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Multiple Choice

1. Which of the following is not an element of delegation?

(a) Accountability
(b) Authority
(c) Responsibility
(d) Informal organisation

► (d) Informal organisation

2. A network of social relationship that arise spontaneously due to interaction at work is called:

(a) Formal organization
(b) Informal organisation
(c) Decentralisation
(d) Delegation

► (b) Informal organization

3. Which of the following does not follow the scalar chain?

(a) Functional structure
(b) Divisional structure
(c) Formal organisation
(d) Informal organisation

► (d) Informal organisation

4. A tall structure has a

(a) Narrow span of management
(b) Wide span of management
(c) No span of management
(d) Less levels of management

► (a) Narrow span of management

5. Centralisation refers to

(a) Retention of decision making authority
(b) Dispersal of decision making authority
(c) Creating divisions as profit centers
(d) Opening new centers or branches

► (a) Retention of decision making authority

6. For delegation to be effective it is essential that responsibility be accompanied with necessary

(a) Authority
(b) Manpower
(c) Incentives
(d) Promotions

► (a) Authority

7. Span of management refers to

(a) Number of managers
(b) Length of term for which a manager is appointed
(c) Number of subordinates under a superior
(d) Number of members in top management

► (c) Number of subordinates under a superior

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8. The form of organisation known for giving rise to rumors is called

(a) Centralised organisation
(b) Decentralised organisation
(c) Informal organisation
(d) Formal organisation

► (c) Informal organisation

9. Grouping of activities on the basis of product lines is a partof

(a) Delegated organisation
(b) Divisional organisation
(c) Functional organisation
(d) Autonomous organisation

► (b) Divisional organisation

10. Grouping of activities on the basis of functions is a part of

(a) Decentralised organisation
(b) Divisional organisation
(c) Functional organisation
(d) Centralised organisation

► (b) Divisional organisation

Short Answer Type

1. Define ‘Organizing’?


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

2. What are the steps in the process of organising?


The steps in the process of organizing are:

1. Identification and division of work: The first step in the process of organising involves identifying and dividing the work that has to be done in accordance with previously determined plans.

2. Departmentalisation: Once work has been divided into small and manageable activities then those activities which are similar in nature are grouped together.

3. Assignment of duties: It is necessary to define the work of different job positions and accordingly allocate work to various employees.

4. Establishing reporting relationships: Each individual should also know who he has to take orders from and to whom he is accountable.

3. Discuss the elements of delegation.


The elements of delegation are:

1. Authority: It refers to the right of an individual to command his subordinates and to take action within the scope of his position. It also refers to the right to take decisions inherent in a managerial position to tell people what to do and expect them to do it.

2. Responsibility: Responsibility is the obligation of a subor­dinate to properly perform the assigned duty. It arises from a superior – subordinate relationship because the subor­dinate is bound to perform the duty assigned to him by his superior.

3. Accountability: It implies being answerable for the final outcome. Once authority has been delegated and responsibility accepted, one cannot deny accountability.

4. What does the term ‘Span of management’ refer to?


The span of management refers to the number of subordinates that can be effectively managed by a superior. This determines the levels of management in the structure.

5. Under what circumstances would functional structure prove to be an appropriate choice?


If an organisation is large, has a diversified activities and operations require a high degree of specialisation then functional structure prove to be an appropriate choice.

6. Draw a diagram depicting a divisional structure.


Divisional Structure

7. Can a large sized organisation be totally centralized of decentralized? Give your opinion.


No, a large-sized organization can never be completely centralized or decent­ralised. As it grows in size and comp­lexity, there is a tendency to move towards decentralized decision-making.

This is because in large organizations those employees who are directly and closely involved with certain operations tend to have more knowledge about them than the top management which may only be indirectly associated with individual operations.

Hence, there is a need for a balance between these co­existing forces. Thus, it can be said that every organization will be characterized by both centralization and decentralization.

8. Decentralisation is extending delegation to the lowest level. Comment.


Decentralization is extending delegation to the lowest level. Decentralization refers to the delegation of authority throughout all levels of the organization. Decision-making authority is shared with lower levels and is consequently placed nearest to the points of action.

Delegation refers to the downward transfer of authority from a superior to a subordinate. Delegation is a process and decentralization is end result.

For Example: If a CEO of an organisation gives responsibility to production head for the production for specific units of products.

The production head shares his responsibility of hiring workers with his managers. Managers share their responsibility of supervising the workers with supervisors. Therefore, the delegation at each level leads to decentralization.

Long Answer Type

1. Why is delegation considered essential for effective organising?


Delegation is considered essential for effective organising because:

Effective management:

By empowering the employees, the managers are able to function more efficiently as they get more time to concentrate on important matters.

Employee development:

As a result of delegation, employees get more opportunities to utilize their talent and this may give rise to latent abilities in them. It allows them to develop those skills which will enable them to perform complex tasks and assume those responsibilities which will improve their career prospects.

The motivation of employees:

Delegation helps in developing the talents of the employees. It also has psychological benefits. Responsibility for work builds the self­esteem of an employee and improves his confidence.

Facilitation of growth:

Delega­tion helps in the expansion of an organization by providing a ready workforce to take up leading positions in new ventures. Also trained and experienced emp­loyees are able to play significant roles in the launch of new projects.

Basis of management hier­archy:

Delegation of authority establishes superior-subordinate relationships, which are the basis of the hierarchy of management. It is the degree and flow of authority which determines who has to report to whom.

Better coordination:

The elements of delegation, namely authority, responsibility, and accountability help to define the powers, duties, and answerability related to the various positions in an organization which helps to avoid overlapping of duties and duplication of effort as it gives a clear picture of the work being done at various levels.

2. What is a divisional structure? Discuss its advantages and limitations.


Divisional structure refers to the organization structure comprises of separate business units or divisions where each unit has a divisional manager who has its authority and responsibility for performance.

Each division is multifunctional because within each division func­tions like production, marketing, finance, purchase, etc, are performed together to achieve a common goal.

Each division is self-contained as it develops expertise in all functions related to a product line. For example, a large company may have divisions like cosmetics, clothing, etc.

The advantages of divisional structure are:

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

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

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

4. It facilitates expansion and growth as new divisions can be added without interrupting the existing operations by merely adding another divisional head and staff for the new product line.
The limitations of the divisional structure are:

5. Conflict may arise among different divisions with reference to allocation of funds and further a particular division may seek to maximize its profits at the cost of other divisions.

6. It may lead to increase in costs since there may be a duplication of activities across products. Providing each division with separate set of similar functions increases expenditure.

7. It provides managers with the authority to supervise all activities related to a particular division. In
the course of time, such a manager may gain power and in a bid to assert his independence may ignore organizational interests.

3. Decentralisation is an optional policy. Explain why an organisation would choose to be decentralised.


Decentralization is an optional policy because it is on the top management of an organization how much power and work they want to share with the lower levels. An organization would choose to be decentralized because of the following advantages:

Develops initiative among subordinates:

Decentralization helps to promote self­reliance and confidence amongst the subordinates because when lower managerial levels are given the freedom to make their own decisions they learn to depend on their own judgment. It helps to identify those executives who have the necessary potential to become dynamic leaders.

Develops managerial talent for the future:

Decentralization gives subordinates a chance to prove their abilities and creates a reservoir of qualified manpower who can be considered to fill up more challenging positions

Quick decision making:

It helps in making decisions process quickly since decisions are taken at levels that are nearest to the points of action and there is no requirement for approval from many levels, the process is much faster. There are also fewer chances of information getting distorted because it doesn’t have to go through long channels.

Relief to top management:

Decentralization leaves the top management with more time which they can devote to important policy decisions rather than occupying their time with both policies as well as operational decisions.

Facilitates growth:

Decentrali­sation gives greater autonomy to the lower levels of management as well as divisional or departmental heads that allows them to function in a manner best suited to their department and generates a sense of competition amongst the departments which ultimately leads to an increase in productivity levels also the organization is able to generate more returns which can be used for expansion purposes.

Better control:

Decentralization makes it possible to evaluate performance at each level and the departments can be individually held accountable for their results. It compels the management to innovative performance measurement systems.

4. How does informal organisation support the formal organisation?


Informal organization emerges from within the formal organization when people interact beyond their officially defined roles. It supports the formal organization by providing

Faster communication: Informal organisation leads to faster spread of information as well as quick feedback as prescribed lines of communication are not followed.

Social Satisfaction: It helps to fulfill the social needs of the members and allows them to find like minded people. This enhances their job satisfaction since it gives them a sense of belongingness in the organisation.

Organisational objectives: It contributes towards fulfillment of organisational objectives by compensating for inadequacies in the formal organisation. For example, employees reactions towards plans and policies can be tested through the informal network.

5. Distinguish between centralization and decentralization.


AuthorityThe decision ­making authority is retained by higher levels of management.The decision ­making authority is delegated to lower levels of management.
BurdenMore burden on top level managers.Less burden on the top level managers.
Scope of DelegationScope of delegation is limited as power is concentrated in a few hands.Wider scope of delegation as authority can be transferred.
Decision makingThe decision making process is slow as the power lies only with the top management.The decision making process is s as the power lies only with the top management.
Subordinates roleThe subordinate don’t get any chance to decide as all things are pre-decided by top level management.The subordinates get a chance to decide and act independently which develops skills and their managerial abilities.

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6. How is a functional structure different from a divisional structure?


BasisFunctional StructureDivisional Structure
FormationIts formation is based on functionsIts formation is based on product lines and is supported by functions.
SpecialisationFunctional specialisation.Product specialisation.
ResponsibilityDifficult to fix on a department.Easy to fix responsibility for performance.
Managerial DevelopmentDifficult, as each functional manager has to report to the top management.Easier, as autonomy and the chance to perform multiple functions helps in managerial development.
CostFunctions are not duplicated hence economicalDuplication of resources in various departments, hence costly.
CoordinationDifficult for a multi­ product company.Easy, because all functions related to a particular
product are integrated in one department.

Application Type

Q1. Neha runs a factory wherein she manufactures shoes. The business has been doing well and she intends to expand by diversifying into leather bags as well as western formal wear thereby making her company a complete provider of corporate wear. This will enable her to market her business unit as the one stop for working women. Which type of structure would you recommend for her expanded organisation and why?


Divisional Structure is recommended for expanded organisation because the factory will manufacture three product. By this structure she may avail the benefits of products specialisation. There should be three divisions, one for each product. She can ascertain the performance of each product individually. Accordingly, she may plan and take decisions quickly.

Q2. The production manager asked the foreman to achieve a target production of 200 units per day, but he doesn’t give him the authority to requisition tools and materials from the stores department. Can the production manager blame the foreman if he is not able to achieve the desired target? Give reasons.


No, the production manager can’t blame the foreman if he is not able to achieve the desired target because foreman was only given responsibility not authority. There should be balance between authority and responsibility. If responsibility is given then authority for fulfilling that responsibility must be given otherwise the work can’t be completed.

Q3. A manager enhances the production target from 500 units to 700 units per month but the authority to draw raw material was not given by him. The production manager could not achieve the revised production target. Who is responsible and which principle was violated?


The manager would be responsible for non-achievement of the revised production target and principle of authority responsibility was violated.

4. A company has its registered office in Delhi, manufacturing unit at Gurgaon, and marketing and sales department at Faridabad. The company manufactures consumer products. Which type of organizational structure should it adopt to achieve its target?


The company should adopt a functional organizational structure to achieve its target as it is performing different functions in different areas. This will help in improving managerial skills and give control over various activities. The departmentalization makes a clear division of activities. Also, it will be economical as no duplication will take place and promote specialization in functions.

Case Study

1. A company, which manufactures a popular brand of toys, has been enjoying a good market reputation. It has a functional organizational structure with separate departments for Production, Marketing, Finance, Human Resources, and Research and Development. Lately to use its brand name and also to cash on to new business opportunities it is thinking to diversify into the manufacture of a new range of electronic toys for which a new market is emerging.


Prepare a report regarding organization structure giving concrete reasons with regard to benefits the company will derive from the steps it should take.


The company should shift from functional structure to divisional structure as the company is now diversifying by adding a new product line. By this structure, the performance of each product i.e., simple toys and electronic toys can be easily ascertained. Also, decision making will become faster.

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2. A company manufacturing sewing machines set up in 1945 by the British promoters follows formal organisation culture in totality. It is facing lot of problems in delays in decision­ making. As the result it is not able to adapt to changing business environment. The work force is also not motivated since they cannot vent their grievances except through formal channels, which involve red tape. Employee turnover is high. Its market share is also declining due to changed circumstances and business environment.


You are to advise the company with regard to change it should bring about in its organisation structure to overcome the problems faced by it. Give reasons in terms of benefits it will derive from the changes suggested by you. In which sectors can the company diversify keeping in mind the declining market for the product the company is manufacturing?


The company need to change complete formal organisation culture and accept some informal structure. The management should encourage employees to interact and socialise with each other. This will help the company in following ways.

  • Information spreads faster as prescribed lines of communication are not followed.
  • It gives them a sense of belongingness in the organisation and give more satisfied workforce.
  • It helps in achievement of organisational objectives in better manner.

3. A company X limited manufacturing comsetics, which has enjoyed a pre-eminent position in business, has grown in size. Its business was very good till 1991. But after that, new liberalised environment has seen entry of many MNC’s in the sector.

As the result, the market share of X limited has declined. The company had followed a very centralized business model with directors and divisional heads making even minor decisions. Before 1991, this business model had served the company very well as consumers have no choice. But now the company is under pressure to reform.


What organization structure changes should the company bring about in order to retain its market share? How will the changes suggested by you help the firm? Keep in mind that the sector in which the company is FMCG.


The company needs to shift towards decentralisation as the company’s business has grown in size. This will helps the company in following manner:

  • Minor decisions will be taken by the lower-level managers which gives enough time to the higher officials to think of better policies, strategies to handle the changes in the changing environment.
  • It also develops managerial talent for the future.
  • It leads to quick decision making as decisions are taken at levels that are nearest to the points of action and there is no requirement for approval from many levels,