PLANNING

Unit 2
Why and How Managers Plan

■ Planning
– The process of setting objectives and determining how to
accomplish them.

■ Objectives and goals

– Identify the specific results or desired outcomes that one
intends to achieve.

■ Plan
– A statement of action steps to be taken in order to accomplish
the objectives
PLANNING
• Planning is determining the objectives and formulating the
methods to achieve them. It is more simply said than done. A
job well planned is half done.
• During planning one needs to ask oneself the following:
• What am I trying to accomplish i.e. what is my objective?
• What resources do I have and do I need to accomplish the
same?
• What are the methods and means to achieve the objectives?
• Is this the optimal path?
Planning..

■ Planning is a two-way process of looking back to derive future course

of action. This preparatory step is systematic and scientific as it
follows an order of what, when, how and by whom a specific job would
be carried out.
■ It is a detailed and comprehensive blueprint of organizational
functioning in future.

■ Koontz & O'Donnell, “Planning is deciding in advance what to do, how

to do and who is to do it. Planning bridges the gap between where we
are to, where we want to go. It makes possible things to occur which
would not otherwise occur”.
 Features of Planning
1. Planning focuses on achieving objectives by deciding upon the activities to be
undertaken.
2. Planning is a primary function as it precedes all functions of management i.e. organising,
staffing, directing& controlling.
3. Planning is pervasive as it is required at all the levels of management but its scope may
vary.
4. Planning is continuous as plans need to be made on a continuous basis till an
organisation exists.
5. Planning is futuristic as it seeks to meet future events effectively to the best advantage
of an organisation. Planning is, therefore, called a forward looking function.
6. Planning involves decision-making as it involves rational thinking to choose the best
alternative among the various available alternatives in order to achieve the desired goals
efficiently and effectively.
7. Planning is a mental exercise as it is based on intellectual thinking involving foresight,
visualisation and judgement rather than guess work.
Nature of Planning Process
■ The complex and comprehensive nature of planning makes it a function with
several characteristics. Planning may have the following characteristics:

■ A cognitive Process: The planning process is highly intellectual and thus is cognitive.
Planning is about thinking with creativity to utilize existing available resources for
available opportunity. It involves functions such as what, how, when and by whom is
to be done.
■ Planning Vs Forecasting: Many times planning and forecasting seem to be similar to
each other. Forecasting refers to what is expected to happen if they are no way out
to escape. Whereas, planning is about what one wants to happen. Forecasting leads
to planning.
■ Planning is the accomplishment of group objectives: An organization operates with
the joint efforts of a various individual with varied personality, skills, attitudes,
learning and motivation.
■ The choice between Alternatives: Planning involves judicious adjustments and adaptation in
resources to grab the emerging business opportunities.

■ Planning is all-pervasive: Planning as a management function is so imperative that is

pervades in all managerial functions for a goal-oriented organization.

■ Planning is flexible: for an organization to be successful, it is crucial to establish synergies

between opportunity and available resources. Forecasting the growth opportunity and
adapting the resources accordingly does provide a competitive advantage to an
organization. This requires careful identification of KSAs of people, man, material and
money to the take advantage of the available opportunity.

■ Planning is the integrated process: with the establishment of various policies, programs and
procedures, and organization established organization objectives that it aims to achieve
under the planning process.
Planning Tools and Techniques

■ Forecasting
– Attempts to predict the future

– Qualitative forecasting uses expert opinions

– Quantitative forecasting uses mathematical models and statistical

analysis of historical data and surveys
Planning Tools and Techniques

■ Contingency planning
– Identifying alternative courses of action to take when things
go wrong

– Contingency plans anticipate changing conditions

– Contingency plans contain trigger points

Planning Tools and Techniques

■ Scenario planning
– A long-term version of contingency planning

– Identifying alternative future scenarios

– Plans made for each future scenario

– Increases organization’s flexibility and preparation for future

shocks
Planning Tools and Techniques

■ Benchmarking
– Use of external and internal comparisons to plan for future
improvements

– Adopting best practices: things people and organizations do

that lead to superior performance

– Staff planners assist in all steps of the planning process

Why Planning is important?
■ Ensures selection of optimum goals: Planning is the cognitive and intellectual process
of selecting the best course of action from various available alternatives. It is also about
selecting one course of action that has sound chances of being profitable, feasible,
achievable and economical and reject the other courses of actions that are not so feasible
and profitable.

■ Manages complexities: a single organization is a function of the heterogeneous group of

human resource who possess different KSA, values, belief, culture and motivation level. An
effective plan of organization is a way to create a common interest among individual of an
organization who works together towards the accomplishment of organizational goals in which
they have shared common goals too.
Why Planning is important..?

■ Survive environmental change: Change in demand, change in technologies, fashion,

preferences, social values significantly affect the organizational normal course of
operation. Management must strive to grab the opportunity to take advantage of the
changed situation by adapting and adjusting its inputs to meet new demand and
preferences of customers.

■ Protection from failure: It cannot be denied that planning cannot eliminate all
business failures, but it can surely help in identification and evaluation of business
opportunities and threats and examining the various course of action thereafter.

■ Unity of action: since the organization works with joint efforts of an individual with
different KSAs, thus their harmonious working is necessary towards accomplishment of
organizational goals. This is possible with efficient planning that provides stake to
employees to work jointly for organizational success.
■ Supports control and coordination: Planning function supports other management
function such as control and coordination Proper planning can ensure establishment
performance standards scientifically and systematically, timely and effective performance
measurement, timely identification and elimination of deviations and thus harmonious
function at the workplace.

■ Planning Promotes Innovative Ideas: It is clear that planning selects the best
alternative out of the many available. It leads to the birth of innovative and creative ideas.

■ Planning Facilitates Decision Making: The planning sets the target for decision
making. It also lays down the criteria for evaluating courses of action. In this way, planning
facilitates decision making.
A sample hierarchy
Types of Plans

Coverage – Strategic, tactical, and operational,

Time frame – Short and long term,

Specificity – Specific versus directional,

Frequency of use – Single use and standing.

Types of Plans
Based on the organizational objectives and goals the planning can broadly be classified
into three main categories.
1. Strategic Planning: involves long term commitment often five or more years. This
planning is complex as it includes the entire organization and formulation of
objectives. Generally, strategically planning is done in the view of organizational
vision and mission. Since it is long term and highly technical therefore to
management is involved in it
2. Tactical Planning: Is of less long term in nature usually for one to three years and
it is about developing means and mechanism to be adopted for the implementation
of strategic plans. In simple words, tactical planning is “how to implement” strategic
plans.
3. Operational planning: Is the functional planning where organization-wide or
goals and objective for each unit or sub-unit is established ways to achieve them is
looked for. Operational planning is short term planning for less than one year as it
aims to eliminate current operational problems. Planning at this level supports at the
higher-level planning of tactical and strategic.
Based on Time Duration
1. Long Term Plans: involve allocation of resources for a long period usually
between five and fifteen years. However they may vary concerning their nature,
scope, complexity, and size and are usually somewhat vague. These plans are more
susceptible to uncertain events that may leave a significant impact on the
organization. Such as technological changes, change in consumer behaviour,
government policies can significantly affect the organization and involves serious
attention of top management to make a long-term plan.
2. Medium Term Plans: These plans are operational as decisions like raw material
purchase; overhead expenses, labour wages, production etc are taken. Though
these decisions are also crucial to an organization, yet any flaw in planning would
not result in serious failure, as it can be altered in two-three years.
3. Short Term Plans: These plans are for about a year or so are more specific and
deals with day to day operation such as inventory management, employees training
etc.
Single Use
■ Programs: A program covers a relatively large set of activities. The program shows-
(1) the major steps required to reach an objective, (2) the organization unit or
member responsible for each step, and (3) the order and timing of each step. The
program may be accompanied by a budget or a set of budgets for the activities
required.
■ Projects: Projects are the smaller and separate portions of programs. Each project
has limited scope and distinct directives concerning assignments and time. Each
project will become the responsibility of designated personnel who will be given
specific resources and deadlines.
■ Budgets: Budgets are statements of financial resources set aside for specific
activities in a given period of time Managers often use budget development as the
process by which decisions are made to commit resources to various alternative
courses of action. In this sense, budgets can be considered single-use plans in their
own right.
Standing Plans

■ Policies: A policy is a general statement designed to guide employees’ actions in

recurring situations. It establishes broad limits, provides direction, but permits some
initiative and discretion on the part of the supervisor. Policies are usually established
formally and deliberately by top managers of the organization. Policies may also emerge
informally and at lower levels in the organization from a seemingly consistent set of
decisions on the same subject made over a period of time
■ Procedures: A procedure is a sequence of steps or operations describing how to carry
out an activity. It is more specific than a policy and establishes a customary way of
handling a recurring activity. Thus, less discretion on the part of the supervisor is
permissible in its application. For example- the refund department of a large discount
store may have a policy of “refunds made, with a smile, on all merchandise returned
within seven days ofpurchase.”
Steps Involved in Planning Process

■ Setting up of organizational objectives

■ Developing planning premises
■ Identification of alternative course of action
■ Evaluating alternative course of action
■ Selection of alternative
■ Implementation of the plan
■ Follow-up of action
Decision Making
■ A decision is a choice made between two or more available
alternatives.
■ Decision making is the process of choosing the best alternative for
reaching objectives.
■ Managers make decisions affecting the organization daily and
communicate those decisions to other organizational members.
■ Some decisions affect large number of organizational members, cost
great deal of money to carry out, or have long term effect on the
organization.
■ Other decisions are fairly insignificant, affecting only a small number of
organization members, costing little to carry out and producing only a
short term effect on organization
Decision Making..

■ There are four basic standards that can be used deciding the nature of
decision and also the level of authority that should make the decision.
■ These are –
■ a) The degree of futurity in the decision
■ b) The impact of decision on whole organization
■ c) The number of factors involved in decision
■ d) The frequency of decision whether rarely or periodically taken
Type of Decisions
■ Programmed and Non programmed decisions
■ Organizational and Personal decisions
■ Operational and Policy decisions
■ Opportunity and Problem solving decision
■ Routine and Strategic decisions
■ Research based and Interactive decision
■ Individual and Group decisions
■ Major and minor decisions
Programmed and Non Programmed Decisions

■ Programmed decisions are taken in structured situation. These decisions are fairly
structured and occur with some frequency and are concerned with the problems of
repetitive nature or routine type matters. A standard procedure is followed for tackling
such problems. Decisions of this type may pertain to purchase of raw material, granting
leave to an employee, supply of goods to the employee etc. These decisions are
generally taken by lower level managers.
■ Non programmed decisions are pertaining to difficult situations of which there is
no easy solution. These are decisions which are taken in unstructured situation. Non
Programmed decisions occurs much less often than programmed decisions. These are
non repetitive and uncertainty involved decisions. These decisions are unique and
novel. It requires thought and creativity. These decisions are taken by top level
managers. Intuition and experience plays major role in taking these types of decisions.
Organizational and Personal Decisions
■ When an individual takes decision as an executive in the official capacity
it is known as organizational decision. Manager takes the decision in the
organization. The manager has to take decision in the organization to
pursue organization’s vision, mission and goals.
■ When the individual is taking decision in his personal capacity it is
known as personal or individual decision. Personal decisions are taken
by the individual in his day to day life.
■ The authority of taking organizational decisions may be delegated,
whereas individual decisions cannot be delegated.
Operational and Policy Decisions

■ Decisions pertaining to various policy matters of the organization are policy

decisions. These are taken by top managers and have long term impact on the
functioning of the organization. Policy decisions are long term in impact. They
affect and shape the direction of whole business. They are generally made by
top level managers.

■ Operational decisions are related to day to day functioning or operations of

organization. Middle or lower level managers take these decisions. These
decisions have short term horizon as they are taken repetitively. These
decisions are based on facts regarding the events and do not require much of
organizational judgment.
Opportunity and Problem Solving Decision

■ Many a times, decisions are taken by the manager to grab the

opportunity. These decisions are known as Opportunity decisions. These
decisions are taken by the manager for growth and development of the
organization.
■ Managers make decisions about both problems (undesirable situations)
and opportunities (desirable situations). If there is any emergency or
problem occurs in the organization, then manager has to take quick
decision to come out from that situation. These decisions are known as
problem solving decisions. For this, the manager must be a good
problem solver
Routine and Strategic decision

■ Routine decisions are related to the general functioning of the

organization. The decisions are repetitive in nature. They do not require
much evaluation and analysis and can be taken quickly.
■ Strategic decisions affect organizational objectives, goals and other
important policy matters. These decisions usually involves huge amount
of investments or funds. These decisions are taken after careful analysis
and evaluation of many alternatives. These decisions are taken by top
level managers. These decisions have a long term implication on the
organization.
Research Based and Interactive Decision
■ Research based decisions requires lots of evidences to be collected
before actual action to be taken. For this one has to do lot of research for
finding out the alternatives and asses the consequences of those
alternatives. In the context of crisis the manager has to do lot of research
to come out of that crisis.
■ Most of the time it is the manager who take the decisions in the
organization but there are situations where the manager alone cannot
take decisions. He has to consult, interact with other team members in
this regard. These are interactive decisions. Interactive decisions, are
easier, faster, and can be more accurate.
Individual and Group Decisions

■ When the decision is taken by single individual it is known as individual

decision. Usually routine type decisions are taken by individuals within
the broad policy framework of the organization.
■ Group decisions are taken by group of individuals constituted in the form
of committee. Generally, very important and pertinent matters for the
organization are referred to this committee. The main aim in taking group
decision is the involvement of maximum numbers of individuals in the
process of decision making.
Major and Minor Decisions

■ Major decisions are taken by top management. Decision

pertaining to purchase of new land for a new branch of school
is a major decision. Decision pertaining to purchase of office
stationary is a minor decision which can be taken by office
superintendent.
Techniques of Decision Making
■ 1. Marginal Analysis
■ 2. Financial Analysis
■ 3. Break-Even Analysis
■ 4. Ratio Analysis
■ 5. Operations Research Techniques
■ 6. Linear Programming
■ 7. Waiting-line Method
■ 8. Game Theory
■ 9. Simulation
■ 10. Decision Tree.
Marginal Analysis
■ This technique is used in decision-making to figure out how much extra
output will result if one more variable (e.g. raw material, machine, and
worker) is added.
■ In his book, ‘Economics’, Paul Samuelson defines marginal analysis as
the extra output that will result by adding one extra unit of any input
variable, other factors being held constant.
■ Marginal analysis is particularly useful for evaluating alternatives in the
decision-making process.
Financial Analysis

■ This decision-making tool is used to estimate the profitability of an

investment, to calculate the payback period (the period taken for the
cash benefits to account for the original cost of an investment), and to
analyze cash inflows and cash outflows.
■ Investment alternatives can be evaluated by discounting the cash inflows
and cash outflows (discounting is the process of determining the present
value of a future amount, assuming that the decision-maker has an
opportunity to earn a certain return on his money)
Break-Even Analysis

■ This tool enables a decision-maker to evaluate the available alternatives

based on price, fixed cost and variable cost per unit. Break-even analysis
is a measure by which the level of sales necessary to cover all fixed costs
can be determined.

■ Using this technique, the decision-maker can determine the break-even

point for the company as a whole, or for any of its products. At the break-
even point, total revenue equals total cost and the profit is nil.
Ratio Analysis

■ It is an accounting tool for interpreting accounting information.

■ Ratios define the relationship between two variables.
■ The basic financial ratios compare costs and revenue for a particular
period.
■ The purpose of conducting a ratio analysis is to interpret financial
statements to determine the strengths and weaknesses of a firm, as well
as its historical performance and current financial condition
Operations Research Techniques:

■ One of the most significant sets of tools available for decision-makers is

operations research.
■ An operation research (OR) involves the practical application of
quantitative methods in the process of decision-making.
■ When using these techniques, the decision-maker makes use of
scientific, logical or mathematical means to achieve realistic solutions to
problems. Several OR techniques have been developed over the years.
Linear Programming

■ Linear programming is a quantitative technique used in decision-making.

It involves making an optimum allocation of scarce or limited resources
of an organization to achieve a particular objective. The word ‘linear’
implies that the relationship among different variables is proportionate.
■ The term ‘programming’ implies developing a specific mathematical
model to optimize outputs when the resources are scarce. In order to
apply this technique, the situation must involve two or more activities
competing for limited resources and all relationships in the situation
must be linear.
Linear Programming..
■ Some of the areas of managerial decision-making where linear
programming technique can be applied are:

1. Product mix decisions

2. Determining the optimal scale of operations
3. Inventory management problems
4. Allocation of scarce resources under conditions of uncertain
demand
5. Scheduling production facilities and maintenance.
Waiting-line Method
■ This is an operations research method that uses a mathematical
technique for balancing services provided and waiting lines.
■ Waiting lines (or queuing) occur whenever the demand for the service
exceeds the service facilities.
■ Since a perfect balance between demand and supply cannot be
achieved, either customers will have to wait for the service (excess
demand) or there may be no customers for the organization to serve
(excess supply).
■ The queuing technique helps to optimize customer service on the basis
of quantitative criteria.
Game Theory
■ This is a systematic and sophisticated technique that enables
competitors to select rational strategies for attainment of goals.
■ Game theory provides many useful insights into situations involving
competition. This decision-making technique involves selecting the best
strategy, taking into consideration one’s own actions and those of one’s
competitors.
■ The primary aim of game theory is to develop rational criteria for
selecting a strategy. It is based on the assumption that every player (a
competitor) in the game (decision situation) is perfectly rational and
seeks to win the game.
■ Minimizing the maximum loss (minimax) and maximizing the minimum
gain (maximin) are the two concepts used in game theory
Simulation
■ This technique involves building a model that represents a real or an
existing system. Simulation is useful for solving complex problems that
cannot be readily solved by other techniques.
■ In recent years, computers have been used extensively for simulation.
The different variables and their interrelationships are put into the
model.
■ When the model is programmed through the computer, a set of outputs
is obtained. Simulation techniques are useful in evaluating various
alternatives and selecting the best one.
■ Simulation can be used to develop price strategies, distribution
strategies, determining resource allocation, logistics, etc.
Decision Tree
■ A decision tree is a sophisticated mathematical tool that enables a
decision-maker to consider various alternative courses of action and
select the best alternative.
■ A decision tree is a graphical representation of alternative courses of
action and the possible outcomes and risks associated with each action.
the decision-maker traces the optimum path through the tree diagram.
■ In the tree diagram the base, known as the ‘decision point,’ is
represented by a square.
■ Two or more chance events follow from the decision point.
■ A chance event is represented by a circle and constitutes a branch of the
decision tree. Every chance event produces two or more possible
outcomes leading to subsequent decision points.
CONTROL
Controlling

■ Control is a primary goal-oriented function of management in an

organisation.

■ It is a process of comparing the actual performance with the set

standards of the company to ensure that activities are performed
according to the plans and if not then taking corrective action.
Features of Controlling
■ It helps in achieving organizational goals.
■ Facilitates optimum utilization of resources.
■ It evaluates the accuracy of the standard.
■ It also sets discipline and order.
■ Motivates the employees and boosts employee morale.
■ Ensures future planning by revising standards.
■ Improves overall performance of an organization.
■ It also minimises errors.
Controlling and Planning

■ Controlling and planning are interrelated for controlling gives an

important input into the next planning cycle. Controlling is a

backwards-looking function which brings the management cycle

back to the planning function. Planning is a forward-looking process
as it deals with the forecasts about the future conditions.
Control Process
1. Setting performance standards: Managers must translate plans into performance
standards. These performance standards can be in the form of goals, such as revenue
from sales over a period of time. The standards should be attainable, measurable, and
clear.
2. Measuring actual performance: If performance is not measured, it cannot be
ascertained whether standards have been met.
3. Comparing actual performance with standards or goals: Accept or reject the product or
outcome.
4. Analyzing deviations: Managers must determine why standards were not met. This step
also involves determining whether more control is necessary or if the standard should be
changed.
5. Taking corrective action: After the reasons for deviations have been determined,
managers can then develop solutions for issues with meeting the standards and make
changes to processes or behaviors.
Types of Control
■ Controls can be categorized according to the time in which a process or
activity occurs.
■ The controls related to time include feedback, proactive, and concurrent
controls.
■ Feedback control concerns the past.
■ Concurrent control concerns the present.
■ Proactive control anticipates future implications.
Types of Control..

■ Feedback Control: This process involves collecting information about

a finished task, assessing that information and improvising the same
type of tasks in the future.
■ Concurrent Control: It is also called real-time control. It checks any
problem and examines it to take action before any loss is incurred.
Example: control chart.
■ Predictive/ Feedforward Control: This type of control helps to
foresee problem ahead of occurrence. Therefore action can be taken
before such a circumstance arises
Importance of Controlling

1. Accomplishing Organizational Goals

2. Judging Accuracy of Standards

3. Making Efficient use of Resources

4. Improving Employee Motivation

5. Ensuring Order & Discipline

6. Facilitating Coordination in Action

■ Accomplishing Organizational Goals: The controlling function is an
accomplishment of measures that further makes progress towards the
organizational goals & brings to light the deviations, & indicates corrective
action. Therefore it helps in guiding the organizational goals which can be
achieved by performing a controlling function.

■ Judging Accuracy of Standards: A good control system enables

management to verify whether the standards set are accurate & objective.
The efficient control system also helps in keeping careful and progress
check on the changes which help in taking the major place in the
organization & in the environment and also helps to review & revise the
standards in light of such changes.
■ Making Efficient use of Resources: Another important function of
controlling is that in this, each activity is performed in such manner so
an in accordance with predetermined standards & norms so as to
ensure that the resources are used in the most effective & efficient
manner for the further availability of resources.

■ Improving Employee Motivation: Another important function is that

controlling help in accommodating a good control system which
ensures that each employee knows well in advance what they expect
& what are the standards of performance on the basis of which they
will be appraised. Therefore it helps in motivating and increasing their
potential so to make them & helps them to give better performance.
■ Ensuring Order & Discipline: Controlling creates an atmosphere of
order & discipline in the organization which helps to minimize
dishonest behavior on the part of the employees. It keeps a close
check on the activities of employees and the company can be able to
track and find out the dishonest employees by using computer
monitoring as a part of their control system.
■ Facilitating Coordination in Action: The last important function of
controlling is that each department & employee is governed by such
pre-determined standards and goals which are well versed and
coordinated with one another. This ensures that overall organizational
objectives are accomplished in an overall manner.
ORGANIZING
Organizing

■ Organizing is the function of management which follows planning. It is

a function in which the synchronization and combination of human,
physical and financial resources takes place. All the three resources are
important to get results. Therefore, organizational function helps in
achievement of results which in fact is important for the functioning of a
concern.
■ 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.
Organizing Concept
■ Organizing is the next important function of management which involves
arranging and structuring the work which is required to accomplish the
organizational objectives. Normally organizing is known as structure,
process, a group of people and function of management.
■ As a structure: Organizing as a structure refers to a hierarchical
arrangement of the position of the members and the department of an
organization. It shows authority and responsibility relationship among
the members. It identifies who is to command and who is to obey. It is
the mechanism to direct, coordinate and control the activities. It is the
static concept that cannot be changed easily and quickly.
Organizing Concept..

■ As a process: Organizing as a process refers to the identification and

grouping of activities to be done, assigning duties to the people, creating
authority responsibility relationship and coordinating activities among
the members and departments. It normally determines, arranges, group
and assigns the task to its members. It is a dynamic concept as the
activities can be arranged and changed according to the requirement of
the company.
■ As a function: Organizing is an important function after planning. The
manager of the company organize or collect resources such as
manpower, money, material, machine, methods, etc. They are needed to
put the action on the track. Without organizing function, it is not possible
to move forward.
Organizing Concept..

■ As a group of people: Organizing is the group or association of certain

people created for certain specific economic interests or non-economic
interests. It is guided by the policy or the rules of the company, school,
colleges, hospital, government office, club, etc.
■ According to Koontz and O'Donnell, "Essentially, it (Organizing) is the
creation and maintenance of an intentional structure of roles”
Importance of Organizing
■ Specialization - Organizational structure is a network of relationships in which the work
is divided into units and departments. This division of work is helping in bringing
specialization in various activities of concern.
■ Well defined jobs - Organizational structure helps in putting right men on right job which
can be done by selecting people for various departments according to their
qualifications, skill and experience. This is helping in defining the jobs properly which
clarifies the role of every person
■ Clarifies authority - Organizational structure helps in clarifying the role positions to every
manager (status quo). This can be done by clarifying the powers to every manager and
the way he has to exercise those powers should be clarified so that misuse of powers
do not take place. Well defined jobs and responsibilities attached helps in bringing
efficiency into managers working. This helps in increasing productivity.
Importance of Organizing ..
■ Co-ordination - Organization is a means of creating co-ordination among different
departments of the enterprise. It creates clear cut relationships among positions and
ensure mutual co-operation among individuals. Harmony of work is brought by higher
level managers exercising their authority over interconnected activities of lower level
manager.
■ Effective administration - The organization structure is helpful in defining the jobs
positions. The roles to be performed by different managers are clarified. Specialization
is achieved through division of work. This all leads to efficient and effective
administration.
■ Growth and diversification - A company’s growth is totally dependant on how efficiently
and smoothly a concern works. Efficiency can be brought about by clarifying the role
positions to the managers, co-ordination between authority and responsibility and
concentrating on specialization. In addition to this, a company can diversify if its
potential grow. This is possible only when the organization structure is well- defined.
This is possible through a set of formal structure.
Importance of Organizing ..

■ Sense of security - Organizational structure clarifies the job positions. The roles
assigned to every manager is clear. Co-ordination is possible. Therefore, clarity of
powers helps automatically in increasing mental satisfaction and thereby a sense of
security in a concern. This is very important for job- satisfaction.
■ Scope for new changes - Where the roles and activities to be performed are clear and
every person gets independence in his working, this provides enough space to a
manager to develop his talents and flourish his knowledge. A manager gets ready for
taking independent decisions which can be a road or path to adoption of new
techniques of production. This scope for bringing new changes into the running of an
enterprise is possible only through a set of organizational structure.
Principles of Organizing
■ Scalar Principle: It is also known as the ‘chain of command’. It is an unbroken line of
command/ authority from the top level to the bottom of an organization. This chain of
command should be short and clear. If it could be, the decision-making and
communication will be more effective and efficient.
■ Principle of Flexibility: The organizational structure should be flexible. It should be
adaptable to changing circumstances or situations. It should easily permit any
expansion and replacement without dislocating the basic design of the organization.
■ Principle of Authority: Authority means the right and power. It is the tool that makes the
manager able to accomplish the desired goals. Hence, the authority of each manager
should be clearly defined and it should equal responsiveness.
■ Principle of Delegation: Under this principle of delegation of authority, rights, and power
should be equal to responsibility so as to enable each manager toaccomplish the task
assigned to him/her.
■ Principle of Unity of Command: It implies one subordinate-one superior relationship.
Every subordinate is answerable and accountable to one boss at one time. This helps in
avoiding communication gaps and feedback and response is prompt. Unity of command
also helps in effective combination of resources, that is, physical, financial resources
which helps in easy co-ordination and, therefore, effective organization.
■ Principle of the Span of Control: The span of control is a principle or it is a device, with
the help of which a number of subordinates can be controlled, their number can be
determined and the activities can be supervised. A manager cannot handle an unlimited
number of subordinates. Hence, it guides and helps to determine the numerical limit of
subordinates to be supervised or controlled by the manager. If the numbers of
subordinates are limited, a manager can control and supervise effectively. But the
number of subordinates may vary depending upon the nature of the job, the competence
of the manager and the quality of subordinates.
■ Principle of Unity of Objectives: Organizing helps to achieve the goals and objectives of
the organization which affects the organizational structure. So, the goals and objectives
of an organization should be clearly defined. The objectives should be defined very
clearly for each department, for each section and even for each position of the
organizational structures. All the objectives should be united in such a way that itcould
facilitate to concentrate all the efforts towards the attainment of an organizational goal.
■ Principle of Efficiency: The organization should increase its efficiency in such a way that
the cost or expenditure of the mission and objectives of the enterprise below. An efficient
organizational structure helps to operate the resources efficiently. Hence, it ensures
optimum utilization of resources.
■ Principle of a Division of Works: The division of work can be created where the separate
nature of jobs can be performed. Effective departmentation as per the work and task
can be created and it is an important principle of the organization.
■ Principle of Unity of Direction: There should be one objective (unified objective) and plan
for the group activities. If it could be a direction from the superior it will be the same to
all subordinates. All the subordinates will be receiving the same direction in their
respective works and thus under this principle of unity of direction, they will be free from
dilemma about obeying diversified direction. This will also facilitate the verification and
coordination of activities.
■ Principle of Simplicity: This principle emphasizes the simplicity of the organizational
structure. If there exists a long member of levels in an organization, there is a possibility
of difficulty in communication and coordination. It clears that the activities and the
system of an organization should be simple and easy to understand.
■ Principle of Responsibility: The principle of responsibility makes the superior responsible
for their authority. In a sound organization, the superior is responsible for the
performance of subordinates. The authority can be delegated but not responsible.

■ Principle of Balance: There should be a proper and reasonable balance in works and
activities and the size of departments within the organization. Further, there should also
be a reasonable balance between centralization and decentralization. Overemphasis of
any type and preferences to anyone should be avoided.

■ Principle of Specialization: The principle of effective organization provokes specialization.

Under this principle of specialization, the total task of an organization is divided in such a
manner that every person is con􀀁 ned to a single and particular job, which leads to
specialization of work.
Basic Characteristics of Organizational
Structure
■ Division of labor: dividing up the many tasks of the
organization into specialized jobs
■ Hierarchy of authority: Who manages whom.
■ Span of control: Who manages what.
■ Line vs staff positions
■ Decentralization
 Hierarchy of Authority

■ Tall vs flat hierarchies

■ Autonomy and control
■ Communication
■ Size
Span of Control
■ A wide span of control: a large number of employees
reporting,
■ A narrow span of control: a small number employees
reporting
■ The appropriate span of control depends on the
experience, knowledge and skills of the employees and
the nature of the task.
 Line vs Staff Positions
■ Line vs Staff:
– Line positions are those in which people are involved in
producing the main goods or service or make decisions relating to
the production of the main business.
– Staff positions These are positions in which people make
recommendations to others but are not directly involved in the
production of the good or service
 Decentralization

■ The extent to which decision making is concentrated in a few

people or dispersed through out the organization
■ Advantage: benefits associated with greater participation
and moving the decision closest towards implementation
■ Disadvantage: Lack of perspective and information, lack of
consensus
 Functional Structure

CEO

Manufacturing Sales R&D Accounting&

Finance

Advantage: efficiency, communication

Disadvantage: isolation of units
Functional Structure
■ Functional organizational structures are the most common. A structure of
this type groups individuals by specific functions performed. Common
departments such as human resources, accounting and purchasing are
organized by separating each of these areas and managing them
independently of the others.
■ Pros:
• Most common and therefore understood by employees
• Departments have plenty of specialized expertise
■ Cons:
• Prone to Silos
• Employees may feel it’s not their responsibility to oversee that their work or project is
successfully handed off to the other team
Product Structure
CEO

Soup Nuts
Division Division

Manufaacturing Sales Manufacturing Sales

Advantages: Product focus, flexibility

Disadvantage: Duplication of effort
Product Structure
Another common structure is to be organized by a specific product type. Each
product group falls within the reporting structure of an executive and that person
oversees everything related to that particular product line.
■ Pros:
• Organizes products by categories
• Focus on specific market segments
• Allows for specialization
• Can encourage healthy competition between departments
■ Cons:
• Other product teams might be cut off from innovations and learning opportunities by other
teams at the same company
• Can create inefficient/duplicative functions and resources
• Can nurture negative rivalries across departments
Market Structure
CEO

Corporate Individual
Customers Customers

Sales Customer Sales Customer

Service Service
Market/ Customer Structure
■ Certain industries will organize by customer type. This is done in an
effort to ensure specific customer expectations are met by a customized
service approach.
■ Pros:
• Allows for specialization
• Creates a focus on customer satisfaction
■ Cons:
• Customer groups are not always easily defined and segmented
• It can be challenging to operationalize competing customer demands
Geographic Structure

CEO

West East

Sales Customer Sales Customer

Service Service
■ For organizations that cover a span of geographic regions, it sometimes
makes sense to organize by region. This is done to better support
logistical demands and differences in geographic customer needs.
■ Pros:
• Better supports logistical demands
• Caters to different cultural and geographic customer expectations
■ Cons:
• Can cause conflicts between local and central management
• Duplication of jobs, resources, and functions
Matrix Structure

R&D Engineering Manufact’ing

Product A

Product B

Product C
Matrix Structure
■ A matrix structure provides for reporting levels both horizontally as well
as vertically. Employees may be part of a functional group but may serve
on a team that supports new product development . This kind of
structure may have members of different groups working together to
develop a new product line.
■ Pros:
• Easily allow cross-functional work between teams
• Gives employees opportunity via their department projects and for organizational
projects
■ Cons:
• Employees might have multiple managers at one time
• Requires employees to make more difficult prioritization decisions
Network Structure
■ Network organizational structures work for businesses that employ freelancers,
subcontractors, and vendors dispersed between satellite offices. This type of structure
organizes the proper distribution of the company’s resources. Employees can visualize
workflows, processes, and relationships with on- and off-site coworkers.
■ The communication inherent in network organizational structures encourages
employees to collaborate to complete projects. As there isn’t a strict hierarchy,
employees are empowered to take initiative and make decisions.
■ Pros:
• Encourages collaboration and communication
• Employees encouraged to take the initiative in key decisions
■ Cons:
• Requires more complex relationships within the fluid organizational structure
• Lacks easy-to-understand hierarchies
Network Structure
Integration

■ Hierarchy of authority
■ Liaison roles
■ Teams, committees, task forces
■ Standardization & formalization
Mechanistic & Organic Designs

■ Mechanistic: tallness in hierarchy, specialization,

centralization in authority, formalization. Work best under
stable conditions.

■ Organic: flatness, generalization, decentralization flexibility

Best fit dynamic conditions and complex technology.
Designs and Dimensions
Dimension Organic Mechanistic
Control span Wide Narrow
Authority Few Many
Formalizat’n Low High
Centralizat’n Low High
Position Power Low High
Expert Power High Low
Effectiveness Criteria

■ Output approach
■ Internal process approach
■ Systems resource approach
■ Stakeholder approach
Effectiveness & Structure

■ Size and structure

– Complexity
– Differentiation
– Decentralization
– Formalization
■ Structure and satisfaction
– Decentralization
– Span of control
DELEGATION
Delegation
■ According to Allen: “The entrustment of a part or responsibility and
authority to another and the creation of accountability for performance.”
■ O.S. Hiner: “Delegation takes place when one person gives another the
right to perform work on his behalf and in his name, and the second
person accepts a corresponding duty or obligation to do what is required
of him.”
■ Douglas C. Basil: “Delegation refers to a manager’s ability to share his
burden with others. It consists of granting authority or the right to
decision making in certain defined areas and charging subordinates
with responsibility for carrying through an assigned task.”
Characteristics of Delegation
■ Delegation takes place when a manager grants some of his powers to
subordinates.
■ Delegation occurs only when the person delegating the authority himself
has that authority i.e. a manager must possess what he wants to
delegate.
■ Only a part of authority is delegated to subordinates.
■ A manager delegating authority can reduce, enhance or take it back. He
exercises full control over the activities of the subordinates even after
delegation.
■ It is only authority which is delegated and not the
responsibility. A manager cannot abdicate responsibility by delegating
authority to subordinates.
 Element of Delegation
■ Assignment of Responsibility: The first step in delegation is the assignment of work
or duty to the subordinate i.e. delegation of authority. The superior asks his subordinate
to perform a particular task in a given period of time. It is the description of the role
assigned to the subordinate. Duties in terms of functions or tasks to be performed
constitute the basis of delegation process.
■ Grant of Authority: The grant of authority is the second element of delegation. The
delegator grants authority to the subordinates so that the assigned task is accomplished.
The assignment of responsibility without authority is meaningless. The subordinate can
only accomplish the work when he has the authority required for completing that task.

■ Creation of Accountability: Accountability is the obligation of a subordinate to

perform the duties assigned to him. The delegation creates an obligation on the
subordinate to accomplish the task assigned to him by the superior. When a work is
assigned and authority is delegated then the accountability is the by-product of this
process.
Responsibility
■ Responsibility means the work assigned to an individual. It includes all
the physical and mental activities to be performed by the employees at a
particular job position. The process of delegation begins when manager
passes on some of his responsibilities to his subordinates which means
responsibility can be delegated.

■ Features of Responsibility:
■ 1. Responsibility is the obligation of a subordinate to properly perform the assigned
duty.
■ 2. It arises from superior subordinate relationship because subordinate is bound to
perform the duty assigned by his superior.
Authority
■ Authority means power to take decision. To carry on the responsibilities every employee
need to have some authority. So, when managers are passing their responsibilities to the
subordinates, they also pass some of the authority to the subordinates.. While sharing the
authority managers keep in mind that the authority matching to the responsibility should
only be delegated. They shall not pass all their authority to their subordinates.
■ Features of Authority:
1. Authority refers to right to take decision due to your managerial position.
2. Authority determines superior subordinate relationship. As subordinate communicates his
decisions to subordinate expecting compliance from him as per his directions.
3. Authority is restricted by law and rules and regulations of the organisation.
4. Authority arises from the scalar chain which links various job positions.
5. Authority flows upward as we go higher up in management hierarchy the scope of authority
increases.
6. Authority must be equal to Responsibility i.e. Authority = Responsibility
Accountability
■ To make sure that the employees or subordinates perform their
responsibilities in their expected manner, the accountability is created.
Accountability means subordinates will be answerable for the non-
completion of the task. The accountability cannot be passed or
delegated. It can only be shared with the subordinates which means even
after delegating responsibility and authority the managers will be
accountable for non-completion of task.
■ Features of Accountability:
1. Accountability refers to answerable for the final output.
2. It cannot be delegated or passed.
3. It is enforced through regular feedback on the extent of work
accomplished.
Principles of Delegation
■ Principle of delegation by results: The purpose of delegation is to get work
done through another more effectively and efficiently than it may be
accomplished by the delegator himself in a given situation. It is, therefore,
essential that the assignment of task or duty and the entrustment of authority
should be done keeping in view the results expected. Delegation by result
implies that goals have already been set and properly communicated to the
delegatee and understood by him and that the job assigned fits the objectives.
■ Principles of competence: The person selected as a delegatee should be
competent for the task assigned to him.
■ Principle of trust and confidence: It is necessary that there is an
atmosphere of trust and confidence in the organisation as a whole and that
there is a feeling of trust between the delegator and the delegatee. The
delegatee should enjoy mental freedom in his work.He would be able to use his
initiative and drive in work if he is mentally free.
Principles of Delegation..
■ Principle of parity between authority and responsibility: Authority delegated
should be adequate in relation to the responsibility. It is logical that the
responsibility for actions cannot be greater than the authority delegated, nor
should it be less.

■ Principle of unity of command: The principle of unity of command describes

the authority-responsibility relationships. The principle stresses that each
subordinate should have only one boss, to whom he should be accountable to
avoid confusion and conflict. In delegation, it is assumed that the right of
discretion over a particular activity will flow from a single superior to a
subordinate
■ Principle of absolute responsibility: Responsibility is an obligation which can
neither be delegated nor be temporarily shifted. No superior can escape the
responsibility for the activities of his subordinates through delegation, because
it is the superior who has delegated the authority and has assigned duties.
Similarly, the responsibility of the subordinate to his superior for performance of
the delegated duties is absolute and cannot be shifted
■ Principle of adequate communication: There should be free flow of
information between superior and subordinate to enable the latter to take
decisions and interpret correctly the nature of the task to be completed with the
nature and degree of authority vested in him.
■ Principle of effective control: As the delegator delegates his authority but not
the responsibility, he should ensure that the authority delegated is properly
used.
■ Principle of reward: Effective delegation and proper exercise of authority
should be rewarded. A rational rewarded system of reward would act as an
incentive to subordinates to willingly take the responsibility and assume
authority and also create a healthy environment within the organisation.

■ Principle of receptiveness: Delegation needs and it also creates an

understanding between the superior and subordinate. Decision-making involves
some discretion. This means that no two decisions or two persons can exactly
be the same. It is therefore necessary that the superior who delegates authority
accommodates the ideas of his subordinates.
Importance of Delegation
■ Organisations are characterised by a network of activities and roles.
Delegation is the process through which the interrelationships are
created among the individuals in their different roles in the organisation.
■ Delegation is necessary because it is physically impossible for a single
man to look after the affairs of a large organisation. The success of a
manager lies in his ability to multiply the efforts through other people.
■ An organisation has continuity. Managers may go and come but the
organisation continues. Delegation provides continuity of operations in
the organisation. The process of delegation helps managerial
development in an organisation.
Barriers to Effective Delegation
■ Lack Of Confidence in the Capability of Subordinates: A manager may not
have confidence in the capability and competence of subordinates. We may
consider that he can do the job better than his subordinates.
■ Lack of Confidence in the Subordinate's Sense of Responsibility: The
manager's lack of confidence in the sense of responsibility of subordinates
may also stand in the way of delegation of authority to others.
■ Fear of Loss of Power: Managers who feel insecure and fear that if the
subordinates perform well they may lose their power, are usually reluctant to
delegate.
■ Lack of Self Confidence: Some managers may lack self-confidence or may
be too conscious of their own incompetence, and therefore, reluctant to
delegate authority. This is true in organisations where professional
management is lacking.
Why Subordinates avoid delegation
■ Reluctance to bear responsibility: Researches have shown that many
subordinates prefer controlled existence with minimum responsibility. Such
employees are unwilling to accept responsibility which goes with delegation of
authority.
■ Fear of criticism: Another factor which prompts subordinates to avoid
responsibility is the fear of criticism for inefficiency or mistakes.
■ Fear of inadequacy of resources: Many subordinates hesitate to accept
responsibility due to fear of inadequacy of necessary resources for completion
of the task and uncooperative attitude of the delegator.
■ Lack of motivation: In many cases, the organisational climate is not motivating
enough. It prevents subordinates in accepting responsibility. Some studies
undertaken in India showed that delegator's love for authority, the tendency on
the part of the superiors to hold back information needed by subordinates and
delegators' lack of confidence in the subordinate are important reasons for the
reluctance of the subordinate in taking up delegated tasks.
Means of Effective Delegation
■ Improvement in the organisational climate and general management
policies
■ Trust in subordinates
■ Establish clear objectives
■ Define responsibility and authority
■ Motivate subordinates
■ Improve communication
■ Provide necessary training
■ Establish adequate controls
Centralization
■ Centralisation is the reservation or withholding of authority by individual
managers within the organisation.
■ According to Henry Fayol, 'everything that goes to increase the
importance of the subordinates' role is decentralisation, everything
which goes to reduce it is centralisation.’
■ In centralisation little delegation of authority is the rule; power and
discretion are concentrated in a few executives.
■ Control and decision making reside at the top levels of management.
However, absolute centralisation is untenable because it would mean
that subordinates have no duties, power or authority
Centralization
■ Centralisation may be essential in small organisations to survive in a
highly competitive world. But as the organisation becomes more complex
in terms of increasing size, interdependence of work-flow, complexity of
tasks and spatial physical barriers within and among groups, a function
requisite for efficiency is to move decision-making centres to the
operating level.
■ Thus, the larger the size of an organisation, the more urgent is the need
for decentralisation. This does not mean that decentralisation is good
and centralisation is bad.
Decentralization
■ Decentralisation is the systematic effort to delegate to the lowest levels all
authority, except that, which can be exercised at central points.
■ It is the pushing down of authority and power of decision-making to the lower
levels of organisation.
■ The centres of decision-making are dispersed throughout the organisation. The
essence of decentralisation is the transference of authority from a higher level
to a lower level.
■ It is a fundamental principle of democratic management where each individual
is respected for his inherent worth, and constitution.
■ Absolute centralisation decreases the role of subordinate managers which in
turn encourages decentralisation.
■ Absolute decentralisation is also not possible because managers cannot
delegate all their authority
Distinction between Delegation of Authority and
Decentralisation

■ Delegation is a process of systematic transfer of authority while

decentralisation is the end result of planned delegation.
■ Delegation refers to the transfer of authority from one individual to another.
Decentralisation refers to the systematic delegation of authority to all units in
an organisation-wide context.
■ Delegation can take place from one person to another and be a complete
process. But decentralisation is complete only when the fullest possible
delegation is made to all or to most of the people.
■ Delegation is between a superior and a subordinate while decentralisation is.
company-wide delegation as between top management and divisions or
departments.
■ Delegation is necessary for effective management because no individual
manager can afford to look after everything. But decentralisation is optional,
necessitated by the growth of the organisation
Factors determining the degree of Decentralization

■ Size of operations: As an organisation grows in size and complexity,

need for decentralisation tends to increase, More decisions are taken at
different places and coordination of a large number of departments
becomes difficult. Thus as the size increases, decentralisation becomes
inevitable.
■ Cost and risks of decision-making: As the organisation grows in size the
decisions involving heavy costs also multiply. With decentralisation of
authority the high cost and high-risk decisions may be taken at the top
level but routine decisions can be taken at lower levels. "Thus
decentralisation helps and quickens decision-making process.
Factors determining the degree of
Decentralization..
■ Top Management Philosophy: The attitude of top executives and
their philosophy have an important influence on the extent to which
authority is decentralised.
■ Availability of Managerial Resources: The extent of
decentralisation is limited to the extent of availability of trained and
competent managerial personnel.
■ Environmental Influence: The most important environmental forces
affecting the degree of decentralisation are: Government controls, tax
policies, and unionism.
Merits of Decentralization

■ Facilitates growing and complex organisation

■ Reduces the burden of executives

■ Facilitates diversification

■ Quick decision making

Merits of Decentralization

■ Facilitates growing and complex organisation : Centralisation of

authority may be desirable under certain special circumstances to
accomplish specific results or when the company is small. But when
organisation grows in size and becomes complex, even a hardcore
autocratic manager is forced to delegate some authority and bring about
decentralisation.
■ Reduces the burden of executives: Decentralisation is always
preferable when an organisation has grown in size and complexity, and
there is a need to reduce the burden of the top executives.
Merits of Decentralization

■ Facilitates diversification: Decentralization is required when

business needs to be expanded by diversifying its activities or product
lines.
■ Quick decision making: Decentralisation facilitates consultative as
well as quick decision-making at the action point. This promotes
interaction among the different functionaries giving them an opportunity
for self development and training and stimulating them to put in their
best effort in the growth and development of the organisation as whole.
 Limitations of Decentralization
■ Leads to disintegration: Extreme decentralisation, however, is a curse.
It may lead to looseness and also ultimately to the disintegration of the
organisation. It may bring about the diseconomy of scale with the increase
in the overhead expenses of each decentralised unit. The duplication in
functions may further add to the total cost.
■ Does not suit specialised services: For specialised services like
accounting personnel, research and development etc., decentralisation is
unwarranted. Moreover, there are certain areas of control and
responsibility which need to be under central control only.
■ Conflict: Decentralisation puts increased pressure on divisional heads to
realise profits at any cost. This encourages the managers to become
department conscious. Sometimes the top management deliberately
encourages competition between different departments to increase the
profitability. This competition results in bitter inter-divisional rivalries and
conflict.