CBSE Class 12 Business Studies - Organising 



 - Once the plans have been laid down and objectives specified therein, the next step is to organize resources in a manner which leads to the accomplishment of objectives.

 -  Organizing essentially implies a process which coordinates human efforts, assembles resources and integrates both into a unified whole to be utilized for achieving specified objectives.

 -  Organizing can be defined as a process that initiates the implementation of plans by clarifying jobs and working relationships and effectively deploying resources for the attainment of identified and desired results.


1. Identification & Division of Work:

  • The total work to be done should be divided into specific jobs according to predetermined plans.
  • Job = a set of related tasks that can be performed by an individual. It should have specific and definite tasks to be performed. As far as possible, it should define expected results along with the job.
  • Division of work → specialization of efforts and skills + avoids duplication of work.
  • Management must ensure that all the activities required to achieve organizational objectives are identified.

2. Departmentalization:

  • Grouping similar and related jobs into larger units called departments, divisions or sections and placing them under a department head. It facilitates specialization.
  • The departments are linked together and are interdependent.
  • Aims at achieving co-ordination and facilitate unity of action. Departmentation can be done on the basis of -
  • Functions: marketing, personnel, finance, etc.
  • Products: Textiles, chemical, power division, etc.
  • Territories: Western, northern, central, eastern, etc.

3. Assignment Of Duties:

  • Define the work of different job positions and allocate work accordingly.
  • Once departments are formed, the dept is placed under the charge of an individual.
  • Jobs are assigned to an individual best suited to perform it. 
  • Qualifications, experience, ability, and aptitudes of people should be matched with duties.
  • FOR EXAMPLE- Activities of finance should be assigned to persons having qualifications and experience in finance e.g C.A’s

4. Establishing Reporting Relationships:

  • Granting requisite authority to enable employees to perform the job satisfactorily.
  • Superior subordinate relations between different people and job positions created so that everybody knows from whom he is to take orders and to whom he can issue orders.
  • Creates management hierarchy = a chain of command from the top manager to the individual at the lowest level.


Benefits of Specialization

  • The work is divided into different parts or Jobs and competent persons are appointed to handle all the sub works.
  • Job description = a written document that clearly defines the jobs and spells out what exactly has to be done in every job.
  • Repetitive performance →worker to gain experience in that area →specialization.
  • Maximum work performance in the minimum time →specialization.

The clarity in Working Relationships

  • Clearly established working relationships clarifies lines of communication and specifies who is to report to whom.
  • This removes ambiguity in transfer of information and instructions. 
  • The hierarchical order thus created enabling the fixation of responsibility and specification of the extent of authority to be exercised by an individual.

Optimum Utilization of Resources

  • Proper assignment of job avoids overlapping of work/duplication of work.
  • This helps in preventing confusion and minimizing wastage of resources and efforts and leads to proper usage of material, financial and human resources.

  Adaptation to Change

  • A properly designed = flexible where working relationships can be modified to suit changing conditions in the environment and achieve a smooth transition.
  • Therefore, the movement of people in and out of jobs does not affect the work being done and the capacity of business to undertake more activities in order to grow and diversify.
  • Provides much-needed stability to the enterprise and it can survive and grow despite changes.

Effective Administration

  • Organizing provides a clear description of jobs and working relationships.
  • It helps to avoid confusion and duplication.
  • The clarity in working relationships → proper execution of work → management becomes easy → effectiveness in administration.

Development of Personnel

  • Under the process of organizing, the delegation of authority is practiced.
  • By delegating routine jobs to their subordinates:
  1. Managers can concentrate on developing new technologies and methods of ways of performing jobs,
  2. While this becomes a good training ground for subordinates because they get to handle responsibilities themselves. 

Expansion and Growth

  • A sound organization structure allows a business enterprise to add more job positions, departments and even diversify their product lines.
  • New geographical territories can be used to increase the customer base, sales, and profit.




Advantages of functional Structure

Benefits of Specialization:

  • Activities are divided into depts. on the basis of major functions so leads to occupational specialization.
  • This results in more and better work being accomplished in much lesser time.
  • Promotes efficiency in utilization of manpower as employees perform similar tasks within a dept. & are able to improve performance.

Facilitates Coordination and Control Within the Department: 

  • There is similarity in the tasks performed.
  • Also, all employees within the dept. know what is expected out of them & that leads to effective control over their activities.

Increases Managerial & Operational Efficiency:

  • The similarity in the tasks being performed → specialization → improved operational efficiency.  - Specialists in functional areas supervise the operations → managerial efficiency improves.

No Duplication of Efforts Leading to Economy of Operations:

  • In this type of org., unnecessary duplication of effort is eliminated.
  • Human & other resources utilized more effectively and economically →economies of scale → lower cost. 
  • FOR EXAMPLE- Functions of finance is only carried by the Finance Department. There is no need to establish 2 or more departments.

Makes Training of Employees Easier:

  • As they need to be trained in limited types of skills.
  • FOR EXAMPLE- Employees of the production department are given training of production techniques only.
  • Ensures That All Functional Areas Get Due Attention

Disadvantages of functional Structure

1. Less Emphasis on Overall Firm’s Objective

  • Each dept. head gives more weight to their departmental objectives → overall org. objectives suffer → functional empires wherein the importance of a particular function may be overemphasized.
  • Pursuing dept. interests at the cost of org. interests can also hinder interaction b/w 2 or more depts.
  • FOR EXAMPLE-To make his image, production department may make a very high-quality product going contrary to the organization objectives of selling into the target market of middle-income group.

2. Problems in Coordination

  • This structure facilitates co-ordination within the department but makes inter-departmental coordination difficult as to facilitate coordination, info has to be exchanged across functionally differentiated depts.
  • If dept. heads work as per according to their own wishes, sharing of info and inter-dept. coordination becomes difficult.

3. Conflict in Interest If Departments Are Not Compatible:

  • Managers try to build their own functional empires & undermine the role of other depts., leading to interdepartmental rivalry and conflicts.
  • FOR EXAMPLE-Sales department insists on a customer-friendly design which may cause production difficulties. Such dissension can prove to be harmful in terms of fulfillment of organizational interest. Inter-departmental conflicts can also arise in the absence of a clear separation of responsibility.

4. Inflexibility as narrow perspective may develop

  • As people with the same skills & knowledge base may develop a narrow perspective and thus, have difficulty in appreciating any other POV.
  • Functional heads do not get training for top management positions because they are unable to gather experience in diverse areas.
  • are against firms ‘interests & are contrary to standards of behavior DIVISIONAL  STRUCTURE

Advantages of Divisional Structure

1. Development of Generalist Managers

  • Product specialization helps in the development of varied skills in a divisional head & prepares him for higher positions.
  • This is because he gains experience in all the functions related to a particular product.

2. Proper Basis for Performance Evaluation and Ease in Fixation of Responsibilities for Mistakes

  • All the activities of each div. are carried out independently. Hence the divisional results (P/L) can be assessed easily. On this basis, the unprofitable division can be closed.
  • Hence, in cases of the poor performance of the division, appropriate remedial action can be taken.

3. Promotes Flexibility and Innovation and Faster Decision Making:

  • As every div. is independent, the divisional manager can take any decision regarding his div. independently w/o consulting other divisional managers.
  • Thus, division functions as an autonomous unit which leads to faster decision making.

4. Facilitates Expansion and Growth.

  • For every product, a separate division is opened and if a company wants to introduce a new product, it can be introduced easily without disturbing the existing divisions.

Disadvantages of Divisional Structure

1.Conflicts Among Divisions -

  • Conflicts → especially w.r.t allocation of funds and between divisional heads. 
  • Every division tries to display better performance, sometimes even at the cost of other divisions. Consequently, it hits the interest of the concern as a whole

2. Increase in Costs Due to Duplication -

  • The entire set of functions (e.g. production, marketing, finance, personnel, etc.) is reqd. for all divisions.
  • Gives rise to the duplicity of efforts among divisions. Resources are misused & cost of ops unnecessarily. 

3. Managers may ignore the interests of the firm -

  • Divisional managers have a lot of autonomy & with time, gain a lot of power & may ignore organization interest.



  • Refers to the org. the structure that is designed by the management to accomplish organizational objectives
  • It specifies clearly the boundaries of authority & responsibility and there is systematic coordination among the various activities to achieve organizational goals.
  • Louis Allen – System of well-defined jobs, each bearing a definite measure of authority, responsibility & accountability.

Features of Formal Organization:

1. Clarifies Authority Relationships: Clearly explains the inter-relationship b/w jobs and thus, everybody knows his authority and responsibility. This clarifies who has to report to whom.

2. Means to Achieve Organizational Objectives - It is a means to achieve the objectives specified in the plans. It lays down the rules & procedures essential for their achievement.

3. Coordinate Efforts of Various Departments:  - Efforts of various depts. are coordinated, interlinked & integrated through the formal organization.

4. Deliberately Designed by Top Management - The top management deliberately creates this org for successful achievement of objectives of org.

5. Emphasis on Work: - It places more emphasis on work to be performed than inter personal relationships among employees.


Easy to Fix Responsibilities:  Since mutual relationships are clearly defined.

Avoids Duplication of Effort: In Formal Organisation, work is systematically divided among various depts. &employees. No chance of overlapping of work. 

Maintains Chain of Command: Formal Organisation clearly defines superior subordinate relationships, i.e. who reports to whom

Clarifies Roles of Job Positions and So Facilitates Achievement of Firm’s Goals: Leads to effective accomplishment of goals by providing a framework for the operations to be performed and ensuring that each employee knows the role he has to play.

Provides Stability to The Organisation: As behaviour of employees can be fairly predicted since there are specific rules to guide them. Formal Organisation brings stability in the organisation. through policies, procedures & rules. Working continues in spite of old employees leaving and new employees joining.


Procedure DelaysFormal communication may lead to procedural delays as the established chain of command has to be followed which increases the time taken for decision-making. Work is bound by rules & while following the scalar chain of command, decisions & actions get delayed

Rigidity/ Curbs Creativity: In this organisation the employees have to do what they are told to do & have no opportunity of thinking. Thus, their initiative gets slackened Poor organisation practices may not provide adequate recognition to creative talent, since it does not allow any deviations from rigidly laid down polices. Does not allow deviations from set policies.

Does Not Give A Complete Picture of How the Organisation Works: Formal Organisation give importance to work only. It ignores human relationships, creativity & talent.  Does not give a complete picture of how an org. works as it does not incorporates the human element so does not provide a complete picture of the functioning of the org.


  • While working in the Formal Organisation  structure, individuals interact with each other & develop some social & friendly relationships in the org.
  • This network of social & friendly groups forms another structure in the organisation called Informal organisational structure.
  • This may be based on common language, tastes, likes etc. & its main purpose is psychological satisfaction.
  • Informal Organisation has no written rules, is fluid in form and scope and does not have fixed lines of communication - Depends upon Financial organisational  structure & if there is no Financial Organisational  structure, there will be no jobs & people & thus, no Informal Organisation.

Features of Informal Organisation:

1. Arises Within the Formal Set - up: As A Result of Personal Interactions B/W Members.IO emerges to meet the social and psychological needs of the people

2. Group Norms for Standards of Behaviour: No written rules & procedures to govern inter- relationships. But there are group norms to be observed.FOR EXAMPLE- Employees working in an organisation and belonging to a particular community form a separate grouping an informal way and gradually see norms emerge and all the members are bound to observe them.

3. Independent Channels of Communication - Info flows in all directions and it is very difficult to trace the source of information.

4. Emerges Spontaneously - An Informal Organisation is not deliberately created by management but comes into existence on the basis of personal interaction, relationships, common interest, tastes, languages, likes, etc.

5. No Definite Structure or Form - It is a complex network of social relationships and it cannot be defined because an employee at the lowest level can have relationship at the top level.


1.Faster Spread of Communication and Quick Feedback - Informal Organisation cuts across formal channels of communication. May not follow scalar chain of command spreads faster. Through Informal Organisation, the managers can get to know the real feedback on various policies and plans

2. Fulfill Natural Desires of Members - Members of an Informal Organisation share their tensions, joys & frustrations with one another.

  • They have an outlet to release all their emotions and feelings and provide relief from the monotony created by Formal Organisation. It helps to fulfill the social needs of the members and allows them to find likeminded people. This enhances their job satisfaction since it gives them a sense of belongingness in the organisation.

3. Compensates for Inadequacies in The Formal Structure -

FOR EXAMPLE-Improper and arbitrary use of authority by managers can be challenged so managers act carefully.


Spreads Rumours - Informal Organisation is a breeding ground for rumours esp. where there is ambiguity in the policies and programs of Formal Organisation.

  • An outbreak of rumour can cause serious harm to the enterprise and its management by carrying incorrect information throughout the organization.

 Resistance to Change - Informal Organisation  generally prefers status quo & the existing work routine. Changes are regarded as a threat to its beliefs & values.

  • Thus, management has to face resistance to new work methods. This may delay/ restrict growth.

 Members to Conform to Group Norms.  - An Informal Organisation evolves its own norms.

  • These norms may be harmful if norms and performance in FO. In such a case it becomes very difficult to achieve the goals of the formal org.


According to Louis Allen, ‟Delegation is the process a manager follows in dividing the work assigned to him so that he performs that part which only he, because of his unique organizational placement, can perform effectively and so that he can get others to help him with what remains‟. Delegation refers to systematic transfer of authority from superior to subordinates

Features of Delegation:

  1. Does not mean abdication of responsibility
  2. Does not diminish authority of superior
  3. Delegated from higher to lower level
  4. Accountability retained by managers

Importance of Delegation:

1. Effective management

2. Employee development

3. Motivation of employees

4. Facilitation of growth

5. Basis of management hierarchy

6. Better coordination

7. Increases managerial effectiveness


There are three basic elements of delegation

  1. Assignment of Work/ Responsibility = obligation to perform certain activities.
  2. Delegation of Authority = it is the right to decide, to direct others and to act in achieving the organisational objectives.
  3. Creation of Accountability = it is the obligation to carry out responsibilities and exercise authority in terms of established performance standards.


Decentralisation of authority means dispersal of authority to take decisions throughout the organization, up to the lower levels.

It implies reservation of some authority with the top-level management and transferring rest of the authority to the lower levels of the organization. This empowers lower levels to take decisions regarding problems faced by them without having to go to the upper levels. According to Allen, ‘Decentralisation refers to systematic efforts to delegate to the lowest level, all authority except the one which can be exercised at central points.’

Centralization = authority retained at top level and Decentralization = Systematic delegation of authority at all levels and in all departments of a firm. Firm needs to balance the two.

1. Develops initiative among subordinates

  • Helps to promote self-reliance and confidence amongst the subordinates. 
  • Cause when lower managerial levels are given freedom to take their own decisions, they learn to depend on their own judgment & feel constantly challenged to develop solutions for the problems they encounter.

2. Develops managerial talent for the future

  • Decentralisation gives the employees a chance to prove their abilities. They learn how to decide and develop managerial skills.
  • It also helps to create a reservoir of qualified manpower who have the necessary potential to become dynamic leaders and who can be considered to fill up more challenging positions.

3.Quick decision making

  • Under decentralisation, authority to make decisions is placed in the hands of those who are well aware of the realities of the situation and are responsible for executing the decisions.
  • As a result, more accurate and faster decisions can be taken. There are also lesser chances of information getting distorted because it does not have to go through long channels.

4. Relief to top management

  • Decentralisation helps to reduce the workload of the top executives. They can devote greater time and attention to important policy matters by decentralizing authority for routine operational decisions.
  • It reduces the need for direct supervision by the superior over the subordinates.

5. Facilitates growth

  • Decentralisation facilitates the growth and diversification of the enterprise. Each department or product division is given sufficient autonomy for innovations and creativity.
  • Also, a sense of competition can be created among different departments or divisions and the top management can extend overall leadership over a giant enterprise

6. Better control

  • Managers at all levels have adequate authority to make changes in work assignment, to change production schedules, to recommend supervision and to take disciplinary actions. Therefore, more effective supervision can be exercised.
  • Control can be made effective by the evaluating the performance of each decentralized unit in the light of clear and pre-determined standards.