NCERT Notes for Class 12 business studies Chapter 5 ORGANISING

Class 12 business studies Chapter 5 ORGANISING

NCERT Notes for Class 12 business studies Chapter 5 ORGANISING, (business studies) exam are Students are taught thru NCERT books in some state board and CBSE Schools.  As the chapter involves an end, there is an exercise provided to assist students to prepare for evaluation.  Students need to clear up those exercises very well because the questions inside the very last asked from those.

Sometimes, students get stuck inside the exercises and are not able to clear up all of the questions.  To assist students, solve all of the questions, and maintain their studies without a doubt, we have provided step-by-step NCERT Notes for the students for all classes.  These answers will similarly help students in scoring better marks with the assist of properly illustrated Notes as a way to similarly assist the students and answer the questions right.

NCERT Notes for Class 12 business studies Chapter 5 ORGANISING

Class 12 business studies Chapter 5 ORGANISING


Once the plans have been laid down and objectives specified therein, the next step is to organise resources in a manner which leads to the accomplishment of objectives. Organising refers to the process of identifying and grouping various activities and bringing together various resources for the achievement of specific goals.

The term organisation is derived from the word ‘organisam’ which means that a unit with many parts and each part of it, even though working independently has a definite relationship with the main unit. Each job consists of certain specific responsibilities and tasks. Different parts of human body performing different activities, brain organise these activities in a systematic manner for the sound functioning of human body. In the same way, organisation in an enterprise means the integration and coordination of individual efforts to achieve the predetermined goal of the business enterprise.


Organising can be defined as the “process of identifying and grouping different activities in the organisation and bringing together the physical, financial and human resources to establish most productive relations for the achievement of specific goal of organisation”

Organising involve a series of steps that need to be taken in order to achieve the desired goal. Let us try and understand how organising is carried out with the help of an example.

Suppose twelve students work for the school library in the summer vacations. One afternoon they are told to unload a shipment of newly purchased books, stock the bookshelves, and then dispose of all waste (packaging, paper etc). If all the students decide to do it in their own way, it will result in mass confusion. However, if one student supervises the work by grouping students, dividing the work, assigning each group their quota and developing reporting relationships among them, the job will be done faster and in a better manner.

From the above description, the following steps emerge in the process of organising:

Steps in the process of organising

Identification and division of work

The first step in the process of organising is identifying and dividing the total work that has to be done in accordance with previously determined plans. One person cannot do the entire work of an organisation. Therefore, the total work should be divided into smaller units. Each unit of total work is called a job. The division of work into smaller jobs leads to specialisation because jobs are assigned to individuals according to their qualifications and capabilities.

Example: In a bank, there are different jobs like job of cashier, car loan, gold loan, agriculture loan, education loan etc.

Grouping the job and departmentalisation:

Once work has been divided into small and manageable activities then those activities which are similar in nature are grouped together and put under one department. The grouping may be on the basis of function, product, territory, customer, project; process etc. This grouping process is called departmentalisation.

Departments can be created on the basis of:

  1. Functions (Purchase department, marketing department, production department, finance department etc)
  2. Products (Cosmetics, garments, footwear etc.)
  3. Territory (North, south, west, etc.)

Assignment of duties:

Once departments have been formed, it is necessary to define the work of different job positions and allocate work to members of the department on the basis of their skills and qualifications. It is essential for effective performance.

Establishing reporting relationships:

The last step in the organisation process is defining the relationship among the people in the organisation in clear terms. Each individual should know from whom he has to receive orders and to whom he is answerable/accountable. The establishment of such clear relationships helps to create a hierarchal structure and helps in coordination amongst various departments.

Importance of organising

Effective organisation is the means to achieve the objectives of the enterprise. It is the basic function of management. Organisation makes the proper arrangements of the requisite resources and make its most useful and efficient application. It provides right direction to the efforts of individuals and groups. The following points highlight the crucial role that organising plays in any business enterprise:

Benefits of specialisation

In organising the total work is divided into smaller units and each job is assigned to right person. Repetitive performance of a particular work allows a worker to gain experience in that area and leads to specialisation.

Clarity in working relationships

A good organisation structure honours the principle of unity of command which specifying who is to report to whom. It helps in creating a hierarchical order and thereby enabling the fixation of responsibility and specification of the extent of authority to be exercised by an individual.

Optimum utilization of resources

Organising leads to the proper usage of all material, financial and human resources. The proper assignment of jobs avoids overlapping of work and also makes possible the best use of resources. Avoidance of duplication of work helps in preventing confusion and minimising the wastage of resources and efforts.

Adaptation to change

Properly designed organisation structure is flexible. It can be modified according to the changes in the business environment.

Effective administration

Organising helps in effective administration by providing a clear description of jobs and related duties. This helps to avoid confusion and duplication. Management of an enterprise thereby becomes easy and this brings effectiveness in administration.

Development of personnel

Organising helps in development of personnel by delegation of work to subordinates. Effective delegation allows the managers to reduce their workload by assigning routine jobs to their subordinates. It gives more time to managers to explore new areas for growth and the opportunity to strengthening the company’s competitive position. It also provides opportunity to the subordinates to utilise their talent.

Expansion and growth

Organisation provides the frame work within which an enterprise can expand and grow. Through organisation, management can multiply its strength. It is through a sound organisation structure that many small firms have grown and become big.

Organisation Structure

Proper coordination in a large organisation is difficult without a proper organisation structure. Organisation structure is the outcome of the organising process. 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. The need for an adequate organisation

structure is felt by an enterprise whenever it grows in size or complexity. This is so because as an organisation grows, coordination becomes difficult due to large number of functions, products, workers etc. The organisation structure of a firm can be shown in an organisation chart.

The span of management/ span of control, gives shape to the organisational structure. Span of management refers to the number of subordinates that can be effectively managed by a superior. Span of management determines the levels of management in the structure.

Benefits of an adequate organisational structure:

  1. It will result in increased profitability of the enterprise by ensuring proper coordination among human, physical and financial resources.
  2. A proper organisational structure is essential to ensure a smooth flow of communication and better control over the operations of a business enterprise

The concept of Organisational structure can be explained with the help of an example. Anju opened her own travel agency, sometime back. She assigned work to her three employees in the following manner ‘Nisha, you are in charge of air plane, train and bus reservations.’ ‘Usha, you will take care of accommodation booking’‘Susha, you will keep track of online queries and credit card payments’. I want regular reports from the three of you. Thus, in a few sentences an organisation structure has been created specifying lines of authority and areas of responsibility.

Span of Management (Span of control)

Span of management refers to the number of subordinates that can be effectively managed by a superior or how many subordinates are under one superior. Span of management determines the levels of management in the structure. The span of control depends upon the capacity and intelligence level of managers and employees. Nature of job also affected the span of control, i.e, if the routine job has to be performed then there can be wide span but for challenging jobs narrow


Types of organisation Structures

The type of structure adopted by an organisation will vary with the nature and types of activities performed by an organisation. The organisational structure can be classified under two categories which are as follows: (i) Functional structure and (ii) Divisional structure


Functional Structure

It is an organisational structure wherein jobs of similar nature are grouped into major functions and these major functions are organised as separate departments. This kind of organisational structure classifies people according to the function they perform in the organisation. A person will be in charge of each department. In case of a manufacturing concern, we can have

production, purchase, marketing, finance etc. Functional organisation is the developed form of Taylor’s ‘Functional Foremanship’. Within each department and sub-department, a chain of superior and subordinates is created to work systematically.

Fig: Functional structure

Example: A truck manufacturing company has its registered office in Delhi, manufacturing unit at Gurgaon and marketing department located at Faridabad. The company manufactures different types of trucks. In this case the company should adopt ‘Functional Structure’ since it manufactures trucks only (a single product).The company has separate departments like manufacturing unit(Gurgaon)),marketing and sales departments(Faridabad),etc.Here ,the size of the organisation is large, it has diversified activities and operations (purchase ,production, sales, marketing etc.) require a high degree of specialisation. So, it should adopt functional structure.

Advantages of Functional structure


In a functional structure jobs of similar nature are grouped together. It provides specialisation which makes optimum utilisation of manpower.

Easy supervision

The supervisor becomes familiar with the type of task to be performed because all tasks are related to one function only. As a result, he can easily supervise his department.

Increasing managerial efficiency

Managers of one department are performing same type of function again and again which help to increase their managerial and operational efficiency. It ensures increased profit also.

Effective training

This type of structure makes training of employees easier as the focus is only on a limited range of skills. For examples, employees of production department are given training of production techniques only.

Lower cost

It leads to minimum duplication of effort which results lower cost.

Disadvantages of Functional structure

Emphasis on departmental objectives

Due to separation, each department head emphasis on the performance of his function and lacks emphasis on the overall objectives of the company.

Problem in coordination

Co ordination of the activities of different departments is not practically easy.

Conflict between departments

Since interest of different departments differs, there will be interdepartmental conflicts which are harmful to organisational interest.

Obstacle to the all-round development of managers

Specialisation is an obstacle to the all-round development of managers. Managers develop only in a specific area.

Suitability of Functional structure

  • It is most suitable when the size of the organisation is large.
  • Firms producing a single line of product.
  • It is suitable where there is high degree of specialisation is required.

Divisional Structure

When the organisation is producing more than one type of product and serving a number of distinctive markets, the divisional structure is considered more suitable. Divisional structure is an organisational structure wherein grouping of activities or departmentalisation is on the basis of product line or areas. There are separate divisions for different products and each division having functions like production, marketing, finance etc. Each divisional head is required to look after all function related to the product or market territory.

Fig: Divisional structure on the basis of ‘product’

Fig: Divisional structure on the basis of ‘territory’


  1. Guard Ltd a leading company in Kerala is engaged in diversified business namely electrical, textiles, amusement parks etc. Each of this have different departments namely marketing, production, finance, research and development etc. In this case the company should adopt ‘Divisional Structure’ because product specialisation helps growth and facilitates diversification of enterprise. It promotes flexibility and initiative because each division functions as an autonomous unit which leads to faster decision making.

Advantages of Divisional structure

Product specialisation

Here all activities related to one type of product are grouped under one department. Attention on individual product line permits its growth and facilitates diversification of enterprise.

Coordination becomes easy

Activities like purchase, production, marketing etc. related to a particular product line are integrated easily in this structure.

Helps in fixation of responsibility

Divisional heads are accountable for profits, as revenues and costs related to different departments can be easily identified and assigned to them. It helps in fixation of responsibility in cases of poor performance of the division and appropriate remedial action can be taken.

It promotes flexibility and initiative

It promotes flexibility and initiative because each division functions as an autonomous unit which leads to faster decision making.

Disadvantages of divisional structure

Conflict may arise among different divisions

Managers in each division may focus on their own product ignoring the interest the interest of the organisation. There may be conflict with different divisions regarding allocation of resources, priorities etc.

Chances of duplication

There may be duplication of activities which leads to high operating cost.Example-advertisement expenses, transportation cost etc.

Selfish attitude

Every division tries to display better performance sometimes even at the cost of other divisions. This shows their selfish attitude. Consequently, it hits the interest of the concern as a whole.


  • Divisional structure is suitable where large variety of products are manufactured.
  • It is suitable for organisations needing product specialisation.
  • Growing companies which plan to add more line of products in future.

Difference between Functional and Divisional Structure

Points of Difference

Functional Structure

Divisional Structure

Basis of formation

Formed on the basis of function

Formed on the basis of



Difficult to make accountable as

departments are interdependent

Easy to fix accountability, as

departments work independently


This type of structure brings

functional specialisation

This type of structure brings

product specialisation


Difficult for a multi-product company

Easy, because all functions related to a particular product are

integrated in one division.


Functions are not duplicated,

hence economical

Duplication of resources in

various departments, hence costly

Managerial development

Less chance as manager

becomes specialised in one function only

More chance as managers perform multi-functions

Autonomy of operations

Less autonomy

More autonomy

Formal and Informal Organisation

To manage employees and to enable the smooth functioning of the enterprise a formal organisation is essential. Informal organisation emerges from the formal organisation.

Formal Organisation

Formal organisation refers to the organisation structure which is designed by the management to achieve organisational goals. Formal organisation structure clearly defines the job to be performed by each individual. It also clearly specifies authority and responsibility assigned to individuals in the organisation. It forms a chain of superior subordinate relationship that can be represented in a chart. In formal organisation, communication takes place only through ‘Scalar chain’. The structure in a formal organisation can be functional or divisional.


According to Louis Allen “The formal organisation is a system of well-defined jobs, each bearing a definite measure of authority, responsibility and accountability”

Example: A company is manufacturing TV. There is well defined system of jobs with a clear and definite authority, responsibility accountability in the company. But people are not allowed to interact beyond their officially defined roles.

Feature of Formal Organisation

Deliberately created

It is deliberately planned and created by top management to facilitate the smooth functioning of the organisation.

Defines superior subordinate relationship

It specifies the relationships among various job positions and the nature of their interrelationship. This clarifies who has to report to whom. The authority, responsibility and accountability of each level are clearly defined.

Official lines of communication

Formal organisational structure creates a scalar chain of communication in the organisation

Emphasis of work

It places more emphasis on work to be performed rather than on inter-personal relationships among the employees. It does not consider emotional aspect.

Rules and procedures

It lays down standard behaviours by rules.

Advantages of Formal Organisation

Easy to fix responsibility

It is easier to fix responsibility since mutual relationships are clearly defined.

No overlapping of work

In formal organisation structure work is systematically divided among various departments and employees. So, there is no chance of duplication or overlapping of work.

Ensures unity of command

Formal organisational structure ensures unity of command by clearly defines superior subordinates’ relationship, i.e. who reports to whom.

Systematic working

Formal organisation structure results in systematic and smooth functioning of an organisation. It is helpful to achieve organisational objectives.


Formal organisational structure ensures proper coordination of activities of various departments.

Limitations of Formal Organisation

Delay in action

While following scalar chain and chain of command actions get delayed in formal structure.

No scope for creativity

Rigid policies never allow deviation. So, in formal organisation, there is no scope for creativity.

Emphasis on work only

Formal organisational structure gives importance to work only, it ignores human relations. No consideration is given to sentiments or social values.

Informal Organisation

Informal organisation is voluntary and independent organisation, developed automatically between individuals of a formal organisation to satisfy their social and human needs. It is a

spontaneous relationship that is not created by management. This organisation is formed informally between workers on the basis of friendship and common interest, which may or may not be work related. It is a network of social relationships among employees.It develops within the formal organisation as a result of the cultural and social needs of members. For example, managers and subordinates taking part in cricket matches on Sundays or meeting in cafeteria for morning coffee.

Example: Management and staff of Infosys Ltd have formed a Drama team for the recreation of them.

Features of informal organisation

  1. Informal organisation structure gets created automatically and is not deliberately created by management.
  2. It is formed by employees to get psychological satisfaction.
  3. Informal organisation does not have fixed line of communication.
  4. Source of information cannot be known under informal structure as any person can communicate with anyone in the organisation
  5. The relationship is based upon friendship and common interest.
  6. The existence of informal organisational structure depends on the formal organisation structure because people working at different job positions interact with each other to form informal structure.

Informal organisations

Advantages of Informal Organisation

Fast Communication

Informal structure does not follow scalar chain so there can be faster spread of communication

Fulfils social needs

Informal organisation helps to fulfil social needs of the members. This enhances their job satisfaction.

Correct Feedback

Through informal structure the top-level managers can know the real feedback of employees on various policies and plans.

Complementary to formal organisation

It removes the weakness of formal organisation. It supports formal organisation in administration. Thus; it is complementary to formal organisation.

Meet the personal need

It is a social structure formed to meet personal needs of the members of the group. Such needs cannot be met by the formal structure.

Disadvantages of Informal organisation

Spread Rumours

Most of the information passed through informal structure is rumours or gossip which can mislead the employees.

More emphasis to individual interest

Informal organisation emphasises more on individual interests and satisfaction rather than organisational interests.

May bring negative results

If informal organisation opposes the policies and changes of management, then it becomes very difficult to implement them in organisation.

Informal organisation cannot be altogether eliminated from an organisation. The knowledge of such groups can be used to gather their support and consequently lead to improved organisational performance. Instead of opposing them, management should skilfully take advantage of both the formal and informal organisation so that work continues smoothly.

Formal Organisation Vs Informal Organisation


Formal Organisation

Informal Organisation


Deliberately planned and created

top management

It arises as a result of social

interaction among employees


To achieve predetermined goals of


To satisfy social and cultural

needs and fulfil common interest.


It has a well-defined structure of

jobs and relationships

Does not have a clear-cut structure

Flow of communication

Communication takes place

through the ‘Scalar chain’

Communication does not take place through a planned route,

it can take place in any direction


Authority arises by virtue of

position in management

Authority arises out of

personal qualities





Managers are leaders

Leaders may or may not be

managers. They are chosen by group.


Standards of behaviour are laid

down by rules

There is no set of behaviour


Delegation of authority

In every organisation, managers are assigned lot of work and manager alone cannot perform all the work. So, he must share his duties with subordinate managers. Delegation refers to the downward transfer of authority from a superior to a subordinate. It is a pre-requisite to the efficient functioning of an organisation because it enables a manager to use his time on high priority activities. Delegation is the result of human limitation to the span of management. It also satisfies the subordinate’s need for recognition and provides them with opportunities to develop and exercise initiative.

The delegation of authority works from a higher level to lower level and not vice versa. That means a boss can assign his work to his employees, but the employees can’t give their work to their boss.

Delegation can be defined as “A process of entrusting responsibility and authority to the subordinates and creating accountability on those employees who are entrusted responsibility and authority”.

Delegation does not mean abdication (handing over). The manager shall still be accountable for the performance of the assigned tasks. Moreover, the authority granted to a subordinate can be taken back and re delegated to another person. Thus, irrespective of the extent of delegated authority, the manager shall still be accountable to the same extent as before delegation.

Elements of Delegation

According to Louis Allen, delegation is the entrustment of responsibility and authority to another and the creation of accountability for performance. There are three elements of delegation: 1. Authority 2. Responsibility 3. Accountability


Authority means power to take decision. In formal organisation authority originates by virtue of an individual’s position in an organisation. Authority is highest at the top level. Authority flows from top to bottom, i.e., the superior has authority over the subordinate. To carry on the responsibilities every employee needs to have some authority. Authority can be delegated. So, when managers passing some their responsibilities to the subordinates, they should also pass some of the authorities too. Authority determines the superior subordinate relationship. Responsibility

Responsibility is the obligation of a subordinate to properly perform the assigned duty. It arises from a superior–subordinate relationship because the subordinate is bound to perform the duty assigned to him by his superior. Thus, responsibility flows upwards. Responsibility cannot be fully delegated.

There must be parity with authority and responsibility. If authority granted is more than responsibility, it may lead to misuse of authority, and if responsibility assigned is more than authority it may make a person ineffective.


Accountability implies being answerable for the final outcome/result. The subordinate is held accountable to superiors. The subordinate has to give explanations before his superiors, if any failure happened in the delegated job. Accountability arises from responsibility. Accountability flows upwards i.e.; a subordinate will be accountable to a superior for satisfactory performance of work. It is generally enforced through regular feedback on the extent of work accomplished. The subordinate will be expected to explain the consequences of his actions or omissions. Accountability cannot be delegated.

Note: It may be stated that authority is delegated, responsibility is accepted and accountability is imposed. Responsibility is derived from authority while accountability is from responsibility.

Elements of Delegation –A Comparison






Right to command

Obligation to

perform an assigned task

Answerability for outcome of

assigned task


Flows downward from superior

to subordinates

Flows upward from subordinate to


Flows upwards

from subordinates to superior


Arises from

formal position

Arises from

delegated authority

Arises from responsibility


Can be delegated

Cannot be

entirely delegated

Cannot be delegated at


Importance of Delegation

Effective management

With the process of delegation, the managers can pass all their routine work to the subordinates and concentrate on important work. This would increase his effectiveness.

Motivation of employees

Delegation implies grant of authority to subordinates. So, they have a sense of recognition. They are motivated to work for higher performance.

Employee development

As a result of delegation, employees get opportunities to utilise their talent. It allows them to develop skills necessary to perform complex tasks. It makes them better leaders and decision makers.

Helping the expansion of business

If the enterprise expands well trained, experienced and competent persons readily available to take up the positions. It will give advantages to the business.

Better co-ordination

Delegation enables managers and subordinates to establish relationship with each other. Clarity in reporting helps to develop and maintain effective coordination.

Basis of management hierarchy

Delegation of authority establishes superior subordinate relationships, which are the basis of hierarchy of management. This hierarchy determines who has to report to whom.

Centralisation and Decentralisation

In some organisations top management plays an active role in taking all decisions while there are others in which this power is given to middle and lower level management. Those organisation in which decision- making authority lies with top management are called centralised organisations whereas those in which such authority is shared with lower level management is called decentralised organisations.


Centralisation refers to concentration of authority at top level. An organisation is centralised when the decision the making authority is in the hands of top-level management only.


Decentralisation refers to systematic delegation of authority throughout all the levels of management and in all the departments. An organisation is said to be decentralised when managers at middle and lower levels are given the authority to take decision and actions on matters relating their respective areas of work. Top management retains only the authority for taking major decisions and also retain the authority for overall coordination and control of the organisation.

Importance of Decentralisation

Develop initiative among subordinates

Decentralisation helps to promote self-reliance and confidence amongst the subordinates. Decentralisation gives an opportunity to lower level managers to take decisions.

Quick decision making

Decentralisation promotes quick decision making, as subordinates have enough authority to take decision without consulting with their superiors.

Relief to top management

Decentralisation permits the top executives to share his excessive workload with his subordinates. This helps the top management to utilise his valuable time on more important matters.

Facilitates growth

Decentralisation enables the managers at the lower level as well as the departmental heads to perform to their full potential and sense of healthy competition among the departments. It will contribute a lot to the development of the organisation.

Democratic system

Decentralisation shares authority and responsibility between managers. It avoids concentration of power, which is a democratic approach towards management.

Better control

Decentralisation facilitates evaluation of performance at every level. Departments can be individually held accountable for their results.

Delegation Vs Decentralisation





Delegation is a compulsory because no individual can

perform all tasks on his own

Decentralisation is an optional Policy decision. It is done at

discretion of the top management


It has narrow scope as it is

limited to superior and immediate subordinate

It has wider scope as it

implies extension of delegation to lowest level of management


To reduce manager




To increase the role of

subordinates in the organisation giving them autonomy

Grant of authority

The authority is granted by one individual to another

It is a systematic act which takes

place at all levels and at all functions in an organisation

What is?

Technique of management

Philosophy of management


Yes, it is very necessary

No, it is an optional philosophy

Freedom of action

Very little









Centralised organisations: where decisions are made by a few people at the centre of the organisation


Decisions are taken by managers at middle and lower levels on matters relating their respective areas of work

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