Basics of Organizing

1. Way To Go, Wipro!
ORGANISING 5
CHAPTER
d
It’s not quite there yet, but the goal is certainly within reach. One of L E A R N I N G
e
India’s largest IT solutions providers, Wipro T echnologies, is taking OBJECTIVES
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on the likes of IBM and Accenture in its effort to be included among
After studying this chapter
the largest and most successful technology services companies in the
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you should be able to:
world.
n Explainthe concept of
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Currently Wipro employs 45,000 people at a growth rate
organising;
of 30 percent annually over the coming years. “I don’t see
Explain the process of
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growing to 150,000 or 200,000 people as an insurmountable
organising;
challenge,” said Premji, Chairman, Wipro. He believes that if
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companies such as Accenture could grow by 20,000 people in Describe the importance
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two years, Wipro’s growth projections are not impossible. of organising;
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Restructuring Wipro was considered the most important Explain the meaning,
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step in becoming a global giant, driven by the goal towards advantages and
disadvantages of
improved customer-orientation.
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functional organisation;
During the past few months, Wipro separated itself into
several subsidiaries by product line: telecommunications, Explain the meaning,
n
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advantages and
engineering, financial services, etc. Each subsidiary brings in
disadvantages of
about $300 million in annual earnings and is self-sufficient with divisional organisation;
to
their own accounting books, personnel and administrative
Explain the meaning,
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functions. advantages and
Wipro shifted from a centralised to decentralised disadvantages of
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management system. All responsibilities for growth lay with formal and informal
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the management of each entity. organisation;
“We tried to de-layer the organisation and empower Distinguish between
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our business leaders with a much higher degree of growth formal and informal
responsibility,” said Premji. “We removed an entire layer [of organisation;
executives]”. Explain the concept
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Between 2002 and 2003, Wipro acquired two IT consulting of delegation and
firms to break into the U.S. market. Wipro is also moving decentralisation;
from a service provider to a product developer. Today, it Describe the importance
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partners with other companies to develop IT products to gain of delegation and
experience and achieve name recognition. decentralisation; and
Adapted from an article by Heide B. Malhotra for Distinguish between
n
Epoch Times Washington D.C. May 01, 2006 delegation and
decentralisation.

2. Organising 113
Once the plans have been laid down directed towards the attainment
and objectives specified therein, the of goals laid down in the planning
next step is to organise resources function in such a manner that
in a manner which leads to the resources are used optimally and
accomplishment of objectives. A people are able to work collectively
critical issue in accomplishing the and effectively for a common purpose.
d
goals specified in the planning Thus, it is in the context of effective
e
process is structuring the work of an management that the organisation
organisation to adapt to the dynamic function earns due importance. It is
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business environment. The activities a means for translating plans into
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of an enterprise must be organised action.
in such a manner that plans can be The organising function leads to the
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successfully implemented. creation of an organisational structure
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For planning to be fruitful a number which includes the designing of roles
of considerations like resources that to be filled by suitably skilled people
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will be needed, optimum utilisation and defining the inter relationship
of the same translation of work between these roles so that ambi­
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into attainable tasks, empowering guity in performance of duties can
the workforce to accomplish these be eliminated. Not only is this impo­
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tasks etc., need to be understood rtant for productive cooperation
and dealt with properly. between the personnel but also for
b
It is evident from the way Wipro clarification of extent of authority, as
has moved towards reaching for well as responsibility for results and
to
it’s goal of becoming a globally logical grouping of activities.
successful technology company, that
organising plays a significant role in Meaning
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implementation of plans. Let us take an example to understand
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What has Wipro done to become a how organising takes place. Have
you ever paid attention to how, the
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contending force among other global
giants? Are there lessons to be learnt school fete which you enjoy so much,
from Wipro’s approach? actually takes place? What goes on
Wipro organised itself in a manner that behind the scene to make it the
allowed customer orientation to dominate desired reality you want? The whole
over other goals and diversified on the activity is divided into task groups
basis of product lines. It also modified each dealing with a specific area like
the relationships within the management the food committee, the decoration
hierarchy to suit the goals. committee, the ticketing committee
The management function of and so on. These are under the
organising ensures that efforts are overall supervision of the official in

3. 114 Business Studies
charge of the event. Coordinating is carried out with the help of an
relationships are established among example.
the various groups to enable smooth Suppose twelve students work for
interaction and clarity about each the school library in the summer
group’s contribution towards the vacations. One afternoon they are
event. All the above activities are a told to unload a shipment of new
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part of the organising function. releases, stock the bookshelves, and
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Organising essentially implies a then dispose of all waste (packaging,
process which coordinates human paper etc). If all the students decide
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efforts, assembles resources and to do it in their own way, it will
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integrates both into a unified whole result in mass confusion. However,
to be utilised for achieving specified if one student supervises the work
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objectives. by grouping students, dividing the
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Organising can be defined as work, assigning each group their
a process that initiates impleme- quota and developing reporting relat­
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ntation of plans by clarifying jobs ionships among them, the job will be
and working relationships and done faster and in a better manner.
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effectively deploying resources for From the above description, the
attainment of identified and desired following steps emerge in the process
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results (goals). of organising:
(i) Identification and division of
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Steps in the Process of work: The first step in the process
of organising involves identifying
Organising
to
and dividing the work that has
Organising involves a series of steps to be done in accordance with
that need to be taken in order to previously determined plans. The
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achieve the desired goal. Let us try work is divided into manageable
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and understand how organising activities so that duplication can
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Definition of Organising
Organising is the process of identifying and grouping the work to
be performed, defining and delegating responsibility and authority,
and establishing relationships for the purpose of enabling people to
work most effectively together in accomplishing objectives.
Louis Allen
Organising is the process of defining and grouping the activities of the
enterprise and establishing authority relationships among them.
Theo Haimman

4. Organising 115
Think About It
Your school must have various societies for extra-curricular
activities like the dramatics society, the quiz club, the economics
society, the debating society and so on. Observe and list the way
they have organised their activities using division of labour, chain of
communication and the levels they have adopted for reporting on
work. How far is this similar to the process you have read about?
be avoided and the burden of the nature of a job and the
e d
h
work can be shared among the ability of an individual. The work
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employees. must be assigned to those who
(ii) Departmentalisation: Once are best fitted to perform it well.
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work has been divided into small (iv) Establishing reporting
and manageable activities then relation­ hips: Merely allocating
s
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those activities which are similar work is not enough. Each
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in nature are grouped together. individual should also know
Such sets facilitate speciali- who he has to take orders from
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sation. This grouping process and to whom he is accountable.
is called departmentalisation. The establishment of such clear
Departments can be created
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relationships helps to create a
using several criteria as a basis. hierarchal structure and helps
Examples of some of the most in coordination amongst various
b
popularly used basis are territory departments.
(north, south, west etc.) and
to
products (appliances, clothes, Importance of Organising
cosmetics etc). Performance of the organising
iii) Assignment of duties: It is
( function can pave the way for a
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necessary to define the work smooth transition of the enterprise
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of different job positions and in accordance with the dynamic
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accordingly allocate work business environment. The signifi­
to various employees. Once cance of the organising function
departments have been formed, mainly arises from the fact that it
each of them is placed under helps in the survival and growth of
the charge of an individual. an enterprise and equips it to meet
Jobs are then allocated to the various challenges. In order for
members of each department in any business enterprise to perform
accordance to their skills and tasks and successfully meet goals,
competencies. It is essential the organising function must be
for effective performance that a properly performed. The following
proper match is made between points highlight the crucial role that

5. 116 Business Studies
organising plays in any business (iv) Adaptation to change: The
enterprise: process of organising allows a
(i) Benefits of specialisation: business enterprise to accom­
Organising leads to a systematic modate changes in the business
allocation of jobs amongst the environment. It allows the
work force. This reduces the organisation structure to be
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workload as well as enhances suitably modified and the revision
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productivity because of the of inter-relationships amongst
specific workers performing a managerial levels to pave the way
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specific job on a regular basis. for a smooth transition. It also
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Repetitive performance of a provides much needed stability
particular task allows a worker to the enterprise as it can then
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to gain experience in that area continue to survive and grow
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and leads to specialisation. inspite of changes.
(ii) Clarity in working relation­ (v) E f f e c t i v e a d m i n i s t r a t i o n :
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ships: The establishment of Organising provides a clear
working relationships clarifies description of jobs and related
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lines of communication and duties. This helps to avoid confusion
specifies who is to report to and duplication. Clarity in working
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whom. This removes ambiguity relationships enables proper
in transfer of information execution of work. Management
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and instructions. It helps in of an enterprise thereby becomes
creating a hierarchical order easy and this brings effectiveness
to
thereby enabling the fixation of in administration.
responsibility and specification (vi) Development of personnel:
of the extent of authority to be Organising stimulates creativity
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exercised by an individual. amongst the managers. Effective
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iii) Optimum utilization of resou­
( delegation allows the managers
rces: Organising leads to the
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to reduce their workload by
proper usage of all material, fin­ assigning routine jobs to their
ancial and human resources. subordinates. The reduction in
The proper assignment of jobs workload by delegation is not
avoids overlapping of work and just necessary because of limited
also makes possible the best capacity of an individual but also
use of resources. Avoidance allows the manager to develop new
of duplication of work helps methods and ways of performing
in preventing confusion and tasks. It gives them the time to
minimising the wastage of explore areas for growth and the
resources and efforts. opportunity to innovate thereby

6. Organising 117
Think About It
Organising leads to specialisation in work. A pitfall of this is that
repetitive performance of the same job may lead to monotony,
stress, boredom and absenteeism. What can managers do to
improve the scenario?
d
strengthening the company’s an enterprise whenever it grows in
competitive position. Delegation size or complexity. It is only those
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also develops in the subordinate enterprises which do not focus
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the ability to deal effectively with on growth that can maintain a
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challenges and helps them to particular structure for a long period
realise their full potential. of time. However, it is important to
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vii) Expansion and growth: Organ­
( understand that such stagnancy
ising helps in the growth and
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may prove to be detrimental to an
diversification of an enterprise enterprise as those companies which
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by enabling it to deviate from do not change at all will close down
existing norms and taking up or cease to grow.
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new challenges. As an organisation grows, coordi­
It allows a business enterprise to nation becomes difficult due to the
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add more job positions, departments emergence of new functions and
and even diversify their product lines. increase in structural hierarchies.
b
New geographical territories can be Thus, for an organisation to function
added to current areas of operation smoothly and face environmental
to
and this will help to increase customer changes, it becomes necessary to pay
base, sales and profit. attention to its structure.
Thus, organising is a process by
t
Peter Drucker emphasises on the
which the manager brings order out
importance of having an appropriate
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of chaos, removes conflict among
organisation structure when he
people over work or responsibility
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says, “organisation structure is an
sharing and creates an environment
indispensable means; and the wrong
suitable for teamwork.
structure will seriously impair busi­
Organisation Structure ness performance and even destroy it.”
Organisation structure is the The organisation structure can
outcome of the organising process. be defined as the framework within
An effective structure will result which managerial and operating
in increased profitability of the tasks are performed. It specifies the
enterprise. The need for an adequate relationships between people, work
organisation structure is felt by and resources. It allows correlation

7. 118 Business Studies
and coordination among human, over the operations of a business
physical and financial resources and enterprise.
this enables a business enterprise An organisation structure provides
to accomplish desired goals. The the framework which enables the
organisation structure of a firm is enterprise to function as an integrated
shown in an organisation chart. unit by regulating and coordinating
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The span of management, to a large the responsibilities of individuals
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extent gives shape to the organisatio- and departments. Let us try and
nal structure. Span of management understand this through an example.
h
refers to the number of subordinates For example: Smita opened her own
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that can be effectively managed by a travel agency, sometime back. She
superior. This determines the levels of assigned work to her three employees
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management in the structure. in the following manner ‘Neha, you
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A proper organisation structure is are incharge of air plane, train and
essential to ensure a smooth flow of bus reservations.’ ‘Karan, you will
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communication and better control take care of accommodation booking’
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Honda to Strengthen Structure of its R&D Operations
Corporate February 21, 2006
© e
TOKYO, Japan, February 21, 2006 – Honda Motor Co. Ltd. announced plans, effective
April 1, 2006, to launch a new organisational structure for Honda R&D Co. Ltd., a wholly
b
owned subsidiary of Honda responsible for research & development activities. Due to recent
technological advancements and continued business expansion, the variety and complexity
to
of technological components and the number of vehicles under development at Honda R&D
have increased dramatically. The new structure will be launched both in response to this
situation and to prepare for further expansion of business in the future. The new structure
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will enable each associate to demonstrate a high level of initiative, with more clear definition
of roles and responsibilities and bold delegation of authority. Moreover, the new structure is
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designed to achieve smoother communication to help accelerate decision making within the
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organisation. The key elements of the new structure are as follows:
Outline of the New Structure:
1. Existing R&D centers including Asaka R&D Center, Wako R&D Center, and Tochigi
R&D Center, which are currently organised based on geographical location and will be
reorganised into five centers based on specific functions. The names of the five centers will
be Motorcycle Development Center, Automobile Development Center, Power Products
Development Center, Aero Engine Development Center, and Basic Technology Research
Center.
2. Each center will have separate offices for planning, product development, technology
development and administration with clearly defined roles.
3. Primary authority to make operational decisions, currently held by the head of each center,

8. Organising 119
A Board member in charge of the Head
Development Centre (Board member
of Honda R&D) Planning
Developing road-
maps of technology
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Head Head Head and product
development
e
Administration Technology Development Product Development
h
All administrative Technology development Product development
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roles including for each component of a including product
general affairs, product such as engine and design
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HR, facility chassis
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management, etc.
will be delegated to the head of each office within each center to achieve an autonomous
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operational structure through which each office can make more decisions.
4. A flat and less-layered organisational structure will be employed to ensure smooth and
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direct communications between the head of the office and each associate.
5. The product development function of the Automobile Development Center will be further
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separated between the Honda brand and Acura brand.
This structural change is a part of Honda’s continuous effort to strengthen the core
characteristics that makes Honda unique, and its purpose is to continue creating advanced
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and creative technologies and products that are unique to Honda, which in turn will enable
Honda to continue to be a company that society wants to exist.
to
http://world.honda.com/news/2006/c060221RandDOperations/
o t
‘Sahil, you will keep track of online
queries and credit card payments’. I
and types of activities performed by
an organsation. The organisational
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want regular reports from the three structure can be classified under two
of you. Thus, in a few sentences an categories which are as follows:
organisation structure has been (i) Functional structure and
created specifying lines of authority (ii) Divisional structure
and areas of responsibility.
Functional structure
Types of Organisation
Grouping of jobs of similar nature
Structures under functional and organising
The type of structure adopted by an these major functions as separate
organisation will vary with the nature departments creates a functional

9. 120 Business Studies
Functional Structure
Managing Director
Research and
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h
Human Resources Marketing Development Purchasing
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structure. All departments report to a
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coordinating head. For example, in a s
(d) It leads to minimal duplication of
effort which results in economies
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manufacturing concern division of work of scale and this lowers cost.
into key functions will include production, (e) It makes training of employees
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purchase, marketing, accounts and easier as the focus is only on a
personnel. These departments may be limited range of skills.
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further divided into sections. Thus, a (f) It ensures that different functions
functional structure is an organisational get due attention.
© e
design that groups similar or related Disadvantages: The functional
jobs together. structure has certain disadvantages
b
Advantages: The functional struc­ which an organisation must take
ture has many advantages to offer. into consideration before it adopts it.
to
Important among them are as follows: Some of them are as follows:
(a) A functional structure leads to (a) A functional structure places less
occupational specialisation since emphasis on overall enterprise
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emphasis is placed on specific objectives than the objectives
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functions. This promotes efficiency pursued by a functional head.
in utilisation of manpower as Such practices may lead to
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employees perform similar tasks functional empires wherein
within a department and are able the importance of a particular
to improve performance. function may be overemphasised.
(b) It promotes control and coord­ Pursuing departmental interests
ination within a department at the cost of organisational
because of similarity in the tasks interests can also hinder the
being performed. interaction between two or more
(c) It helps in increasing managerial departments.
and operational efficiency and (b) It may lead to problems in
this results in increased profit. coordination as information has to

10. Organising 121
Think About It
Read newspapers regularly and try to identify the structures various
business organisations being mentioned in the news have adopted.
Have their structures led to improved and desired results in any
way?
d
be exchanged across functionally themselves away from the simpler and
e
differentiated departments. basic functional structure towards
(c) A conflict of interests may arise a divisional structure which is more
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when the interests of two or more suited to their activities. This is
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departments are not compatible. particularly true of those enterprises
For example, the sales department which have more than one category
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insisting on a customer friendly of products to offer. This is because
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design may cause difficulties in although every organisation performs
production. Such dissension can a set of homogenous functions, as
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prove to be harmful in terms of it diversifies into varied product
categories, the need for a more evolved
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fulfillment of organisational interest.
Inter-departmental conflicts can structural design is felt to cope with
the emerging complexity.
also arise in the absence of clear
© e
In a divisional structure, the
separation of responsibility.
organisation structure comprises of
(d) It may lead to inflexibility as people
b
separate business units or divisions.
with same skills and knowledge
Each unit has a divisional manager
base may develop a narrow pers­ responsible for performance and who
to
pective and thus, have difficulty has authority over the unit. Generally,
in appreciating any other point of manpower is grouped on the basis
t
view. Functional heads do not of different products manufactured.
get training for top management
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Each division is multifunctional
positions because they are unable because within each division func­
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to gather experience in diverse tions like production, marketing,
areas. finance, purchase etc, are performed
Suitability: It is most suitable when together to achieve a common goal.
the size of the organisation is large, has Each division is self-contained as it
a diversified activities and operations develops expertise in all functions
require a high degree of specialisation. related to a product line.
In order words, within each division,
Divisional Structure the functional structure tends to be
Many large organisations with adopted. However, functions may vary
diversified activities have reorganised across divisions in accordance with a

11. 122 Business Studies
Organisation Chart Managing Director
Showing Divisional and
Functional Structure
Cosmetics Garments Footwear Skin care
e d
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Research and
Human Resources Marketing Development Purchasing
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particular product line. Further, each
division works as a profit center where
of the division and appropriate
remedial action can be taken.
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the divisional head is responsible for (c) It promotes flexibility and initiative
the profit or loss of his division. For because each division functions as
© e
example, a large company may have an autonomous unit which leads
divisions like cosmetics, clothing etc. to faster decision making.
b
Advantages: The divisional structure (d) It facilitates expansion and growth
offers many benefits. Prominent as new divisions can be added
to
among these are as follows: without interrupting the existing
(a) Product specialisation helps in the operations by merely adding
development of varied skills in a another divisional head and staff
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divisional head and this prepares for the new product line.
o
him for higher positions. This is Disadvantages: The divisional stru­
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because he gains experience in all cture has certain disadvantages.
functions related to a particular Some of them are as follows:
product. (a) Conflict may arise among diffe­
(b) Divisional heads are accountable rent divisions with reference to
for profits, as revenues and costs allocation of funds and further
related to different departments can a particular division may seek to
be easily identified and assigned to maximise its profits at the cost of
them. This provides a proper basis other divisions.
for performance measurement. (b) It may lead to increase in costs
It also helps in fixation of respons- since there may be a duplication
ibility in cases of poor performance of activities across products.

12. Organising 123
Providing each division with adopt a divisional structure. Table 1
separate set of similar functions provides a comparison of functional
increases expenditure. and divisional structure to provide
(c) It provides managers with the further clarity on the topic.
authority to supervise all activities Thus, it can be said that business
related to a particular division. In operates in a dynamic environment
d
course of time, such a manager and those enterprises which fail
e
may gain power and in a bid to adapt to change are unable
to assert his independence may to survive. Hence, management
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ignore organisational interests. must continuously review its plans
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Suitability: Divisional structure is and objectives and accordingly
suitable for those business enter­ the organisation structure of the
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prises where a large variety of pro­ enterprise should also be subjected
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ducts are manufactured using diffe­ to periodic review to determine
rent productive resources. When an if modification is required. An
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organisation grows and needs to add organisation structure, at all times
more employees, create more depar­ should contribute towards the
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tments and introduce new levels achievement of the enterprise’s
of management, it will decide to objectives and should provide scope
© e
Comparative view: Functional and Divisional Structure
b
Basis Functional Structure Divisional Structure
Formation Formation is based on Formation is based on product
to
functions lines and is supported by
functions.
Specialisation Functional specialisation. Product specialisation.
t
Responsibility Difficult to fix on a Easy to fix responsiblity for
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department. performance.
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Managerial Difficult, as each Easier, autonomy as well as
Development functional manager the chance to perform multiple
has to report to the top functions helps in managerial
management. development.
Cost Functions are not Duplication of resources in
duplicated hence various departments, hence
economical costly.
Coordination Difficult for a multi- Easy, because all functions
product company. related to a particular
product are integrated in one
department.

13. d
Organisation Chart of ONGC
Business Studies
C & MD
e h
l Company Secretary
l Corporate Affairs MD, ONGC Videsh Ltd.
Chief Vigilance Officer
s
l
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Director Director
Director Director Director Director
Tech & Field ... To be filled ...
Onshore
R b
Offshore Exploration HR Finance
Services
Mumbai Supply Ahmedabad
E u Western HRD Chief Drill. Internal Chief Infocom
Offshore IDT Audit
High Bases Services
C p
Ankleshwar Western Functional IOGPT
Drilling Commer- Chief Planning
Bassein & Onshore HR Planning
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Uran Plant cial Projects & Cap.
Satellite Mehsana IEOT
Assam & Cementing Budget
Assam-Arakan Employee
Heera & Hazira Assam Relations Mud Explor. & Perfor- Chief MM
Neelam Plant Cauvery Dev Tech mance
Chief Well
© e
Karaikal ONGC mgmt & Chief Business
Offshore (Cauvery) KG-PG Academy Services Bench- Devp., JVs &
b
PSC - JV marking Marketing
GVK (Frontier) Security Workover
Rajamundhry
(KG) KDIMPE WSS Chief SHE
Legal
to
Regional IPSEM
Tripura Medical Well
Labs
Completion Chief EM.
IRS Corporate
& Drilling Technical Audit
Comm
& QA
t
GEOPIC Geophysical
Services
o
Chief Logging Mainte- Chief
Regional Geo- nance Engineering
CBMMBP
n
physical Services
Design Head, Regional
Exploration
Officer
Directorate Works
EX COM
Adapted from www.ongc.com/archives1
124

14. Organising 125
Structural Transformation at ONGC
Since its inception, ONGC has been instrumental in transforming the country’s limited
upstream sector into a large viable playing field, with its activities spread throughout India and
significantly in overseas territories.
The 1990s had begun on a grim note for ONGC. It took almost a decade for the Corporation
d
to sort things out in most uncertain of times.
Among many problems, the Corporation was also suffering from the organisational atrophy.
e
In order to survive ONGC sought help from Mc Kinsey.
h
Mc Kinsey’s mandate was to evolve an organisational structure that was far more
responsive to its business needs than that based on business groups. The ONGC system run
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by functional heads often meant delays exceeding a year in matters requiring urgent decisions
on fields. Also, since responsibilities were shared at production platforms between different
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business groups, the system degenerated into wrangling over responsibilities. Similarly, group
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loyalties often took precedence over the requirements of tasks. But, most importantly, it
was found that the performance evaluation criteria based on business group yardstick were
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completely at loggerheads with requirements on fields. Mc Kinsey recommended an asset-
based approach with clearly-defined responsibilities in its presentation titled ‘Organisation
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Transformation Project’
Though Mc Kinsey recommendations were broadly accepted, coordination issues
concerning commonly-shared services needed to be sorted out.
© e
Finally, the first control over all service personnel working with asset teams was vested
in asset managers, on grounds that being responsible for the performance of their strategic
b
business units they must rightfully exercise control over all personnel working with them.
Even procurement powers were devolved. Finally, a new structure made up of 14 assets and
to
11 centralised services was rolled out .
t
Do It Yourself
o
You have seen the structure of ONGC as an illustration in this text.
n
Browse the websites of other business organisations and study their
organisational chart. Try to identify the structure they are using.
for initiative so that contribution In all organisations, employees are
of personnel can be maximum and guided by rules and procedures.
effective. To enable smooth functioning of
the enterprise, job description and
Formal and Informal
ormal
rules and procedures related to work
Organisation
rganisation processes have to be laid down. This is
done through the formal organisation.

15. 126 Business Studies
Formal organisation refers to (e) It places more emphasis on
the organisation structure which work to be performed than
is designed by the management interpersonal relationships amo­
to accomplish a particular task. It ng the employees.
specifies clearly the boundaries of Advantages: Formal organisation
authority and responsibility and offers many advantages. Some of the
d
there is a systematic coordination important ones are:
e
among the various activities to (a) It is easier to fix responsibility
achieve organisational goals. since mutual relationships are
h
The structure in a formal organ­ clearly defined.
T li s
isation can be functional or divis­ (b) There is no ambiguity in the role
ional. The formal organisation can that each member has to play
R b
be better understood by a study of its as duties are specified. This also
E u
features which are as follows: helps in avoiding duplication of
(a) It specifies the relationships effort.
C p
among various job positions (c) Unity of command is maintained
and the nature of their inter- through an established chain of
N re
relationship. This clarifies who command.
has to report to whom. (d) It leads to effective accomplish­
© e
(b) It is a means to achieve the ment of goals by providing a
objectives specified in the plans, as framework for the operations to
b
it lays down rules and procedures be performed and ensuring that
essential for their achievement. each employee knows the role he
to
(c) Efforts of various departments has to play.
are coordinated, interlinked and (e) It provides stability to the organ­
integrated through the formal isation. This is because behaviour
t
organisation. of employees can be fairly pre­
o
(d) It is deliberately designed by the dicted since there are specific
n
top management to facilitate rules to guide them.
the smooth functioning of the Limitations: The formal organisation
organisation. suffers from the following limitations:
Formal Organisation
The formal organisation is a system of well-defined jobs, each bearing
a definite measure of authority, responsibility and accountability.
Louis Allen
Formal organisation is a system of consciously coordinated activities
of two or more persons toward a common objective.
Chester Barnand

16. Organising 127
(a) The formal communication may friendship they tend to form groups
lead to procedural delays as the which show conformity in terms of
established chain of command has interest. Examples of such groups
to be followed which increases the formed with common interest may be
time taken for decision making. those who take part in cricket matches
(b) Poor organisation practices may on Sundays, meet in the cafeteria for
d
not provide adequate recognition coffee, are interested in dramatics
e
to creative talent, since it does not etc. Informal organisation has no
allow any deviations from rigidly written rules, is fluid in form and
h
laid down polices. scope and does not have fixed lines of
T li s
(c) It is difficult to understand all communication. The Table in the next
human relationships in an enter­ page compares informal organisation
R b
prise as it places more emphasis with the formal organisation to provide
E u
on structure and work. Hence, better understanding of both types.
the formal organisation does not Informal organisation can be
C p
provide a complete picture of how better understood with the help of
an organisation works. the following features:
N re
(a) An informal organisation orig­
Informal Organisation inates from within the formal orga­
© e
Interaction among people at work nisation as a result of personal
gives rise to a ‘network of social interaction among employees.
b
relationships among employees’ called (b) The standards of behaviour
the informal organisation. evolve from group norms rather
to
Informal organisation emerges than officially laid down rules and
from within the formal organisation regulations.
when people interact beyond their (c) Independent channels of commu­
t
officially defined roles. When people nication without specified direc­
o
have frequent contacts they cannot tion of flow of information are
n
be forced into a rigid formal structure. developed by group members.
Rather, based on their interaction and
Informal Organisation
An informal organisation is an aggregate of interpersonal relationships without any
conscious purpose but which may contribute to joint results.
Chester Barnand
Informal organisation is a network of personal and social relations not established or required
by the formal organisation but arising spontaneously as people associate with one another.
Keith Davis

17. 128 Business Studies
(d) It emerges spontaneously and is (b) It helps to fulfill the social needs
not deliberately created by the of the members and allows them
management. to find like minded people. This
(e) It has no definite strucure or form enhances their job satisfaction
because it is a complex network since it gives them a sense of
of social relationships among belongingness in the organisation.
d
members. (c) It contributes towards fulfillment
e
Advantages: The informal orga­ of organisational objectives by
nisation offers many benefits. Impor­ compensating for inadequacies in
h
tant among them are given below: the formal organisation. For example,
T li s
(a) Prescribed lines of commu­ employees reactions towards plans
nication are not followed. Thus, and policies can be tested through
R b
the informal organisation leads the informal network.
E u
to faster spread of information as Disadvantages: The informal orga­
well as quick feedback. nisation has certain disadvantages.
C p
Some of them are as follows:
N re
Formal and informal organisation: A Comparative view
© e
Basis Formal organisation Informal organisation
Network of social
Structure of authority
b
relationships arising out
Meaning relationships created by the
of interaction among
management
to
employees
Arises as a result of Arises as a result of social
Origin
company rules and policies interaction
t
Arises by virtue of position Arises out of personal
o
Authority
in management qualities
n
There is no set behaviour
Behavior It is directed by rules
pattern
Flow of communication
Communication takes place is not through a planned
Flow of Communication
through the scalar chain route. It can take place in
any direction
Nature Rigid Flexible
Leaders may or may not
Leadership Managers are leaders. be managers. They are
chosen by the group.

18. Organising 129
(a) I n f o r m a l o r g a n i s a t i o n m a y communication channels. Instead of
become a disruptive force when it confronting them, the management
spreads rumours. This may work should skillfully take advantage
against the interest of the formal of both the formal and informal
organisation. organisation so that work continues
(b) The management may not be smoothly.
d
successful in implementing chan­
Delegation
e
ges if the informal organisation
opposes them. Such resistance A manager, no matter how capable he
h
to change may delay or restrict is, cannot manage to do every task on
T li s
growth. his own. The volume of work makes
(c) It pressurises members to conform it impractical for him to handle it all
R b
to group expectations. This can by himself. As a consequence, if he
E u
be harmful to the organisation if desires to meet the organisational
the norms set by the group are goals, focus on objectives and ensure
C p
against organisational interests. that all work is accomplished, he
Informal organisation cannot be must delegate authority.
N re
altogether eliminated. Thus, it would Delegation refers to the downward
be in the best interest of the organi­ transfer of authority from a superior
© e
sation if the existence of such groups to a subordinate. It is a pre-requisite
is recognised and the roles that to the efficient functioning of an
b
their members play are identified. organisation because it enables
The knowledge of such groups can a manager to use his time on high
to
be used to gather their support priority activities. It also satisfies the
and consequently lead to improved subordinate’s need for recognition
organisational performance. Such and provides them with opportunities
t
groups can also provide useful to develop and exercise initiative.
no Delegation
Delegation is the process a manager follows in dividing the work
assigned to him so that he performs that part which only he because
of his unique organisational placement, can perform effectively and
so that he can get others to help with what remains.
Louis Allen
Delegation of authority merely means the granting of authority to
subordinates to operate within prescribed limits.
Theo Haimman

19. 130 Business Studies
Delegation helps a manager to Elements of Delegation
extend his area of operations as According to Louis Allen, delegation
without it, his activities would be is the entrustment of respons-
restricted to only what he himself
ibility and authority to another and
can do. However, delegation does
the creation of accountability for
not mean abdication. The manager
performance.
d
shall still be accountable for the
performance of the assigned tasks. A detailed analysis of Louis Allen’s
e
Moreover, the authority granted to a definition brings to light the following
h
subordinate can be taken back and essential elements of delegation:
T li s
redelegated to another person. Thus, (i) Authority: Authority refers
irrespective of the extent of delegated to the right of an individual to
R b
authority ,the manager shall still be command his subordinates and
accountable to the same extent as
E u
to take action within the scope
before delegation.
of his position. The concept
C p
N re
© e
No delegation leads to delays in
b
decision-making
t to
no

20. Organising 131
Creation of accountability for
performance
e d
T li s h
R b
E u
C p
N re
© e
b
of authority arises from the Authority relationships helps to
maintain order in the organisation
to
established scalar chain which
links the various job positions by giving the managers the right to
and levels of an organisation. exact obedience and give directions
t
Authority also refers to the right to the workforce under them.
o
to take decisions inherent in a Authority determines the superior
managerial position to tell people subordinate relationship wherein the
n
what to do and expect them to superior communicates his decision
do it. to the subordinate, expecting
In the formal organisation authority compliance from him and the
originates by virtue of an individual’s subordinate executes the decision
position and the extent of authority as per the guidelines of the superior.
is highest at the top management The extent to which a superior can
levels and reduces successively as we exact compliance also depends on
go down the corporate ladder. Thus, the personality of the superior.
authority flows from top to bottom, It must be noted that authority
i.e., the superior has authority over is restricted by laws and the rules
the subordinate. and regulation of the organisation,

21. 132 Business Studies
which limit its scope. However, as with the assigned responsibility.
we go higher up in the management If authority granted is more than
hierarchy, the scope of authority responsibility, it may lead to misuse
increases. of authority, and if responsibility
(ii) Responsibility: Responsibility assigned is more than authority it
is the obligation of a subor- may make a person ineffective.
d
dinate to properly perform iii) Accountability: Delegation of
(
the assigned duty. It arises authority, undoubtedly empowers
e
from a superior–subordinate an employee to act for his superior
h
relationship because the subor- but the superior would still be
T li s
dinate is bound to perform the accountable for the outcome:
duty assigned to him by his Accountability implies being
R b
superior. Thus, responsibility answerable for the final outcome.
flows upwards i.e., a subordinate Once authority has been delegated
E u
will always be responsible to his and responsibility accepted, one
C p
superior. cannot deny accountability. It cannot
An important consideration to be delegated and flows upwards i.e., a
N re
be kept in view with respect to subordinate will be accountable to a
both authority and responsibility superior for satisfactory performance
© e
is that when an employee is given of work. It indicates that the manger
responsibility for a job he must also has to ensure the proper discharge
b
be given the degree of authority of duties by his subordinates. It is
necessary to carry it out. Thus, for generally enforced through regular
to
effective delegation the authority feedback on the extent of work
granted must be commensurate accomplished. The subordinate will be
t
Overview of the elements of delegation
o
Basis Authority Responsibility Accountability
n
Meaning Right to command. Obligation to Answerability for
perform an assigned outcome of the
task. assigned task.
Delegation Can be delegated. Cannot be entirely Cannot be delegated
delegated. at all.
Origin Arises from formal Arises from Arises from
position . delegated authority. responsibility.
Flow Flows downward Flows upward from Flows upward from
from superior to subordinate to subordinate to
subordinate. superior. superior

22. Organising 133
expected to explain the consequences bility is assumed, accountability is
of his actions or omissions. imposed. Responsibility is derived from
In conclusion, it can be stated that authority and accountability is derived
while authority is delegated, responsi­ from responsibility. The Table in the
Interview with Azim Premji
d
knowledge.wharton.upenn.edu: April 20, 2006
e
Azim Premji, owns more than 80 per cent of Bangalore-based Wipro, India’s third largest
software exporter, which had annual revenues of US $ 1.8 billion in 2005. Forbes magazine
h
reckons that his net worth exceeds US $ 13 billion, and it places him at No. 25 in its most
T li s
recent ranking of the world’s richest people. Premji speaks with Ravi Aron, a professor of
operations and information management at Wharton about Wipro’s reorganisation.
R b
Aron: After Vivek Paul [Wipro’s former CEO] left the company last year, you made radical
E u
changes in your organisational structure. How did they affect your markets and your vision
for where Wipro is going?
C p
Premji: The most important thing you must appreciate is that, with the reorganisation, we
tried to bring Wipro’s leadership closer to the customer. In the process, we tried to de-layer
N re
the organisation and empower our business leaders. That is why we removed an entire layer
which was there previously. Our executives are seasoned enough in their jobs and they have
performed long enough in their roles to be confident that they can deliver results through
© e
the new structure.
Aron: As part of your new structure, have you started redefining the organisation with P&L
b
responsibility at the level of the vertical? [Editor’s note: Wipro’s vertical structure divides
the company into units such as Telecom Service Providers, Product Engineering Solutions,
to
Finance Solutions, and Enterprise Solutions. These units further cater to industries such as
banking, insurance, securities, and so on.]
Premji: No. Each vertical is like a self-contained business. It is like a mid-sized company even
t
by U.S. standards, because each vertical generates about $300 million in annual revenues.
o
Though they work under a common structure, with resources such as Finance, HR, Quality
and Marketing, each vertical has people who represent these functions. So, in effect, each
n
vertical is like a separate company.
Aron: Does that mean you intend to delegate more authority and responsibility to these
self-contained companies?
Premji: Absolutely.
Aron: What is your thinking behind this?
Premji: It all goes back to leadership. It speeds things up and gets decisions made faster. It
empowers people more, and it allows them to further empower those who report to them,
because their jobs have suddenly become much more responsible.
http://www.ibef.org/artdisplay.aspx?cat_id=105&art_id=11158

23. 134 Business Studies
previous page provides a summarised
iii) M o t i v a t i o n
( o f
view of the elements of delegation.
employees:Delegation helps
in developing the talents of
Importance of Delegation the employees. It also has
Delegation ensures that the subordi­ psychological benefits. When a
nates perform tasks on behalf of superior entrusts a subordinate
the manager thereby reducing his
d
with a task, it is not merely the
workload and providing him with sharing of work but involves
e
more time to concentrate on important trust on the superior’s part and
h
matters. Effective delegation leads to commitment on the part of the
the following benefits:
T li s
subordinate. Responsibility for
(i) Effective management: By work builds the self-esteem of
R b
empowering the employees, the an employee and improves his
managers are able to function
E u
confidence. He feels encouraged
more efficiently as they get more and tries to improve his
time to concentrate on important
C p
performance further.
matters. Freedom from doing
(iv) Facilitation of growth: Delega­
N re
routine work provides them with
tion helps in the expansion of
opportunities to excel in new
an organisation by providing
areas.
© e
a ready workforce to take up
(ii) Employee development: As a
leading positions in new ventures.
result of delegation, employees
b
Trained and experienced emp­
get more opportunities to utilise
loyees are able to play significant
their talent and this may give
to
roles in the launch of new
rise to latent abilities in them.
projects by replicating the work
It allows them to develop those
ethos they have absorbed from
t
skills which will enable them
existing units, in the newly set
o
to perform complex tasks and
up branches.
assume those responsibilities
(v) Basis of management hier­
n
which will improve their career
archy: Delegation of authority
prospects. It makes them
establishes superior-subordinate
better leaders and decision
relationships, which are the basis
makers. Thus, delegation helps
of hierarchy of management. It is
by preparing better future
the degree and flow of authority
managers. Delegation empowers
which determines who has to
the employees by providing
report to whom. The extent of
them with the chance to use
delegated authority also decides
their skills, gain experience and
the power that each job position
develop themselves for higher
enjoys in the organisation.
positions.

24. Organising 135
(vi) B e t t e r c o o r d i n a t i o n : T h e powers, duties and answerability
elements of delegation, namely related to the various positions
authority, responsibility and in an organisation. This helps to
accountability help to define the avoid overlapping of duties and
Innovation at hcl
d
The world’s most modern management in India; HCL Technologies is empow­
e
ering its employees and pointing the way to the future of business.Fortune,
April 14, 2006.
h
Every employee rates their boss, their boss’ boss, and any three other company
T li s
managers they choose, on 18 questions using a 1-5 scale. Such 360-degree
evaluations are not uncommon, but at HCL all results are posted online for every
R b
employee to see. That’s un-heard-of!
And that’s not all. Every HCL employee can at any time create an electronic
E u
‘ticket’ to flag anything they think requires action in the company. Amazingly,
such tickets can only be ‘closed’ by the employees themselves. And Nayar [Vineet
C p
Nayar is president of India’s 30,000-employee HCL Technologies (Research)] is
vigilant that managers not intimidate employees about creating or closing tickets.
N re
Managers are evaluated partly based on how many tickets their departments are
creating - the more the better.
© e
In addition, every employee can post a question or comment on any subject in
a public process called ‘U and I.’ About 400 come in each month, and questions
and answers are all posted on the intranet.
b
“I want to be the company that gives superior service to my employees compared
to everybody else,” he explains. He also firmly believes the ideas that will guide
to
HCL into the future will come not from him, but from below. Early signs suggest
his bold strategy is working. Nayar has only been president for a year, a tumultuous
t
one in which most of these innovations have been implemented. But in that time the
attrition rate has dropped in half, he says. HCL’s innovations are not only managerial.
o
The company aims to become a strategic partner with customers by working with
them on business process management and by managing infrastructure remotely,
n
a business it has pioneered in India, says Nayar. The strategy has succeeded with
AMD (Research), a marquee customer for which the company does the above
mentioned business. Another key customer is Cisco (Research), a 10-year customer
with whom HCL is now embracing another form of innovation- shared risk. Since
February, HCL has been completely responsible for engineering one Cisco product.
It gets paid based on how well the product sells. In engineering all this innovation,
Nayar’s humility appears to be a potent managerial asset.
Adapted from an article by David Kirkpatrick on:
http://www.indianembassy.org/newsite/News/US%20Media/2006/115.asp

25. 136 Business Studies
duplication of effort as it gives a of authority throughout all the levels
clear picture of the work being of the organisation. Decision making
done at various levels. Such clarity authority is shared with lower levels
in reporting relationships help and is consequently placed nearest to
in developing and maintaining the points of action. In other words
effective coordination amongst decision making authority is pushed
d
the departments, levels and down the chain of command.
e
functions of management. When decisions taken by the
Thus, delegation is a key element lower levels are numerous as well
h
in effective organising. as important an organisation can be
T li s
regarded as greatly decentralised.
Decentralisation
R b
In many organisations the top Centralisation and
Decentralisation
E u
management plays an active role
in taking all decisions while there Centralisation and decentralisation
C p
are others in which this power is are relative terms, as seen from the
given to even the lower levels of existing status of various business
N re
management. Those organisations enterprises.
in which decision making authority An organisation is centralised
© e
lies with the top management are when decision-making authority
termed as centralised organisations is retained by higher management
b
whereas those in which such levels whereas it is decentralised
authority is shared with lower levels when such authority is delegated.
to
are decentralised organisations. Complete centralisation would
Decentralisation explains the imply concentration of all decision
manner in which decision making making functions at the apex of
t
responsibilities are divided among the management hierarchy. Such a
o
hierarchical levels. Put simply, scenario would obviate the need for a
decentralisation refers to delegation management hierarchy. On the other
n
Decentralisation
Decentralisation refers to systematic effort to delegate to the
lowest level all authority except that which can be exercised at
central points.
Louis Allen
Everything which goes to increase the importance of a subordinate’s
role is decentralisation, everything that goes to reduce it is
centralisation.
Henri Fayol