NCERT Solutions for Class 12 Business Studies Business Studies I Chapter 5: Organising

Chapter at a glance

Exercises – Very Short Answer Type

Question VSA – Q1

Identify the network of social relationships which arises spontaneously due to interaction at work.

Answer

Informal organisation.

Informal organisation.

Question VSA – Q2

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

Answer

Span of management refers to the number of subordinates that can be effectively managed by a superior. It determines the levels of management in the organisation structure (narrow span → tall structure; wide span → flat structure).

The number of subordinates a superior can effectively manage.

Question VSA – Q3

State any two circumstances under which the functional structure will prove to be an appropriate choice.

Answer

1. When the organisation is large, has a single product line (or few products) and diversified activities.
2. When the operations require a high degree of specialisation.

For a large organisation with a single or few products, and when operations require a high degree of specialisation.

Question VSA – Q4

Draw a diagram depicting a functional structure.

Answer

Under the Managing Director, separate departments are created for each major function – production, purchase, marketing, finance and human resources – each headed by a manager.

A functional structure groups activities by function under the managing director: production, purchase, marketing, finance and human resource departments, each under its own manager.

Question VSA – Q5

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

Answer

Functional structure – the company has activities grouped by function (manufacturing, marketing and sales, administration) for a single line of consumer products.

Functional structure.

Exercises – Short Answer Type

Question SA – Q1

What are the steps in the process of organising?

Answer

1. Identification and division of work – the total work is divided into manageable activities to avoid duplication and share the burden.
2. Departmentalisation – similar activities are grouped into departments or units (by function, product or territory).
3. Assignment of duties – jobs are allocated to employees according to their skills and abilities.
4. Establishing reporting relationships – each person knows whom to take orders from and to whom to report; authority–responsibility relationships are defined.

Identification and division of work, departmentalisation, assignment of duties and establishing reporting relationships.

Question SA – Q2

Discuss the elements of delegation.

Answer

1. Authority – the right to give orders and make decisions. It flows downward (top to bottom) and is restricted by laws and rules. It can be delegated.
2. Responsibility – the obligation of a subordinate to properly perform the assigned duty. It flows upward. When authority is delegated, responsibility must accompany it; authority should be commensurate with responsibility.
3. Accountability – being answerable for the final outcome. It cannot be delegated; the manager remains accountable to his superior for the work delegated. It flows upward.

Authority (right to command, flows down, can be delegated), responsibility (obligation to perform, flows up) and accountability (answerability for results, cannot be delegated).

Question SA – Q3

How does informal organisation support the formal organisation?

Answer

1. Faster communication – the grapevine spreads information quickly.
2. Fulfils social needs – gives employees a sense of belonging and job satisfaction.
3. Fills gaps in formal communication and structure.
4. Helps achieve objectives – managers can use informal leaders to get support for their decisions and to know employees’ reactions.
5. Builds co-operation and teamwork among employees.

It provides fast communication, satisfies social needs, fills gaps in the formal structure, helps managers gauge reactions and win support, and builds co-operation.

Question SA – Q4

Can a large sized organisation be totally centralised or decentralised? Give your opinion.

Answer

No. Every organisation needs a balance between centralisation and decentralisation:

• Total centralisation is not possible in a large organisation because top management cannot take all decisions; work would be delayed and the burden too heavy.
• Total decentralisation is also not desirable because it would lead to loss of control and coordination; important decisions (policy, major investments) must remain with top management.

So a large organisation should centralise critical decisions and decentralise routine/operational decisions, depending on its size, nature and environment.

No – a large organisation needs a balance: important policy decisions centralised for control, and routine decisions decentralised for speed and efficiency.

Question SA – Q5

Decentralisation is extending delegation to the lowest level. Comment.

Answer

Delegation is the transfer of authority from a superior to his immediate subordinate. Decentralisation is the systematic delegation of authority at all levels, down to the lowest level where decisions can be made, except authority that must be kept at the top. Thus decentralisation is an extension of delegation throughout the organisation:

• Delegation is a process, compulsory for any manager; decentralisation is a policy, optional.
• Delegation creates a superior–subordinate relationship; decentralisation spreads decision-making to all levels.
• Delegation has narrow scope; decentralisation has wider scope.

Importance of decentralisation: develops managerial talent, quicker decisions, relief to top management, develops initiative, facilitates growth and better control.

True – decentralisation is the systematic extension of delegation to all levels of the organisation; delegation is a compulsory process, decentralisation an optional policy with wider scope.

Question SA – Q6

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

Answer

Divisional structure – separate divisions for shoes, leather bags and western formal wear, each with its own production, marketing and finance functions.

Reasons

1. Each product line needs specialised handling and attention.
2. Performance of each division can be measured separately; accountability is fixed.
3. Quick decision-making within each division.
4. Facilitates expansion and growth – new divisions can be added easily.
5. Develops managerial skills of divisional heads.

Divisional structure – separate divisions for shoes, bags and formal wear give product specialisation, clear accountability, quick decisions and easy expansion.

Question SA – Q7

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

Answer

No. According to the principle of parity of authority and responsibility, authority should be commensurate with responsibility. The foreman was given responsibility for a target of 200 units but no authority to obtain tools and materials. Without the necessary authority, he cannot be held fully responsible. Moreover, the production manager remains accountable for the target, since accountability cannot be delegated.

No – responsibility must be matched by adequate authority; without authority to obtain tools and materials, the foreman cannot be blamed, and the manager remains accountable.

Exercises – Long Answer Type

Question LA – Q1

Why delegation is considered essential for effective organising?

Answer

1. Effective management – managers are relieved of routine work and can focus on important matters.
2. Employee development – subordinates get opportunities to use their talents and develop skills, preparing them for higher positions.
3. Motivation of employees – trust shown in subordinates builds confidence and job satisfaction.
4. Facilitation of growth – trained managers are available to take up leadership of new units, aiding expansion.
5. Basis of management hierarchy – delegation establishes superior–subordinate relationships and the chain of command.
6. Better coordination – clear authority, responsibility and accountability avoid overlapping and duplication.

Delegation enables effective management, develops and motivates employees, facilitates growth, forms the management hierarchy and improves coordination.

Question LA – Q2

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

Answer

A divisional structure groups activities on the basis of products or territories (divisions). Each division has its own functional departments (production, marketing, finance, etc.) and its head is responsible for the division’s profit or loss. It suits organisations with multiple product lines.

Advantages

1. Product specialisation develops the skills of divisional heads.
2. Divisional results can be assessed – profit or loss of each division is known, so accountability is fixed.
3. Quick decision-making – each division works as an autonomous unit.
4. Facilitates expansion – new divisions can be added without disturbing existing ones.
5. Promotes flexibility and initiative.

Limitations

1. Conflict may arise among divisions over allocation of funds and resources.
2. Increased costs due to duplication of activities and facilities in each division.
3. Divisional heads may become too independent and ignore organisational goals.
4. Requires many competent managers.

A divisional structure groups activities by products or territories, each division with its own functions; it gives product specialisation, clear accountability, quick decisions and easy expansion, but may cause conflicts, duplication of costs and excessive divisional independence.

Question LA – Q3

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

Answer

Decentralisation is not compulsory (unlike delegation), but organisations choose it because of its importance:

1. Develops initiative among subordinates – they learn to take decisions on their own and gain confidence.
2. Develops managerial talent for the future – trained managers are available for higher posts.
3. Quick decision-making – decisions are taken at the point of action without referring upwards.
4. Relief to top management – they can concentrate on strategic issues.
5. Facilitates growth – divisions can work autonomously, encouraging competition and expansion.
6. Better control – performance of each unit can be evaluated and responsibility fixed.

Organisations choose decentralisation to develop initiative and managerial talent, speed up decisions, relieve top management, facilitate growth and improve control.

Question LA – Q4

Distinguish between centralisation and decentralisation.

Answer

Centralisation keeps decision-making at the top (slow decisions, tight control, little initiative); decentralisation spreads it to lower levels (quick decisions, initiative, relief to top management, suited to large firms).

Question LA – Q5

How is a functional structure different from a divisional structure?

Answer

A functional structure groups activities by function (economical, specialised, but hard to fix responsibility); a divisional structure groups by product or territory (clear accountability, wider managerial development, but costly duplication).

Question LA – Q6

A company, which manufactures a popular brand of toys, has been enjoying good market reputation. It has a functional organisational structure with separate departments for Production, Marketing, Finance, Human Resources and Research and Development. Lately to use its brand name and also to cash on to new business opportunities it is thinking to diversify into manufacture of new range of electronic toys for which a new market is emerging. Which organisation structure should be adopted in this situation? Give concrete reasons with regard to benefits the company will derive from the steps it should take.

Answer

The company should move to a divisional structure, with two divisions – traditional toys and electronic toys – each having its own production, marketing, finance, HR and R&D (some common services may stay centralised).

Benefits

1. Product specialisation – electronic toys need different technology and skills; a separate division can focus on them.
2. Accountability – the profit or loss of the new electronic toys business can be measured separately.
3. Quick decisions – the new division can respond quickly to an emerging market.
4. Flexibility and initiative – divisional heads can innovate.
5. Facilitates growth – more divisions can be added later.
6. Develops managers – divisional heads gain all-round experience.
7. The existing brand reputation can be used while the traditional business continues smoothly.

A divisional structure with separate divisions for conventional and electronic toys, giving product focus, clear accountability, quick decisions, flexibility, growth and managerial development.

Question LA – Q7

A company manufacturing sewing machines set up in 1945 by the British promoters follows formal organisation culture in totality. It is facing lot of problems in delays in decision making. As the result it is not able to adapt to changing business environment. The work force is also not motivated since they cannot vent their grievances except through formal channels, which involve red tape. Employee turnover is high. Its market share is also declining due to changed circumstances and business environment. You are to advise the company with regard to change it should bring about in its organisation structure to overcome the problems faced by it. Give reasons in terms of benefits it will derive from the changes suggested by you.

Answer

Changes suggested

1. Decentralise decision-making authority to middle and lower levels.
2. Recognise and encourage the informal organisation alongside the formal one – open-door policy, informal meetings, grievance committees, suggestion schemes.
3. Make the structure flatter (wider span), reducing levels and red tape.
4. Consider a divisional structure if it has diversified product lines.

Benefits

1. Quick decisions and faster response to environmental changes.
2. Better communication – the grapevine and open channels let employees express grievances.
3. Higher motivation and job satisfaction – social needs fulfilled; lower employee turnover.
4. Initiative and creativity among employees; managerial talent develops.
5. Improved market share through flexibility and adaptability.

Decentralise authority, encourage informal organisation and open communication, and flatten the structure; this will speed up decisions, help adapt to change, let employees vent grievances, raise motivation, cut turnover and recover market share.

Question LA – Q8

A company X limited manufacturing cosmetics, which has enjoyed a pre-eminent position in business, has grown in size. Its business was very good till 1991. But after that, new liberalised environment has seen entry of many MNC’s in the sector. With the result the market share of X limited has declined. The company had followed a very centralised business model with Directors and divisional heads making even minor decisions. Before 1991 this business model had served the company very well as consumers had no choice. But now the company is under pressure to reform. What organisation structure changes should the company bring about in order to retain its market share? How will the changes suggested by you help the firm? Keep in mind that the sector in which the company is FMCG.

Answer

Changes suggested

1. Decentralisation – delegate authority for routine and operational decisions (pricing offers, distribution, local promotions) to lower levels, regional and product managers.
2. Divisional structure based on product lines (skin care, hair care, colour cosmetics) and/or territories (north, south, etc.), each with its own marketing and sales teams.
3. Market orientation – strengthen research and customer feedback at the field level.

How these will help (FMCG context)

1. FMCG markets change fast; decentralisation allows quick decisions close to the market.
2. Better response to competition from MNCs through local strategies and faster product launches.
3. Initiative and motivation of managers increase; managerial talent develops.
4. Relief to top management to focus on strategy.
5. Clear accountability – each division’s performance can be measured.
6. Customer focus – better understanding of consumers in different regions and segments.

X Ltd. should decentralise and adopt a product/territory-based divisional structure with market orientation; this gives quick, market-close decisions, better response to MNC competition, motivated managers, clear accountability and stronger customer focus, helping retain market share.

Topic checklist

• ☒ Meaning, steps and importance of organising (SA 1)
• ☒ Organisation structure – span, functional and divisional (VSA 2–5; SA 6; LA 2, 5, 6)
• ☒ Formal and informal organisation (VSA 1; SA 3; LA 7)
• ☒ Delegation – elements and importance (SA 2, 7; LA 1)
• ☒ Centralisation and decentralisation (SA 4, 5; LA 3, 4, 8)

Total questions answered: 20 of 20