Organizing

Delegation of authority vs. Decentralization of authority

Conclusion: Delegation is the process by which authority passes from one person to another, while decentralization is the extent to which authority is spread throughout the organisation. Decentralization cannot exist without delegation, but delegation can exist without decentralization.

Diagram of Functional Structure:

                Managing Director
                       │
     ┌───────────┬─────┴─────┬───────────┐
     │           │           │           │
 Production   Marketing   Finance    Human Resource
  Manager      Manager     Manager      Manager
     │           │           │           │
   Staff        Staff       Staff       Staff

In a functional structure, the organisation is divided into departments such as production, marketing, finance and human resource. Each department is headed by a functional manager, and all functional managers report to the managing director.

Functional organisational structure

                 Chief Executive Officer
                          │
     ┌──────────┬─────────┴────┬──────────────┐
     │          │              │              │
 Marketing  Production      Finance     Human Resource
 Department Department     Department    Department
     │          │              │              │
   Sales      Quality       Accounts       Training
  Section     Control       Section        Section

Key features: Work is divided on the basis of functions (marketing, production, finance, etc.). Each department is headed by a functional specialist who reports to the chief executive.

Departmentation is the process of dividing the total work of an organisation into smaller manageable units or departments on the basis of some common criteria, and grouping activities and employees into those units. It is the structural framework through which authority and responsibility are assigned, and it makes the large organisation easier to manage, supervise and coordinate. Each department is headed by a manager who is responsible for its performance.

Bases of departmentation

1. Departmentation by function Activities of a similar nature are grouped into functional departments such as production, marketing, finance and human resources. It is the most common and logical basis, suitable for almost every organisation. Illustration: A manufacturing company may create a Production Department (making goods), a Marketing Department (selling and promoting), a Finance Department (managing funds) and a Human Resource Department (managing people). Each is headed by a functional manager under the chief executive.

2. Departmentation by product Activities relating to a particular product or product line are grouped together under one department. It is suitable for large organisations dealing in multiple products. Illustration: A company like Unilever Nepal may have separate departments for soap, toothpaste and food products. Each product department looks after production, sales and profit of its own product, and the product manager is accountable for its results.

3. Departmentation by territory (geography) Activities are grouped on the basis of geographical area or region. It is useful when the market is spread over a wide area and local conditions differ. Illustration: A bank may have a Kathmandu Region, Pokhara Region and Biratnagar Region, each headed by a regional manager who serves customers of that area according to local needs.

4. Departmentation by customer Activities are grouped according to the type or class of customers served. It helps to satisfy different customer groups efficiently. Illustration: A bank may have a Retail Banking Department for individual customers and a Corporate Banking Department for business firms. Similarly, a book shop may have separate counters for school books and college books.

5. Departmentation by process Activities are grouped on the basis of the production process or the nature of the work performed. It is common in manufacturing and service organisations. Illustration: A textile mill may have a Spinning Department, a Weaving Department and a Dyeing and Finishing Department. Each department performs one stage of the production process.

6. Departmentation by time Activities are grouped according to the time or shift in which the work is performed. It is used where work continues for long hours or round the clock. Illustration: A hospital or a factory may have a Morning Shift, Evening Shift and Night Shift, each with its own supervisor, so that work goes on continuously.

7. Departmentation by number Activities are grouped simply by counting the number of persons, such as a group of ten workers under one supervisor. This basis is simple but is rarely used in modern organisations because it ignores the nature of work and skill.

Conclusion Departmentation may be done on a single basis or on a combination of bases, depending on the size, nature and objectives of the organisation. A sound basis of departmentation fixes responsibility, avoids duplication of work, and helps the organisation achieve its goals efficiently.

The major organizing principles that can be effectively applied in a business organization are described below:

1. Principle of Unity of Objectives The entire organization should be directed towards the achievement of a common objective. Every department, unit and individual must work in harmony with the overall goals of the enterprise. This ensures that efforts are not scattered and that all activities contribute to a common purpose.

2. Principle of Division of Work (Specialization) The total work should be divided into small, manageable tasks and assigned to different persons according to their skill, knowledge and ability. Division of work brings specialization, increases efficiency, avoids duplication of effort and improves the quality and speed of work.

3. Principle of Unity of Command Each subordinate should receive orders and instructions from only one superior. This principle avoids confusion, conflict and divided loyalty among employees. It fixes clear responsibility and maintains discipline in the organization.

4. Principle of Span of Control (Span of Management) The number of subordinates that a manager can effectively supervise should be limited. A proper span of control ensures effective supervision, better communication and timely decision-making. It determines the number of levels in the organizational structure.

5. Principle of Delegation of Authority Authority should be delegated from top-level management to lower levels along with responsibility. Delegation enables managers to share their workload, develops subordinates and ensures quick decisions at the point of action. Authority must be commensurate with responsibility.

6. Principle of Scalar Chain (Hierarchy) There should be a clear, unbroken line of authority from the top level to the lowest level of the organization. This chain defines the formal path of communication, fixes the chain of command and clarifies who reports to whom.

7. Principle of Coordination The activities of different departments and individuals should be integrated and harmonized so that they work together smoothly. Coordination is the essence of management, as it unifies the efforts of all members towards the common goal and avoids conflicts among departments.

8. Principle of Efficiency and Flexibility The organizational structure should be designed to achieve maximum efficiency at minimum cost. At the same time, it should be flexible enough to adapt to changes in the internal and external environment, such as changes in technology, market demand and government policy.

9. Principle of Balance There should be a proper balance between centralization and decentralization of authority, between the span of control and the number of levels, and between authority and responsibility. A balanced structure avoids overburdening some parts and underutilizing others.

10. Principle of Simplicity and Clear Definition The organizational structure should be simple and easily understandable, with clearly defined duties, responsibilities and authority of every position. Clear definition reduces ambiguity, avoids overlapping of work and helps employees know exactly what is expected of them.

These principles, when applied together, help build an effective organizational structure that promotes efficiency, discipline, coordination and the smooth achievement of business objectives.

A divisional structure groups activities by product, region, or customer, with each division having its own functional units.

                    Board of Directors / CEO
                              |
        ┌─────────────────────┼─────────────────────┐
        |                     |                     |
  Division A            Division B            Division C
 (Product/Region)      (Product/Region)      (Product/Region)
        |                     |                     |
  ┌─────┼─────┐         ┌─────┼─────┐         ┌─────┼─────┐
  |     |     |         |     |     |         |     |     |
Prod.  Fin.  Mktg.    Prod.  Fin.  Mktg.    Prod.  Fin.  Mktg.

Each division operates semi-autonomously under a divisional head, who is accountable to top management for the division's performance.

Matrix Organisational Structure

A matrix organisational structure is a hybrid structure in which each employee is placed under two lines of authority at the same time — a functional manager (vertical line) and a project or product manager (horizontal line). It is formed by superimposing a project structure over the existing functional structure, so that the organisation takes the shape of a grid or matrix. For example, in a construction company, an engineer works under the functional head (Civil Engineering Department) and also under the project manager of a particular bridge project. The structure is common in large, complex organisations such as construction firms, consultancies, aerospace companies and multinationals.

Features

1. Dual authority and dual reporting: Every employee has two bosses — the functional manager and the project manager.
2. Combination of functional and project lines: Functional departments (production, finance, marketing, HR) run vertically, while projects run horizontally across them.
3. Team of specialists: People with different functional skills are drawn from various departments and pooled into a project team.
4. Temporary or permanent projects: Project teams may be dissolved after the project ends, or may continue as permanent product divisions.
5. Balance of power: Authority is shared between functional and project managers, with top management often resolving conflicts between them.

Benefits

1. Efficient use of specialised staff: Experts are shared between projects instead of being duplicated, which reduces cost and avoids idle manpower.
2. Flexibility and quick response: Teams can be formed, changed or dissolved as projects arise, so the organisation adapts easily to changing conditions.
3. Better coordination: The project manager coordinates the work of specialists from different departments, which improves communication and unity of effort on a common goal.
4. Development of employees: Staff gain experience of working with different functions and under different bosses, which develops their skills and prepares them for higher responsibility.
5. Focus on both efficiency and results: Functional managers look after technical quality and specialisation, while project managers look after time, cost and completion of the project.
6. Higher motivation and job satisfaction: Participation in a project team gives employees recognition, variety in work and a sense of achievement.
7. Suitable for complex and large organisations: It handles multiple projects, products or markets at the same time, which a simple functional structure cannot do.

Conclusion

The matrix structure is thus a dual-authority structure that combines the advantages of functional specialisation with project focus. Its main benefits are optimum use of specialists, flexibility, improved coordination and employee development, though it must be managed carefully because of the possibility of conflict between the two lines of authority.

Decentralization of authority means the systematic dispersal of decision-making power from the top level to the lower levels of the organisation. It is appropriate because it makes the organisation more responsive, flexible and motivating. The arguments in its favour, and against centralization, are as follows:

1. Quick decisions and prompt action. When authority is pushed down, lower-level managers can decide and act at once without waiting for approval from the top. Centralization delays every decision because all matters must travel up to the top level and come back down.

2. Relief to top management. Decentralization frees the top executives from routine, day-to-day problems so that they can concentrate on strategic issues like planning, policy-making and expansion. Under centralization the top level is overburdened with petty matters and has no time for long-term thinking.

3. Development of managerial talent. Delegating authority gives subordinates the chance to take decisions, make mistakes and learn from them. This creates a pool of trained managers ready for promotion. Centralization keeps all authority at the top, so lower-level managers never get the opportunity to develop decision-making skills.

4. Motivation and morale. Authority carries responsibility and status. When employees are trusted with decision-making power, they feel important and valued, which raises morale and job satisfaction. Centralization treats subordinates as mere executors of orders, which kills initiative and breeds frustration.

5. Effective supervision and control. A decentralized structure creates smaller, manageable units with clear responsibility centres. Performance can be measured and controlled more easily. In a centralized structure, the span of control becomes too wide and control becomes weak and delayed.

6. Flexibility and adaptability. Decentralized units can adjust quickly to changes in local conditions, customer tastes and market competition. A centralized organisation is rigid — every change must be approved centrally, so it reacts slowly and loses opportunities.

7. Better use of local knowledge. Lower-level managers and employees know local conditions, customers and problems better than the top. Decentralization lets this practical knowledge be used in decisions. Centralization ignores such ground-level information.

8. Reduced communication burden. In centralization, a huge volume of information, reports and requests flows to a single point, causing delays, distortion and bottlenecks. Decentralization shortens the chain and speeds up communication.

Arguments against centralization:

• It concentrates power in a few hands, which can lead to autocratic and biased decisions.
• It delays decisions, so the organisation cannot seize opportunities or respond to threats in time.
• It demotivates subordinates, since they have no say and no scope for growth.
• It overburdens top executives, leaving them no time for policy and planning.
• It makes the organisation dependent on a few key persons; if they leave or fall ill, decisions stop.
• It weakens control at lower levels and encourages a narrow, "head-office only" outlook.

Conclusion. Decentralization is appropriate because it combines speed, motivation, flexibility and managerial development, and it keeps the top management free for strategic work. Centralization is useful only in small organisations or in matters of overall policy and finance; as an organisation grows, decentralization becomes not merely appropriate but necessary.

Arguments for centralization of authority

1. Uniformity of action: A single central authority lays down one set of policies and procedures for the whole organisation, so all departments and branches work in the same way.
2. Better control and coordination: Power at the top makes it easier to supervise, monitor and coordinate the activities of all units, and to fix responsibility.
3. Economy and speed in decision-making: Fewer decision-makers means quick decisions and lower administrative cost, since fewer managers and offices are needed.
4. Effective use of specialised staff: Top-level experts and specialists can be used to the full, as all important matters come to them.
5. Handling of emergencies: In a crisis, quick and firm decisions from the centre keep the organisation stable.
6. Development of top managers: It gives top executives wide experience in taking important decisions, which helps them grow.

Arguments against centralization of authority

1. Delay in decision-making: Every matter must go up to the top, so decisions are slow and opportunities may be lost.
2. Overburdening of top executives: The top level gets buried in routine and minor matters and cannot give time to policy and planning.
3. Loss of initiative and morale: Lower-level managers have no freedom to decide, so they lose interest, initiative and a sense of responsibility.
4. Unsuitable for large organisations: In big, complex and geographically spread organisations, the centre cannot know local conditions and cannot decide everything.
5. Lack of flexibility: Uniform decisions taken at the centre may not suit the different local conditions of branches and departments.
6. Weak managerial development: Subordinates get no chance to take decisions, so they do not develop into future managers.
7. Poor customer service: Delay and lack of local authority make it difficult to give quick service to customers.

Conclusion: Neither extreme is desirable. Authority should be centralised only to the extent needed for control and uniformity, and decentralised for speed, initiative and local suitability.

Delegation of authority vs. Decentralization of authority

Delegation of authority means the transfer of authority by a superior to a subordinate to carry out a specific task, along with responsibility. Decentralization of authority means the systematic dispersal of decision-making authority throughout all levels of an organisation, from top to bottom. The two differ in the following respects:

Conclusion: Delegation is the basic act of transferring authority from one person to another, whereas decentralization is the broad organisational policy of spreading that authority throughout the enterprise. Decentralization is thus the cumulative result of delegation at all levels.

Organizing Function

Organizing is the management function that follows planning. It involves identifying the work to be done, grouping it into manageable units, assigning duties to employees, and establishing authority–responsibility relationships so that the planned objectives can be achieved. In short, organizing is the process of bringing together physical, financial and human resources and building a structure in which work is systematically arranged.

Definition: According to Koontz and O'Donnell, "Organizing 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."

Steps in Organizing

1. Identification of work: Determining the total work required to achieve the objectives.
2. Grouping of work: Dividing the total work into departments, divisions and sections.
3. Assignment of duties: Allocating the grouped work to suitable employees.
4. Delegation of authority: Giving each employee the authority needed to perform the assigned duty.
5. Establishing relationships: Defining clear lines of authority and responsibility among all positions.

Principles of Organizing

1. Unity of objectives: The structure of the organization should be built around its objectives. Every department and individual should work towards the common goal.

2. Division of work (specialization): The total work should be divided into small tasks and assigned to individuals according to their skill and ability. This increases efficiency and productivity.

3. Unity of command: Each subordinate should receive orders from only one superior. This avoids confusion, conflict and divided responsibility.

4. Span of control: The number of subordinates that a superior can effectively supervise should be limited. A proper span ensures effective supervision and communication.

5. Delegation of authority: Authority should be delegated to the level where the work is actually performed. No one should be given responsibility without matching authority.

6. Authority and responsibility: Authority and responsibility should go together. A person given responsibility must also be given the necessary authority to fulfil it.

7. Scalar principle (chain of command): There should be a clear, unbroken line of authority from the top level to the bottom level. Every subordinate should know from whom to take orders and to whom to report.

8. Principle of balance: There should be a proper balance between centralization and decentralization of authority, and between the various units of the organization.

9. Coordination: The activities of all departments and individuals should be coordinated so that they move together towards the organizational goal.

10. Flexibility: The organizational structure should not be rigid. It should be able to adjust to changes in the environment, technology and objectives.

Conclusion: Organizing converts plans into action by creating a clear structure of duties, authority and relationships. Following these principles helps the organization use its resources efficiently and achieve its objectives smoothly.

A committee organizational structure combines the line structure with committees formed at various levels to advise or decide on specific matters.

A specimen of the committee organizational structure is drawn below:

                        Board of Directors
                               │
                    ┌──────────┴──────────┐
                    │   Managing Director  │
                    └──────────┬──────────┘
                               │
        ┌──────────────────────┼──────────────────────┐
        │                      │                      │
   Finance Committee    Production Committee   Marketing Committee
        │                      │                      │
   ┌────┴────┐            ┌────┴────┐            ┌────┴────┐
   │ Members │            │ Members │            │ Members │
   └─────────┘            └─────────┘            └─────────┘

In this structure, the line authority flows from top to bottom, while committees at each level are formed to discuss, advise and take collective decisions on specialised matters.

Matrix Organisational Structure

A matrix structure combines two lines of authority at the same time — a functional (vertical) line and a project/product (horizontal) line. Employees therefore have two bosses: a functional head and a project manager. The diagram below shows this for a manufacturing industry.

                        BOARD OF DIRECTORS / MANAGING DIRECTOR
                                        |
        ┌───────────────┬───────────────┼───────────────┬───────────────┐
        │               │               │               │               │
   Production      Marketing       Finance        Human Resource   R & D
     Head            Head            Head            Head           Head
        │               │               │               │               │
        └───────┬───────┴───────┬───────┴───────┬───────┴───────┬───────┘
                │               │               │               │
        ┌───────┴───────┐ ┌─────┴─────┐ ┌───────┴───────┐ ┌─────┴─────┐
        │  Project A    │ │ Project B │ │  Project C    │ │ Project D │
        │  Manager      │ │ Manager   │ │  Manager      │ │ Manager   │
        └───────────────┘ └───────────┘ └───────────────┘ └───────────┘

Each cell (for example, Production staff under Project A) is answerable to both the Production Head and the Project A Manager. The functional heads control technical standards and resources; the project managers control time, cost and delivery of their projects.

Advantages

1. Efficient use of specialists — experts are shared across projects instead of being duplicated in each department, which reduces cost.
2. Better coordination — the horizontal (project) line links different functions, so production, marketing and finance work together on the same goal.
3. Flexibility and speed — teams can be formed, changed or dissolved quickly as projects change, so the firm adapts to a dynamic environment.
4. Balanced decision-making — technical quality (functional head) and project needs (project manager) are both considered.
5. Development of managers — employees handle dual responsibility and gain wider experience, which prepares them for higher posts.
6. Focus on results — each project has a clear manager responsible for its success, so accountability is fixed.

Disadvantages

1. Dual authority (unity of command violated) — an employee receives orders from two bosses, which causes confusion and conflict.
2. Power struggle — functional heads and project managers often clash over resources, priorities and authority.
3. High cost — more managers, more coordination meetings and more administrative work raise overhead expenses.
4. Slow decisions — because two lines must agree, decisions may be delayed.
5. Stress and divided loyalty — employees are pulled in two directions and may not know which instruction to follow first.
6. Complex to manage — it needs very skilled top managers and clear rules; it is difficult for small firms.

Conclusion

The matrix structure is suitable for large, complex industries handling several projects at once (for example, construction, IT or engineering firms). It gives flexibility and better use of talent, but it works only when authority, responsibility and reporting relationships between the two lines are clearly defined.

A simple organisational structure is a vertical hierarchy:

          General Manager
                 │
     ┌───────────┼───────────┐
     │           │           │
 Marketing     Finance    Production
  Manager      Manager     Manager
     │           │           │
   Staff       Staff       Staff

The top level is the General Manager (top management), the next level holds departmental managers (middle management), and the lowest level holds the staff or workers. Authority flows downward and responsibility flows upward.

The drivers of organizing are the factors that necessitate and guide the process of organizing — namely objectives/goals, division of work, specialisation, coordination, authority–responsibility relationships, and the environment (size, technology and environment of the organisation).

In short, organizing is driven by the need to achieve set objectives efficiently through division of labour, a clear authority–responsibility structure and proper coordination.

Distinction between Delegation of Authority and Decentralization of Authority

Conclusion: Delegation is the means (the process), while decentralization is the end (the result). Decentralization cannot exist without delegation, but delegation may exist without decentralization.

The principles of organizing are the guidelines that a manager follows while designing and maintaining the organizational structure of a business. They help in grouping activities, assigning duties, and establishing authority so that the business runs smoothly and efficiently. The main principles are explained below.

1. Unity of objectives Every department, section and individual in the organization should work towards the common objectives of the business. The organizational structure should be built around these objectives so that all efforts move in the same direction and there is no wastage of resources. For example, if the objective of a firm is to increase sales by 20%, the production, marketing and finance departments must all plan accordingly.

2. Division of work The total work of the business should be divided into small, manageable tasks and each task assigned to a person according to his ability and skill. This brings specialization, increases efficiency, avoids duplication of work and makes supervision easy. For example, in a garment factory the work is divided into cutting, stitching, checking and packing.

3. Unity of command Each subordinate should receive orders and instructions from only one superior. If a worker gets orders from two bosses at the same time, he gets confused, cannot decide which order to follow first, and cannot be held responsible for the results. Therefore, the line of authority from the top to the bottom should be clear and single.

4. Span of control Span of control means the number of subordinates that a superior can effectively supervise. It should be neither too wide nor too narrow. A wide span overloads the manager and reduces effective supervision, while a very narrow span increases the number of levels, raises cost and delays communication. The span should be fixed according to the nature of work, ability of the manager and ability of the subordinates.

5. Delegation of authority Authority should be delegated to the lower levels along with the responsibility to perform the assigned work. A manager cannot do all the work himself, so he transfers authority to subordinates. Delegation develops employees, reduces the burden of the top management and speeds up decision-making. Authority should be equal to responsibility.

6. Responsibility Responsibility means the obligation of a subordinate to perform the assigned duty properly. It flows upward, that is, a subordinate is answerable to his superior for the work delegated to him. Responsibility cannot be delegated or avoided; only authority is delegated. Clear fixation of responsibility helps in evaluating performance and fixing accountability.

7. Authority Authority is the right to give orders, to direct subordinates and to take decisions within the limits of the position. It flows downward from the top level to the bottom. Authority makes a manager able to get the work done from others and is the basis of the chain of command in the organization.

8. Balance of authority and responsibility Authority and responsibility must go together. If a person is given responsibility without authority, he cannot get the work done; if he is given authority without responsibility, he may misuse it. Hence, the two should be balanced at every level of the organization.

9. Scalar chain There should be a clear, unbroken chain of authority from the topmost executive to the lowest worker. Every person should know from whom he receives orders and to whom he is answerable. This scalar chain makes communication and coordination systematic.

10. Unity of direction There should be one head and one plan for a group of activities having the same objective. For example, all activities relating to the production of one product should be under one production manager with one plan. This avoids duplication of efforts and ensures uniformity of action.

11. Efficiency The organizational structure should be designed in such a way that it achieves the objectives of the business at minimum cost and with minimum effort. It should avoid unnecessary levels, overlapping of duties and wastage of resources.

12. Flexibility The organization structure should not be rigid. It should be able to adjust itself to changes in the business environment, technology, market demand and size of the business. A flexible structure helps the business to survive and grow in changing conditions.

13. Simplicity The organizational structure should be simple and easy to understand. A simple structure with clear lines of authority and few levels makes communication faster, supervision easier and administration less costly.

14. Personal ability and recognition While assigning duties, the ability, skill and interest of the employees should be considered, and good performance should be recognized and rewarded. This motivates employees and increases their efficiency.

15. Coordination The efforts of all departments and individuals should be coordinated so that they move together towards the common goal. Coordination is the essence of organizing, as it unites the divided work into a single whole.

Conclusion Thus, the principles of organizing provide a framework for building a sound organizational structure. If these principles are followed properly, the business can achieve its objectives efficiently, maintain good relations among employees, and adapt to changing conditions. However, these principles are only guidelines and should be applied according to the situation, size and nature of the business.

A simple organizational structure is a flat, centralised structure with very few departments and almost no formal levels. The owner-manager holds nearly all decision-making power, and a small number of employees report directly to him or her. It is common in small shops, small restaurants and newly started businesses.

Figure: Simple organizational structure

            Owner / Manager
                  |
      ------------------------------
      |        |         |         |
  Employee  Employee  Employee  Employee

Advantages

1. Quick decisions: Since authority is in one person's hands, decisions are made and implemented without committee delays.
2. Low cost: There are few managers and little paperwork, so the administrative cost is low.
3. Clear accountability: The owner is responsible for the results, so there is no confusion about who is answerable.
4. Flexibility: The business can respond quickly to changes in customers' needs or the market.
5. Direct communication: Employees and the owner are in close contact, which reduces misunderstanding and builds loyalty.

Disadvantages

1. Overload on the owner: One person handles too many tasks, which may lead to poor decisions and stress.
2. Dependence on one person: If the owner is absent, ill or makes a mistake, the whole business suffers.
3. Unsuitable for growth: As the firm expands, the structure cannot manage more employees, products or locations.
4. Limited specialisation: Employees do many different jobs, so expertise and efficiency are limited.
5. Little scope for promotion: There are few levels, so employees may feel less motivated and may leave.

Organizing is the managerial function of arranging people, resources and activities, and establishing authority and responsibility relationships, so that plans can be carried out effectively. The process involves the following steps.

1. Identifying and defining objectives: The organization first studies its plans and objectives, because the structure must be built to achieve them.
2. Identifying and dividing the work: All activities needed to achieve the objectives are listed, for example production, marketing, finance and personnel. Large tasks are broken into smaller, manageable jobs, which allows specialisation.
3. Grouping activities (departmentalisation): Related jobs are grouped into departments or units on a suitable basis such as function, product, geography or customer.
4. Assigning duties: Each job is given to a suitable person according to his or her skill and ability, with clear duties so that there is no overlap or confusion.
5. Delegating authority: Managers are given the authority necessary to perform their duties, and responsibility is fixed along with it. Accountability is also established.
6. Establishing reporting relationships: A chain of command is created, showing who reports to whom, with a proper span of control. This links all positions into a structure, usually shown by an organization chart.
7. Providing resources and facilities: Money, materials, equipment and information needed to perform the work are made available.
8. Coordination, review and adjustment: Mechanisms such as meetings and communication are set up to coordinate the departments. The structure is reviewed regularly and changed when the environment or objectives change.

Through these steps a clear and workable structure is created, which makes the achievement of goals easier.

Simple organisational structure

          General Manager
                 │
     ┌───────────┼───────────┐
     │           │           │
Production    Marketing    Finance
 Manager       Manager     Manager
     │           │           │
 Supervisor  Supervisor  Supervisor
     │           │           │
  Workers      Sales       Accounts
                staff       staff

A simple organisational structure has few levels of authority and a short chain of command. The owner or general manager directly supervises a small number of departmental managers, who in turn control the operating staff. It suits small business firms.

Departmentalization is the process of dividing the whole organisation into smaller manageable units or departments on some logical basis, so that each unit can be headed by a separate manager.

1. Functional basis: Departments are formed according to functions performed.

          Managing Director
                  │
    ┌─────────┬───┴──────┬──────────┐
    │         │          │          │
Production Marketing   Finance  Human Resource

It promotes specialisation, but coordination between departments may be difficult.

2. Product basis: Departments are formed according to products or product lines.

          Managing Director
                  │
        ┌─────────┼─────────┐
        │         │         │
  Soap Division  Cosmetics  Detergent
                 Division   Division

Each product division has its own production, sales and accounts staff. It lets the profit of each product be judged and suits large multi-product firms, but it duplicates staff and facilities and raises cost.