NCERT Solutions for Class 12 Business Studies Chapter 5 - Organising

Very Short Answer Type Questions

1. Identify the network of social relationship which arises spontaneously due to interaction work.

Ans. A network of social relationship that arises spontaneously due to the interaction at work is referred as informal organisation. It rises from social interaction and free flow of communication among the employees of an organisation. On the other hand, formal organisation refers to a formal system based on superior-subordinate relationship. Whereas; delegation and decentralisation are exercised with the transfer of authority and responsibility to the subordinates.

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

Ans. It means how many employees can be easily controlled by an employer or a superior, or how many number of employees are working under one superior. The span of management, to a large extent gives shape to the organisational structure, e.g., if the number of subordinates under a superior keep increasing when we move downward then the shape of the organisational structure will be as follows. It also gives a way for unity of command

Span of management

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

Ans. Functional structure would proved to be an appropriate choice if:

(i) The organisation is large in size, it can function smoothly. Large organisation can follow departmentalisation to improve managerial efficiency and the degree of control.

(ii) There is a clear division of activities in various departments. Then a functional structure promotes coordination and ensures smooth functioning.

4 . Draw a diagram depicting a divisional structure.



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

Ans. (i) As a company is performing separate functions in different areas, then it should adopt functional structure.

(ii) The services of experts are common for all products. It will be economical as no duplication will take place.

(iii) Span of management can be increased as workers will be doing same type of work.

Short Answer Type Questions

1. What are the steps in the process of organising?

Ans. Organising involves following steps that need to be taken in series

(i) Identification and Division of Work: Organising process begins with identifying and division of total work into small units, it focuses on specialization. So that, duplication of work can be avoided.

(ii) Departmentalisation: After dividing the work, related and similar jobs are grouped together and put under one department it can be on the basis of regions, area, work, process, nature, function.

(iii) Assignment of Duties: After departmentalisation, the work is assigned according to the skills and competencies of individuals. It is done on the basis of specialization, it helps in reduction of wastages and overlapping of resources.

(iv) Establishing Reporting Relationship: Assigning duties is not enough. Each individual should also know, from whom he has to take orders and to whom he is accountable. Thus, reporting relationship helps in co-ordination among various departments.

2. Discuss the elements of delegation.

Ans. The elements of delegation are as follows:

(i) Authority: It refers to the right of an individual to command his/her subordinates and to take action within the scope of his position. The concept of authority arises from the established scalar chain and unity of command, which links the various job positions and levels of an organisation. It must be noted that authority is restricted by laws and the rules and regulations of the organisations. Authority flows down-wards and it can be delegated i.e., the superior has authority over the subordinate.

(ii) Responsibility: Responsibility is the obligation of a subordinate to properly perform the duty assigned by his/her superior. It arises from a superior-subordinate relationship because the subordinate is bound to perform the duty assigned to him by his superior so, responsibility flows upward.

(iii) Accountability: Accountability is an obligation or a liability for a subordinate which is created by the superior for the use of authority and responsibility of actions undertaken for business operation.

3 . How does informal organisation support the formal organisation?

Ans. The informal organisation offers many benefits. Important among them are given as follows:

(i) Quick Feedback: Fixed lines of communi-cation are not followed. Thus, the informal organisation leads to faster spread of information among subordinates as well as quick feedback.

(ii) Social Needs: It aids to fulfil social needs of the members and grants them to find minded people. This enhances their job satisfaction, since it gives them a sense of belongingness in the organisation.

(iii) Organisational Objectives: It contributes towards attainment of organisational objectives by compensating for flaws in the formal organisation e.g., feedbacks on new policies etc, can be tested through informal network.

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

Ans. No, large organisation cannot be totally centralised or decentralised. Complete centralisation would imply power of concentration of all decision making authority at the apex of the management hierarchy. Such a scenario could influence the management hierarchy in a very bad manner. On the other hand, complete decentralisation would imply the delegation of all decision making authority to the lower level of the hierarchy and this would finish off the need for higher, managerial positions. Both the situations are unrealistic.
As an organisation grows in size, there is a tendency to move towards decentralised decision making. This is because, in large organisations those employees, who are directly and closely involved with certain operations tend to have more knowledge about them than the top management, which may only be indirectly associated with individual operations. Hence, there is a need for balance between these co-existing forces.

5. Decentralisation is extending delegation to the lowest level. Comment.

Ans. Decentralisation is extending delegation to the lowest level. Decentralisation refers to delegation of authority throughout all the levels of the organisation. Decentralisation explains the manner in which decision making responsibilities or power are divided among hierarchical levels. Decision making authority is shared with lower levels and is accordingly placed nearest to the point of action. In other words, decision making authority is pushed down the chain of command. Delegation is the process and decentralisation is the end result, e.g., if the director gives the responsibility to production head to complete the target of 20,000 units and authorise him to hire the workers, production head further shares his responsibility with manager to select the worker. Manager shares his responsibility with supervisors, who are dealing with workers, authorise him to select workers. Here, the responsibility distributed at every level. That’s why we say systematic delegation leads to decentralisation.

6. 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?

Ans. Neha should go for divisional structure because:

(i) She will diversify the units into various product lines.

(ii) This structure would enable her to know the profit margins from each product line so that she can plan accordingly and select the specific product for the future diversification.

(iii) It will ease the further expansion without bothering the existing units.

7. 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.

Ans. No, the production manager cannot hold the foreman responsible for the incomplete work as the foreman was not given authority by the manager. The principle of authority and responsibility states that there should be a equity between the authority and the responsibility. If the authority is given more, then it leads to misuse of authority and if responsibility is more, then the work will not be completed. Hence, excessive authority without matching responsibility may bring negative results. So, there is a need of bringing parity between then.

Long Answer Type Questions

1. Why delegation considered essential for effective organising?

Ans. Delegation implies transfer of authority, from a superior to his subordinate. It is an essential concept of an effective that command high priority. It helps in efficient completion of tasks as the subordinates can now show their skills and exercise initiative. Effective delegation leads to the following benefits:

(i) Effective Management: By empowering the employees, the managers are able to function more efficiently as they get more time to concentrate on core activities rather than focusing on immaterial activity. This would increase the efficiency and effectiveness of the working.

(ii) Employee Development: As a result of delegation, employees get more opportunities to utilise their talent and this may give rise to develop skills in them. Delegation empowers the employees by providing them with the chance to use their skills, gain experience and develop themselves for higher positions.

(iii) Motivation of Employees: Delegation motivates the employees to work with greater responsibilities. It has psychological benefits too. Responsibility builds the self-esteem of an employee and improves his confidence. He feels encouraged and tries to improve his performance further.

(iv) Facilitation of Growth: Delegation helps in the expansion of an organisation by providing a workforce who is keen to get new positions in a job. Trained and experienced employees are able to play significant roles in the launch of new projects.

(v) Basis of Management Hierarchy: Delegation of authority establishes superior-subordinate relationship, which is the basis of hierarchy of management. The extent of delegated authority also decides the power that each job position enjoys in the organisation.

(vi) Better Co-ordination: Due to the delegation of work, duties, power, everything becomes very clear. This helps to avoid overlapping of duties and duplication of effort as it gives a clear picture of the work being done at various levels. Such clarity in reporting relationships help in developing and maintaining effective coordination amongst the departments, levels and functions of management.

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

Ans. A divisional structure comprises of separate business units or divisions. Each unit has a divisional manager responsible for the performance and who has authority over the unit. Generally, manpower is grouped on the basis of different products manufactured. It should be adopted by the diversified organisation to enable it to cope with the emerging complexity.


(i) Development of any skills: Product specialisation helps in the development of varied skills in a divisional head and this prepares him for higher positions as he gains experience in all functions.

(ii) Answerability: Divisional heads are accountable for profits, as revenues and costs related to different departments, can be easily identified and assigned to them. This provides proper basis for performance measurement.

(iii) Extentive decision making: It promotes flexibility and initiative because each division functions as an autonomous unit which leads to faster decision making.

(iv) Focuses on growth: It facilitates growth as new divisions can be added without interrupting the existing operations, by merely adding another divisional head and staff for the new product line.


The divisional structure has certain disadvantages:

(i) Conflicts: There may be conflicts among different divisions with reference to allocation of funds.

(ii) Non-economical, leads to huge cost: Providing each division with separate set of similar functions increases expenditure.

(iii) Ignoring Organisational Goals: It provides managers with the authority to supervise all activities related to a particular division. In course of time, such a manager may gain power and in a bid to assert his independence may ignore organisational interests.

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

Ans. Decentralisation is much more than mere transfer of authority to the lower levels of management hierarchy.

Its importance can be understood from the following points:

(i) Develops initiative among subordinates: Decentralisation helps to develop confidence among the subordinates. When lower managerial levels are given freedom to take their own decisions they learn to depend on their judgement. A decentralised policy helps to recognize those executives, who have the necessary potential to become dynamic leaders.

(ii) Develops managerial talent for the future: Formal training plays an important role in arranging subordinates with skills that help them to rise in the organisation, but gaming experience by handling assignments independently is equally important. It gives them a chance to prove their abilities and creates a backlog of qualified manpower.

(iii) Quick Decision Making: In a decentralised organisation, however, since decisions are taken at level, which is nearest to the points of action and there is no requirement for approval from many levels as the process is much faster.

(iv) Relief to Top Management: Decentra-lisation leaves the top management with more time, so they can devote this time to important policy decisions instead of occupying their time with both the policy as well as the operational decisions.

(v) Facilitates Growth: Decentralisation awards greater liberty to the lower levels of management as well as divisional or departmental heads. This grants them to function in a best possible manner suited according to their department and develops a sense of competition amongst the departments, consequently, the productivity level increases and the organisation is able to generate more returns, which can be used for expansion purposes.

(vi) Better Control: Decentralisation makes it possible to evaluate performance at each level and the departments can be individually held liable for their results. The scope of achievement of organisational objectives as well as the contribution of each department in meeting the over all objectives can be ascertained.

4 . Distinguish between centralisation and decentralisation.

Ans. Difference between centralisation and decentralisation.

Basis Centralisation Decentralisation
Meaning It refers to the congregation of powers. at higher level only. It refers to the distribution of powers at every level of management.
Authority Top management retains maximum authority. Middle and lower level are having low authorities. Authority is systematically delegated among all levels.
Suitable It is suitable for small size organisation. It is suitable for large scale organisation.
Freedom Managers have less freedom of actions. Managers have more freedom of actions.

5. How is a functional structure different from a divisional structure?

Ans. Difference between functional and divisional structure are:

Basis Functional Structure Divisional Structure
Formation Formation of it is based on functions performed. Formation of it is based on product lines.
Specialisation Functional specialisation Product specialisation
Responsibility Difficult to fix responsibility Easy to fix responsibility
Managerial development Difficult, as each manager specialises in one function. Easy, as each manager performs multifunctions.
Cost Economical, as no duplication of work. Costly, due to duplicaton of functions.
Co-ordination Difficult for a multi-pfoduct company. Easy, because all functions related to a particular product are integrated in one department.

6. 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 should be adopted in this situation? Give concrete reasons with regard to benefits the company will derive from the steps it should take.

Ans. In the situation given above, organisation should shift from a functional structure to a divisional structure as the company wants to diversify; by adding a new product line.
The reasons and benefits are:
(i) Every unit’s performance is assessed.
(ii) New product lines can be added easily without bothering the existing units.
(iii) Decision making is faster.
(iv) Divisional structure controls short line of communication with customers and provide better services to them.

7. 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.

Ans. The suggestions for the company are:
(i) To conquer the limitations of formal organisation, the management should encourage workers to interact and socialise with each other through get together outings. In this way, everyone will connect and will get to know each other better. The net result will be more satisfied workforce.
(ii) Decentralization can be a good option to choose.
(iii) The business can be diversified in the flexible areas like embroidery units, sequencing units, buttoning units, tailoring units in textile machineries.

8. 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.

Ans. The company X Ltd. is working in a centralised way, which is not giving enough time to the higher officials to think of better policies, strategies to handle the changes in the changing environment. The company should get decentralised so that the routine type of work, involving minor decisions can be looked after by the lower levels. This will give/save more time for the directors and divisional heads to plan strategies to fight with competition.

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