MANAGEMENT

PRINCIPLES
AND
APPLICATIONS
Adab Mehta
REVISION NOTES
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 UNIT - 3
ORGANISING
The formal structure of an organisation is two-dimensional-horizontal and vertical.
- The horizontal dimension depicts differentiation of jobs into departments or divisions.
- The vertical dimension reflects the hierarchy of authority relationships with a number
of levels from top to bottom.
Organising is the process of
- identifying and grouping the work to be performed
- assigning duties to job positions
- establishing relationships
to enable people work effectively towards organisational objectives

Features of ORGANISATION :
1. group of persons
2. common objectives
3. division of work
4. cooperative efforts Adab Mehta
5. central authority
6. chain of command

IMPORTANCE:
1. Benefits of specialisation due to division of work
2. Clarity in working relationships: by clarifying lines of communication, hierarchy
3. Optimum utilisation of resources: proper job assign, no overlapping/duplication
4. Adaptation to change: organisation structure modified/revised
5. Effective administration: clear working relationship, proper execution
6. Development of personnel: assigning routine jobs to their subordinates
7. Expansion and growth: allows to add more job positions, departments/product lines

Thus, organizing is a process by which the manager

• Brings order out of chaos,
• Removes conflict among people over work or responsibility sharing and
• Creates an environment suitable for teamwork.
STEPS:
1. Identification and division of work: done according to previously determined plans.
Divided into manageable activities so that duplication can be avoided and the burden
of work can be shared among the employees.
2. Departmentalization: Activities which are similar in nature are grouped together, to
facilitate specialisation, using several criteria as a basis
3. Assignment of duties: work of different job positions is defined and allocated as per
skills and competencies. each department under the charge of an individual
4. Establishing authority and reporting relationships: Each individual should also
know who he has to take orders from and to whom he is accountable, this is to create a
hierarchal structure and bring coordination amongst various departments.

PRINCIPLES OF ORGANISING:
1. Unity Of Objectives
2. Functional Specialisation
3. Span Of Control
4. Scalar Principle
5. Delegation Of Authority
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6. Functional definition
7. Unity of command:
8. Unity of direction
9. Flexibility of organisation structure
10. Simplicity of organisation structure
11. Correspondence/ Parity of Authority – Responsibility

SPAN OF MANAGEMENT/CONTROL/SUPERVISION/AUTHORITY
- Number of people under a manager that can be effectively managed by him/her/them
- (this is because no person can supervise unlimited people, due to limited
time/knowledge/capacity)
- This number differs from manager to manager. No ideal number
Factors determining this number:
1. Capacity of superior
2. Ability of subordinate
3. Nature of work
4. Degree of decentralization
5. Location of operation
6. Communication
7. Level of management
- Too narrow span lead to under utilisation of managers, over-controlling of subordinates.
- Too wide span lead to over-straining of managers and lack of effective control over
subordinates.
SHAPE OF ORGANISATIONAL STRUCTURE:
Span of management has an important bearing on shape of organisation structure.
- Narrow span of management results in a "tall" organisation consisting of
several levels for supervision.
- Wide span results in a "flat" organisation with fewer levels between top and
bottom of the structure.

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 DELEGATION
downward transfer of authority from a superior to a subordinate is called delegation
- enables a manager to use his time on high priority activities.
- helps a manager to extend his area of operations as without it, his activities would
be restricted to only what he himself can do.

Features- Principles of delegation:

1. involves retaining and 1. Parity of authority- responsibility
sharing/delegation of authority (must commensurate/balance)
2. can’t delegate an authority what 2. Absoluteness of responsibility (cant
manager himself doesn’t have be completely delegated)
3. may be general/specific, 3. Delegation by results expected
written/implied 4. Unity of command
4. revocable i.e authority shared can be 5. Clarity of delegation
reduced/enhanced/even taken back 6. Completeness of delegation
5. art i.e., improved with practice Difficulties in Delegation:
Importance: On part of superior:
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delegation provides a medium through
which a manager multiplies himself
1. Lack of willingness to let go
authority
1. Effective management 2. Lack of ability to direct
2. Employee development 3. Lack of confidence in subordinates
3. Motivation of employees 4. Fear of competition
4. Facilitation of growth: 5. Absence of control
5. Basis of management hierarchy: 6. Inflated self-worth
6. Better coordination: On part of subordinate:
Process: 1. Lack of self confidence
1. Assignment of duties/responsibility 2. Lack of information
2. Granting of authority 3. Lack of incentives
3. Creation of accountability 4. Fear of criticism
5. Over-dependence on superior
Hence 3 elements of delegation are: Requisites for effective delegation:
responsibility, authority, 1. Proper planning
accountability 2. Right personnel
3. Effective communication
4. Appropriate incentive
5. Follow principles of delegation
 CENTRALISATION and DECENTRALISATION
Concentration of decision-making power in few hands at the top point, i.e. reservation of
authority at central points.
An organisation is
• centralised when decision-making authority is retained by higher management levels
• decentralised when such authority is delegated.
Factors Responsible for Centralization (Advantages)
1. Promote uniformity of policy/actions
2. Integration and coordination
3. Facilitate personal leadership
4. Handle emergencies
5. Lower cost of operations due to no overlapping/duplication of efforts

- Complete centralization means concentration of all decision-making functions at apex of the

management hierarchy. This would obviate the need for management hierarchy.
- Complete decentralization would imply the delegation of all decision-making functions to
the lower level of the hierarchy. This would obviate the need for higher managerial positions.
Both the scenarios are unrealistic.
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As it grows in size and complexity, there is a tendency to move towards decentralised
decision making. This is because in large organisations those employees who are directly
and closely involved with certain operations tend to have more knowledge about them
than the top management which may only be indirectly associated with individual
operations.

Decentralization: delegation of authority throughout all the levels of organisation to push

authority down near point of action
Importance:
1. Develops initiative among subordinates
2. Develops managerial talent for future
3. Relief to top management
4. Facilitate growth
5. Quick decision making
6. Better control
Disadvantages:
1. Lack of coordination
2. Lack of uniformity
3. Unsuitable for small firms
4. Overheads costs
5. External constraints
Measuring the degree of decentralisation
1. No of decisions
2. Importance of decisions
3. Effects of decisions
4. Requirement of approvals for the decision

Factors determining degree of decentralisation:

1. Size and complexity of organisation
2. History of organisation
3. Philosophy of top management
4. Ability of lower level executives
5. Importance of decision
6. Desire for independence
7. External influences

How to make decentralization effective:

1. Proper planning
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2. Centralised policy making
3. Executive development
4. Internal competition
5. Understanding decentralization

Basis Delegation Decentralization

Nature compulsory optional
Freedom of Less, because more control over More, because less control over
action subordinates subordinates
Status Process followed to share tasks Result of decision by top mgt
Scope Narrow (limited to superior and Wide (extension of delegation to
immediate subordinate) all levels of mgt)
Purpose Lessen burden of manager Increase role of subordinate
 ORGANISATIONAL DESIGN
Process of aligning organisation roles and structures with its strategic objectives by
creating horizontal and vertical structures in organisation and establishing reporting
relationships to link various elements in organisation
Two approaches:
1. Classical approach (taylor/fayol/max weber)
Focus to bring efficiency, recommend universal principles to be adopted
2. Contingency approach
Believes in NO BEST DESIGN. Depends on situational factors

FACTORS AFFECTING ORGANISATIONAL DESIGN

Classical approach Contingency approach
Hierarchy Environment
Span of management Size of organisation
Scalar chain Technology
Unity of command Strategy
Division of labour People
Departmentalization
Coordination Adab Mehta
Authority responsibility parity
Centralization decentralization parity

DEPARTMENTALISATION
Meaning: Efficient and effective grouping of jobs into meaningful work units
Objectives:
1. Simplify processes and operations
2. Grouping specialized tasks to increase efficiency
3. Effective control over activities
4. Fixing responsibility and accountability
Importance: Limitations:
1. Brings coordination 1. Problem of bringing coordination
2. Helps in training arises
2. Lead to rigidity
3. Efficiency and productivity
3. Conflicts among departments
increases 4. Too much emphasis on specialisation
4. Creates clear responsibility and Basis for Departmentalization:
accountability 1. Based on functions
5. Better communication and 2. Based on products
3. Based on geography
control 4. Based on customers
6. Increases growth potential 5. Based on processes
Based on Functions: CEO/Board
of directors
departments are created based on occupational
specialisation for functions like production,
marketing Finance &
Production HR
marketing, HR, etc. dept accounts

cost financial
acounting accounting

MERITS DEMERITS
Specialisation Specialists, problem in coordination
Simple Loss of focus
Easy functional training Cost addition
Coordination within department Difficult to fix responsibility
Flexibility Delayed decisions
Better supervision Limited managerial development
CEO/Board
of directors
Based on products:
useful for multi-product companies, departments
ENGN AUDIT
made based on the products/services they
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TEXTILE FMCG
GOODS SERVICES

provide. All functions or work related to one

type of product is done in that division. SOAP CHOCOLATE

MERITS DEMERITS
Product specialisation Duplication of efforts
Fixation of responsibility Expenses increase
Flexibility in product decisions Customer query handling become complex
Coordination
Managerial development

CEO/Board
Based on Geography: of directors

Territory based i.e., activities grouped on basis

Of location of business unit. Useful when Production HR
marketing
dept
Finance &
accounts
customers are geographically dispersed so
different divisions can be made to handle operations in that cost financial
acounting accounting
particular area
MERITS DEMERITS
Ease in expansion Difficult coordination b/w head office and division
Adaptation to local market Conflict for autonomy b/w head office and division
Managerial development Difficulty in control b/w head office and division
Fix responsibility and accountability Duplication of jobs b/w head office and division
Autonomy in decision making Expensive to set up new division, more admn. cost
Less transportation cost
Based on Customer Groups: departmentalization for a bank: TOP
management
When a business organizes its activities
Based on the kinds of customer groups
Which they are serving corporate personal agri
banking banking banking

MERITS DEMERITS
Customer orientation Customer’s multiple needs not fulfilled
Expertise Understanding customer’s needs not easy
Customers develop good Not suitable for small organisations/those with
image/reputation for organisation homogenous i.e. similar type of customers
Coordination problems may arise

Based on processes: for a paper manufacturer: TOP

management
Grouping of activities based on production
processes or equipment involved, usually
wood cutting chemical beating &

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seen in firms with assembly line processing & grinding processing rolling
finising

MERITS DEMERITS
Specialisation Not suitable for small organisation
Optimum use of resources Coordination issues between departments
Promotes skill Since processes are interdependent, breakdown in one
development department may affect working of the other
Efficiency
Economical

CEO/Board
SELECTING A BASIS FOR DEPARTMENTALISATION: of directors

Composite/combined basis:
Geographical department US EUROPE INDIAN

Product based department FMCG

engineering
goods

marketing quality production

dept control dept
Function based department
Factors to consider while selecting a basis for departmentalization:
1. Specialisation 5. Cost benefit analysis
2. Control 6. Key areas focus
3. Coordination 7. Employee considerations
4. Resource utilisation
 ORGANISATIONAL STRUCTURES
Formal pattern/network of horizontal/vertical authority relationships among
different positions in an organisation. Types:
TRADITIONAL:
1. Line organisation structure
2. Functional organisation structure
3. Line and staff organisation structure
MODERN:
4. Project organisation structure
5. Matrix organisation structure
6. Network organisation structure

LINE ORGANISATION STRUCTURE

• Direct chain of command, authority flows from top to bottom
• Straight unbroken scalar chain following unity of command
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• Because of uninterrupted vertical relationships, also called scalar/hierarchal
organisation
• Called ‘military organisation’ although untrue for winged armies found today
• Suitability: small enterprise with less people, few levels of authority, work is of
routine nature that requires less skills/specialisation
MERITS DEMERITS
Simple, direct and clear chain of Executives burdened with admn work
relationships, easy to understand
Quick decisions due to direct lines Manager becomes ‘jack of all trades and
of communication master of none’ so lack of specialisation
Superior has direct contact and autocratic leadership as one executive
unified control, discipline controls all activities
Executive development by Difficult to recruit/train executives who
performing diverse tasks can perform diversified tasks of a dept
Coordination as all activities done Instability/rigidity/less scope of
in single department expansion
Fixed responsibility due to clear
division of authority-responsibility
Less costly as no staff specialists
Types:

1. Pure line 2. Departmental line

Activities at particular level are Organisation divided into
similar, employees perform departments, supervisor and workers
similar work under that supervisor perform
similar work, but this work differs
from the work of other
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department.

FUNCTIONAL ORGANISATION
In functional organisation there are functional specialists, having control over a
particular function, no matter whichever department it is performed in.
- It is rarely used at lower levels. Mostly used at top management in large
organisations e.g., all purchases centralized in purchase department.
MERITS DEMERITS
Specialisation Less discipline
Better supervision Difficult to fix responsibility
Democratic control Less coordination
Scope for expansion Delay in decision making
Standardization Less economical
Less executive development
 Adab Mehta
LINE AND STAFF ORGANISATION
- In primary chain of command there are line executives. But staff positions are also
attached to provide specialist advice on managerial positions.
- (staff personnel are experts in their own fields but they do not have power of command
outside their dept i.e., their role is only of advisory nature)
- Combination of line structure (which concentrates control) and functional structure
(which divides control) i.e., this structure combines the benefits of unity of command
and specialisation. (Most popular in large organisations)
MERITS DEMERITS
Planned specialisation Conflicts b/w line and staff
Executive development less clarity in authority/work duties
Discipline Ineffective staff (as they aren’t accountable)
Fixation of responsibility Expensive as two set of personnel required
Scope for expansion/growth Less original thought/creativity, too much
dependence on staff
Adab Mehta
 PROJECT ORGANISATION
§ This structure includes horizontal organisation units created to complete a long-term
project by a team of specialists from different areas created for that project.
§ Activities of the project team coordinated by project manager
§ Project team is temporary set up. Once the project is complete, team is disbanded.
§ Project organisation is employed in aero-space, aircraft manufacture, construction and
professional areas like management consulting.
§ Suitability: when
- Project has definite goals and specifications
- Successful completion of project is crucial for firm
- Project offers unique/unfamiliar challenge
- Project is complex with interdependent tasks
- Assignment is to be completed within given time limit
MERITS DEMERITS
Timely completion of project without disturbing Professionals with different approach and interest,
normal routine. over specialisation danger
Focused attention on project that it demands Interdepartmental conflicts
maximum use of specialised knowledge Budget/control problems

Members become versatile Adab Mehta

Encourages initiative and creativity Insecurity/ Fear of loss of job
Difficulty in coordination
Fit for varied situations, contractors to accounting Frustration, pressure to finish project on time
to consultancy to advertising agencies
 MATRIX/GRID ORGANISATION
- Hybrid structure, combines: functional departmentation with pure project structure.
- Functional structure is permanent feature. Project team (with a project manager responsible for overall
completion of project) created whenever specific project require high degree of technical skills and then
dissolved when project is completed
- Functional departments create vertical structure. Project teams form horizontal chain. When these
vertical and horizontal lines intersect, they form 2-D GRID/MATRIX
Usually used in aero-space/defense industries/ large complex organisations require flexible
structures/public institutions like college

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 Role of project manager:
1. Overall in-charge, lays down strategy Guidelines to increase effectiveness
2. Determines efforts/resources required Objectives, scope, functions of project should
3. Determines time and cost be clearly defined
schedules/budget 1. Every project should be properly organised
4. Coordinates activities of functional by appointing full time, experienced project
group manager
Role of functional manager: 2. Project manager must adopt new approach to
1. Exercises line authority over his job:
subordinates - Orientation towards human resource
2. Responsible for one functional area management instead of functional approach
3. Assigns specific individuals to various - Acceptance of purposeful conflicts
projects - Realization that project management is
4. Evaluates performance of subordinates dynamic activity

NETWORK ORGANISAION
- In network structure principal firm subcontracts its functions to other organizations and
coordinates their activities
- services are outsourced to separate forms that
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are connected electronically to central office
- hub organization maintain control over work
processed by various subcontractors
- Also called virtual/boundary less
organization because of absence of horizontal
and vertical boundaries, no external barriers
between organization and customers, suppliers
- Decentralized structure, power is distributed
among independent members of the network
- suitable for organizations desiring to compete in global marketplace wanting to maintain
flexibility to deal with the dynamic changes of the global economy
- Motorola, Coca-Cola, Apple Computers are e.g.
- Features: borderless, flat organisation, ITC backbone, complementary resources for
synergy, informal communication
 TEAM BASED STRUCTURE
- This structure groups employees according to teams.
- Team is created by bringing together people with complementary skills working
towards common goal
- This structure reduces traditional hierarchy, focus on problems solving, cooperation t
- Team is disbanded after a project or it may continue to change/ adapt new objectives
- Provides flexibility to environmental changes, allows quick decision making, better
flow of information hence useful for agile organizations
MERITS DEMERITS
Flexibility in decision making Teams may start compete with each other
Diverse skills, synergy Lack of individual motivators coz judged only as a
whole team
Free flow of information so better lateral movement in career path not desirable for
communication employees looking for promotion
Improves employee Diverse perspectives in a team, inter personal
productivity/performance problems may arise
Self-directed teams, less admn costs Shield under-performing employees

ORGANOGRAMS Adab Mehta

Organisational charts/organograms- diagrammatic presentation of structure and authority –
responsibility relationships/channel of communication/span of management in company.
It represents formal relationships in organisation in a pictorial form
Shows the following information:
1. Organisation structure, relationship, positions of departments
2. Span of control and channel of communication
3. Authority responsibility relationships
4. Names, pictures, contact details of managers and their designations
Principles of making organograms:
1. Lines of formal authority should be followed
2. Two persons can’t occupy same position
3. Importance should be given to positions not persons
4. Should be balanced, no undue concentration of authority in single position
5. Should be simple, give bird eye view of organisation
MERITS DEMERITS
Show clearly the authority, responsibility, Creates feeling of superiority/inferiority,
reporting relationships affect team spirit
Helps identify inefficiencies Obsolete if not updated
Guide for new employees Rigid structure, resist changes
Organize/balance workload Doesn’t indicate extent of authority
Planning expansion, promotion, etc Ignore informal organisation
TYPES
1. BASED ON SIZE OF ORGANISATION/WHOLE OR PARTIAL
ORGANISATIONAL REPRESENTATION
For large organisation it maybe difficult to represent whole organisation in a single
diagram so following organogram types are used
1) Master organogram (shows relationships of whole organisation)
2) Supplementary organisation (representation of specific parts of organisation,
division or department )
2. BASED ON ORGANISATION STRUCTURE
1) Functional structure organograms
2) Product structure organograms
3) Geographical structure organograms
4) Customers structure organograms
5) Process structure organograms
6) Matrix structure organograms
3. BASED ON LAYOUT
1) Vertical organograms: top to bottom representation, topmost authority shown at top
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2) Horizontal organograms: left to right positions, topmost authority is shown on left
3) Circular organograms: topmost authority at centre, outermost circle shows lowest
position

DISTINCTION – TRADITIONAL AND MODERN STRUCTURES

 FORMAL AND INFORMAL ORGANISATION

Formal organisation:
Official/prescribed structure of roles and relationships consciously/deliberately
created by the management in an organisation.
Need for formal organisation:
1. Reduce confusion/uncertainty
2. Provide specialisation
3. Provide stability to firm
4. Provide clear path for promotion
Informal Organisation:
Unofficial structures of roles/relationships that arise naturally without conscious
sanction by management in an organisation
Structure:
Informal organisation is made of small informal groups, each having a group
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leader, members of primary group, and people in fringe and outer areas. The
leader is not formally elected but has this
status because others listen to his opinions
/suggestions. 3 sub groups:
-inner group heart of informal organisation,
close people with similar work/work
location/values, sets the tone, its
memberships
-fringe members: not yet fully accepted by
members of inner group, they will either join
inner group or become a part of outgroup.
-outgroup/loners: may have same work
location/formal relation with members but
don’t share any close ties/don’t want to
surrender their independence
Adab Mehta
Causes of emergence of informal groups OR
Benefits of informal organisation (to members)
1. Social satisfaction
2. Sense of belonging
3. Emotional support
4. Social control
5. Communication
6. Help in work/jobs

Benefits of informal groups to Limitations of informal

management: groups:
1. Cooperation 1. Resistance to change
2. Less managerial workload 2. Role conflict
3. Employee communication 3. Group thinking philosophy
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4. Filling gaps in managerial 4. Rumour
abilities 5. Sub-optimization of norms
5. Stability and strengthening
of work groups

How to handle informal groups:

1. Manager can win over the informal group by securing the
cooperation/ building good relations with group leader
2. Recognize existence of informal organisation and willingly accept
3. Considering consequences of action of group on informal group
4. Integrating interests and maintaining equilibrium of formal and
informal organisation
5. Fighting firmly and consistently with rumors
6. when informal group norms are acceptable, they can be
institutionalized as rules.
7. Desirable patterns of informal relationships can be incorporated
into formal structure.