Big picture
Once a plan is made, someone has to decide who does what, who reports to whom, and who decides what. That is organising: identifying and grouping the activities needed, assigning them, and establishing authority relationships.
The result of organising is an organisation structure, the framework within which managers and employees work. Exam questions often describe a company and ask which structure suits it, or present a manager handing over work and ask which element of delegation is involved.
Learning goals
Explain the concept, steps and importance of organising.
Explain organisation structure and span of management.
Compare functional and divisional structures and say which suits a given business.
Distinguish formal and informal organisation.
Explain delegation, its elements and importance.
Explain decentralisation, its importance, and how it differs from delegation.
Core ideas
1. Steps in the process of organising
Identification and division of work: the total work is divided into manageable activities, avoiding duplication and sharing the burden. Example: a school divides work into teaching, admissions, accounts and transport.
Departmentalisation: similar activities are grouped into departments or units, by function (production, finance) or by product, territory and so on.
Assignment of duties: each job is given to the person best suited to it.
Establishing reporting relationships: everyone knows whom to take orders from and to whom they are accountable, creating a hierarchy.
2. Importance of organising
Benefits of specialisation: repeated performance of a particular task makes workers experts.
Clarity in working relationships: lines of communication and authority are clear.
Optimum utilisation of resources: duplication and wastage are avoided.
Adaptation to change: a flexible structure allows the firm to adjust to changes in the environment.
Effective administration: a clear description of jobs and duties avoids confusion.
Development of personnel: delegation lets managers develop subordinates and frees them for innovation.
Expansion and growth: a sound structure allows the firm to add new products, markets and branches.
3. Organisation structure and span of management
The organisation structure is the framework that defines relationships between jobs, people and authority. It is usually shown in an organisation chart.
Span of management is the number of subordinates a manager can effectively supervise. A narrow span leads to a tall structure with many levels; a wide span leads to a flat structure with fewer levels.
4. Functional structure
Activities are grouped by major functions (production, purchase, marketing, finance, human resources), each under a functional head who reports to the managing director.
Advantages | Disadvantages |
|---|---|
Benefits of specialisation | Emphasis on functional goals over organisational goals |
Better control and coordination within a function | Coordination between departments becomes difficult |
Helps increase managerial and operational efficiency | Conflicts of interest between departments |
Avoids duplication of effort, so costs are lower | Inflexibility: people with narrow specialisation find it hard to see the whole |
Easy training of employees on a narrow range of skills | |
Ensures that each function gets due attention |
Suitable for: large organisations with one main product or a narrow product range, where operations need a high degree of specialisation. Example: a steel manufacturer.
5. Divisional structure
The organisation is divided into divisions by product line (or market), each with its own functional departments and a divisional head responsible for its profit or loss.
Advantages | Disadvantages |
|---|---|
Develops varied skills in a divisional head and prepares them for top positions | Conflicts between divisions over allocation of funds and resources |
Divisional heads are accountable for profit, so performance is easy to judge | Costs rise because functions are duplicated in each division |
Promotes flexibility and initiative; each division works as an autonomous unit | Divisional managers may ignore organisational interests in favour of their own |
Facilitates expansion: a new division can be added without disturbing others |
Suitable for: organisations with a large variety of products made with different resources. Example: a group making cosmetics, garments and packaged foods.
6. Formal and informal organisation
Basis | Formal organisation | Informal organisation |
|---|---|---|
Meaning | Structure of authority relationships designed by management | Network of social relationships that arises from personal interaction |
Origin | Deliberately created by management | Arises naturally from friendships, interests and tastes |
Authority | Arises from position | Arises from personal qualities |
Behaviour | Governed by rules | Governed by group norms |
Communication | Through the scalar chain | Through the "grapevine"; no fixed path |
Purpose | Achieve organisational objectives | Satisfy social and psychological needs |
Leadership | Managers are leaders by position | Leaders are chosen by the group |
Nature | Stable and rigid | Unstable and flexible |
Advantages of informal organisation: faster spread of communication, fulfilment of social needs, and support to formal organisation (it can be used to get feedback). Disadvantages: rumours spread, it may resist change, and group norms may go against organisational goals.
7. Delegation
Delegation is the downward transfer of authority from a superior to a subordinate. It is a compulsory process: no manager can do all the work alone.
Elements of delegation
Element | Meaning | Flows | Can it be delegated? |
|---|---|---|---|
Authority | The right to give orders and take decisions | Downward | Yes |
Responsibility | The obligation of a subordinate to perform the duty assigned | Upward | Arises from the superior–subordinate relationship |
Accountability | Answerability for the final outcome | Upward | No; it cannot be passed on |
A manager who delegates a task still remains accountable to their own superior for it. Authority should be commensurate with responsibility.
Example. The sales manager gives the regional manager authority to appoint salespeople and fixes a target. The regional manager is responsible for meeting it, but the sales manager remains accountable to the director for the region's sales.
Importance of delegation: effective management (managers focus on important matters), employee development, motivation of employees, facilitates growth, basis of management hierarchy, and better coordination.
8. Decentralisation
Decentralisation is the systematic delegation of authority at all levels, except what can be exercised only at the top. Decision-making authority is pushed down to the levels where decisions can best be made.
Importance of decentralisation
Develops initiative among subordinates and builds their self-confidence.
Develops managerial talent for the future, giving lower managers experience.
Quick decision-making, because decisions are taken close to the action.
Relief to top management from routine decisions, so they can focus on strategy.
Facilitates growth, since units have autonomy and compete with each other.
Better control, because performance of each unit can be evaluated separately.
Delegation and decentralisation compared
Basis | Delegation | Decentralisation |
|---|---|---|
Nature | Compulsory; every manager must delegate | Optional; a policy decision of top management |
Freedom of action | Limited; the superior keeps control | Greater freedom for lower levels |
Status | A process | The result of a policy of extending delegation to all levels |
Scope | Narrow; superior and immediate subordinate | Wide; whole organisation |
Purpose | Reduce the manager's burden | Increase autonomy of lower levels |
No organisation is completely centralised or decentralised; it needs a balance.
A reliable approach to case-based questions
One main product with specialised tasks: functional structure. Many diverse products: divisional structure.
Friendship groups, lunchtime talk, rumours: informal organisation.
Handing over the right to decide: authority. Being obliged to do the task: responsibility. Answering for results: accountability.
Authority spread across all levels by policy: decentralisation.
For the process, match the case to the step: grouping similar jobs is departmentalisation.
Connections that matter
Principles of management: division of work, authority–responsibility, scalar chain and centralisation are applied here.
Staffing fills the positions created by organising.
Directing uses the communication channels and authority set up here.
Common mistakes
Saying accountability can be delegated. It cannot.
Recommending divisional structure for a single-product firm.
Treating decentralisation as compulsory. Delegation is compulsory; decentralisation is optional.
Calling informal organisation harmful only. It also speeds up communication and meets social needs.
Revision checklist
I can explain the four steps and seven points of importance of organising.
I can explain span of management.
I can compare functional and divisional structures and state when each suits.
I can distinguish formal and informal organisation.
I can explain the elements of delegation and why accountability stays with the delegator.
I can explain the importance of decentralisation and compare it with delegation.