NCERT Solutions - Organising Commerce Notes | EduRev

Business Studies (BST) Class 12

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Multiple Choice Questions
Question 1. Which of the following is not an element of delegation?
(a) Accountability
(b) Authority
(c) Responsibility
(d) Informal organisation
Answer (d) Informal organisation is not an element of delegation.

Question 2. A network of social relationship that arise spontaneously due to interaction
 at work is called

(a) formal organisation
(b) informal organisation
(c) decentralisation
(d) delegation
Answer (b) Informal organisation implies social interaction amongst people.

Question 3. Which of the following does not follow the scalar chain?
(a) Functional structure
(b) Divisional structure
(c) Formal organisation
(d) Informal organisation
Answer (d) Informal organisation does not follow the scalar chain.

Question 4. A tall structure has a
(a) narrow span of management
(b) wide span of management
(c) no span of management
(d) less levels of management
Answer (a) A tall structure has a narrow span of management.

Question 5. Centralisation refers to
(a) retention of decision making authority
(b) dispersal of decision making authority
(c) creating divisions as profit centres
(d) opening new centres or branches
Answer (a) Centralisation implies concentration of all decision making functions at the
 apex of the management.

Question 6. For delegation to be effective, it is essential that responsibility be
 accompanied with necessary

(a) authority
(b) manpower
(c) incentives
(d) promotions
Answer (a) Authority refers to the right of an individual to command his subordinates
 Thus, It IS essential that responsibility be accompanied with necessary authority.

Question 7. Span of management refers to
(a) number of managers
(b) length of term for which a manager is appointed
(c) number of subordinates under a superior
(d) number of members in top management
Answer (c) Span of management IS the number of subordinates under a supenor.

Question 8. The form of organisation known for giving rise to rumours is called
(a) centralised organisation
(b) decentralised organisation
(c) informal organisation
(d) formal organisation
Answer (c) As In informal organisation excess of interactions among people giVing rise
 to rumours.

Question 9. Grouping of activities on the basis of product lines is a part of
(a) delegated organisation
(b) divisional organisation
(c) functional organisation
(d) autonomous organisation
Answer (b) Divisional organisation implies grouping of activities on the basis of product
 lines.

Question 10. Grouping of activities on the basis of functions is a part of
(a) decentralised organisation
(b) divisional organisation
(c) functional organisation
(d) centralised organisation
Answer (c) Functional organisation implies grouping of a activities on the basis of
 functions

Short Answer Type Questions

Question 1. Define ‘Organising’?
 Answer
Organising is defined as a process that initiates implementation of plans by
clarifying jobs, working relationships and effectively deploying resources for attainment
of identified and desired results.

Question 2. What are the steps in the process of organising?
 Answer 
Organising involves following steps that need to be taken in series
1. Identification and Division of Work Organising process begins with identifying and
division of total work into small units.
2. Departmentalisation After dividing the work, related and similar jobs are grouped
together and put under one department.
3. Assignment of Duties After departmentalisation, the work is assigned according to
the ability of individuals.
4. Establishing Reporting Relationship Assigning duties is not enough. Each
individual should also know, who he has to take orders and to whom he is
accountable. Thus, reporting relationship helps in co-ordination among various
departments.

Question 3. Discuss the elements of delegation.
 Answer
The elements of delegation are as follows
1. Authority It refers to the right of an individual to command his subordinates and to
take action within the scope of his position. The concept of authority arises from
the established scalar chain, 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 downward.
2. Responsibility Responsibility is the obligation of a subordinate to properly
perform the assigned duty. It arises from a superior-subordinate relationship
because the subordinate is bound to perform the duty assigned to him by his
superior. Responsibility flows upward.
3. Accountability Accountability implies being answerable for the final outcome.
Once authority has been delegated and responsibility accepted, one cannot deny
accountability. It cannot be delegated
and flows upwards i.e., a subordinate will be accountable to a superior for
satisfactory performance of work.

Question 4. What does the term ‘Span of management’ refer to?
 Answer 
Is the number of subordinates under a superior or we can say, it means how
many employees can be effectively managed by a superior. The span of management,
to a large extent gives shape to the organisational structure, e.q., 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.
NCERT Solutions - Organising Commerce Notes | EduRev

Question 5. Under what circumstances would functional structure prove to be an
 appropriate choice?
 Answer
Functional structure would prove to be most suitable when the size of the
organisation is large, has diversified activities and operations require a high degree of
specialisation. It promotes control and co-ordination within a department, increased
managerial and operational efficiency, results in increased profits.

Question 6. Draw a diagram depicting a divisional structure.
 Answer 
Diagram of Divisional Structure

NCERT Solutions - Organising Commerce Notes | EduRev

Question 7. Can a large sized organisation be totally centralised or decentralised? Give
 your opinion.
 Answe
r No large organisation can not be totally centralised or decentralised. Complete
centralisation would imply concentralisation of all decision making functions at the apex
of the management hierarchy. Such a scenario would obviate the need for a
management hierarchy. On the other hand, complete decentralisation would imply the
delegation of all decision making functions 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 and complexity, 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.

Question 8. Decentralisation is extending delegation to the lowest level. Comment.
 Answer
Decentralisation is extending delegation to the lowest level Decentralisation
explains the manner in which decision making responsibilities are divided among
hierarchical levels. Decentralisation refers to delegation of authority throughout all the
levels of the organisation. Decision making authority is shared with lower levels and is
consequently 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 give 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.

Long Answer Type Questions

Question 1. Why is delegation considered essential for effective organising?
 Answer 
Effective delegation leads to the following benefits
1. Effective Management By empowering the employees, the managers are able to
function more efficiently as they get more time to concentrate on important
matters. This makes the working of all the levels effective and efficient.
2. Employee Development As a result of delegation, employees get more
opportunities to utilise their talent and this may give rise to talent abilities in them.
It makes them better leaders and decision makers. Delegation empowers the
employees by providing them with the chance to use their skills, gain experience
and develop themselves for higher positions.
3. Motivation of Employees Delegation helps in developing the talents of the
employees. It also has psychological benefits. Responsibility for work builds the
self-esteem of an employee and improves his confidence. He feels encouraged
and tries to improve his performance further.
4. Facilitation of Growth Delegation helps in the expansion of an organisation by
providing a ready workforce to take up leading positions in new ventures. Trained
and experienced employees are able to play significant roles in the launch of new
projects.
5. Basis of Management Hierarchy Delegation of authority establishes superiorsubordinate,
which management. The extent of delegated are the basis of
hierarchy of authority also decides the power that each job position enjoys in the
organisation.
6. Better Co-ordination Due to delegation work, duties, power all 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.

Question 2. What is a divisional structure? Discuss its advantages and limitations.
 Answer
A divisional structure comprises of separate business units or divisions. Each
unit has a divisional manager responsible for performance and who has authority over
the unit. Generally, manpower is grouped on the basis of different products
manufactured.

Merits
1. (i) Skill Development 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.
2. (ii) Accountability 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.
3. (iii) Quick Decision Making It promotes flexibility and initiative because each
division functions as an autonomous unit which leads to faster decision making.
4. (iv) Facilitates Expansion 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.

Demerits
The divisional structure has certain disadvantages
1. Conflicts Conflicts may arise among different divisions with reference to allocation
of funds.
2. Higher Cost Providing each division with separate set of similar functions
increases expenditure.
3. 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.

Question 3. Decentralisation is an optional policy. Explain why an organisation would
 choose to be decentralised.
 Answer
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
1. Develops Initiative Among 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 identify those executives, who have the
necessary potential to become dynamic leaders.
2. Develops Managerial Talent for the Future Formal training plays an important
part in equipping subordinates with skills that help them rise in the organisation,
but equally important is the experience gained by handling assignments
independently. It gives them a chance to prove their abilities and creates a
reservoir of qualified manpower.
3. Quick Decision Making In a decentralised organisation, however, since
decisions are taken at levels, which are nearest to the points of action and there is
no requirement for approval from many levels the
process is much faster.
4. Relief to Top Management Decentralisation leaves the top management with
more time, which they can devote to important policy decisions rather than
occupying their time with both policy as well as operational decisions.
5. Facilitates Growth Decentralisation awards greater autonomy to the lower levels
of management as well as divisional or departmental heads. This allows them to
function in a manner best suited to their department and develops a sense of
competition amongst the departments. consequently, the productivity levels
increase and the organisation is able to generate more returns, which can be used
for expansion purposes.
6. Better Control Decentralisation makes it possible to evaluate performance at
each level and the departments can be individually held accountable for their
results. The extent of achievement of organisational objectives as well as the
contribution of each department in meeting, the over all objectives can be
ascertained.

Question 4. How does informal organisation support the formal organisation?
 Answer
The informal organisation offers maov benefits Important among them are
given as follows
1. Quick Feedback Prescribed lines of communication are not followed. Thus, the
informal organisation leads to faster spread of Information as well as quick
feedback
2. Social Needs It helps to fulfill social needs of the members and allows them to
find like minded people. This enhances their job satisfaction, since it gives them a
sense of belongingness in the organisation.
3. Organisational Objectives It contributes towards fulfilment of organisational
objectives by compensating for inadequacies in the formal organisation e.g.,
feedbacks on new policies etc can be tested through Informal network.
Question 5. Distinguish between centralisation and decentralisation.
 Answer
Difference between centralisation and decentralisation

NCERT Solutions - Organising Commerce Notes | EduRev
Question 6. How is a functional structure different from a divisional structure?
 Answer 
Difference between functional and divisional structure

NCERT Solutions - Organising Commerce Notes | EduRev
Application Type Questions

Question 1. 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 Neha should decide for divisional structure because
1. She will diversify her unit now into varied product lines.
2. Such a structure would enable her to know the profit marqms from each product
line and accordingly, she can plan and select the specific product for future
diversification.
3. It will facilitate further expansion without disturbing the existing units.

Question 2. 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, 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 responsibility says that there should be a balance between the authority and
responsibility. If the authority given is more, then it leads to misuse of authority and if
responsibility is more, then the work will not be completed.

Question 3. A manager enhances the production target from 500 units to 700 units per
 month, but the authority to draw raw material was not given by him. The production
 manager could not achieve the revised production target. Who is responsible and which
 principle was violated?
 Answer 
The manager is responsible for work not being completed. The principle of
authority responsibility is violated.

Question 4. 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?
 Answer

1. As a company is performing separate functions in separate areas. then it should
adopt functional structure
2. The services of experts are common to all products. It will be economical as no
duplication will take place.
3. Span of management can be increased as workers will be doing same type of
work.

Case Problems
1. 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.

Question Prepare a report regarding organisation structure giving concrete reasons
with regard to benefits the company will derive from the steps it should take.

Answer In the given situation, organisation should shift from functional structure to
divisional structure as the company wants to diversity, by adding a new product line.
The reasons and benefits are
1. The performance of each unit can be easily assessed,
2. New product lines can be easily added without disturbing the existing units.
3. Decision making is faster.
4. Divisional structure maintains short line of communication with customers and
provide better services to them.

2. A company manufacturing sewing machines set up n 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.

Question You are to advise the company with regard to change it should bring about 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. In which sectors can the
 company diversify, keeping in mind the declining market for the product the company is
 manufacturing?
 Answer The suggestions are

1. To overcome 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 interact and like minded people will come
closer. The net result will be more satisfied workforce.

2. The management should try to decentralise organisation structure.

3. The suggested area where the business can be diversified is textile machineries
like embroidery units, sequencing units, buttoning units.

3. A company X limited manufacturing comsetics, 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 has no choice. But now the company is under pressure to reform.

Question 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 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 thus get decentralised so that the
routine type of work, Involving minor decisions can be looked after by the lower levels.
Thrs Will give/save more time for the directors and divisional heads to plan strategies to
fight with competition

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