Intro to Organisation and Its Importance

Every successful event in your school or college is a team effort.

However, it is interesting to note, as to how so many people succeed

to work in harmony. Heard of the organising committee? You must

have because this committee plays a defining role in the grand scheme

of things. Let us learn the meaning and importance of organisation in a

firm.

What is Organisation?

We now know that organisation is one of the major functions of

management. In layman terms, one can look at organising as an

activity to eliminate chaos and introduce a systematic functioning in

the enterprise. Technically, the organisation helps in establishing

authorities, dividing workloads, assigning responsibilities, grouping

tasks and allocating resources.

This is of utter importance because once the plans have been laid there

is a need to allocate resources, divide tasks, workforce, ensure optimal

utilisation of resources etc. so that the objectives are fulfilled. Further,

it facilitates the collective working of the various members of the

enterprise in an ordered manner.

Also, organisation involves defining various roles that need to be

filled by suitable employees and establishing relationships between

these defined goals to eliminate ambiguities in performance. In turn,

this groups the activities clarifies the amount of power and authority in

the hands of different employees and clarifies the responsibility for

various activities within the enterprise.

In a nutshell, an organisation can be defined as a process that defines

the resources as well as allocate them, coordinates human efforts and

integrates both in order to achieve the defined goals.

Browse more Topics under Organising

● Types of Organisation

● Organisation Structure

● Delegation

● Decentralisation

Steps in the Process of Organisation

So we can broadly list the steps in the process of organisation as

follows:

1] Identification and Division of work

The organisational work commences with an identification of the

extent and the amount of work that needs to be done and dividing this

into manageable activities. The idea behind this is to eliminate

duplication and share the burden of work.

2] Departmentalisation

Now as the work has been redefined as a number of manageable

activities, the next step is to group activities according to a predefined

basis. This basis decided what activities are similar to each other. All

the similar activities are assigned to a particular department. All in all,

a number of departments are defined that are concerned with their own

set of activities.

3] Assignment of Duties

The next step involves the distribution of work among the employees.

The responsibility of looking after the functioning of each department

is given to an individual. Further, jobs are allocated to the employees.

It is important to realize that this assignment of jobs should be done in

such a manner that the employees most suited for a particular type of

job ultimately perform it. This ensures, a proper match between the

ability and the type of job of the employee and subsequently effective

overall performance.

4] Establishing Reporting Relationships

The final step is concerned with erecting a hierarchical structure and

effecting communication among the diverse departments. This is done

by establishing relationships. Effectively this means that every

employee should be made aware of whom he has to take orders from

and prove his accountability.

Importance of Organisation

Organisation brings adaptability to the table for any enterprise. It helps

in a smooth transition in accordance with the dynamic business

environment. To point out, this is achieved by facilitating growth and

survival. The importance of organisation is highlighted as follows;

Benefits of Specialisation

Organisation assigns work in a systematic manner to the diverse

employees within an organisation. It ensures that suitable work is

handed out repetitively to an employee who is a good performer in his

field. An employee working regularly in a specific area gains

invaluable experience in the long run. Consequently, this leads to

specialisation.

Clarity in Working Relationships

As discussed before, organisation induces accountability by defining

relationships among the employees within an enterprise. This is done

by defining whom an employee is accountable to. In effect, it provides

an ordered flow of information and instructions. Furthermore, this also

helps in clarification of the extent of authority, responsibility and

provides for a hierarchy.

Optimum Utilisation of Resources

Organisation helps in optimum utilisation of financial and human

resources. It not only aids in the proper assignment of jobs to suitable

employees but also keeps track that there is no waste of resources and

efforts due to duplication of work.

Effective Administration

Another important feature of organising is that it ensures that the jobs

are clearly defined within an enterprise such that there is no

duplication and wastage. Coupled with, facilitating the clarification of

work relationships, it promises effective administration.

Development of Personnel

Assignment of jobs to suitable personnel is an important step for the

organisation. This delegation of jobs helps in the induction of

creativity in managers. This happens because, with the help of

delegation, a manager not only looks to reduce the workload but also

discover new ways of getting the tasks done.

Further, this gives them the tie to explore areas for growth of the

company. From the employee’s perspective, it generates experience

and prepares him to face new challenges which effectively helps him

to realise his full potential.

Growth and Expansion

Organisation ensures that the enterprise undertakes new challenges.

As a result, the company grows and diversifies.

A Solved Example for You

Q: Organisation allows a firm to adapt to change. True or false?

Ans: This statement is True. As an organisational structure is built in

an enterprise, it equips the enterprise with adaptability. This is

because, with changes in the dynamic environment, organisation

provides for redefining of roles and revision of inter-relationships. As

can be seen, it provides stability to the enterprise, so that it can

continue to grow and survive in spite of the changes.

Types of Organisation

Assume you’re an employee in a company of your choice. Now, you

will interact with a certain set of people, out of your duty.

Additionally, as you spend time here, you might make friends out of

your work relationships, because humans are social animals. It is

important to realise how both of these relationships give rise to types

of organisation.

Types of Organisation

As you might have guessed by now, there exist two types of

organisation:

● Formal Organisation

● Informal Organisation

(Source: accountlearning)

Formal Organisation

In every enterprise, there are certain rules and procedures that

establish work relationships among the employees. These facilitate the

smooth functioning of the enterprise. Further, they introduce a

systematic flow of interactions among the employees. Effectively, all

of this is done through a formal organisation.

Notably, the management is responsible for designing the formal

organisation in such a way that it specifies a clear boundary of

authority and responsibility. Coupled with systematic coordination

among various activities, it ensures achievement of organisational

goals.

Again, the management builds the formal organisation. It ensures

smooth functioning of the enterprise as it defines the nature of

interrelationships among the diverse job positions. Additionally, these

ensure that the organisational goals are collectively achieved. Also,

formal organisation facilitates coordination, interlinking and

integration of the diverse departments within an enterprise. Lastly, it

lays more emphasis on the work to be done without stressing much on

interpersonal relationships.

Advantages

● The formal organisation clearly outlines the relationships

among employees. Hence, it becomes easier to rack

responsibilities.

● An established chain of commands maintains the unity of

command.

● As the duties of each member is clearly defined, there is no

ambiguity or confusion in individual roles whatsoever. Further,

there is no duplication of efforts which eliminates any wastage.

● In a formal organisation, there is a clear definition of rules and

procedures. This means that behaviours and relationships

among the members are predictable. Consequently, there is

stability and no chaos existing in the enterprise.

● Finally, it leads to the achievement of organisational goals and

objectives. This is because there exist systematic and well

thought out work cultures and relationships.

Disadvantages

● Decision making is slow in a formal organisation. It is

important to realise that any organisational need has to flow

through the respective chain of commands before being

addressed.

● Formal organisation is very rigid in nature. This means that

there prevails perfect discipline coupled with no deviations

from the procedures. Hence, this can lead to low recognition of

talent.

● Lastly, the formal organisation does not take into account the

social nature of humans as it talks about only structure and

work. Interestingly, we cannot eliminate this integral part of

our nature. Hence, it does not entirely display the functioning

of the organisation.

Informal Organisation

It’s easy to understand that if we interact with certain people regularly

we tend to get more informal with them. This is because we develop

interpersonal relationships with them which are not based solely on

work purposes. Rather, these relationships might arise because of

shared interests, like if you get to know that your colleague likes the

same football club of which you’re a fan of.

As a matter of fact, informal organisation arises out of the formal

organisation. This is because when people frequently contact each

other we cannot force them into a rigid and completely formal

structure. Instead, they bond over common interests and form groups,

based upon friendship and social interactions.

Unlike formal organisation, informal organisation is fluid and there

are no written or predefined rules for it. Essentially, it is a complex

web of social relationships among members which are born

spontaneously. Further, unlike the formal organisation, it cannot be

forced or controlled by the management.

Also, the standards of behaviour evolve from group norms and not

predefined rules and norms. Lastly, as there are no defined structures

or lines of communication, the interactions can be completely random

and independent lines of communication tend to emerge in informal

organisation.

Advantages

● In this type of organisation, communication does not need to

follow the defined chain. Instead, it can flow through various

routes. This implies that communication in an informal

organisation is much faster relative to formal organisation.

● Again, humans are social animals. The needs to socialize exists

deep within our existence. The informal organisation ensures

that there is socialization within the enterprise. Consequently,

members experience the sense of belongingness and job

satisfaction.

● Informal organisation, getting true feedbacks and reactions is

not easy. Hence, in informal organisation, various limitations

of formal organisation is covered up.

Disadvantages

● The informal organisation is random and can result in the

spread of rumours. Again, we cannot manage and control

informal organisation. Consequently, this may result in chaos

within the enterprise.

● It is important to realise that it is not possible to effect changes

and grow without the support of the informal organisation. This

can work in both ways, for growth or decline of the enterprise.

● To point out again, informal organisation conforms to group

standards and behaviours. If such behaviours are against the

organisational interests, they can eventually lead to disruption

of the organisation.

A Solved Example for You

Question: Define the two types of organisation.

Answer: The two types of organisation are:

● Formal Organisation: The management builds this type of

organisation in order to induce certain rules and procedures

within the enterprise with regard to work relationships.

Effectively, it focuses on the achievement of organisational

goals by clearly defining relationships among the members.

● Informal Organisation: This type of organisation arises out of

the social nature of humans. Further, the management cannot

control the informal organisation. It allows different routes for

the flow of communications which are a result of frequent

interactions based on interpersonal relationships and common

interests.

Organisation Structure

Have you ever searched up an organisation chart of an enterprise, for

example, ONGC? A short glance at the organisation chart would give

you loads of information about the various departments, the people the

apex, the flow of responsibilities etc. In a nutshell, it’ll tell you about

the organisation structure of the enterprise.

What is an Organisation Structure?

First and foremost we must remember that an organisation structure is

a result of the organising process. The organisation structure consists

of the various jobs, departments and responsibilities in the enterprise

coupled with the definition of the extent of control, management and

authority.

It also consists of the relationships between various members of the

enterprise. All in all, an organisation structure is a framework within

which managerial and operating tasks are performed. This is because

it defines the extent of management or the span of management.

Browse more Topics under Organising

● Intro to Organisation and its Importance

● Types of Organisation

● Delegation

● Decentralisation

In other words, it specifies authority by clearly stating the

subordinates to a superior and to whom the superior is a subordinate

himself. In effect, this highlights the levels of management in an

enterprise and allows for correlation and coordination among

individuals.

Talking about the significance of an organisation structure, it

facilitates growth and changes within an enterprise. As a matter of

fact, an enterprise with a static structure and thus resistance to change

can soon go out of fashion in the dynamic business world. Thus it is

important to realise that an enterprise needs a change in the

organisation structure whenever it expands and grows in complexity

Also, an efficient organisational structure facilitates smooth business

operations. Lastly, it also facilitates coordination and regulation of

responsibilities within the enterprise. Consequently, this enables the

enterprise to function as an integrated unit.

Types of Organisation Structure

On the basis of nature of activities performed, the organisation

structure is classified into two:

● Functional Structure

● Divisional Structure

Functional Structure

As the name suggests, in a functional structure grouping is based on

functions. This means that similar jobs are integrated into functions

and major functions are further categorised as departments which are

handled by respective coordinating heads. These departments can

further consist of sections. Note that functional structure is a basic and

simple organisational structure.

Advantages

● Since functional structure revolves around functions, the

division is such that an employee performs a specific set of

tasks as a part of his routine. Effectively, this creates room for

job specialisation and efficient use of manpower.

● Again, as similar tasks are grouped together into a function and

emphasis is laid on specific functions, this structure facilitates

coordination and control.

● In a functional structure, we keep similar tasks together and

different tasks away. This implies that there is no scope for

duplication. Effectively, this lowers cost.

● As the focus is mostly on a specific and limited range of skills,

training of employees becomes easier.

● This also leads to an increase in managerial efficient which in

turn increases profit margins.

● Lastly, it ensures that all the diverse tasks get a fair amount of

attention.

Disadvantages

● A major drawback of the functional structure lies in its

definition itself. As stated already, it puts emphasis on division

based on functions of an enterprise. Now as it stresses on the

diverse functions, it generally leads to an increased concern on

interests of departmental interests rather than the interests of

the organisation as a whole. Technically, this can lead to the

emergence of functional empires and even dwindling levels of

concern for organisational objectives.

● Again, as the departments are completely different in

operations from each other, there is a big barrier to

communication between them.

● There may arise a conflict of interests among these departments

which are profusely looking to fulfil the individual

departmental interests. Such conflicts can hinder the growth of

an enterprise. Further, such conflicts can further arise in the

absence of clear separation of responsibility.

● When individuals always deal with specific tasks their

perception narrows down and they don’t appreciate the varying

point of views. Consequently, they remain fixated on specific

ideas and fail to develop as individuals. All in all, this leads to

inflexibility.

In the light of above-mentioned facts, we can observe that functional

structure is suitable for an enterprise which is large, has a large

number of activities to perform and looks for a high degree of

specialisation.

Divisional Structure

Divisional structure, as the name suggests percieves an enterprise as

the integration of independent divisions. We must note that such a

structure is adopted in large and complex enterprises which handle

diverse products. This is because although an organisation produces a

homogeneous set of products, it can deal in a wide variety of

differentiated products. Again, the organisation does this to deal with

complexity.

We must remember that in such a structure, the organisation is divided

into separate business units or divisions which are a bit independent

and multifunctional in their operations. Each unit has a divisional

manager at the apex who looks after all the operations within a

division.

Further, each division performs most of the functions like production,

finance etc. to achieve a common goal. In a nutshell, each enterprise is

divided into various divisions which further adapt the functional

structure. For example, the Reliance group has various product lines

like clothing, communications, electronics etc.

Advantages

● Here each divisional head looks after all the aspects of the

division which is his responsibility. As a result of this, instead

of fixation on specialisation the divisional head develop various

skill sets which ultimately make him a suitable candidate for

higher job positions.

● Again each division is the complete responsibility of the

division head. Consequently, the division head looks after all

the operations within the division. Hence, this helps in

performance measurement. Additionally, the division head is

responsible for the poor performance of a division. This also

facilitates quick remedial actions.

● Each division functions as a self-sustaining and autonomous

unit. Accordingly, it promotes flexibility, initiative and faster

decision making.

● A notable advantage of the divisional structure is that it

promotes expansion. Evidently, if an enterprise tries to step

into a new product’s market, it can simply do so by adding a

new division for that product line without interfering with the

existing structure.

Disadvantages

● Divisional structure promotes the emergence of autonomous

divisions within an enterprise. Consequently, a division might

try to compete with other divisions to maximise it’s profits and

hence cause hindrance to the growth of the bigger entity that is

the organisation.

● Similar sets of functions are performed across all units. In that

case, there is a duplication of functions which lead to an overall

increase in expenditure.

● Lastly, this structure gives a lot of power to a divisional

manager. This may result in the rise of an independent manager

who might hold the division’s interests in higher regard than

the organisational interests.

A Solved Example for You

Q: Briefly describe the two types of organisation structures.

Ans: Organisation structures are of two types:

● Functional Structure: In this type of structure, the similar set of

activities are grouped together into a function and the major

functions are termed as departments.

● Divisional Structure: In the divisional structure, the

organisation divides into autonomous divisions which

themselves display a functional structure.

Delegation

Have you ever seen a CEO himself writing the accounts of a

company? He only reviews the financial statements, he does not

prepare them. He delegates all such clerical and routine tasks to his

team. Delegation is one of the most important functions of organising.

Let us take a look.

What is Delegation?

You must have an idea by now, that delegation somewhat relates to

transfer of authority. Indeed, delegation is the downward transfer of

authority from a superior to a subordinate. This is important because

the superior cannot look after all the processes. Also, this helps him

manage his work, as it is impractical for a specific superior to handle

the volume of work all by himself.

The delegation of authority allows for concentration of time on more

important activities in an organisation. Further, it provides a sense of

responsibility, a chance to grow and exercise initiatives to whom the

authority is delegated.

One important point to remember is that transfer of authority from a

superior to a subordinates does not mean a transfer of accountability.

Interestingly, the accountability for the tasks still resides with the

superiors. Effectively, delegation involves the distribution of authority

for less important jobs to subordinates accompanied by no transfer of

accountability.

Elements of Delegation

Authority

We all are familiar with the word authority. Of course, authority is the

power of a person to command his subordinates and take actions by

the virtue of his position. In an organisation, authority differs

according to job positions. This is because there exists interlinking

between the job positions and levels of the organisation.

Again, authority defines the superior-subordinate relationship.

According to this, the superior communicate his decisions to the

subordinate, because he has the authority to do so, and expects the

subordinate to comply with this decision. Although authority is

inherent in the job position of a person, it also depends on the

personality of the superior.

Generally, authority is highly concentrated at the top level of an

organisation and reduces as we move to lower levels. In other words,

the authority has a top to bottom flow i.e. superior has authority over

his subordinate. Lastly, the limit or scope of authority also depends on

the laws, rules and regulations of the organisation.

Responsibility

Delegation also involves some transfer of responsibility. Technically,

responsibility is the obligation of a subordinate to properly perform a

duty. Again, this arises from the subordinate-superior relation as the

subordinate is responsible for a job given by his superior. A key point

here is that responsibility has a bottom to top flow as the superior is

always responsible to his superior.

There exists an interesting relationship between responsibility and

authority, as a result of delegation. When we give an employee the

responsibility for a task, we must also provide him with the necessary

authority. In other words, for effective delegation, the authority must

complement responsibility. If authority is more than responsibility it

can lead to misuse. On the other hand, if responsibility is more than

authority it will lead to the incapability of completion of the allotted

tasks.

Accountability

Although delegation eases out the job of superiors and has several

benefits for both superior and subordinate, the superior is still

accountable for the task. Accountability is the answerability for the

final outcome of a job. All things considered, regardless of the

delegation, we consider the superior completely answerable for the

tasks. This further means that delegation involves no transfer of

accountability.

Notably, accountability flows upwards i.e. a subordinate is

accountable to his superior. Lastly, we generally enforce

accountability through regular feedback on the extent of work

accomplished.

In the light of above-mentioned elements, we can say that authority is

delegated, responsibility is assumed and accountability is imposed.

Also, we derive responsibility from authority and accountability from

responsibility.

Importance of Delegation

Effective Management

Delegation provides a breathing space to managers by sharing their

workload. As a result, managers can concentrate on tasks with higher

priority. Further, freedom from routine work allows for exploration of

new ideas.

Employee Development

With the help of delegation, we assign new responsibilities to

employees. This allows for them to work on a domain which is

different from the monotonous routine work, helping them to develop

new skills and discover hidden talents. Thus, delegation leads to the

development of employees by providing them to expand their area of

operation and helping them to grow. Effectively, it increases their

future prospects and breeds future managers.

Motivation of Employees

Through the process of delegation, superiors entrust suitable

subordinates with the tasks that are assigned to them. This not only

leads to the development of talent but also has various psychological

benefits. This is because, the faith and trust displayed in the

subordinate build his confidence and self-esteem, which ultimately

drives him to work harder.

Facilitation of Growth

As mentioned, delegation provides employees with opportunities to

develop and effectively trains them as better decision makers and

managers. This further aids in the process of expansion of an

organisation, as it already has the suitable workforce which is

competent enough.

Management Hierarchy

Delegation establishes the superior-subordinate relationship. Also, it

directly relates to the extent and flow of authority. This is because

authority determines who has to report to whom.

A Solved Example for You

Q: Delegation also leads to better coordination. Explain.

Ans: The elements of delegation help to define the powers, duties and

answerability within an organisation. Effectively this eliminates the

scope of duplication and overlapping of duties. This is because it

provides a clear picture of the working relationships and the work

being done at various levels.

This further helps in developing and maintaining effective

coordination amongst the departments, levels and functions of the

organisation.

Decentralisation

On October 2, 2015, the world witnessed the birth of Alphabet Inc.

which became the parent company of Google. There was a complete

shift of subsidiaries under Google, to Alphabet. Google, now having

Sundar Pichai as the CEO, only looks after the internet-related

products and services domain. Effectively, Larry Page (the then CEO

of Google, now of Alphabet) completely restructured Google along

with the use of decentralisation to inch closer to the ever-expanding

internet domain.

What is Decentralisation?

In a lot of organisations, decision making power rests at the apex i.e.

with the higher authority. This means as we move down the structure

the decision making power reduces exponentially. Such an

organisation is termed as centralised.

On the other hand in some organisations, a big share of the

decision-making cake is kept for the members at the lower levels of

the hierarchy. Simply this is a decentralised structure. Further,

decentralisation emphasises on placing authority near the points of

actions. In other words, it pushes the authority down the chain of

command. One key point to remember is that here the decision maker

is given a fair amount of autonomy and responsibility.

Balance between Centralisation and Decentralisation

Interestingly, both the situations of complete decentralisation and

complete centralisation are hypothetical. Let us understand both the

scenarios individually.

In a case of complete centralisation, all the decision making power

will rest with only the higher levels of management and the other

levels would be completely useless. This means that there would be no

use of a management hierarchy in such an organisation.

For the case of complete decentralisation, all the decision making

power will be in the hands of lower levels of hierarchy. This would

lead to redundancy of the higher managerial positions.

Hence both the cases are non-applicable in real-world situations. As

an organisation grows in size and complexity, the degree of

decentralisation generally increases. This is because in a large

organisation the employees who are closer to certain processes possess

more knowledge about them than the top management. Effectively, in

every organisation, there must be a balance between both

centralisation and decentralisation.

Importance of Decentralising

Develops Initiatives among Subordinates

The process of decentralisation makes the lower level managers

question their judgement and abilities. When given responsibility and

decision- making freedom, they are challenged to develop solutions.

In the long run, this does a world of good to their confidence and

promotes self-reliance. In action, this feature allows for the

identification of potentially dynamic leaders and decision makers.

Develops Managerial Talent for future

Again, decentralisation makes the employees act independently.

Under such conditions, they gain invaluable experience. Further, it

gives them an opportunity to prove their mettle for higher job

positions. In effect, this creates a workforce which is suitable for

promotion and also helps to filter out those who won’t be able to

handle greater responsibilities.

Quick Decision-making

In a centralised organisation, we make decisions ultimately at the

higher levels of management. It is important to realise that the

communication of decision to this levels takes place through the

management hierarchy. Again, the response flows through the same

channel of communication, which takes a lot of time. Hence, here

decision making tends to be slow and restricts dynamic operating

conditions.

On the other hand, in a decentralised structure, decisions are made on

the spot at the points of action and do not require approvals from the

higher levels. Effectively, it allows the organisation to make quick

decisions on the go and be dynamic. Lastly, there are fewer chances of

distortion of information as it doesn’t have to flow through long

channels of communication.

Relief to Top Management

As discussed, decentralisation gives autonomous powers to

subordinates. Under this, they have the freedom to take decisions and

act within the limits set by the superiors. Further, there is no

requirement for frequent supervisions by the superiors. Instead, they

exercise control through other forms such as the return on investment.

All in all, decentralisation allows the top management to focus on

policy decisions rather than dealing with both policy and operational

decisions.

Facilitates Growth

Along with granting autonomy to lower levels of management,

decentralisation also grants autonomy to the departmental heads.

Consequently, the departmental heads act in order to achieve growth

for their respective departments, which gives rise to a healthy sense of

competition among the departments. Effectively, this competition

leads to an increase in the levels of productivity.

Better Control

Lastly, decentralisation helps in evaluation of performances of the

individual departments, which are now accountable for them.

Additionally, feedbacks from these various departments bring varying

perspectives to the table. The biggest challenge for decentralisation is

the accountability of performance. In response to this, better control

systems such as balanced scorecard and management information

system are being evolved. Finally, decentralisation allows for exerting

creativity with regard to performance measurement systems.

A Solved Example for You

Question: Highlight the importance of decentralisation.

Answer: The importance of decentralisation is as follows:

1. Develops initiative among subordinates

2. Develops managerial talent for future

3. Quick decision making

4. Relief to top management

5. Facilitates Growth

6. Better control