Plus Two Business Studies Notes Chapter 5 Organising

Kerala State Board New Syllabus Plus Two Business Studies Notes Chapter 5 Organising.

Kerala Plus Two Business Studies Notes Chapter 5 Organising


Organising is one of the most important functions of management, which includes

  1. Identifying and grouping the work to be performed.
  2. Defining and delegating authority and responsibility.
  3. Establishing relationships for the purpose of accomplishing objectives.

Step in the Process of Organising

1) Division of Work: The first step in the process of organising involves identifying and dividing the work that has to be done. Division of work leads to specialisation!
2) Departmentation: The second step is to group similar or related jobs into larger units, called departments. The grouping of activities is known as departmentation.
3) Assignment of duties: The next step is to allocate the work to various employees according to their ability and competencies.
4) Establishing authority – responsibility relationship: The last step is creation of authority – responsibility relationship among the job positions. It helps in the smooth functioning of the organisation.

Importance of Organising

  • Specialisation: Since the activities are divided into convenient jobs, and are assigned to a particular employee, it leads to specialisation, more productivity and efficiency.
  • Clarity in working relationship: It helps in creating well defined jobs and also clarifying authority – responsibility relationship between the superior and subordinates.
  • Optimum utilisation of resources: The proper assignment of jobs avoids overlapping of work and also makes possible the best use of resources.
  • Adaptation of change: It allows a business enterprise to adapt itself according to changes in the business environment.
  • Effective administration: Clarity in working relationships enables proper execution of work and brings effectiveness in administration.
  • Development of personnel: Organising stimulates creativity amongst the managers and subordinates.
  • Expansion and growth: Organising helps in the growth and diversification of an enterprise by adding more job positions, departments and product lines.

Organisational Structure

The organisation structure can be defined as the framework within which managerial and operating tasks are performed. It specifies the relationships between people, work and resources.

Span of Management: Span of management or span of control refers to the number of subordinates that can be effectively managed by a superior.

Types of Organisation Structures

The organisational structure can be classified under two categories.

  1. Functional Organisation
  2. Divisional Organisation

1. Functional Structure: The functional structure is formed by grouping together the entire work to be done into functional departments. Eg. Production department, marketing department, etc.

Plus Two Business Studies Notes Chapter 5 Organising 1


  • It promotes division of work which leads to specialisation.
  • It promotes control and coordination within a department.
  • It helps in increasing managerial and operational efficiency and this results in increased profit.
  • It helps to reduce duplication of effort.
  • It makes training of employees easier.
  • It ensures that different functions get due attention


  • Each departmental head gives more importance to their departmental objectives than overall organisation objectives.
  • In large functional organisations, taking quick decisions and co-ordination become difficult.
  • Inter departmental conflicts may arise in the absence of clear separation of responsibility.

2. Divisional Structure: Grouping of activities on the basis of different product manufactured are known as divisional structure of organisation. Each division has a divisional manager responsible for performance. Each division is multifunctional because within each division functions like production, marketing, finance etc. are performed together to achieve a common goal.

Plus Two Business Studies Notes Chapter 5 Organising 2


  • Each division functions as an autonomous unit which leads to faster decision making.
  • It helps in fixation of responsibility in cases of poor performance of the division
  • It helps to develop the skill of the divisional head.
  • It facilitates expansion and growth as new divisions can be added without interrupting the existing operations.


  • Conflict may arise among different divisions with reference to allocation of funds.
  • It may lead to increase in costs since there may be a duplication of activities across products.
  • It is not suitable for small organisations.

Differences between Functional and Divisional Structure

Functional Structure:

  1. Formation is based on functions
  2. Functional specialisation
  3. Difficult to fix responsibility on a department
  4. It is economical
  5. Suitable for small organisation

Divisional Structure:

  1. Formation is based on product lines.
  2. Product specialisation
  3. Easy to fix responsibility for performance
  4. It is costly.
  5. Suitable for big organisation

Formal Organisation

Formal organisation refers to an organisation structure which is deliberately created by the management to achieve the objectives. It is a system of well-defined job in terms of authority, responsibility and accountability.


  • It is deliberately created by the top management to achieve the objectives.
  • It is based on division of labour and specialisation.
  • It is impersonal – Does not take into consideration emotional aspect of employees.
  • It clearly defines the authority and responsibility of every individual.
  • The principle of scalar chain is followed in formal organisation.


  • It is easier to fix responsibility since mutual relationships are clearly defined.
  • Clear determination of duties, authorities and responsibilities. It helps in avoiding duplication of effort.
  • Unity of command is maintained through an established chain of command.
  • It provides stability to the organisation.
  • Co-ordination and control become easy.


  • While following scalar chain and chain of command, actions get delayed in formal structure
  • Formal organisational structure does not give importance to psychological and social need of employees.
  • Formal organisation structure is very rigid. It reduces the creativity of employees in the organisation

Informal Organisation

Informal organisation refers to relationship between individuals in the organisation based on interest, personal attitude, emotions, likes, dislikes etc. The network of social groups based on friendship is called informal organisation.


  • It originates from within the formal organisation as a result of personal interaction among employees.
  • It has no written rules and procedures.
  • It does not have fixed lines of communication.
  • It is not deliberately created by the management.
  • It has no definite structure.


  • There can be faster spread of communication.
  • It helps to fulfil the social needs of the members and this enhances their job satisfaction.
  • Top level managers can know the real feedback of employees on various policies and plans.


  • It spreads rumours.
  • If informal organisation opposes the policies and changes of management, then it becomes very difficult to implement them in organisation.
  • Informal organizations lead to conflicts among employees.

Difference between Formal Organisation and Informal Organisation

Formal organisation Informal organisation
1) It is deliberately created by top level management. 1) It arises automatically as a result of social interaction among the employees.
2) It has pre-determined purpose. 2) It has no pre­determined purpose.
3) It is highly rigid. 3) It is more flexible.
4) Communication is allowed through the scalar chain. 4) Communication is allowed through all channels networks.
5) Managers are leaders. 5) Leaders are chosen voluntarily by the members.
6) It is based on authority and responsibility. 6) There is no authority and responsibility relationship.

Delegation of Authority

Delegation means the granting of authority to subordinates to operate within the prescribed limits. It enables the manager to distribute his workload to others so that he can concentrate on important matters.

Elements of Delegation:

  • Authority: Authority refers to the right of an individual to command his subordinates and to take action within the scope of his position. Authority flows from top to bottom. Authority determines the superior subordinate relationship in an organisation.
  • Responsibility: Responsibility is the obligation of a subordinate to properly perform the assigned duty. Responsibility flows upwards, i.e., a subordinate will always be responsible to his superior.
  • Accountability: Accountability implies being answerable for the final outcome, i.e., subordinate will be accountable to a superior for satisfactory performance of work.

Importance of Delegation of Authority:

  • Reduces the work load of managers: The managers are able to function more efficiently as they get more time to concentrate on important matters.
  • Employee development: Delegation empowers the employees by providing them the chance to use their skills, gain experience and develop themselves for higher positions.
  • Motivation of employees: Responsibility for work builds the self-esteem of an employee and improves his confidence. He feels encouraged and tries to improvers performance.
  • Facilitation of growth: Delegation helps in the expansion of an organisation by providing a ready workforce to take up leading positions in new ventures.
  • Superior-subordinate relations: Delegation of authority establishes superior-subordinate relationships, which are the basis of hierarchy of management.
  • Better co-ordination: The elements of delegation – authority, responsibility and accountability help to avoid overlapping of duties and duplication of effort.

Difference between Authority, Responsibility and Accountability

Authority Responsibility Accountability
Right to command Obligation to perform an assigned task Answerability for outcome of the assigned task
Can be delegated Cannot be entirely delegated Cannot be delegated at all
Arises from formal position Arises from delegated authority Arises from responsibility
Flows downward from superior to subordinate Flows upward from subordinate to superior Flows upward from subordinate to superior


Decentralisation refers to a systematic dispersal of authority to the lower levels of the organisation. Here decision making authority is shared with lower levels in the organisation.

Centralisation and Decentralisation: An organisation is centralised when decision-making authority is retained by higher management levels whereas it is decentralised when such authority is delegated to lower levels of management. There must be a balance between centralisation and decentralisation.

Importance of Decentralisation:

  1. Decentralisation helps to promote confidence amongst the subordinates.
  2. It is a means of trained manpower
  3. It helps in quick decision making.
  4. It reduces the burden of top executives.
  5. It helps to increase productivity and more returns.
  6. It helps in maintaining effective control.

Difference between Delegation and Decentralisation

Delegation Decentralisation
1. It is the entrustment of authority and responsibility from one individual to another. 1. It is a systematic delegation of authority from one level to another level.
2. Responsibility cannot be delegated. 2. Responsibility can be delegated.
3. Delegation is a compulsory act. 3. Decentralisation is an optional policy decision.
4. More control by superiors hence less freedom to take own decisions. it is individualistic. 4. Less control over executives hence greater freedom of action. It is totalistic.