It originates from job position in It arises from delegated authority
the scalar chain
Flow It flows downward i.e., from It flows upward i.e., from
superior to subordinate subordinate to superior
Delegation It can be delegated It cannot be delegated entirely

CENTRALISATION
Centralisation is the systematic and consistent reservation of authority at central point within the
organisation
Benefits of Centralisation
This system results in certain advantages to the organization
 Facilitating Personal Leadership. Personal leadership can be a potent influence in the
success of a small organisation and during its early growth stages. The success and survival
of the small, young enterprise in the competitive market depends upon aggressiveness,
singleness of purpose, and flexibility. Under a talented and dynamic leader, centralisation
in small organisation may result in quick decisions, enterprising and imaginative action,
and high mobility
 Providing Integration. Certain amount of centralisation is necessary to unify and integrate
the total operation of the enterprise. Some sort of central direction is required to keep all
parts of the organisation moving harmoniously together towards a common objective.
Thus, it acts as a binding force on the various parts of the organisation.
 Uniformity of Action Centralisation brings uniformity in all actions in the organisation.
Thus, to the extent that the organisation wishes all its units to do the same thing in the same
way or the same time, there must be centralisation of appropriate decisions.
  Handling Emergencies. When emergency decisions affecting all the units of the
organisation are to be taken, centralisation is necessary. The more acute emergency or the
more acute competition requires greater centralized decision-making.
 Other Benefits. Besides, centralisation minimizes duplication of work and wastages
require easier control, and makes communication easier.
However, these advantages of centralisation are limited in certain circumstances and
particularly in smaller organisations. A stage comes when decentralisation becomes desirable
to achieve its advantages and where the limitations of centralisation come in the way of
successful organisational functioning.
DECENTRALISATION
Decentralisation has become the prevailing philosophy for organising activities on the part of large
organisations.
Benefits of Decentralisation
Many organisations, which were centralized at earlier stages, have been forced to go for
decentralisation simply because they could not cope up with the situation under centralized
authority. This show the benefits of decentralisation which are as follows:
 Reducing Burden to Top Executives. Decentralisation is necessary for solving the
problems of expanding organisations. It is the means by which the chief executive can
extend his leadership over a giant organisation, when the chief executive makes operating
decisions and with problems of immediate urgency, he finds it almost impossible to adopt
the relaxed and contemplative point of view necessary for planning and thinking ahead.
Decentralisation relieves this pressure on the chief executive an provides him time to think
for the future and to make plans accordingly.
 Facilitating Diversification. Decentralisation can facilitate the growth and diversification
of product lines. For under decentralisation, each product line is treated as separate unit
and proper emphasis on all important matters such as present position, future prospects, a
comparative efficiency, can be given.
 Ensuring Marketing Innovations. Customers require satisfaction in respect of supply of
qualitative products, regularity of supply, and at cheaper rates. Marketing innovations
ensure better customer satisfaction. Each organisation has to carry on these marketing
innovations for its existence and growth. In decentralized organisation structure, higher
level people get much time for the creativity and innovations. The impact of decentralisation on
both product and market has proved by the various organisations.
 Motivating Mangers. Various research studies have shown that we organisation
structure itself can influence the people within the organisation. The extent to which the
organisation facilities participation, communication, delegation, mutual interaction, and
interdependence, motivates people for higher productivity. Decentralization tends to
emphasise those desirable characteristics in whatever type of structure it is found.
 Encouraging Development of Managers. Managers are made, not born and
decentralisation is one of the best methods of developing managers in the organisations.
Other methods of management development have their own contributions in this field.
However, giving manager’s management jobs to do and to delegate authority for
decision-making make them more mature and competent and broad-based. The problem
of succession is overcome this way and the future growth and success of the organisation
are ensured as most organisations find lack of managerial talent a limiting factor in
growth. Perhaps, the necessity of management development is one of the compelling
reasons for decentralisation.