KL EF ORGANIZATION MANGEMENT II ECE/IV SEM DR .G.V. Madhavi KLUBS

1. KL EF ORGANIZATION MANGEMENTII ECE/IV SEMDR .G.V. Madhavi KLUBS UNIT-2ORGANIZATION STRUCTURE Organization Structure : Principles of organization, organizational theories, departmentalism, authority, power, organizing, organizational effectiveness, structuring the organization, organizational change, organization charts; types of organizations—line , functional and line and staff relations, Organizational manuals.

3. ORGANIZING Organizing is the second function of management. It is dependent on the type of plan. It is aimed at preparing a formal structure or design of the organization, consisting of people , tasks responsibility authority, communication network, and a scheme for arranging all these aspects. The structure so prepared facilitates implementation of the plan. The structure is presented in the form of an organizational chart. Organizing ensures provision for all activities necessary for accomplishment of desired objectives. As a result of organizing , various positions come into existence, different departments and divisions are created, communication network is prepared, various levels of management are created, and superior-subordinate relations are established. The process of organizing includes the following steps: 1. Determining activities necessary for achieving objectives. 2.Classifying and grouping of activities into units. 3.Assigning the tasks and duties. 4.Delegating Authority. 5.Establishing relationships among several position holders. 6.Preparing organization charts and manuals.

4. DEFINITIONS OF ORGANIZING AND ORGANIZATION The term Organizing can be defined as: • Louis Allen: “ Organizing is the process of identifying and grouping of the work to be performed, defining and delegating responsibility and authority, and establishing relationships for the purpose of enabling the people to work effectively together in accomplishments of objectives. ” • George R Terry: “ Organizing is establishing of effective authority relationships among selected works, persons, and work places in order to make group work together efficiently.” Thus it can be defined as: To organize means to harmonize , coordinate, or to arrange activities in a logical and orderly manner. It is an act/process of systematically arranging and grouping of interdependent parts and activities.

5. ORGANIZATION Organization is the end result of the organizing process. • John Finer and Frank P. Sherwood: “ Organization is essentially a matter of relationships of man-to-man, job-to-job, and department-to-department .” • Koontz and O’ Donnell: “ Organization is a structural relationship by which an enterprise is bound together, and the framework in which individual effort is coordinated.” • Chester Bernard: “ Organization is a system of cooperative activity of two or more persons.” Organization is a structure , mechanism, setup, arrangement or frame work made of men, tasks, authority, and responsibility to facilitate coordination necessary to achieve specific purposes. It is matter of formal relations among people, jobs and departments.

6. CHARACTERISTICS OF ORGANIZING Organizing is a process. It consists of steps to be followed to prepare the structure of the organization. • It is goal-oriented. • It includes grouping of activities and division of work. • It involves assignment of responsibility and delegation of authority. • It is aimed at creation of structure, framework or setup that facilitates managerial actions. • It is act of establishing formal relationships and defining status and positions of each of the employees. • It is coordinated and integrated activity. • It creates a stable structure. • Human Being is in the centre of organizing. • It can be applied to the whole organization, or part thereof.

7. ORGANIZATION PROCESS Organizing process consists of sequence of steps to be followed to prepare a formal structure of the organization. The process depends on a variety of variables, like size of the organization, objectives, type of people, type of work, etc. Ideally, the organizing process contains seven steps, as follows: 1.Specifying of Objectives 2. Enumerating of Activities(or Determining of activities to be performed) 3. Classifying or grouping of Activities 4.Assigning of responsibility(or fitting Individual with Function) 5. Delegation of Authority 6. Establishing Interrelationships 7. Preparing Organization Charts and Manuals

9. ORGANIZATIONAL PROCESS 1.Specifying of Objectives Organisation is deliberate and conscious creation of structure for a specific purpose. The organization process starts with specification of objectives. A manager who is in charge of formulation of the organization structure needs to have knowledge of the objectives to be achieved. He must known the long-term and short-term objectives as well as individual, departmental, and general objectives. Clarity of objectives gives the direction to work. 2. Enumerating of Activities The next step is to prepare a list of activities required to achieve these goals. A list of activities prepared comprising of main functions of the organization. For example, Production activities, marketing activities, personnel activities, and financial activities are main activities of a business enterprise. While determining activities to be performed, care should be taken so that the list of activities becomes exhaustive or complete. Similarly, there should be clear and precise definition of each activity.

10. 3. Classifying or Grouping of Activities In the third stage of the organizing process, the activities listed are classified or grouped on the basis of specialization (i.e., on the basis of nature).Grouping of activities is based on similarity, functions, and common purpose. The group of activities is also called function, each function comprises of similar activities. Hence, similar activities are performed only in a particular department under a specific function. The manager should be careful to avoid unnecessary duplication or repetition of activities in more than one group. 4. Assigning of Responsibility(or Fitting Individual with Function): Once department or groups are prepared, the next step is to assign each department to a person. Thus, a person is fitted wit a function. A qualified and experienced person is assigned the duty of performing each group of activities. Thus, job is assigned and responsibility is created. Moreover, designation is also defined, and role and position are clarified. As a result of assignment of Job, various positions come into existence, like marketing manager, sales officer, financial manger, and so forth.

11. 5.Delegating of Authority When assignment of task is over, respective superiors delegate authority to different position holders to enable them to carry out activities. This is a vital step. Delegation of authority creates various levels and positions. In fact, assignment of duties and delegation of authority go hand to hand. Delegations refers to granting or offering of legitimate power to subordinates to enable them to take decisions independently. It is an authorization to make decision, to order, or to command the people working under him. While delegating authority, care should be taken that there is balance between responsibility and authority. Authority must be equal to responsibility. 6. Establishing Interrelationships This step is concerned with establishing relationships among various position holders. These relationships are established in both directions- horizontally and vertically. At this stage , the relationship and line of authority between the superior and subordinate is made clear. Statuses are fixed to facilitate higher and lower positions. The entire network is defined in terms of functions, positions, levels, communication, and interrelationships among various positions.

12. 7. Preparing Organization Chart and Manuals: The structure so prepared is now depicted in the form of a chart or a diagram that shows various relations, positions, and levels in the organization. An organizational chart can be defined as: “A diagrammatic presentation of formal relationships among the people in the organization. The chart shows detail regarding number and type of functions, levels of management, various positions and designations, direction of communication and so forth. The chart is prepared either on function basis or job title basis.” Organization chart can be prepared in three forms- Vertical Chart, Horizontal Chart and Circular chart. Among three, vertical chart is the most popular and widely used chart. Organization chart is a useful tool for many purposes. Along with the Organization chart, Organization manual is also prepared to guide the interrelations. An Organization Manual is a small booklet that describes objectives, authority, status, and responsibility of each of the positions. It also explains the nature of work, powers , position, status, etc., of each position holder.

13. PRINCIPLES OF ORGANIZATION

14. INTRODUCTION OF ORGANIZATION STRUCTURE Organization Structure is a specific design or blueprint that the business enterprise uses to perform a relevant task in pursuit of goals. The structure, in the sense, is an effective mechanism that helps coordinate employees efforts for accomplishing goals. Note that organization structure is a means, not an end; it serves as the base for achieving objectives. Organisation structure reflects top management’s philosophy . Organizational design, structure, arrangement, blueprint, constitution, formation, plan, chart, diagram, etc., are closely related terms and are used interchangeably.

15. KEY CONSTITUENTS OF ORGANIZATION STRUCTURE While organizing structure, following constituents(factors, aspects, or considerations) should be duly considered: 1. Company’s broad vision and goals 2. Objectives or targets 3. Main activities or operations 4. Decision – making 5. Formal relationships(both vertical and horizontal) 6. Communication Pattern 7.Delegation and decentralization 8. Formal organization structure(span of management and management levels) 9. Organization climate (including organizational culture) 10.Mangement(or leadership) styles 11. Physical facilities 12. Human resources(type and number of employees) An organization structure may be either vertical or horizontal.

16. VERTICAL v/s HORIZONTAL ORGANIZATION Formal organization structure shows vertical and horizontal relations among members. In a vertical or tall structure organizations hierarchical chain of command is longer. Vertical organization has its merits and demerits over the horizontal organization. In a changed environment, vertical environment is not suitable. Particularly, advanced information technology, wide acceptance of employee empowerment, multi-professionalization, and fast globalization environment demand horizontal structure. Horizontal structure facilitates cooperation, processes, teamwork, and customer orientation. In this structure, authority tends to be more decentralized and span of control expands. Modern business enterprises prefer horizontal structure due to several advantages it offers, like quick decisions, low administrative costs, more freedom or autonomy, high employee morale, employees strong commitment to goals, improved performance, use of multiple competences, openness, speedy feedback, etc. Horizontal organization is customer driven modern form of organization characterized by reduced hierarchy, direct information link with participants, team based performance evaluation and reward, emphasis on multiple competencies, openness in dealing, and end-result process based organization that enables the firm to facilities speed in action, flexibility with situation, and comfortable cooperation.

17. TYPES OF ORGANIZATION STRUCTURE On the basis of size, functions, needs of specializations, and distribution of authority, various types of organization structures are possible. Most popular forms of organization include: • Entrepreneurial organization • Line Organization • Line and Staff Organization • Functional Organization • Committee Organization • Project Organization • Matrix Organization • Other Modern Organization Designs

18. LINE ORGANIZATION Line organization is the simplest and oldest form of organization. It is generally used in the army. Therefore it is also known as military organization. Other names of line organization are departmental organization, scalar organization, and vertical organization. Note that this is the basic structure of organization and other forms/types of organization are created by modifying this structure. In a line organization, every person has a clear and well-defined role. Through delegation and redelegation, superior-subordinates are established from the top to the bottom. Direct relationships between superiors and subordinates are called line relations. Naturally, in line organization, there is vertical line of authority. The unity of command is an essential condition in this organization. There are two types of line organizations-pure line organization and departmental line organization. In Pure line organization, all individuals perform same type of activities. Divisions are made only for facilitating effective supervision and control. In departmental line organization, the chief executive is at the top. Under him, there are various departments performs different functions/activities. Pure line organization has limited applicability, but departmental line organization is popular.

19. LINE ORGANIZATION OF PRODUCTION DEPARTMENT

20. Merits of Line Organization Line organization has following merits: 1. It is much simple to understand and practice. 2.Clear division and definition of authority and responsibility. 3.It follows the unity of command principle. It facilitates effective supervision and control. 4.It facilities prompt decisions and speedy actions. 5.It is an economical(i.e., cost effective) structure. There is no need of specialist staff. 6. It permits a greater degree of flexibility. 7.It offers better discipline 8.It provides opportunity for development of skills. Executives can be made all-rounders and they have to perform a variety of functions. 9.It permits preservation of secrecy. 10. It is easy to fix the ultimate responsibility.

21. Demerits of Line organization There are some problems in applying line organization. Main demerit have been listed below: • There is lack of specialization; each executive is responsible for both planning and implementing of work. • Results in over burdening of a key man as one has to performed many functions. He may not perform all activities effectively. • It may lead to biased or subjective approach. It may result into autocratic control. • It has limited applicability • It permits limited and one-way communication. Subordinates have no scope to express their views, suggestions, or problems. Their creative abilities may not be adequately utilized. • There is possibility of conflict among departments and difficulty in cooperation and coordination. • It may promote corruption, favouritism, neoptism, and misuse of authority. • There is possibility of complication in promotion and transfer cases. Shifiting or promoting any position holder leads to severe disturbance as he has been managing many activities. • Line organization may lead to instability as a few competent executives mange the entire organization. To get the right successor is always an acute problem. 10. Planning and research works are neglected. Virtually, the manager is very busy with routine work and cannot spare time for planning and research.\

22. Suitability of line organisation • When organisation is small in size • When work is simple and routine • When strict discipline and close control are required • When top secret is to be preserved • When there is no need for specialization • When a number of subordinates is small. Line and Staff Organisation Line and staff organisation is an extensive , expansion or improvement of line organisation . In a large and expanding organisation , pure line organisation is not suitable. Expert’s services are required to carry out activities effectively . This structure is based on F. W. Taylor’s ‘Functional Foremanship’ concept. Here, line of authority remains unbroken, but, at the same time , staff is also appointed to facilitate line persons. Staff means a team of experts . The staffs assists line executives to perform their respective functions effectively.

23. Line and Staff Relationship Line positions in organisation structure are responsible for accomplishing primary objectives. They are closely related to main functions and objectives of the organisation. Line managers are empowered to take and implement decisions. However, they cannot work effectively with out staff. Staff advice, assistance, counseling , and information help managers in attainting goals. The staff analysis the problems, collects and analyses information, develops alternatives, and helps line manages make the right decisions in time. The concept of line and staff relationship can be analyzed by two approaches-authority approach and function approach. Merits of line and staff organisation Line and staff organisation has following merits • Use of expert staff leads to better decision-making. • It is simple to understand and apply; involvement of staff does not complicate the structure. • Scale of economy can be achieved as a few experts perform a large no of activities for the entire organisation. • Provide relief to line executives so that they can concentrate more on their line functions. • This type of organisation promotes coordination because the staff experts acts as a line to establish coordination among various departments and employees throughout the organisation. • Speedy decisions and actions can be taken. Staff provides necessary information, but does not interfere in decisions. Line executive can take decisions promptly. • It permits greater degree of flexibility. Additional experts can be added or reduced easily. • By employing different types of staff (concurring, compulsory consultation, project , etc.), multipurpose use of staff is possible. • It is easy to fix the ultimate responsibility because line manager can be held responsible for the final result. • It leads to clarity and order/discipline.

24. Demerits of line and staff organisation However, line and staff organisation suffers from following demerits • Line and staff organisation is an expensive form of organisation , hence it is not applicable to small and medium size organizations. • There is possibility of evading responsibility by blaming the staff. It promotes escapism mentality. • It may result in confusion. Practically, it is difficult to clearly determine line and staff authority. Jurisdiction, authority, and responsibility are difficult to decide. Similarly, line and staff functions depend on type and nature of business. • Line and staff conflict spoils healthy relations in the organization. Sometimes, old-senior line executives and junior dynamic staff officers face difficulty in working together. • Staff is not granted authority to influence decision-making. Sometimes, service of staff is not adequately utilized. They may also not work effectively as they are not responsible for the results. • Line and staff organization may make line executive careless, dependent, and thoughtless because of the expert services of the staff. • Since departmental head is authorized to act independently within his department, it encourages departmental centralization of authority.

25. Applicability of line and staff organisation Generally, line and staff organisation is applicable in the following situations: • When the organisation is large or medium in size • When expert knowledge is considered to be important • When company wants to utilize expert knowledge without violating line of authority and unity of command.

26. LINE AND STAFF ORGANIZATION FOR A MANUFACTURING UNIT(with extension of only marketing department)

27. FUNCTIONAL ORGANIZATION(with extension of production function)

28. COMMITTEE ORGANIZATION

29. PROJECT ORGANIZATION

30. MATRIX ORGANIZATION STRUCTURE Matrix organization = Matrix structure + Matrix system + Matrix culture + Matrix behaviour

31. ORGANIZATION STRUCTURE

33. ORGANIZATION CHARTS AND MANUALS Organisation charts and manuals are prepared for the purpose of describing the organisation structure. These are used as tools management control. They give full information on a particular organisation. An executive finds out his exact place in the organisation structure from the chart and manuals. It shows the responsibility and authority of executive. He knows his superior for whom he is responsible and his subordinates whom he has to supervise. Organisation charts and manuals are devices showing the organizational relationships and within an organisation. An organisation chart is diagrammatical form which shows the important aspects of organisation including the major functions and their respective relationship, the channels of supervision and the relative authority of each employee who is in charge of each respective function. • Names of the components of organisation Positions of the various officer personnel. • The relationships between the line and staff officers. • Authority and responsibilities of various executives. • Basic organisation structure and flow of authority. • The requirements of management development. • Ways of promotion. • The present and proposed organisation structure. • Number of persons working in an organisation.

34. OVERVIEW OF ORGANIZATIONAL CHART The organization chart is a diagram showing graphically the relation of one official to another, or others, of a company. It is also used to show the relation of one department to another, or others, or of one function of an organization to another, or others. This chart is valuable in that it enables one to visualize a complete organization, by means of the picture it presents. A company's organizational chart typically illustrates relations between people within an organization. Such relations might include managers to sub-workers, directors to managing directors, chief executive officer to various departments, and so forth. When an organization chart grows too large it can be split into smaller charts for separate departments within the organization. The different types of organization charts include: • Hierarchical • Matrix • Flat (also known as Horizontal) There is no accepted form for making organization charts other than putting the principal official, department or function first, or at the head of the sheet, and the others below, in the order of their rank. The titles of officials and sometimes their names are enclosed in boxes or circles. Lines are generally drawn from one box or circle to another to show the relation of one official or department to the others

35. The strengths and weakness of an organisation are evaluated with the help organisation charts. • Organisation chart is a starting point for planning organisation changes. • Instructing work is simplified • They show the levels of authority of relationships prevailing among employees at a glance. • They give a clear picture organisation charts Organizational disputes can be solved with the help of organisation charts • The outsiders of the organisation can have a quick understanding of each department in an organisation. • The lines of the primary function of the management. Organisation charts help planning. • The lines of authority and responsibility given in the organisation chart are definite and formal. • Organisation charts act as authoritative sources of information.

36. The organisation charts do not show the informal relationship existing among the organisation staff members.  It is very difficult to maintain and ensure that the organisation charts are up-to-date. • The organisation charts create more rigidity or relationships prevailing among the employees of the organisation. • Most of the organisation charts are just like photos taken instant  The word and lines used in an organisation charts give different meaning to different persons. • The relationship shown in an organisation chart does not actually prevail among organisation the employees. • The organisation charts produce a psychological complex such as superiors, inferiors • There is no differentiation between line officers and staff officers in an organisation

37. ORGANIZATION MANUAL This type of organisation manual is prepared for the purpose of evolving for the organisation and providing guidance to control the development of the organisation structure. • A small book which contains the information regarding the organisation structure, duties and responsibilities of each position, job, description, salaries, prevailing relationships among members including organisation procedures and methods is called organization manual. • Information regarding leave, promotion, Transfer Contents Rules regarding leave, leaving promotion, transfer. A brief explanation Specimen forms : • Name and address of the top executive • Telephone of the organisation Address of the branch office • Important sections • Address of the showrooms • Duties and responsibilities • Full name address of the organisation

38. Organisation manual helps the personnel to know their duties, responsibilities and relationship with others within a short period • The decisions taken by the management are given in an elaborate manner. Organisation manual contains the demanded method and procedures to be followed in nag organisation. Then the organisation goals are easily achieved. • The blueprint rules and regulations are followed by the employees and the controlling work is minimized. • The employee of the organisation can get a clear picture of the organisation.

39. Advantage of organisation manual : 1. The human relationships are defined and describes in the organisation manual but they could not be practically followed in an organisation. 2. Organisation manual will has some become outdated very soon. It is due to continuous changes of the business, behavior of the employees and the like. Disadvantages of organisation manual: 1. Much time is necessary to keep the organisation manual up-to-date. 2. The preparation of organisation manual increases the administrative expenses of the organisation. 3.The organisation manuals are not reviewed periodically. So the relevant changes are not incorporated in the organisation manual.

40. AUTHORITY , POWER AND DEPARTMENTALISM The term authority may be defined as: Herbert Simon defines term as : “Authority may be defines as the power to make decisions which guide the actions of others. It is relationship between two individuals, one is superior and the other is subordinate. The superior frames and transmits decisions with the expectations that the subordinate will accept the decisions. The subordinate executes such decisions and his conduct is determined by them.” Authority is the right to make decisions and order others. In this reference, the term authority, can be defined as: Authority is the special rights granted (by superior) to position holder in the organization. Such rights enable him to decide, to get the decision executed, to command (direct), and to allocate resources. Authority is the authtorization to decide. Authority enables a manager to function effectively and independently. He can get the work done by virtue of authority. A person is a manger due to possession of authority; authority enables a man to be manger.

41. FEATURES OF AUTHORITY The basic features of authority has been listed below: 1.Authority is legitimate or legal(i.e., position – related and granted by superior) power or the right to decide and / or to order. 2. The limit of authority( i.e., how much and in what way he can use authority) is determined in advance. One has the authority doesn’t mean he is authorized to do anything. He has to use the authority as per policies, rules, regulations, and norms prescribed. 3. Authority is based on responsibility or assignment of work. Along with authority, responsibility is also given. One can use authority to carry out responsibility. 4. It is position-bound. The right is given to a specific position holder. He enjoys authority as long as he occupies that position. 5. It is a relationship between superior and subordinates, in which the superior can exercise authority over the subordinates. 6. Authority is offered or given by ones superior. No one can be authorized without superior’s consent.

42. 7. Authority is a key to managerial action. Without it, superior cannot direct and control subordinates’ actions. 8.The primary purpose of use of authority is to get the work done through others. It is basic element of management. 9. Authority is also a link to integrate several parts/levels in the organization. All parts in the organization are connected via authority. It is also a means (or tool) for coordination. 10. Authority is given objectively but can be used subjectively. Use of authority depends upon personality factors of authority holder. 11. Authority, in the context of organization, can be permanent or temporary, and it can be increased, decreased, or even withdraw. 12. Authority is meaningless (i.e., has no value) if it is not exercised. It must be exercised by making decisions, taking action, and controlling behavior of subordinates.

43. AUTHORITY AND POWER

44. DEPARTMNETATION Departmentation as is defined follows: Louis A. Allen: “Divisionalisation is a means of dividing the large and monolithic functional organisation into smaller, flexible administrative units”. Pearce and Robinson: “Departmentalisation is the grouping of jobs, processes and resources into logical units to perform some organisational task.” Terry and Franklin: “Departmentalisation is the clustering of individuals into units and of units into departments and larger units in order to facilitate achieving organisational goals.”

45. According to Koontz and O’Donnell, “A department is a distinct area, division or branch of an enterprise over which a manager has authority for the performance of specified activities.”‘ In simple words, departmentation is the process of classifying and grouping all the activities of an enterprise into different units and sub-units. The aim is to facilitate the carrying out of the activities efficiently for achieving overall results. Importance of Departmentation: The following points highlight the importance of departmentation: 1. Organisation structure: Division of work into units and sub-units creates departments. Supervisors and managers are appointed to manage these departments. People are placed in different departments according to their specialised skills. The departmental heads ensure efficient functioning of their departments within the broad principles of organisation (scalar chain, unity of command, unity of direction etc.). Thus, organisation structure is facilitated through departmentation. If there are no departments, it will be difficult to keep track of who is doing what and who is accountable to whom. Departmentation creates departments, assigns tasks to people, fixes their responsibility and accountability to their departmental heads, creates a span of management so that work can be easily supervised. This network of authority- responsibility relationships is the basis of designing a sound organisation structure.

46. 2. Flexibility: In large organisations, one person cannot look after all the managerial functions (planning, organising etc.) for all the departments. He cannot adapt the organisation to its internal and external environment. Such an organisation would become an inflexible organisation. Creating departments and departmental heads makes an organisation flexible and adaptive to environment. Environmental changes can be incorporated which strengthen the organisation’s competitiveness in the market. 3. Specialisation: Division of work into departments leads to specialisation as people of one department perform activities related to that department only. They focus on a narrow set of activities and repeatedly performing the same task increases their ability to perform more speedily and efficiently. Specialisation promotes efficiency, lowers the cost of production and makes the products competitive. 4. Sharing of resources: If there are no departments, organisational resources; physical, financial and human, will be commonly shared by different work units. Departmentation helps in sharing resources according to departmental needs. Priorities are set and resources are allocated according to the need, importance and urgency regarding their use by different department.

47. 6. Control: Managers cannot control organisational activities if they have to be collectively supervised. Departmentation facilitates control by departmental manager over the activities of his department only. Activities are divided into smaller segments, standards of performance can be framed, factors affecting performance can be identified and control can be more objective in nature. 7. Efficiency: Flow of work from one level to another and for every department, i.e., vertical and horizontal flow of work in the organisation increases organisational efficiency. 8. Scope for growth and diversification: In the absence of departmentation, managers can supervise a limited number of activities, depending upon their skills and abilities. Departmentation enables them to expand their area of operation into new product lines and geographical divisions. Departmentation provides scope for organisational growth (along the same product lines) and expansion (adding new product lines).

48. 9. Responsibility: Since similar activities are grouped in one department headed by departmental managers, it becomes easy for top managers to fix responsibility of respective managers for achieving the desired results. If planned performance is not achieved, the department responsible becomes answerable. When responsibility is clear, authority can also be delegated to managers. Clear identification of responsibility and authority increases efficiency of the departmental activities. 10. Development of managers: Departmentation enables departmental heads to be creative in making decisions with respect to their departmental activities. Training needs can also be identified because manager’s task is clear and specific. There are opportunities to improve performance in their area of specialisation. This develops their potential to be promoted to higher managerial positions in the organisation. It also facilitates recruitment and selection of top managers from within the organisation rather than depending on outside sources.

49. Basis of Departmentation: The form of organisation structure depends upon the basis of departmentation. Creating departments and sub-dividing the work of departments into smaller units creates organisation structure. With growing size of organisations, departments are created for activities of similar nature. There are two broad forms of departmentation: • a. Functional departmentation, and  • b. Divisional departmentation. a. Functional Departmentation: Functional organisation creates departments along activities or functions of the undertaking (functions do not refer to managerial functions of planning, organising , staffing, directing and controlling). It is grouping of activities on the basis of similarities of functions. The nature of activities performed by different organisations is different. For example, activities carried by a manufacturing organisation are production, finance, personnel and sales. For a trader, the major activities are buying and selling, a bank performs borrowing and lending functions. Functional departmentation is, “the grouping of jobs and resources within the company in such a way that employees who perform the same or similar activities are in the same department”.

50. It is the simplest, logical and most widely accepted form of creating departments. It is suitable for organizations where limited number of products are produced. The major functional departments further have derivative departments. Production department, for example, has sub-departments to manage purchase, production planning and control, manufacturing etc. Finance department creates departments to look into capital budgeting (fixed assets) and current assets, cash management and budgets. Personnel department has sub-departments to take care of appointments, training, placement and promotion of employees. These sub-departments can be further sub-divided if needed. Advertising department (sub-department of marketing department), for example, can further have sub-departments like advertising in Newspapers, Radio, TV etc.