Chapter 5 — Organising

Chapter 5, titled Organising, covers the meaning and process of organising, the importance of the organising function, types of organisation structures (functional and divisional), formal and informal organisation, and the concepts of delegation and decentralisation including their elements and importance.

Organising can be defined as a process that initiates implementation of plans by clarifying jobs and working relationships and effectively deploying resources for attainment of identified and desired results (goals). It coordinates human efforts, assembles resources, and integrates both into a unified whole.

The process of organising involves four steps: (i) identification and division of work into manageable activities to avoid duplication, (ii) departmentalisation — grouping similar activities together to facilitate specialisation, (iii) assignment of duties to individuals according to their skills and competencies, and (iv) establishing authority and reporting relationships so each individual knows who to report to and take orders from.

A functional structure groups similar or related jobs together under major functions such as production, marketing, finance, and personnel, with all departments reporting to a coordinating head. It is most suitable when the size of the organisation is large, has diversified activities, and operations require a high degree of specialisation.

Advantages of divisional structure include product specialisation that prepares divisional heads for higher positions, easy fixation of responsibility since revenues and costs are assigned to divisions, faster decision making as each division functions as an autonomous unit, and ease of expansion by adding new divisions. Disadvantages include conflicts among divisions over allocation of funds, duplication of activities across products that increases costs, and the risk that divisional managers may prioritise divisional interests over organisational interests.

Formal organisation refers to the organisation structure which is designed by the management to accomplish a particular task. It specifies the relationships among various job positions, lays down rules and procedures for achieving objectives, coordinates and integrates efforts of various departments, is deliberately designed by top management, and places more emphasis on work to be performed than on interpersonal relationships.

Informal organisation is a network of social relationships among employees that emerges from within the formal organisation when people interact beyond their officially defined roles. It is not deliberately created by management, has no written rules or fixed lines of communication, and behaviour evolves from group norms rather than officially laid-down rules.

Delegation refers to the downward transfer of authority from a superior to a subordinate. According to Louis Allen, delegation involves three elements: authority (the right to command subordinates and take action, which flows downward), responsibility (the obligation of a subordinate to properly perform the assigned duty, which flows upward), and accountability (answerability for the final outcome, which cannot be delegated and flows upward).

Authority can be delegated downward from superior to subordinate and arises from a formal position in the organisation. Responsibility cannot be entirely delegated and flows upward from subordinate to superior, arising from delegated authority. Accountability cannot be delegated at all and also flows upward, arising from responsibility. When authority granted is more than responsibility it may lead to misuse, and when responsibility is more than authority a person may become ineffective.

Decentralisation refers to delegation of authority throughout all the levels of the organisation so that decision-making authority is placed nearest to the points of action. Delegation is a compulsory act limited to a superior and his immediate subordinate with more control by superiors, whereas decentralisation is an optional policy decision of top management that extends delegation to the lowest level of management and gives greater freedom of action to executives.

Decentralisation develops initiative and self-reliance among subordinates, creates a reservoir of trained managerial talent for future positions, enables quick decision making by placing authority nearest to points of action, provides relief to top management to focus on policy decisions, facilitates growth by fostering competition among departments, and enables better control through performance evaluation at each level.

Span of management refers to the number of subordinates that can be effectively managed by a superior. It determines the levels of management in the organisation structure and, to a large extent, gives shape to the organisational structure.

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