This document discusses organizational structure and its key elements. It begins by defining organization and organizational structure. There are different types of organizational structures including line, line and staff, functional, project, matrix, and divisional structures. The benefits of organizational structure are also outlined. Departmentalization and its various methods are then defined. The document also covers centralization versus decentralization and defines a learning organization.

1. Chapter Three
Organizational Structure & System

2. Outcome3:
Define business organizational structure and its basic elements; identify and explain different forms of
organizational structure;
Contents:
 Definitions and Principles of Organization
 Importance and Benefits of Organizing
 Organization Structure
 Line and Staff Relations
 Centralization vs. Decentralization
 Learning Organization
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3. Essential Reading
 Bhattacharyya (2009). Organizational systems, design, structure and management. Himalaya Publishing
House. Chapter Six
Link:https://ebookcentral.proquest.com/lib/momp/detail.action?docID=3011256&query=organizational+syst
ems+design+structure+and+management
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Recommended Reading
Management 6th Edition by Stephen P Robbins & Mary Coulter published by Prentice Hall International
Editions
Open Educational Resource
www.Saylor.org/site/textbooks/Principles%20of20Management .pdf

4. Organization
Organization refers to a collection of people, who are involved in pursuing defined
objectives.
It can be understood as a social system which comprises all formal human relationships.
The organization encompasses division of work among employees and alignment of tasks
towards the ultimate goal of the company.
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Louis Allen, “Organization is the process of identifying and
grouping 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.”
In the words of Allen, organization is an instrument for achieving
organizational goals. The work of each and every person is defined
and authority and responsibility is fixed for accomplishing the
same.
Definition

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• Organisation deals with the whole task of business.
• The total work of the enterprise is divided into activities and functions.
• Various activities are assigned to different persons for their efficient accomplishment.
1. Division of Work:
• Co-ordination of various activities helps in integrating and harmonising various activities. Co-ordination also avoids
duplications and delays in the work
2. Co-Ordination:
• All organisation work towards the achievement of business goals.
3. Common Objectives:
• An organisation creates co-operative relationship among various members of the group members of various departments.
4. Co-operative Relationship:
• An organisation consists of various positions arranged in a hierarchy with well defined authority and responsibility.
5. Well-Defined Authority-Responsibility Relationships:
Characteristics of Organisation:

7. Organizing
Organizing is the second key management function
It entails defining jobs and working relationships, assigning different tasks
associated with the plans, arranging and allocating resources, design a structure
which distinguishes duties, responsibilities and authorities, scheduling activities,
in order to maintain smoothness and effectiveness in operations
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According to Chester Barnard, “Organizing is a function by which the concern is able to
define the role positions, the jobs related and the co-ordination between authority and
responsibility. Hence, a manager always has to organize in order to get results.

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Importance of Organizing
Organizing is integral to
management as it facilitates the
smooth functioning of the
business.
The importance of organizing is as
under:

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Importance of Organizing
Advantage of
Specialization:
•Organization create
department and assign
job to the employees
on the basis of their
skills which helps them
to perform specific
work on a regular basis
and gives benefit of
specialization.
Describes work
relationships:
•The definition of work
relationships describes
the flow of
communication and
determine the superior-
subordinate
relationship. This
removes confusion and
chaos, in getting orders
and instructions.
Effective
utilization of
resources:
•Organizing function
ensures the best
possible utilization of
resources whether it is
human, material,
financial or technical.
This is because jobs
are assigned to the
employees which avoid
overlapping and
duplication of work.
Adaptation to
change:
•Organizing process
helps the organization
to survive and adapt
the changes, by making
substantial changes in
the strategies,
hierarchy,
relationships, etc.
Development of
personnel:
•Organizing encourages
creativity in
executives. Delegation
of authority reduce
their workload and
they get time to
identify new methods
to perform the work. It
also enables them to
explore new areas for
their growth and
development.

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Organizational structure defines how activities such as task allocation, coordination,
and supervision are directed toward the achievement of organizational aims.
An organizational structure is a visual diagram of a company that describes what
employees do, whom they report to, and how decisions are made across the business.
Benefits of organizational structure :
Organization Structure
Faster decision making
Multiple business locations
Improved operating efficiency
Greater employee performance
Eliminates duplication of work
Reduced employee conflict
Better communication

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Types of Organization Structure
Types
of
Organization
Structure
Line Organization
Line and staff Organization
Functional Organization Structure
Project Organization Structure
Matrix Organization Structure

13. Line Organization
 Line organization has direct vertical
superior-subordinate relationship
which connects the position at each level.
 The authority flows downward and
accountability flow upward.
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Authority is a power or right to give orders,
make decisions
Accountability makes an individual
answerable about the task or job he/she has
done.

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 A line-staff organization is a structure
that distributes work responsibilities
from upper management to lower-
level employees.
 The managers communicate their
expectations to the team.
 They establish targets and deadlines
for employees to finish work on time.
Line and Staff Organization:

15. Functional Organization
Functional organizational structure refers to the
structure in which different departments are created
on the basis of major functions performed in the
organization.
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For example, Mr. Ali is managing director of
factory which manufactures washing powder. The
whole organization is divided into major functions
like production department, marketing department,
finance department and purchase department.
All activities related to production department are
grouped together like component manufacturing,
product assemble, and quality control

16. Project Structure Organization
 A project structure organizational structure
determine the hierarchy and authority of
people involved in a specific project.
 This organizational structure is temporarily
created for specific projects for a
particular period for the project to achieve the
goal.
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Example developing a new product, specialize
in various functional departments such as
production, engineering, quality control,
marketing research etc. and will be ready to
work together.

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Matrix organization structure is a combination of functional organization and project organization.
For example, if a food company is launching a new brand of ice creams (New project), the production
team, research team and marketing team work together to launch the ice creams.
launching a new brand of ice creams
Matrix Organization

18. Divisional Structure Organization
 In a divisional structure, organizations are split into
divisions based on specific products, services or
geographies.
 In a geographical divisional organizations structure,
divisions are typically separated by location or sales
territories.
 In a product-based divisional organizations
structure, divisions are organized by product line.
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Geographical divisional org structure
Product-based divisional org structure
For example, retail company will have a health division,
beauty division, food division and admin and finance
division.
Each division would have their own finance , marketing ,
manufacturing , customer service, research and development
division.
Each division will put their efforts to develop their own
specific products and services.

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Departmentalization refers to the process of grouping activities into departments
Objectives of Departmentalization
• To specialize in activities
• To simplify the process and operations of the organization
• To maintain and control the activities
Departmentalization
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Methods
Of
Departmentalization Departmentalization by Function
Departmentalization by Process
Departmentalization by Product
Departmentalization by Territory

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Departmentalization by Function
 Departments are created on the basis
of specific functions, such as
production, marketing, purchase,
finance etc.
 Similar activities related to a
function are combined in a single
unit, to give directions to the entire
group at once.

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Departmentalization by Process
 Departments are created on the basis of
specific process.
 Similar activities related to each process
are combined to form specific process
department
 Example: In cloth production
department, the activities are divided on
the basis of process. Such as Spinning,
weaving, dyeing and packing

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Departmentalization by Product
 Departments are created on the basis of
Product categories.
 Activities related to specific product
categories are combined into a particular
division.
 Example: Samung produce various type
of electronic products Like AC,
television, Laptop, mobile etc. They
have separate product division for AC,
television, Laptop, mobile etc.

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Departmentalization by Territory
 When the division is based on the
geographical area, it is called as
territorial departmentalization.
 This is suitable for the organizations,
that have widespread operations at
different locations.
 Example: Samung produce various type
of electronic products Like AC,
television, Laptop, mobile etc. They
have separate region like northern ,
southern, central for different products

24. Meaning of Centralization
In Centralization the decision making authority remains with the top management.
The top management sets rules and procedures which are then communicated to the
lower-level employees, who are expected to follow the instruction coming from the top
management
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For example,
In family business, father being the owners decide about the important matters like expansion of business
and all the rest of functions like product, finance, marketing, personnel, are carried out by the department
heads .
The department heads have to act as per instruction and orders of the father (owner). Therefore in this
case, decision making power remain in the hands of father (owner).

25. Meaning of Decentralization
Decentralization is a systematic delegation of authority to middle level and lower
level of management.
The main reason for decentralization is giving authority and responsibility to those
who know best — since they’re closer to stakeholders and have relevant information
available to them.
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For example,
a personal banker who maintain customers accounts will be able to handle customer issues much faster
than the Top management

26. Learning organization
A learning organization is an organization that facilitates the learning of its
members and continuously transforms and grow itself.
Peter Senge, defines learning organizations as “organizations that encourage
adaptive and generative learning, encouraging their employees to think outside the
box and work in conjunction with other employees to find the best answer to any
problem.”
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• Learning Environment
• Learning Process & Practices
• Leadership
Three key aspects of a learning organization

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