MODULE 1

Ajin C Sajeevan
Asst. Professor
Dept: of Mechanical Engineering
School of Engineering,
CUSAT
Topics

(part1)

• Introduction to Organization
• Definition
• System approach applied to Organization
• Necessity and Elements of Organization
• Process of Organization
• Principles of Organization
• Formal and Informal Organization
• Organization structure
• Types of Organization structure
Definition..?? (c/w)
Definition

• Organization is a pattern of relationships among the individuals

working together for a common goal.
• It is a system consisting of men, materials, machinery and money
working for a common goal.
• It is concerned with building, developing and maintaining of
effective machinery for accomplishing the objectives of the
enterprise.
• Eg: Banking system
• Identifying and grouping work to be performed
• Delegating responsibilities
• Establishing relationship among people to get maximum efficiency
System approach applied to organization
• The systems approach considers organization as a system composed
of sub systems that are inter-related.
• Systems have boundaries, but they also interact with external
environment.
• It is an adaptive open system.
• This approach recognizes the importance of studying inter-
relatedness of planning, organizing, and controlling in an
organization as well as the many subsystems.
Necessity of organisation

1. Complexity of Industry
2. Growing Competition
3. Optimum utilization of resources
4. Fixation of authority and responsibility( Authority means right to
act and responsibility means obligation of subordinates to head)
5. Reduced labour problems
6. Co-ordination and directing efforts
7. Facilitates administration
8. Stimulates creativity.
essential Elements of good
organization
1. It must be helpful in the achievement of objectives.
2. There must be harmonious grouping of activities.
3. The activities of the organisation must be co- ordinated properly.
4. An organisation must be complete in all respects.
5. An organisation should have an effective communication system.
6. The Span of control should be reasonable.
7. Provision of expansion
8. Clear and well defined policies and procedures
9. Employees satisfaction is essential
10. Proper division of authority and responsibility.
Process of Organisation
(Steps in Organising process)
• Determination of objectives, strategies, plans and policies.
• Determination of activities
• Separation and grouping of activities
• Delegation of authority
• Delegation of responsibility
• To establish inter-relationships
• Providing physical facilities and proper environment
• Preparation of Organization chart = helps to understand
organizational relationships . It shows grouping of major activities
into departments and line of authority and responsibility among the
departments
Principles of Organisation

1. Consideration of unity of objectives: the objectives must be clearly defined for the
entire enterprise, for each dept. and even for each position in the organisation
structure.
2. Principle of specialization: Work should be distributed among the persons very
carefully on the basis of their skill, experience and ability to do that work.
3. Principle of authority: Line of authority should be clearly established in the
structure of organisation in order to avoid overlapping actions, omission of acts etc.
4. Principle of Co-ordination: Different depts. should have to co-ordinate with each
other to achieve common goals.
5. Principle of unity of command: Each sub ordinate should have only one superior
and dual sub ordination should be avoided.
6. Principle of Span of control: The no: of persons who are directly responsible to the
executive is called span of control. In an average firm SOC range is from 6 to 20.
7. Principle of exception: Only exceptionally complex matters should be
referred to the executives for their decision and matters of routine nature
should be decided by the sub-ordinate themselves.
8. Principle of flexibility: The organisational structure should be flexible
enough to permit slight alterations and expansions whenever needed, due
to changed circumstances.
9. Principle of simplicity: The organisational structure should be simple
with minimum no: of levels
10. Principle of Responsibility: the superior should be held responsible for
the acts of his subordinates to whom he has delegated authority.
11. Principle of balance: There should be balance between;
-the activities
-authority and responsibility
-standardization of procedures and flexibility
-centralization and decentralization
12. Principle of continuity: The Org. structure should be in such a way that it enables to
continue its useful existence for a longer period.
13. Scalar principle: The authority originating from the top should flow below without
any interruption – vertical elaboration of organisation
14. Principle of parity between authority and responsibility: Authority means ability of
the superior to command and responsibility means the obligation of the subordinates
to a superior to perform the assigned task. Both should go hand in hand.
15. Principle of efficiency: Enabling the enterprise to attain objectives with minimum
cost and effort.
16. Principle of Communication: A good communication system is essential for smooth
flow of information.
 Downward communication – top executive to lowest grade employee
 Upward communication – feedback, orientation, complaints, suggestions from lowest grade employee
to top executive
 Horizontal communication – transmission of information – same level employees
 Unofficial communication – or Rumors
Types of Organisation

• Formal Organisation
– FO are those which have a system of well defined positions,
authority, responsibility, rules, policies, principles etc.
– They are co ordinated towards a common objectives.

• Informal Organisation
– Arises from the personal and social relations of the people
which may or may not be work related.
– They bring cohesiveness and comes along with the formal
organisation.
Organisation Structure

• OS means the systematic arrangement of people working for the

organisation and their relationship b/w positions.
• It defines the functions to be performed, objectives to be established,
the availability of resources, working relationship of the individual
participants etc.

• Factors

– Size of Org.
– Nature of the product being manufactured.
– Complexity of problem being faced.
Types of Organisation Structure

1. Line/Military/scalar Organisation
– Based on similarities of activities, diff depts: are created.
– Based on relative authority and responsibility
– Each dept is placed under one dept head & he has the full
authority all over them.
– Authority flows from top to bottom in a vertical line.
– Unity of command is maintained.
– Superior will be responsible for the performance of sub ordinate
to his commanding officer.
Line Organisation
Advantages
• simple and easy to understand
• Flexible: easy to expand and contract
• Clear division of authorities
• Clear channel of communication
• Encourages speedy actions
• Strong in discipline
Disadvantages
• Neglects specialists – MORE WASTEAGE
• Overload few executives
• High type supervisory personals are required

Applied in automatic and continuous process industries – sugar, paper,

textile etc.
2. Functional Organisation
– F. W. Taylor suggested FO – Because it was difficult to find all
round persons qualified to work at middle management level
– Modified form of line organisation
– Authority rests with functional heads
– Staffs are grouped and located by specialty into functional depts:
each headed by a functional manager. Each member of staff has
one clear boss.
– Each Functional manager who is a specialists in their respective
areas and is based on high degree of specialization and is in
charge of one group.
Functional Organisation
Advantages

• Since a foreman is responsible for one function, he can perform his duties in
better manner
• No of accidents and wastage of materials, man, machine etc. can be reduced
• Quality of work can be improved

Disadvantages

• Coordination of the efforts of various functional foremen is difficult

• Difficult to maintain discipline
• Workers may remain confused about the activities and authority of foreman
• More complex industrial relationship
• Workers are not given opportunity to make use of their ingenuity, initiative, and
drive
• All round executives cannot be developed
3. Line and staff organisation
– In a big organisation manager will have to do a variety of
functions and he may not be expertise in all areas.
– Special executives will be employed to assist line executives and
they were known as staff, whom to perform specialized function.
– Supervisory authority will be given for line executives and the
staff executives gives advices and expert opinion.
– Very common in medium and large scale industries
Line and staff organisation
Advantages
• Expert advise from specialist staff executives can be made use of
• Work load of line executives will be relived and thus able to devote
more attention towards production
• Less wastage of materials man and machine hours
• Quality of product is improved
• Posses advantages of both line and functional organization

Disadvantages

• Product cost is increased due to high salary given to executives

• Development of friction and jealousies between executives
4. Project Organisation
– It consist of an autonomous project team, existing independently
of the rest of organisation.
– The project team is assembled for a specific project under the
action of project manager.
– The team is thus temporary and will be dispersed when the
project is completed.
Project Organisation
Advantages
• Does not interfere with the existing organization
• It provides concentrated attention a complex project demands
• It allows maximum use of specialist available in an enterprise

Disadvantages

• Project manager has to deal with persons of varied nature and interest
• Everyone working in existing organization is attracted to project
• Experience gained in one project may not be relevant in other projects
• Project work being temporary, there is quite uncertainty and insecurity
of jobs for specialist hired from outside
• Decision making is difficult – constant pressure
• Chances of conflict among specialists
5. Matrix Organisation
– They are those that comes b/w fully functional and fully project
organisational structure.
– Staffs are grouped and located by speciality into functional units
headed by a functional manager.
– The project manager works with the functional manager for
timely completion of project.
Matrix Organisation
Topics (part 2)

Forms of business organization

• Concept of Ownership organization

• Types of ownership
– Individual ownership
– Partnership
– Joint stock company
• Private and public limited company,
– Co-operative organizations
– State ownership
• Public corporation
Ownership Organisation

• A firm is an Ownership organisation which combine the factors of

production (4M) in a plant for the purpose of producing goods or
services and selling them at profit.

• Factors
– Size and nature of organisation
– Technical difficulties
– Market competition and scope of articles in markets
– Capital required
– Limitations and restriction put forth by govt.
Types of ownership

• Single ownership : Capital is provided by single individual

• Partnership: Capital is supplied by two or more persons

• Joint stock company: Capital is provided by many persons in the

form of share

• Co-operative Organization

• State and central government owned

 Types of Ownership

Private Sector Public Sector

1. Individual Ownership 1. Departmental Organisations

2. Partnership 2. Public corporations
3. Joint Stock Company 3. Government Companies

Co operative sector

1. Producers Co Op: society

2. Consumers Co Op: society
3. Housing Co Op: society
4. Co Op: Credit society
PRIVATE SECTOR
• Private sector organizations, as the name indicates, are exclusively owned
by private individuals.
• The efficiency of the private sector organizations is usually very high
compared to organizations from any other sector.
1. Individual Ownership
• Simplest and oldest form of Organisation.
• Individual entrepreneur supplies the entire capital – one person contributes
the original assets to start the business, maintains and control the business
operation
• Entire Authority & responsibility belongs to him and also the profit and
loss.
• In Short it’s a “one man business”, if need he can employ a person to assist
him.
– Applications: Small scale industries – priting press, auto repair shop,
wood working plant
• Risk covered is not too heavy
• Management by 1 man is possible
Advantages
• Easy to establish – no legal formalities required
• Simplicity in organization
• Start with minimal expanse
• Owner is free to make any decisions – this type of ownership
is simple easy to operate and extremely flexible
• The owner enjoys all the profits

Disadvantages: ???
Owner is liable for all obligations and debts of the business
Life of organization may be limited
Employee promotion is limited
Expansion is limited
A single ownership may be inadequate as the size of the organization grows…
as duties and responsibilities increases…
2. Partnership Organisation
Combination of individual traders..

• Owned by 2 or more persons who share the power, responsibilities and profits
according to an agreement reached amongst themselves.
• Person may possess exceptional business ability, experience, talent but no
capital, then he can have a financing partner (vice versa).
• “Partnership deed” – written agreement ( Cover all areas of disagreement
among the partners…also define the authority, responsibility, rights and duties
of each partner…)
• Partnership is defined as “ the relation between persons who have agreed to
share the profits of a business carried on by all or any of them acting for all..”
• Types of partners : Active partners and sleeping partners
 Types of partnership

General Partnership – Each partner has full agency powers – actions of

any partner affect other partners also
Advantages :
• Large capital is available , firm possess much better talents,
judgment and skills,
• General partnership is easy to form
• There is a definite legal status of the firm
• Partners have full control of he business and possess full rights to all
profits
• Partnership firms can borrow money quite easily from the bank
• For all loses there are more than one person are responsibile
Applications : Law firms, retail trade organization, medical clinics,
small engineering firms
Disadvantages
• Each partner has unlimited liability for the debts of the firm
• Danger of disagreement and distrust among partners
• Authority being divided among the partners
• Partnership lacks permanence and stability : Partnership dissolves if
any of the partner dies
• Investors and lenders hesitate to provide money because of lack of
stability of partnership
• All partners suffer because of the wrong step taken by one partner
2. Limited partnership

• Association of one or more general partners who manages the

business and one or more limited partners whose liability is limited
to the capital they have invested
• Limited partners share the profit but they do not participate or
interfere with the control or management of the firm
3. Joint Stock Company

• Legal business owned by the shareholders having limited liability and

managed by an elected Board of Directors.
• Capital is contributed by large no: of persons in the form of shares of
different values.
• Persons who purchase shares are called Share Holders and managing body
is known as Board of Directors, whom elected by the SH.
• BOD – make policies, takes decision and runs the company efficiently
– Types
a. Private Ltd Company
b. Public Ltd Company
a. Private: Ltd Company

• Capital is collected from the private partners

• Owned and managed by a group of members (2 to 50) from family,
relatives or friends, excluding employees.
• Formed by 2 or more members & max is limited to 50.
• Transfer of share is limited to members only and general public cannot be
invited to purchase shares.
• No need of certificate of commencement of business from registrar
• Need not circulate the Balance Sheet, Profit and loss account etc among
members, but hold annual general meeting – financial statement is
produced
– Eg: Indus motors, Popular automobiles etc
b. Public Ltd company

• Capital is collected from the public by issuing shares having small face
values – The managing agents gets a fixed percentage of net profit as
remuneration
• It is opened to general public
• Min no: of persons are 7 and there is no upper limit.
• They are subjected to greater control and supervision of the govt.
• Shares are transferable without any prior approval.
• The affairs of company are managed by BOD
– Eg: Reliance India Ltd, L&T Ltd, Tata etc.
 Private Ltd Company Vs Public Ltd Company

SL No Basis of Description Private Ltd Public Ltd

1 Minimum no: of members Two Seven
2 Maximum no: members Fifty Unlimited
3 Invitation of public for capital No Yes
4 Transferability of shares Restricted to Free
members
5 Secrecy Possible Not possible
6 Prospectus Not necessary Yes, necessary
7 Minimum no: of directors Two Three
8 Exemption from legal Yes No
restrictions
9 Quick Decision Possible Not Possible
10 Protection to members Less More
Advantages of Joint Stock Companies :

• A huge sum of money can be rasied

• Shares are transferable
• Companies life is not affected by the life of the shareholders
• Services of specialist can be obtained
• Risk of loss is divided among many shareholders
• Stability, efficiency and flexibility of management

Disadvantages of Joint Stock Companies

• A good deal of legal formalities is required for the formation of

joint stock companies
• Company is managed by big shareholders only
• It is difficult to maintain secrecy as in partnership
CO OPERATIVE SECTOR

• It is a form of private ownership which contains features of large partnership as

well as some features of the corporation
• Its an Organisation where in persons voluntarily associate as human beings for
the fulfillment of their common economic interests.
• Set up with a primary objective of helping its members rather than making profit.
• Members pay fees or buy shares and the profits are periodically redistributed to
them

– Types

1. Producers Co Op: society

2. Consumers Co Op: society
3. Housing Co Op: society
4. Co Op: Credit society
1. Producer’s Co operative society

• They are formed to protect the interest of small producers by making

available items of their need for production (like raw materials, tools etc)
• For buying and selling the products, produced/cultivated by the members
to eliminate middlemen and get better prices.
• Eg: handlooms, coir, handicrafts etc.

2. Consumer’s Co operative society

• For the retail trade of household and consumable items.

– Eg: Stores in School & Colleges.
3. Housing Co operative society
• Formed for the purpose of getting plots or constructing houses for needy
persons by providing loans, reducing cost of construction etc.

4. Co operative credit Society

• It’s objective is to finance the poor cultivators by providing loans at low
ROI for developing land, buying agro machineries etc.
• Formed by persons working in the same organisation to provide loans to
the members in case of financial difficulties etc.
Advantages
• Daily necessities of life can be made available at lower rates
• It is the democratic form of ownership
• Promotes cooperation, mutual assistance and the idea of self help
• The chances of large stock holding and black marketing can be eliminated
• No one person can make big profit
• Common man is benefited
• Monetary help can be secured from government
• Goods required can be purchased directly form the manufacturers and
therefore can be sold at less rates
Disadvantages
• Finance being limited, specialist service cannot be taken
• Members who are in positions may try to take personal advantages
• Conflict among members – responsibilities and authorities
• Members being in service may not be able to devote necessary attention
and adequate time for supervising the works of the cooperative enterprise.
PUBLIC SECTOR

• Owned and managed by Central or State government.

• Controlled and operated by the govt: or in association with private
enterprises.
• Capital is invested by the govt: or govt: controlled financial institutions
like LIC, UTI, Public sector banks etc.
• Public Sector Undertaking (PSU) is a term used to refer companies in
which the govt: owned a majority (51% or more) of the company equity.
• Eg: Iron &steel industries , fertilizers, defense industries etc.
 Objectives of Public Sector
• To provide basic infrastructure facilities for the growth of economy
• To promote rapid economic development
• To avoid concentration of economic power in a few hands
• To create employment opportunities
• To earn foreign exchange
• To look after well- being and welfare of public
1. Departmental Organizations

• It’s the business organisation which are owned, managed and run by the
govt: or local bodies like municipality, district board etc.
• Generally done in the case of water supply, electricity, gas, bus, railways,
navigation etc.
• Social benefit is of primary importance while profit motive is given as
secondary consideration.
• Eg: Railways, Posts and Telegraphs etc.
2.Public Corporations
• Owned by the govt-either Central, State or local bodies.
• It is managed by the Board of Directors nominated by the government.
• It combines the public interest of the govt body & autonomous
management of the public sector.
• They have no profit motive and work for the sake of social welfare.
• Eg: FCI, ONGC, Financial corporation, Industrial development
corporation etc.
3. Government Companies
• A govt: company is any company in which not less than 51% of the share
capital is held by the Central or State govt: or partly by both.
• Managed by elected Board of Directors.
• Eg: FACT, HAL, HLL, HMT etc.
 Private Sector
• Serves personal interest and is a non government sector
• Profit is the main objective
• Run by business man – capital is collected from private partners
Merits
• High efficiency
• Magnitude of profits incurred is high
• Wastage of material and labor is minimum
• Decision making is very prompt
Demerits
• Concentration of wealth in a few
• Unbalanced growth