Management Principles & Application Notes | Unit 3 | Organisation and Organising | Notes of B.Com CBCS and Non-CBCS Pattern Pattern

Management Principles and Application Notes
Principles of Management Notes
B.Com Notes (CBCS Pattern/Non-CBCS Pattern)
Unit 3: Organisation and Organising

Hey Guys’ Welcome to Dynamic Tutorials and Services.

In this post I have given a brief explanation of Organisation and Organising. These notes are useful B.Com 3rd Semester Students under CBCS Pattern. Some of the topics are not yet included in these notes which will be added very soon.

Just scroll down through this post and all your queries relating to Management Principles and Applications will be solved.

Table of Contents

1. Introduction of Organisation and Organising

2. Nature or Characteristics of Organisation

3. Principles of Sound Organisation

4. Importance of Organising

5. Steps or Process of Organising

6. Span of Management

7. Departmentation – Meaning, Bases and Determinants

8. Forms or Types of Organisation

a) Formal Organisation – Meaning, Advantages and Disadvantages

b) Informal Organisation – Meaning, Advantages and Disadvantages


a) Line, military or scalar organisation.

b) Functional Organisation.

c) Line and staff organisation.

d) Committee form of organisation.

10. Difference between Various Types of Organisation

11. Centralisation and Decentralisation – Meaning, Advantages, Disadvantages and Difference

Introduction of Organisation and organising

The term 'Organisation' can be used in different senses. It can be used as a group of person working together to as a structure of relationships or as a process of management.  When it is used to refer to a group of person working together, it means a concern, an undertaking or as enterprise.

When it is used to refer to a structure of relationships, it means the structural relationships among the positions and jobs and person (i.e., the framework of responsibility and authority) through which the enterprise functions, and it is called organisation structure.

On the other hand, Organising or Organizing in management refers to the relationship between people, work and resources used to achieve the common objectives (goals).


In the words of

Allen – “An organisation 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.”

Mooney and Reily – “Organisation is the form of every human association for the attainment of a common purpose.”

Koontz & O’Donnel – Organising involves the establishment of an intentional structure of roles through determination and enumeration of the activities required to achieve the goals of an enterprise and each part f it, the grouping of these activities, the assignment of such groups of activities to manager, the delegation of authority to carry them out and provision for co-ordination of authority and informational relationships, horizontally and vertically in the organisation structure.

Nature or characteristics of organisation

From the study of the various definitions given by different management experts we get the following information about the characteristics or nature of organization:

1)      Division of Labour: Every organisation is characterized by the division of work.  The total efforts of the group are divided into different functions and each function is assigned the function for which he is observed to be suited best.

2)      Co-ordination: As different persona are assigned different functions and all these functions aim at achieving organisational goals, hence necessary relationships are established between them so as to co-ordinate all the activities of all the people of the organisation.

3)      Objectives: Organisations exist to achieve objectives. Without objectives organisations cannot exist for a long period.

4)      Authority and Responsibility structure: In an organisation the positions are so ranked that each of them is subordinate to the one above it and is superior to the one below it.  Each position is delegated necessary authority and responsibility so as to enable it functions effectively.

5)      Communication: Every organisation has its own channels or methods of communication.  Effective communication is vital for success of management.

6)      Organisation is a Machine of Management: Organisation is considered to be a machine of management because the efficiency of all the functions depends on an effective organisation. In the absence of organisation no function can be performed in a planned manner.

7)      Organisation is a Universal Process: Organisation is needed both in business and non business organisations. Not only this, organisation will be needed where two or mom than two people work jointly. Therefore, organisation has the quality of universality.

8)      Organisation is a Dynamic Process: Organisation is related to people and the knowledge and experience of the people undergo a change. The impact of this change affects the various functions of the organisations.

Also Read:

Principles of Sound Organisation

There are many principle of organisation. The main principles are:

1.       Principle of Objectives: The principle of Objectives stresses the need for setting the objectives of the enterprise. The setting of the objectives of the enterprise is necessary, because the formulation of the organisation structure s very much influence by objectives of the enterprises

2.       Principle of Unity 'of Objectives: The Principle of unity of objectives implies that / every part of the organisation and the organisation as a whole should be geared to the basic objectives of the enterprise, in other words the main objectives of the enterprise.

3.       Principle of division of work and specialization: Specialization has become the / order of the day. So, sound and effective organisation must be built on the principle of specialization

4.       Principle of Functional definition: The principle of functional definition implies that / the functions, duties and responsibilities of the different departments and position in the organisation their authorities and their relationships with other departments and position must be clearly defined.

5.       Principle of balance of various factors: The principle of balance of various factors suggests that there should be popper balance in the formal structure of the organisation in regard to various factors; For instance, there should be proper balance among the; different segments or departments' of the undertaking. That ism, the work- load should be properly distributed among the various departments to maintain balance and harmony the working of the organisation. There should be balance in authority allocation to different departments.

6.       Principle of simplicity: The principle of simplicity means that the organisation structure should be simple with a minimum number of managerial levels. If there are a large number of managerial levels in the organisation structure, there may raise the problem of effective co-ordination and communication

7.       Principle of Span of Control or Span of Management: Span of control or span of management refers 10 'numbers of subordinates a superior can direct, guide and control effectively. The span of control should be minimum, because there is a limit to the number of subordinates that can be effectively supervise by a superior.

8.       The Scalar Principle, the scalar chain, the chain of the command or line of authority: Scalar chain is the chain of superiors. the line of command or the line of authority form the highest rank to the lowest rank in the organisation established for the purpose of communication in both the directions, it establishes the channel through" which communications should pass, and also states the superior- subordinate relationships in the organisation.

9.       Principle of responsibility: Responsibility is the obligation of performing the duties assigned. Responsibility is fixed with different positions in the organisation. Responsibility cannot be shifted to others. The Principles of responsibility implies that the superior cannot avoid responsibility by delegating authority to his subordinates. He (i.e., the superior) must be held responsibi1ity for the acts of his subordinates to whom he has delegate authority.

10.   Principles of delegation of authority: With the allocation of duties and responsibilities, u'1ere must logically go the grant of necessary authority to the subordinates so as to enable him to perform his duties efficiently. The Principle of delegation of authority emphasizes that the organisation structure should provide for the delegation of authority to the subordinates.

11.   Principle of unity of command: The principle of unity of command suggests that each subordinate should have only one superior. In other words there should not be dual subordination. Dual subordination results in undermining of authority, delay, confusion, disorder and indiscipline of subordinates.

Importance of Organising

Organising is the fundamental activity of management.  It is necessary for management to mobilize men machinery money and materials or resources for achieving organisational objectives.  Organising provides basis for other functions of management, hence scientifically designed organisation helps manager to function efficiently and effectively.  The importance of organisation may be explained as follows –

a)      Efficiency of Management: A Good organisation helps in making optimum use of available resources for achieving organisational objectives, increasing efficiency of management.

b)      Facilities Administration: A properly designed and balanced organisation facilitates both management and operation of the enterprise.

c)       Facilitates growth and diversification: On account of sound organisational structure growth and diversification can be successfully achieved for improving competitive strength of the organisation.

d)      Facilitates Technological progress: Sound organisational structure is useful for coping with technological changes which have become inevitable under modern conditions.

e)      Encourages healthy human relations: Scientific and balanced organisational structure when manned by right type of people tends to motivate people through job satisfaction that promotes healthy human relations in the organisation.  It helps maintaining morale at a higher level.

f)       Stimulates initiative and creativity: Sound organisation stimulates creative thinking and initiative by providing opportunities to experiment with new ideas for developing new ways of doing things.

g)      Reduction in work load of top management: Sound organisation stimulates creative thinking and initiative by providing opportunities to experiment with new ideas for developing new ways of doing things.

h)      Smooth direction: In sound organisation right men are placed at right place hence direction tends to become smooth and effective.

i)        Easy communication: Every organisation has its own channels or methods of communication.  Effective communication helps in effective management..

j)        Integration of individual efforts to achieve organisational goals: The functions, duties and responsibilities of the different departments are clearly defined which helps in achieving organisational goals.

k)      Effective control over employees: Each subordinate should have only one superior. There should not be dual subordination. It helps in effective control over the employees. 

Steps or Process of Organising

Organization is the process of establishing relationship among the members of the enterprise. The relationships are created in terms of authority and responsibility. To organize is to harmonize, coordinate or arrange in a logical and orderly manner. Each member in the organization is assigned a specific responsibility or duty to perform and is granted the corresponding authority to perform his duty. The managerial function of organising consists in making a rational division of work into groups of activities and tying together the positions representing grouping of activities so as to achieve a rational, well coordinated and orderly structure for the accomplishment of work. The various steps involved in this process are:

a) Determination of Objectives: It is the first step in building up an organization. Organization is always related to certain objectives. Therefore, it is essential for the management to identify the objectives before starting any activity. Organization structure is built on the basis of the objectives of the enterprise. That means, the structure of the organization can be determined by the management only after knowing the objectives to be accomplished through the organization. This step helps the management not only in framing the organization structure but also in achieving the enterprise objectives with minimum cost and efforts.

b) Enumeration of Objectives: If the members of the group are to pool their efforts effectively, there must be proper division of the major activities. The first step in organising group effort is the division of the total job into essential activities. Each job should be properly classified and grouped. This will enable the people to know what is expected of them as members of the group and will help in avoiding duplication of efforts. For example, the work of an industrial concern may be divided into the following major functions – production, financing, personnel, sales, purchase, etc.

c) Classification of Activities: The next step will be to classify activities according to similarities and common purposes and functions and taking the human and material resources into account. Then, closely related and similar activities are grouped into divisions and departments and the departmental activities are further divided into sections.

d) Assignment of Duties: Here, specific job assignments are made to different subordinates for ensuring a certainty of work performance. Each individual should be given a specific job to do according to his ability and made responsible for that. He should also be given the adequate authority to do the job assigned to him.

e) Delegation of Authority: Since so many individuals work in the same organization, it is the responsibility of management to lay down structure of relationship in the organization. Authority without responsibility is a dangerous thing and similarly responsibility without authority is an empty vessel. Everybody should clearly know to whom he is accountable; corresponding to the responsibility authority is delegated to the subordinates for enabling them to show work performance. This will help in the smooth working of the enterprise by facilitating delegation of responsibility and authority.


In the words of Spriegal, "Span of control means the number of people reporting directly to an authority. The principle of span of control implies that no single executive should have more people looking to him for guidance and leadership than he can reasonably be expected to serve. The span of supervision is also known as span of control, span of management, span of responsibility, span of authority and span of direction.

Factors influencing the span of Management

                There are number of factors that influence or determine the span of Management in a particular organisation, the most important of these are as follows:

1.       The capacity and ability of the executive: The characteristics and abilities such as leadership, administrative capabilities; ability to communicate, to judge, to listen, to guide and inspire, physical vigour, etc. differ from person to person. A person having better abilities can manage effectively a large number of subordinates as compared to the one who has lesser capabilities.

2.       Competence and training of subordinates: Subordinates who are skilled, efficient, knowledgeable, trained and competent require less supervision, and therefore, the supervisor may have a wider span in such cases as compared to inexperienced and untrained subordinates who requires greater supervision.

3.       Nature of Work: Nature and importance of work to be supervised is another factor that influences the span of supervision. The work involving routine, repetitive, unskilled and standardized operations will not call much attention and time on the part of the supervisor.

4.       Time available for supervision: The capacity of a person to supervise and control a large number of persons is also limited on account of time available at his disposal to supervise them. The span of control would be generally narrow at the higher level of management because top manager have to spend their major time on planning, organising, directing and controlling and the time available at their disposal for supervision will be less.

5.       Degree of Decentralization and Extent of Delegation: If a manager clearly delegates authority to undertake a well-defined task, a well trained subordinate can do it with a minimum of supervisor's time and attention.

6.       Effectiveness of communication system: Faulty communication puts a heavy burden on manager's time and reduces the span of control.

7.       Quality of Planning: Effective planning helps to reduce frequent calls on the superior for explanation, instructions and guidance and thereby saves in time available at the disposal of the superior enabling him to have a wider span.

8.       Degree of Physical Dispersion: If all persons to be supervised are located at the same place and within the direct supervision of the manager, he can supervise relatively more people as compared to the one who has to supervise people located at different places.

9.       Assistance of Experts: the span of supervision may be wide where the services of experts are available to the subordinate on various aspects of work. In case such services are not provided in the organisation, the supervisor has to spend a lot of time in providing assistance to the workers himself and a such the span of control would be narrow.

Type of span of supervision: Broadly speaking there are two types, of span of supervision:

(a)    Wider Span of Supervision: In this type of span, the supervisor controls and guides the activities of subordinates directly under his control. Wider span or supervision is favoured where workers are competent and trained.

(b)   Narrow Span of Supervision: under this type of supervision, there are many levels and more supervisors are required to perform the job of guidance and control for different activities. It increases the efficiency of supervision but the cost of supervision is very high as compared to wider span of supervision. This type of supervision is favored at higher levels of management where all the other activities of planning, organising, directing, and controlling are also to be performed. But more the levels of supervision, more difficult are the task of coordinating the activities of various groups of people.

Departmentation - Introduction

The process of dividing activities into units and subunits is referred to as departmentation. The term departmentation is used in a generic sense n is not only confined to the creation of such units as are called departments, but it includes divisions, sections and jobs also.

Dividing up work calls or identification of total activities and classification of such activities into units and subunits. There are three bases for primary grouping of activities at the second level of the organisation just below the top level. Units at the second level are commonly called departments when business functions are adopted as the pattern of grouping activities. Such units go by the name of divisions when either products manufactured or territories are adopted as the means of classifying activities.

There are, however, two approaches to departmentation- top down and bottom-up approaches. In the top-down approach, activities are divided step by step downward form the chief executive's job to the operating jobs. In the bottom-up approach, the division of activities is carried on in a reverse order. Starting form operating jobs, there arise sections form combining some correlated jobs, departments from combining some sections and finally the chief executive position form putting departments together. While the top-down approach gives emphasis on co-ordination and managerial action, the bottom-up approach gives emphasis on co-ordination and managerial action, the bottom-up approach focuses attention on employee performance. Although the top-down approach is easy for understanding the departmentation process, both the approaches are utilized in actual practice

Bases or Methods of departmentation

Departmentation provides motivation by developing feeling of autonomy to the extent possible. There are several bases of departmentation. The more commonly used bases are function, product, territory, process, customer, time etc. Some of these bases are internal-operation – oriented like function, process, time while others like product, territory and customer are output-oriented.

a.       Functional Departmentation: The grouping of common or homogeneous activities to form an organisation unit is known as functional departmentation. Functional departmentation is the most widely used basis for organising activities and is present almost in every large organisation at some level.

Functional departmentation is most commonly used because it offers certain advantages which include advantages of specialization, ensuring performance of activities necessary for the achievement of organisational objectives, elimination of un-necessary activities, easier control over functions, easier way for pinpointing training need of the managers and maintaining the relative importance of functions in the organisation.

b.      Product wise departmentation: Product departmentation involves the grouping together of all activities necessary to manufacture a product or product line. Product departmentation is preferred for product expansion and diversification when manufacturing and marketing characteristics of each product are of primary concern. Product departmentation offers several advantages places attention to product lines, reduces problems of coordination for different products, provides opportunities for further diversification and expansion of organisation and provides product specialization necessary for managers specially when each product is different from other.

c.       Territory – wise Departmentation: Territorial or geographical departmentation is specially useful to large-sized organisations having activities which are physically  or geographically spread such as banking, insurance, transportation etc., Territorial departmentation provides certain efficiency in operation. Local factors such as customers, culture, styles, preferences etc., always affect organisational functioning.

d.      Production processes – wise departmentation: In  process departmentation, processes involved in production or various types of equipments used are taken as basis for departmentation. When the production activities involve the use of several distinctive processes, these can be used as the base for grouping of activities. Such activities may be textiles, oil production etc., The process are set in such a way that a series of operations is feasible making operations economic. It provides advantages of specialization required at each level of total processes, maintenance of plant can be done in better way, and manpower can be utilized effectively.

e.      Customer – wise departmentation: Customer based departmentation is  basically market – oriented in which departments are created around the markets served or around marketing channels. The basic idea of this departmentation is to provide services to clearly identified groups of customers. Each group of customers has different purchase behavior, payment schedule, demand pattern etc., Therefore they can be attracted to the organisation’s business by satisfying them by providing services, payment schedule demand pattern etc.

Also Read:

Choice of bases for departmentation Or DETERMINANTS OF DEPARTMENTATION

The selection of bases for departmentation involves a consideration of the relative advantages of each base for the organisation. Ideally speaking, a suitable basis of departmentation is one which facilitates the performance of organisational functions efficiently and effectively so that its objective are achieved.

1)      Specialization: While assigning activities into departments, care must be taken to ensure that the benefits of specialization are achieved.

2)      Control: One of the primary aims of departmentation is to facilitate control. Departments should be so created as to fix clear responsibilities so as to enable effective control.

3)      Coordination: Coordination involves that all the related activities are performed in a way that their performance is synchronized so that each activity contributes to others.

4)      Economy: A balance should be maintained between the cost of creating a department and its contribution. The existence of a department is desirable only when it contributes more than its cost.

5)      Focus on Result: Those activities which contribute to the achievement to these results should be given proper attention.

6)      Human Considerations: Departments should be created on the basis of availability of personnel, their aspirations and value systems, informal work groups and attitudes of people towards various forms of organisation structure.

7)      Emphasis on Local Conditions: while assigning activities proper emphasis should be given to local conditions at the places concerned, viz. the personality of the individuals who may be given the responsibilities, the nature of informal relationship among the people, the attitude of the people, etc.

8)      Economy: Another important factor to be considered while creating separate departments is the expense involved and economy in its operations.

9)      Key Activities: there are certain activities which are very crucial. Such activities should be placed in separate divisions.

Forms or Types of Organisation

Organising function is basically concerned with the allocation of tasks and delegation of authority.  On account of different practices of distributing authority and responsibility among the members of the enterprise several types of organisational structures have been evolved. Along with formal organisations, non formal organisations also emerge spontaneously and naturally.  Such non-formal arrangement is psychologically and socially oriented.  When all the needs of the employees are not satisfied by the formal organisation, non-formal organisations tend to develop in the organisation. Organisation are mainly classified into two categories:

a)      Formal and

b)      Informal.

Formal organisations are further classified into the following categories

1)      Line Organisation

2)      Functional Organisation

3)      Line and staff organisation

4)      Committee Organisation

MEANING OF FORMAL ORAGANISATION: The formal organization refers to the structure of jobs and positions with clearly defined functions and relationships as prescribed by the top management. This type of organization is built by the management to realize objectives of an enterprise and is bound by rules, systems and procedures. Everybody is assigned a certain responsibility for the performance of the given task and given the required amount of authority for carrying it out.

In the words of Chester Barnard, "An organisation is formal when the activities of two or more persons are consciously co-ordinated towards a common objective".

Features of Formal Organisation: The main features of formal organisation are:

(a)    In a formal organisation, the position, authority, responsibilities, accountability of each level are clearly defined.

(b)   It prescribes the relationships amongst the people working in the organisation.

(c)    The formal relations in the organisation arise from the pattern of responsibilities that are created by the management.

(d)   The structure is consciously designed to enable the people of the organisation to work together for accomplishing the common objectives of the enterprise.

(e)   A formal organisation is bound by rules) regulation and procedures.

(f)     It is deliberately impersonal.

Advantages of Formal Organisation

1)      As definite duties and responsibilities of each employee are clearly fixed, it tends to reduce conflicts among employees.

2)      Over lapping of authority and responsibility is avoided.

3)      Entire organisation is systematically controlled.

4)      Standards of performance are specified for all the workers which tend to motivate the employees.

5)      On account of classification of tasks, right person in place at a right place, hence job satisfaction and security is experienced by the employees.

6)      For the purpose of evaluation and placement there are no chances for bias, nepotism, favoritism etc.

7)      It makes organisation less dependent on one man.

Disadvantages of Formal Organisation

1)      In certain cases, formal organisation may reduce the spirit of initiative, and dependence on superiors tends to increase.

2)      Authority may be used, sometimes for sake of convenience of the employees without considering the need for using the authority.

3)      As size and activities of formal organisation increases, problems of co-ordination and control become difficult.

4)      It tends to neglect sentiments and values of the employees in the organisation.

5)      It may reduce speed of informal communication.

MEANING OF INFORMAL ORAGANISATION: Man is a social being and wants social interaction.  Formal organisations are jointed by people to satisfy their needs but these organisations cannot satisfy all the needs of people because of their nature.  Hence informal organisation emerges in all the formal organisations.

Informal organisation is natural or spontaneous network of personal and social relationships between individuals formed on the basis of personal attitudes values emotions, friendships prejudices, interest’s likes and dislikes, regional affinity, common work place etc.  Informal organisation is all pervasive and is found at all levels of management.  It consists of small informal groups with their own behavioral patterns, status systems, beliefs and goals.

According to Davis informal organisations is” that network of personal and social relations which is not established or required by formal organisation.  It is a shadow organisation”.

Causes of Emergence of informal Groups:

1)      To satisfy social needs which are not satisfied by formal organisations.

2)      To enjoy sense of belongingness and identification.

3)      To get knowledge of approved behaviour determined by the informal organisation.

4)      To get outlet of employees’ frustration.

5)      To achieve objectives which is not possible in formal organisations.

6)      To get opportunities for influence and creativity.

7)      To perpetuate cultural values.

8)       To promote communication and obtain information.

Features of Informal Organisation: The chief features of informal organisation are:

1)      Informal Organisation is not established by any formal authority. It arises from the personal and social relations amongst the people working in the organisation.

2)      Informal Organisation arises spontaneously, and not by deliberate or conscious efforts.

3)      It is influenced by the personal attitudes, emotions, whims, likes and dislikes, etc. of the people in the organisation.

4)      It is based on rules, regulations and procedures.

5)      The inter-relations amongst the people in an informal organisation cannot be charted (i.e., cannot be shown in an organisation chart).

Advantages of Informal Organisations:

1)      Informal group gives social satisfaction to the employees.

2)      It promotes sense of belongingness.

3)      It provides safety valve for emotional problems of the employees

4)      It provides social control.

5)      It helps developing communication channels in the organisation

6)      It provides help on the job to the employees during illness, accidents etc.

7)      It serves as a check on authority of a manager.

8)      It  provides fertile ground for future leaders

9)      it supports in achieving organisational goals

10)   It reduces supervision.

11)   It may help manager to overcome their natural limitations of ability.

Disadvantages of Informal Organisations:

1)      Informal groups generally resist change.

2)      Interest of formal and informal groups may clash with each other.

3)      As informal groups set their own norms about quote of work to be done hence productivity remain below optimum (maximum) level.

4)      Members of informal organisation may adopt group think philosophy by way of assuming that group decision is the only right decision.

5)      Informal group ends to promote rumors, grapevine which spreads at a much faster rate and hence harmful to the organisation.

6)      Mangers should not resist formation of in formal groups but try to convince it to contribute to organisational goals.

Difference between formal and Informal organisation:





It is official, so it has prescribed structure of roles and relationships.  It is planned and deliberately created by management

It is in unofficial or natural having no specific structure.  It arises spontaneously without official sanction by management


It is based on delegation of authority & may grow to very big size.  It is mechanistic and brings order in the organisations.

It arises through social interactions between employees.  It usually remains small is size.  It is humanistic and gives satisfaction to employees.


It is deliberately created impersonal with emphasis on authority, functions, status differentials and down ward communications

It is personal with emphasis on people and their intricate relationships, informal rankings and multidimensional communications. 


It is hierarchical and pyramid shaped.

It has no definite shape, and no division of work.  It is structural less and ill defined.  It is psychosocial system.


Its tasks, goals and values are economic oriented towards efficiency, productivity profitability and growth.

Its tasks, goals and values are socio- psychological centering on individual and group satisfaction affiliation co-friendship esteem etc.

6. Charts and Manuals

It can be shown in the form of charts and manuals of the organisation.

It finds no place on organisation charts and manuals.

7. Role and Relationships

It has written roles and procedures, authority and responsibility are clearly defined.  There are well defined roles and relationships.

It has unwritten conventions and norms there are no written rules or procedures.

8. Authority

Formal authority is institutional, it attaches to a position and a person exercises it by virtue of his position. Formal authority flows downwards as it is delegated. 

Informal authority attaches to a person and it flows upwards or horizontally as it has to be earned there is informal leader and has strong influence.

9. Behaviour

It has prescribed system of behaviour .Rewards and punishments are given on the basis of desired behaviour rewards can be both monetary and non monetary.

It is unwritten norms of behaviour, enforced through mutual consent rewards include social esteem, satisfaction group leadership while punishments are censure isolation, boycott etc.


It is rational and created to meet organisational goals.  It is stable, permanent and predictable.

It arises to satisfy man’s quest for social satisfaction It is relatively fickle and unpredictable.


Group membership is rigidly defined, every employee belongs to one workgroup only.

One person can be member of several informal groups of his choice.  He may be a leader in one group and a follower in the other.


Also Read:


The main types of integral organisation are:

1.       Line, military or scalar organisation.

2.       Functional Organisation.

3.       Line and staff organisation.

4.       Committee form of organisation.

1. LINE ORGANISATION, SCALAR ORGANISATION OR HIERARCHICAL ORGANISA TION: Line organisation or military organsiation is a direct type of internal organisation. It is the oldest and the simplest form of integral organisation. Line organisation is a type of internal organisation in which there are direct vertical authority relationships (i.e., superior-subordinate relationships), connecting the positions at each level with those above and those below in the hierarchy. In other word, it is a form of organisation in which the relationships between the various levels of management form a hierarchy of authority or chain of command.

Features of Line Organisation

The chief features of line organisation are:

1)      The line organisation forms a vertical line relationship from the top to the bottom of the organisation.

2)      There is authority relationship or superior-subordinate relationship in the line organisation. Each position in the organisation structure has authority over its subordinate, and is accountable to his superior.

3)      Under this system, authority flows from the top of the structure to its bottom level step by step through downward delegation of authority, while responsibility flows upward from the bottom of the structure to the top step by step.

4)      There is no provision for staff officers (i.e., experts or specialists) to offer advice to the line officers under this system.

Advantages of Line Organisation:

Line organisation has certain advantages. They are:

1.       This system is simple to establish and operate.

2.       Under this system, responsibility and authority are clearly defined. Every member of the organisation knows his exact position, to whom he is responsible and who are responsible to him. Because of the clear fixation of responsibility, no person can escape from his liability.

3.       There is unity of command and control under this system. That is, a subordinate receives orders from only one superior and is responsible only to one superior.

4.       The unified authority and control implicit in this system ensures better discipline among the employees.

5.       The unification of authority and responsibility present in this system facilitates quick and prompt decisions.

6.       As all the activities relating to one department or division are managed by one executive, there can be effective co-ordination of activities.

7.       Under this system, communication is easy and quick.

8.       This system is flexible or elastic, in -the sense that, as each executive has sole responsibility in his own position and sphere of work, he can easily adjust the organisation to changing conditions.

9.       This system is less expensive, as there are no staff specialist to advise the line authorities

Disadvantages of Line Organisation:

Line organisation is not free from defects. It suffers from several drawbacks. The main drawbacks are:

1.        Under this system, as only one executive manages all the activities in his department, there is no scope for specialization.

2.       As only one executive is required to manage all the activities in his department, he is over-burdened, As a result, he may not be able to direct and control the efforts of his subordinates, properly.

3.       As all the decisions relating to a department are taken by only one executive, there is unitary administration. Consequently, the successful functioning of the department depends on the abilities of the departmental head.

4.       Under this system, only one executive controls all the activities of department and gets undue importance. The importance of the other people in the department is not recognised. As a result, there may be lack of co-operation and team-spirit.

5.       Since only one executive controls all the activities in his department, there is much scope for nepotism and favouritism.

6.       Under this system, the subordinates should follow the orders of their superior without expressing their opinion on the orders. That means, there" is limited communication.

7.       Under this system, the lower level managers lose their initiatives and interest, as they have to merely carry out the orders and instructions of their superiors.

8.       When there are too many levels of management, the process of communication may become difficult under this system.

9.       There is the danger that the line authorities may become autocratic or dictatorial.

10.   Line organisation is rigid and inflexible.

Suitability of Line Organisation:

It is true that line organisation suffers from many limitations. But its importance has not been reduced. It is considered suitable for:

(a)    Small concerns, i.e., concern which carry on their operations on a small scale.

(b)   Concerns which have a small number of subordinates.

(c)    Concerns which are engaged in operations which ate mainly of routine type.

(d)   Concerns which has straight and simple methods of machines.

(e)   Concerns where activities are performed by automatic machines.

(f)     Industries where continuous processes are followed.

A Line organisation can be successful only when the following conditions are satisfied

1. Hierarchical arrangement of giving commands: There should be a hierarchical arrangement of giving commands. The subordinates should get commands only through their immediate superiors. The links in the chain of command should not be skipped. This type of organization helps in co-ordination and control.

2. Presence of Unity of Command: There should be a single line of command. One person should get orders from one supervisor only.

3. Independent subordinates: All persons at the same level of authority should be independent of one another.

4. Proper supervision: The number of subordinates should be such that they are properly supervised.

5. Flexibility: There should be flexibility in organisation regarding the chain in giving command.

6. No too many levels of management: There should be no too many levels of management because the process of communication can be difficult.

2. FUNCTIONAL ORGANISATION: Functional organisation is a type of organisation in which the work of the whole enterprise is divided into a number of specialized functions like production, purchasing, marketing, office management, personnel relations, etc. and each of these spcci~11ised functions is entrusted to a functional expert or specialist.

Features of Functional Organisation: Functional organisation has certain characteristic features. The main features of functional organisation are:

1)      Functional organisation is a complex type of organisation when compared to line organisation and line and staffing organisation.

2)      There is specialization in functional organisation, as the work of the concern as a whole is divided into different specialized functions like production, purchasing, marketing, finance, personnel relations, etc. and each specialized function is entrusted to a functional expert or specialist.

3)      In this type of organisation, the line executive receives instructions not only from his line boss but also from one or more specialists.

4)      Under this system, the principle of unity of command is not observed, as a single worker has to get instructions from more than one specialist.

3. LINE AND STAFF ORGANISATION: In line organisation, there is unity of command, hut there is no specialization. In functional organisation, there is extreme specialisation, hut there is no unity of command. To overcome the defects and to take advantage of the merits of both line organisation and functional organisation, line and staff organisation has been evolved. Line and staff organisation is the Usual form of organisation found in modern enterprise.

Line and staff organisation is a combination of line organisation and functional organisation. It is a type of organisation in which there arc two sets of officers for administration, viz., (1) line officers who have the authority and command over the subordinates and are responsible for the accomplishment of the results, and-(2) staff officers or specialists who render experts advice to the line officers to help them to discharge their functions efficiently.


a)      Line organisation is a simple form of organisation. But functional organisation and line and staff organisation are complicated.

b)      In the case of the line organisation, there is clear-cut line of authority .m the case of functional organisation, there is no clear-cut line of authority .In the case of line and staff organisation, there is clear-cut division of authority for the line officers, but staff officers do not have any authority.

c)       In the case of line organisation, there is clear-cut responsibility .In the case of functional organisation and line and staff organisation, there is clear-cut responsibility for the line officers, but staff officers do not have any responsibility.

d)      Because of clear-cut line authority, there is unity of command in the case of line organisation. There is no unity of command in the case of functional organisation, as a worker has to take instructions from several authorities. There is unity of command in the case of line and staff organisation because of the existence of the line officers.

e)      In the case of line organisation, there is flexibility in the sense that quick decisions and prompt actions can be taken to adjust to changing situations because of the existence of full authority. Functional organisation is rigid and inflexible. In the case of line and staff organisation, flexibility is difficult.

f)       Strict discipline is enforced in the case of line organisation. In the case of functional organisation, enforcement of discipline is difficult because of lack of unity of command. In the case of line and staff organisation, there is discipline enforced by line officers.

g)      In the case of line organisation, there can be prompt and quick decisions. In the case of functional organisation, there cannot be quick decisions. In the case' of line and staff organisation, there can be better decisions by the line officers with the help of staff advice.

h)      There is no specialisation in the case of line organisation. There is maximum specialisation in the case of functional organisation. There is certain amount of specialisation in the case of line and staff organisational because of the presence of staff officers.

i)        In the case of line organisation, there is heavy work load on the executive or managers. There is less work load in the case of functional organisation. The work load is not heavy in the case of line and staff organisation.

j)        There is a good communication system in the case of line organisation. There is overlapping of communication in the case of functional organisation. There is a good communication system in the case of line and staff organisation.

k)      In the case of line organisation, there can be better co-ordination within the department, but inter- department co-ordination becomes difficult. In the case of functional organisation, there is lack of effective co-ordination because of extreme specialisation. In the case of line and staff organisation, there can be co-ordination through staff officers.

l)        Efficiency is lacking in the case of line organisation, as one executive is entrusted with many activities in which he is not efficient. In the case of functional organisation, there is greater efficiency, as each executive is entrusted with limited duties. There is maximum efficiency in the case of line and staff organisation because of the clear-cut duties of the line officers and the availability of expert advice from the staff officers.

m)    Line organisation is suitable for small enterprises, trading as well as industrial. Functional organisation is suitable for large industrial enterprises. Line and staff organisation is suitable for medium- sized industrial enterprises.

4. Committee Form of Organisation: A number of persons may come together to take decision, decide a course of action, advise line officers on some matters, it is a committee form of organisation. It is a method of collective thinking, corporate judgment and common decision. A committee may be assigned some managerial functions or some advisory or exploratory service may be expected from it.

Need for Committee: The main reason for committee is to secure common judgment on administrative matters. The committees are set up for the following reasons.

1)      The committees provide a forum for exchanging ideas among organisational members.

2)      The exchange of ideas among members may generate some suggestions and recommendations which may be useful for the organisation.

3)      There can be proper discussion on present problems and efforts are made to find the solutions.

4)      The committees may also be needed in establishing and developing organisational policies.

Centralization and Decentralization

Centralization: Centralization refers to the situation in which a minimum number of job activities and a minimum amount of authority are delegated to subordinates. Thus, Centralization refers to the concentration of authority at one point or at different levels. Centralization reduces the importance of subordinates and makes them mechanical, as the subordinates are only to execute whatever is ordered. The two definitions of centralization given by Louis Allen and Henry Fayol are:

In the words of Louis Allen, “Centralization is the systematic and consistent reservation of authority at central points within the organisation.” 

In the words of Henry Fayol “Everything that goes to increase the importance of the subordinates role is decentralization, everything which goes to reduce it is centralization”.

Decentralisation: It refers to the situation in which a significant number of job activity and a maximum amount of authority are delegated to subordinates. It signifies the necessity of dividing the managerial task to the lowest level of managers, with an intention to grant all the authority to make the particular division or department autonomous. Each department has the full authority to decide on all matters concerning the department except those matters which need to be left to the top management to decide.

Centralization and decentralization should not be confused with location of work. An organisation having branches in different places may be centralized. Similarly, an enterprise may be decentralized even though all its offices are located in one building. Here we will discuss the definitions of decentralization.

According to Koontz and Weihrich,” Decentralization is the tendency to disperse decision-making authority in an organized structure”.

According to Newman, Summer & Warren “Decentralization is simply a matter of dividing up the managerial work and assigning specific duties to the various executive skills.”


a)      Specialization management: The higher the specialization of jobs, the greater the need for centralization. Tall hierarchical organizations with functional departments are best managed through centralization.

b)      Complexity management: Specialization of jobs creates complexity. Narrow spans of management also create complexity. Centralization provides advantage to manage complexity. Uniform policies and practices are fostered. Specialists can be used.

c)       Significant decision making: Non-programmed significant decisions require centralized decision making by top management. Decentralization is not suitable for making such decisions. Moreover, management philosophy may also favor centralization in such decision.

d)      Environmental stability: Centralization is the most suitable model for making decisions in stable environment.

e)      Improved capacity at lower levels: Subordinates may lack capacity or be unwilling and inexperienced to exercise decentralized authority. Such situations give advantage to centralization.

f)       Crisis management: When organizations face crisis or risk of failure, centralized decision making by top management has advantage.

g)      Cost effective: High cost of decentralization makes centralization advantageous. Duplication of efforts is minimized.


a)      Poor environmental adaptation: Organizational environment tends to be dynamic, complex and uncertain. Centralization cannot quickly adapt to the changing environment.

b)      Poor diversification management: Modern organizations tend to be highly diversified. They are also geographically dispersed. Centralization is not suitable to manage diversified and dispersed organizations.

c)       Unsuitable for programmed decisions: Programmed decisions are routine-type decisions. They are relatively minor decisions. Such decisions are not suitable for centralization. They burden top managers.

d)      Poor management development: Centralization blocks the management development of subordinates. Their skills and talents remain unutilized because of lack of participation and involvement in decision making.

e)      Delayed decisions: Centralization creates multiple layers for decision making purposes. The files move through the hierarchy from subordinates to bosses. This delays decision making.


a)      Quicker and better decisions: it disperses decision making authority close to unit managers who execute decisions. It reduces problems of communication and red tape. This leads to quicker and better decision making

b)      Diversification: decentralization facilitates diversification of products, activities and markets. Profit centers can be established with independence in decision making.

c)       Competitive organizational climate: Decentralization promotes competitive climate for improving performance among divisions and profit centers.

d)      Management development: decentralization encourages managers to exercise freedom and independence in decision making. They learn to make decisions and exercise judgment. This develops managerial competency.

e)      Environmental adaptation: Decentralization helps organizations to adapt to fast-changing environment.

f)       Relieves burden of top management: Top managers are relieved from making routine decisions. They can concentrate on important issues of strategic relevance.

g)      Higher motivation and morale: Decentralization provides power, prestige and status to subordinates. This increases motivation and morale of subordinates.


a)      Problem of coordination and control: Decentralization provides freedom and independence in decision making. This can lead to inconsistencies in policies, programs and procedures. This can create the problem of poor coordination and control.

b)      High cost: Decentralization can result in duplication of efforts and waste of resources. Human resources need to be trained. This results in increased costs. It is also time consuming.

c)       Unsuitable for specialized services: Decentralization is not suitable in tackling emergency situations. Adjustment to fast changing situation may be difficult.

d)      Handicap in emergency: Decentralization can become a handicap in tackling emergency situations. Adjustment to fast changing situation may be difficult.

e)      Lack of managerial capacity: Decentralization requires competent and skilled subordinates. It may be difficult to find them.

Difference between Centralization and Decentralization are given below:

Point of difference



1. Meaning

It refers to concentration of power or authority at higher level only.

It refers to evenly distribution of powers and authority at every level of management.

2. Authority at different levels

Top management retains maximum authority. The authority with middle and lower management is very low.

The authority is systematically divided at every level.

3. Suitable

It is suitable for small scale and small size organizations.

It is suitable for large scale organization.

4. Freedom of Actions

Managers have less freedom of actions.

Managers have more freedom at actions.