1. Organizational Management
Chapter 3
Organizational Management

2. ORGANISATIONAL MANAGEMENT
To conduct any activity of business or non business, there is a need for an organization.
If there is no organization, then it is not possible to conduct activities.
Organization whether big or small have at least two common characteristics, they are composed of people, and they exist to achieve goals.
Definition:
Thus “Organization can be defined as an association of two or more persons working together to achieve certain desired goals.”

3. ORGANISATION as a STRUCTURE & as a PROCESS
S.Rosenweig and F.Kast defines “Organization is a Structure, which has a established pattern of relationship among the components or parts of an organization.” 
In the words of Louis Allen “Organizing is a process of identifying and grouping of the work to be performed, defining and delegating authority and responsibility and establishing relationships among the members of the organization, so that they work most effectively together in accomplishing objectives.

4. Process of Organization
Organization is an orderly process of:
Identifying and grouping of the work to be performed.
Defining and delegating authority and responsibility and
Establishing a pattern of relationship among people,
so that they work effectively together in achieving common objectives.

5. Steps in the Process of Organization
Defining organizational objectives & goals.
Identifying activities to achieve goals.
Grouping of activities.
Making arrangement of resources.
Assignment of duties.
Granting of authority.
Establishing superior-subordinate relationship.
Provision of Coordination.

6. Organization Structure
Organization Structure refers to established pattern of relationships among components or parts of an organization.
Organization Structure indicates superior-subordinate relationships, and so on the relationships or interconnection between various divisions and departments in an organization.

7. Types Of Organizational Structure
Line Organization
Line And Staff Organization
Functional Organization
Project Organization

8. Line Organization Responsibility Authority
This is the simplest and oldest form of internal organization. It is sometimes referred as scalar organization or military type of organization.
In this type, a line of authority is direct, straight and vertical and it flows from top to bottom of the organization's hierarchy.
All the major decisions taken and orders given by top management are passed down to their immediate subordinates, who in turn do the same. This is done as shown
General Manager
Responsibility
Authority
Regional Manager
Area Manager
Executives

9. Characteristics of Line Organization
Each manager has direct authority over his subordinates who, in turn, have direct authority over their subordinates, and so on down the organization.
Everyone in the organization reports to only one immediate superior, i.e., “There is one man, one boss.”
Managers have complete authority in their own areas of operation.
Authority flows downward and responsibility flows upward through the organization.

10. Merits of Line Organization
Simple in Structure.
Quick Decision-making.
Maintains Discipline.
Clear definition of Authority.
Easy in Supervision and Control.
Ensures Co-ordination.
Scope for Development.
Provides high Moral.

11. Demerits of Line Organization
Executives are Overburden.
Autocratic Leadership.
Lack of Specialization.
Lack of Initiative.
Not suitable for Large organizations.
Problem of strict Supervision.
Poor quality of Decisions.
Overdependence on executives.

12. Line and Staff Organization
A structure having only line executives may be possible in a very small organization employing a few persons so that all levels are part of chain of command.

13. Line and Staff Organization
Large sized organizations have such levels, which are not part of chain of command, but perform a very useful role.

14. Line and Staff Organization
Line & Staff organizations combines the activities of line executives and that of staff or advisors.
The line executives concentrate their attention upon the implementation of the policy matters.
While the staff or advisors concentrates their attention upon the research and planning aspects of business activities.

15. Line and Staff Organization…(CONTD)
General Manager
Company Secretary
R & D Manager
Marketing Manager
Production Manager
Finance Manager
Regional Manager
Area Manager
Representatives

16. Characteristics of Line and staff Organization
A line and staff organization has a number of common characteristics:
Each staff officers plan the business activities.
The implementation of the plans is done by the line executives.
Line and staff organization structure is suitable for large scale organizations.
It offers great scope for specialization.

17. Merits of Line and Staff Organization
Specialization.
Unity of Command.
Defines authority and responsibility.
Less burden on line executives.
Development of opportunities.
Democratic Management.
Suitable for Large concerns.
Systematic planning and control.

18. Demerits of Line & Staff Organization
Conflicts.
Dependence on staff.
Misuse of responsibility .
Lack of staff authority.
Delay in decision making .
High operating Cost .
Confusion.
Authority
Confusion

19. Functional Organization
F.W.Taylor developed this system of organization. He through his experience and experiments found that it is unscientific to burden a supervisor with the entire responsibility of running a department.
His main idea was that the direction of work must be decided by functions and not by authority. Thus a system of ‘Functional Supervisor’ was developed.
This type of organization is based on the principle of separation of planning from execution.
He advocated that for every kind of work there should be a separate department and it is to be further sub- divided depending upon the varied functions.

20. Functional Organization
PRESIDENT
General Manager
Maintenance Manager
Finance
Manager HR
Manager
Production
Manager
Marketing
Manager
Workers

21. Characteristics of Functional organization
The job and activities are classified according to function.
Each specific function is looked by a specialist.
The specialists are consulted before taking any decision on matters relating to their specific function.
It rules out the principle of unity of command, as each worker has to report to several bosses.
It emphasis on uniformity in procedures and divided control.

22. Merits of Functional Organization
Facilitates Specialization.
Facilitates Co-ordination.
Reduces burden on executives.
Effective Supervision.
Scope for Functional Improvement.
Good Quality of Production.
Optimum use of Resources.
Higher Efficiency.

23. Demerits of Functional Organization
No unity of Command.
Divided responsibility.
Rise in Conflict.
Delay in decision-making.
Lack of opportunities.
Expensive.
Lack of coordinating different functions.
Divided Control.
Do it!
Its an order
Opportunities No

24. Project Organization
In this form of structure, each project is organized as a separate project division.
A project team consists of specialists. The activities are coordinated, scheduled and controlled by project manager.
The project managers are given full authority over monetary and physical resources. The project manager also evaluate project performance.
Thus, project manager is ultimately responsible for the successful completion of the project.

25. Merits of Project Organization
Top Management can concentrate on Strategic Planning.
Specialization.
Optimum use of Resources.
Quick Decision-making.
No Duplication.
Motivates Personnel.
Higher Efficiency.
Sound Decisions.

26. Demerits of Project Organization
Increase in Work Load.
High Cost.
Misuse of Authority.
Affects Moral.
Shifting of Responsibility.
Autocratic Leadership style.

27. Departmentation
Departmentation is a process of grouping activities into units for the purpose of effective management. Each unit is called as department.
In the words of Pearce and Robinson, “Departmentation is the grouping of jobs, processes, and resources into logical unit to perform some organizational task.”
A large organization divides its organization structure into units and subunits, so that the organization can effectively and efficiently plan, organize, direct and control its activities to achieve desired objectives.

28. Bases of Departmentation
Departmentation by functions.
Departmentation by area.
Departmentation by product.
Departmentation by customer.
Departmentation by process.
Departmentation by task force.
Departmentation by time.
Departmentation by numbers.

29. Importance of Departmentation
Specialization.
Expansion.
Fixation of Responsibility.
Providing better Customer service.
Performance Appraisal.
Management development.
Optimum utilization of Resources.
Facilitates Control.

30. Authority and Responsibility
Authority is the power given to a manager to command or to make decisions.
There can be transfer of authority by the superior to the subordinate.
Responsibility is an obligation to perform a particular task.
The superior while delegating authority to the subordinate makes him responsible for the assigned task.
It is to be noted that the superior cannot delegate ultimate responsibility.

31. Features of Authority & Responsibility
The relationship between authority and responsibility is that the authority is the cause and responsibility is the effect of it.
Responsibility comes into existence only when a person accepts authority. There cannot be responsibility without authority.
Authority and responsibility goes hand in hand. There is a need to have a balance between authority & responsibility.

32. Features of Authority & Responsibility
It is noted that the superior can delegate the authority to the subordinate, but he cannot delegate the responsibility in a true sense.
The superior can held the subordinate responsible but the ultimate responsibility remains with the superior.
While delegating authority, the superior should select the right and responsible subordinate. Again, the superior cannot delegate entire authority to subordinate.

33. Centralization
Centralization of authority refers to concentration of decision-making powers in the hands of top management. The top management does not delegate the power of decision-making to the lower levels.
There could be absolute centralization of authority in one person. However, that implies no subordinate managers and, therefore, no structured organization.
Centralization of authority may work only in the case of small organizations. However, in large organizations, it would be difficult to have a greater degree of centralization. In other words, no organization can be completely centralized.

34. Centralization Merits: Economical. Less paper work.
Facilitates decision-making.
Facilitates coordination.
Uniformity of work.
Suitability.

35. Centralization Demerits: Burden on Top executive. Lack of dedication.
Poor decision-making.
Lack of motivation.
Lower efficiency.
Affect expansion.

36. Decentralization
Decentralization of authority is the tendency to separate decision-making authority in an organization structure.
There cannot be absolute decentralization. i.e., if managers delegate all their authority, there status as managers would cease, their position would be eliminated & there would, again be no organization.
In other words, no organization can be completely decentralized.

37. Decentralization Merits: Less burden on top management.
Motivates manager.
Facilitates expansion.
Higher efficiency.
Optimum use of resources.
Facilitates Team work.

38. Decentralization Demerits: Higher Operating Costs.
Problems in Coordination.
Delay in decision-making.
Requires Trained Managers.
More paper work.
Lack of uniformity.

39. Types of Business
The various types of Business organization is depicted in the following chart:

40. The Private Sector
Private individuals and firms that are owned by private individuals.
Firms in the private sector include:
Sole Proprietorships
Joint Hindu Family Firms
Partnership Firms
Joint Stock Companies
Cooperative Societies

41. Sole Proprietorship
Sole Proprietorship is the oldest form of business organization.
Sole means one person. So a sole proprietorship business is carried on by one person.
The person who conducts the business is called ‘sole proprietor.’
“ A sole proprietorship firm is a form of business organization; in which an individual invests only his capital; uses his own skill and intelligence in the management of its affairs and is entitled to earn all the profits and also is solely responsible for all the risks of ownership.”
- Encyclopedia of Business and Commerce

42. Sole Proprietorship (…..continued)
Merits:
Ease in Formation.
Complete Control.
Personal Relations with Employees.
Quick Decisions.
Complete Business Secrecy.
Inexpensive Management.
Greater Efficiency.
Proper Utilization of Resources.
Facilitates Competition.
Close contact with Customers.
Demerits:
Limited Capital.
Limited Managerial Skills.
Lack of Continuity.
Limited Bargaining Power.
Lack of Specialization.
Limited Expansion.
Unlimited Liability.
Risk of Poor Decisions.
Lack of Economies of Scale.
Poor Decision Making.

43. Partnership
A Partnership is a form of business in which two or more people operate for the common goal of making profit.
Persons who have entered into a partnership are individually known as ‘partners.’
Each partner has total and unlimited personal liability incurred by the partnership. All partners makes equal business decisions and contribute equally, share profits and losses equally.
“ Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.”
- Section 4 of the Indian Partnership Act, 1932

44. Partnership Merits: Demerits: Easy Formation and Registration.
Large Capital.
Specialization.
Spreading of Risks.
Quick and Balanced Decisions.
Flexibility in Operations.
Benefits of Unlimited Liability.
Economies of Scale.
Easy Dissolution.
Business Expansion.
Demerits:
Disputes.
Unlimited Liability.
Limited Membership.
Difficulty in Admitting New Partners.
Difficulty in Transfer of Shares.
Irresponsibility of Some Partners.
Social Loss.
Lack Complete Business Secrecy.
Absence of Separate Legal Status.
Lack of Public Confidence.

45. Joint Stock Company
A Joint Stock Company is a voluntary association of members formed for the purpose of undertaking a business.
It is called a Joint Stock Company, because the shares or stock of the company are jointly owned by its members. It undertakes different business activities like manufacturing, marketing and servicing.
The funds required by the company are contributed by its members called Shareholders. The shareholders are the co-owners and they share in the profits of the company in the firm of dividends.
The company is managed by Board of Directors. The board of directors are elected by shareholders.
The Board make the plans and policies of the company. The board appoints several other managers and subordinate staff to look after daily activities.

46. Joint Stock Company Merits: Demerits: Large Capital.
Economies of Large Scale.
Specialized Management.
Transferability of Shares.
Large Membership.
Limited Liability.
Legal Entity with Perpetual Succession.
Democratic Management and Control.
Statutory Regulations.
Employment.
Demerits:
Complicated Formation.
Excessive Government Control.
Selfish Management.
Lack of Secrecy.
Delay in Decision Making.
Limited Interest of Shareholders.
Problems of Flexibility.
Exploitation of Shareholders.
Expensive Management.
Unethical Practices.

47. Types of Joint Stock Companies
Points of difference
Private Ltd Company
Public Ltd Company
1. Membership
Minimum number is 2 and the maximum number is 50.
Minimum number is 7 and there is no maximum limit.
2. Invitation to Public
Prohibits any invitation to subscribe any shares or debentures to public.
Invites public to purchase shares or debentures of company.
3. Transfer of Shares
Right of transfer of shares is restricted by its articles.
Shares are freely transferable.
4. Allotment of Shares
After incorporation (registration certificates)
When minimum subscription is received.
6. No. of Directors
At least 2
At least 3
7. Share Capital
Minimum capital of Rs. 1 lakh.
Minimum capital of Rs. 5 lakh.
8. Listing of Shares
Cannot list its shares on stock exchange.
Can list its shares on stock exchange.

48. Cooperative Society
A Cooperative society is a voluntary association of individuals formed for the purpose of promoting economic and social interests.
Interested individuals can come together and form a cooperative society under the Cooperative Societies Act.
A Cooperative society differs from other forms of business organizations. This is because, the main objective of cooperative societies is to provide service to members rather than to make profit.

49. Cooperative Societies
Merits:
Easy Formation.
Democratic Management.
Limited Liability.
Tax Concession.
Promotion of Social Values.
Govt. Assistance.
Open and Large Membership.
Reasonable Prices.
Expansion.
Employment.
Demerits:
Limited Capital.
Excessive Government Control.
Inefficient Management.
Lack of Business Secrecy.
Delay in Decision Making.
Lack of Loyalty among Members.
Poor Quality of Decision Making.
Lack of Economies of Scale.
Political Interference.
Disputes.

50. The Public Sector
Public sector organisations are owned, managed and controlled by central and/or state governments.
It mostly focus on service motive.
Normally, it is large in size.
It plays an important role in economic development of India.
Firms in the public sector include:
Public Corporations
Departmental Organisation
Government Companies

51. The Public Sector Need and Importance: Employment. Rural Development.
National Income.
Capital Formation.
Foreign Exchange Earnings.
Social Order.
Infrastructure Development.
Reduction in Regional Disparities.
Reduces Concentration of Wealth.
Government Revenue.

52. Public Corporations Merits: Demerits:
A public corporation is also called as statutory corporation.
It is established under a special Act of the Parliament or State Legislature.
Examples of public corporation are LIC, IDBI, UTI, and so on.
Merits:
Quick Decision Making.
Efficiency.
Flexibility.
Accountability.
Suitability.
Employment.
Capital Formation.
Service Motive.
Demerits:
Political Interference.
Rigidity in Status.
Inefficiency and Corruption.
Consumers Exploitation.
Wastage of Resources.
Lack of Motivation.

53. Departmental Organisation
It is the departmental form of public sector.
It operates under the control and guidance of the concerned ministry.
Departmental organization are Indian Railways, Posts and Telegraphs, AIR, so on.
Merits:
Development of Public Utilities.
Regional Development.
Generates Employment.
Economies of Scale.
Less Misuse of Funds.
Reduction of Poverty.
Demerits:
Lack of Autonomy.
Lack of Flexibility.
Inefficiency and Corruption.
Lack of Professionalism.
Poor Manpower Planning.
Political Interference.

54. Government Companies
It is registered under Indian Companies Act, 1956.
51% or more of its share capital is held by central and/or state governments.
Examples IOCL, HPCL, BPCL, BHEL, SAIL, GAIL, and so on.
Merits:
Quick Decision Making.
Efficiency.
Flexibility.
Statutory Discipline.
Easy Formation.
Suitability.
Employment.
Capital Formation.
Demerits:
Political Interference.
Inefficiency and Corruption.
Consumers Exploitation.
Wastage of Resources.
Lack of Motivation.
Low Labour Productivity.
Poor Labour Management Relations.
Problems of Surplus Staff.