Organizing

Business Studies — Grade 12 | Chapter 4 | NEB Nepal

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Introduction

Once plans are made, the next management function is organizing — building the structure through which those plans will be executed. Organizing converts the intentions of planning into an operational reality by defining who does what, who reports to whom, and how resources are grouped and coordinated. It is the architectural function of management — the design of the organizational structure that determines how efficiently and effectively the enterprise will operate.

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1. Concept and Meaning of Organizing

According to Koontz and O’Donnell, “Organizing involves establishing an intentional structure of roles for people to fill in an organization. It is intentional in the sense that all tasks necessary to accomplish goals are assigned and hopefully assigned to people who can do them best.”

According to Louis Allen, “Organizing is the process of identifying and grouping the work to be performed, defining and delegating responsibility and authority, and establishing relationships for the purpose of enabling people to work most effectively together in accomplishing objectives.”

According to George R. Terry, “Organizing is the establishing of effective behavioural relationships among persons so that they may work together efficiently and gain personal satisfaction in doing selected tasks under given environmental conditions for the purpose of achieving some goal.”

According to Chester Barnard, “Organizing is the function of management which involves establishing relationships between the various parts of the work so that the enterprise may function as an integrated whole.”

According to Theo Haimann, “Organizing is the process of defining and grouping the activities of the enterprise and establishing authority relationships among them.”

From these definitions, organizing involves three essential activities: dividing work into tasks and jobs, grouping related tasks into departments, and establishing authority relationships that coordinate all parts of the organization toward common goals.

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2. Principles of Organizing

According to Koontz and O’Donnell, effective organization design is guided by a set of fundamental principles:

i. Principle of Objective: Every organizational unit must contribute directly to the achievement of the enterprise’s objectives. Structure must follow strategy.

ii. Principle of Specialization: Work should be divided into specialized tasks — each person concentrates on a limited range of activities and becomes more proficient through repetition and focus. According to Adam Smith, specialization dramatically increases productivity.

iii. Principle of Coordination: All organizational units must be coordinated toward common goals. According to Mary Parker Follett, “Coordination is the first principle of organization — all other principles serve it.”

iv. Principle of Authority: There must be a clear chain of authority from the top of the organization to the bottom. Every manager must have sufficient authority to discharge their responsibilities.

v. Principle of Responsibility: Authority and responsibility must be coextensive — a person given a task must also be given the authority to carry it out, and must be held accountable for results.

vi. Principle of Definition: The duties, responsibilities, authority, and relationships of every position must be clearly and fully defined — preferably in writing — so that every person knows exactly what is expected of them.

vii. Principle of Span of Management (Span of Control): There is a limit to the number of subordinates a manager can effectively supervise. According to V.A. Graicunas, the complexity of supervisory relationships increases disproportionately as the number of subordinates increases, suggesting that spans should be kept narrow for complex work and can be wider for routine work.

viii. Principle of Balance: Organizational principles must be balanced against each other and against practical constraints. No single principle should be applied mechanically at the expense of others.

ix. Principle of Continuity: The organizational structure must facilitate the ongoing achievement of objectives — it must be stable enough to provide consistency but flexible enough to adapt to change.

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3. Process of Organizing

According to Koontz and O’Donnell, organizing follows a logical sequence:

Step 1 — Identifying and Dividing Work The total work to be done is identified and divided into individual tasks and activities — ensuring that all tasks necessary to achieve objectives are included and no essential activity is overlooked.

Step 2 — Grouping Similar Activities (Departmentalization) Related tasks are grouped together into departments, divisions, or units — creating logical clusters of work that can be managed coherently. This is the process of departmentalization.

Step 3 — Assigning Duties and Responsibilities Specific tasks and responsibilities are assigned to specific positions and people — matching individual capabilities to job requirements.

Step 4 — Granting Authority Each position is given the authority needed to carry out its assigned responsibilities. Authority flows downward through the hierarchy; accountability flows upward.

Step 5 — Establishing Relationships Reporting relationships, communication channels, and coordination mechanisms are established — defining who reports to whom and how different parts of the organization will work together.

Step 6 — Coordinating Mechanisms are put in place to ensure that all organizational units work together coherently — through meetings, committees, liaison roles, and shared information systems.

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4. Departmentalization: Meaning and Bases

4.1 Meaning

Departmentalization is the process of grouping related activities and tasks into organizational units (departments, divisions, sections) for purposes of management, coordination, and supervision.

According to Koontz and O’Donnell, “Departmentalization is the grouping of activities and employees into departments, which makes it possible to expand organizations to any desired degree.”

According to Louis Allen, “Departmentalization is the process of dividing the enterprise into organizational units called departments, in each of which a manager is given authority over the functions assigned to it.”

4.2 Bases of Departmentalization

i. Functional Departmentalization Departments are created based on the major functions of the business — Production, Marketing, Finance, Human Resources, Operations. Most common in medium-sized businesses.

Advantages: Specialization within each function; clear career paths; efficient use of specialized resources. Disadvantages: Poor coordination across functions; slow decision-making; “silo mentality” — departments optimize for themselves rather than the whole.

ii. Product Departmentalization Departments are organized around specific products or product lines. Each product department manages all activities related to that product.

Advantages: Focus on product performance; faster response to product-specific market changes; clear profit accountability. Disadvantages: Duplication of functions across product departments; may create excessive competition between product divisions.

iii. Geographic (Territorial) Departmentalization Departments are organized by geographic location — regions, provinces, countries. Common in large organizations operating across multiple areas. In Nepal, organizations with provincial offices use geographic departmentalization.

Advantages: Responds to local market conditions; reduces cost of serving geographically dispersed markets; faster local decision-making. Disadvantages: Duplication of functions; difficulty maintaining consistent standards across regions.

iv. Customer Departmentalization Departments are organized around specific customer groups or market segments — retail customers, corporate clients, government clients, exporters.

Advantages: Deep understanding of customer needs; tailored services for each segment; strong customer relationships.Disadvantages: Duplication of resources; difficulty coordinating across customer segments.

v. Process Departmentalization Departments are organized around the stages of the production or service delivery process — casting, machining, assembly, finishing in a manufacturing company.

Advantages: Efficiency in sequential production processes; specialization in process steps. Disadvantages: Poor flexibility; disruption if any process stage fails.

vi. Committee Departmentalization Activities are managed by committees or task forces rather than individual managers — typically for cross-functional projects or policy-making.

Advantages: Brings diverse expertise to decisions; builds consensus. Disadvantages: Slow; unclear accountability; potential for groupthink.

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5. Types of Organizational Structure

The organizational structure is the formal system of reporting relationships, authority, and communication that defines how work is divided and coordinated.

According to Henry Mintzberg, “The structure of an organization can be defined as the sum total of ways in which it divides its labour into distinct tasks and then achieves coordination among them.”

5.1 Simple (Line) Structure

The simplest form — a single chain of authority from top to bottom. The owner or manager at the top has direct authority over all employees.

According to J.D. Mooney, “The line organization is the oldest and simplest form — authority flows in a straight line from top to bottom.”

Advantages: Simple to understand; clear authority; quick decisions; low cost; strong discipline. Disadvantages: Overburdens top manager; limited specialization; no expert advice; unsuitable for large organizations.

Best suited for: Very small businesses — a sole trading concern or small partnership in Nepal.

5.2 Functional Structure

The organization is divided into departments based on specialized functions. Each functional head has authority over all staff performing that function, regardless of where they work.

According to F.W. Taylor, who first proposed functional organization, “The functional type of organization places each workman under several bosses — each responsible for a specific aspect of the work.”

Advantages: Deep functional expertise; efficient use of specialists; clear career paths within functions. Disadvantages: Multiple bosses create confusion (violates unity of command); slow cross-functional coordination; “silo mentality.”

Best suited for: Medium-sized organizations with relatively stable operations and limited product diversity.

5.3 Divisional Structure

The organization is divided into semi-autonomous divisions, each responsible for a specific product, region, or customer segment. Each division has its own functional departments.

Advantages: Each division focuses on its own market; clear accountability for divisional performance; faster response to market changes; develops general management talent. Disadvantages: Duplication of functions across divisions; potential conflict between divisions and headquarters; expensive.

Best suited for: Large, diversified organizations operating in multiple markets — Nepal’s large conglomerates like the Chaudhary Group or Golchha Group use elements of divisional structure.

5.4 Matrix Structure

The matrix structure combines functional and project (or product) structures — employees have two reporting lines, a functional manager and a project/product manager simultaneously.

According to Koontz and O’Donnell, “The matrix organization provides maximum flexibility and allows for the efficient use of specialized expertise across multiple projects.”

Advantages: Flexible use of specialized expertise; strong project focus; encourages cross-functional collaboration; suitable for complex projects. Disadvantages: Violates unity of command — employees report to two managers; potential for conflict between functional and project managers; complex to manage; can create role ambiguity.

Best suited for: Engineering firms, consulting companies, construction companies, IT project organizations — growing in relevance in Nepal’s expanding project-based sectors.

5.5 Committee Structure

A committee is a group of individuals formally designated to consider or decide specific matters collectively. Committees may serve as advisory bodies (recommending decisions to a manager) or decision-making bodies (with authority to act).

Advantages: Pooled expertise and diverse perspectives; better-quality decisions on complex matters; builds commitment through participation; useful for coordination across departments. Disadvantages: Slow — committees take longer to decide than individuals; unclear individual accountability; potential for compromise decisions that satisfy no one; risk of “groupthink.”

Best suited for: Policy-making, strategic planning, major investment decisions — most large Nepali organizations use Board Committees (Audit Committee, Risk Committee) as part of their governance structure.

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6. Drivers of Organizing: Authority, Responsibility, and Accountability

6.1 Authority

According to Henri Fayol, “Authority is the right to give orders and the power to exact obedience.”

According to Koontz and O’Donnell, “Authority in organizations is the right in a position, and through it the right of the person occupying the position, to exercise discretion in making decisions affecting others.”

Authority is the formal right vested in a position — not a person — to make decisions and direct the work of others. It flows downward through the organizational hierarchy.

Types of Authority:

• Line Authority: Direct authority over subordinates — the right to direct, supervise, and evaluate the work of those below in the hierarchy.
• Staff Authority: Advisory authority — staff specialists provide expertise and recommendations but do not directly command line employees.
• Functional Authority: Authority granted to a staff specialist to direct line employees in specific matters within the specialist’s area of expertise.

6.2 Responsibility

According to Louis Allen, “Responsibility is the obligation of an individual to perform assigned duties to the best of his ability, under the direction of his executive leader.”

Responsibility is the obligation to perform assigned tasks. Unlike authority (which can be delegated), responsibility cannot be fully delegated — a manager who assigns a task to a subordinate remains ultimately responsible for the outcome.

6.3 Accountability

According to Koontz and O’Donnell, “Accountability is the obligation of an individual to report formally to his superior about the work he has done to discharge his responsibility.”

Accountability is the obligation to answer for the exercise of authority and the discharge of responsibility. It flows upward — subordinates are accountable to their superiors for the results they achieve.

The Authority-Responsibility-Accountability relationship:

• Authority must equal responsibility (Fayol’s principle of parity)
• Responsibility accompanies every assignment
• Accountability is the consequence of both — the obligation to report and answer for results

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7. Delegation of Authority

7.1 Concept of Delegation

According to Louis Allen, “Delegation is the process a manager follows in dividing the work assigned to him so that he performs that part which only he, because of his unique organizational placement, can perform effectively, and so that he can get others to help him with what remains.”

According to Koontz and O’Donnell, “Delegation is the act of entrusting another person with the job and the related authority required to perform assigned tasks.”

Delegation is the transfer of authority from a superior to a subordinate to carry out specific tasks. It does not transfer responsibility — the delegating manager retains ultimate accountability.

7.2 Elements of Delegation

Effective delegation involves three inseparable elements:

• Assignment of Duties: The manager defines the task and assigns it to the subordinate
• Grant of Authority: The subordinate is given the authority needed to perform the assigned task
• Creation of Accountability: The subordinate is held accountable to the manager for the results

According to Louis Allen, “These three elements of delegation are inseparable — you cannot truly delegate without all three.”

7.3 Guidelines for Effective Delegation

i. Define Tasks Clearly: The delegated task must be precisely defined — what is to be done, by when, to what standard, and with what resources.

ii. Select the Right Person: Match the task to a subordinate with the capability, knowledge, and commitment to perform it effectively.

iii. Grant Adequate Authority: The subordinate must be given enough authority to carry out the task — authority commensurate with responsibility.

iv. Provide Necessary Resources: Along with authority, the subordinate needs access to the information, budget, equipment, and people required to complete the task.

v. Establish Feedback Mechanisms: Set up regular check-ins or progress reports so the manager can monitor without micromanaging.

vi. Motivate the Subordinate: Explain why the task matters, how it contributes to organizational goals, and what opportunities it creates for the subordinate’s development.

vii. Allow Freedom to Act: Having delegated, resist the urge to interfere unnecessarily. Micromanagement destroys the purpose of delegation and demotivates subordinates.

7.4 Challenges (Barriers) to Effective Delegation

Barriers from Managers:

• Fear of losing control — “If I want it done right, I have to do it myself”
• Lack of confidence in subordinates
• Fear that a capable subordinate may outshine the manager
• Unwillingness to take the time needed to explain and develop the subordinate

Barriers from Subordinates:

• Fear of failure and the associated consequences
• Lack of confidence in their own abilities
• Insufficient information or authority to act independently
• Already overburdened with existing responsibilities

According to Peter Drucker, “The inability to delegate is one of the most common causes of management failure — it prevents organizations from developing the human capacity they need to grow.”

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8. Centralization and Decentralization

8.1 Concepts

Centralization is the concentration of decision-making authority at the top levels of the organization.

According to Henri Fayol, “Everything that goes to increase the importance of the subordinate’s role is decentralization; everything that goes to reduce it is centralization.”

Decentralization is the systematic distribution of decision-making authority to lower levels of the organization.

According to Koontz and O’Donnell, “Decentralization is the tendency to disperse decision-making authority in an organized structure.”

According to Peter Drucker, “Decentralization is not a matter of weakening the centre — it is a matter of making the whole organization stronger by making the parts more capable of acting.”

8.2 Arguments For Centralization

i. Uniformity of Policy: Centralized decision-making ensures consistent policies and standards across the entire organization — important for brand consistency and regulatory compliance.

ii. Strong Leadership and Direction: Top management can exercise firm strategic direction and prevent units from pursuing conflicting goals.

iii. Better Coordination: When major decisions are made centrally, it is easier to coordinate the activities of different units.

iv. Economic Use of Specialized Expertise: Specialist knowledge at headquarters can be applied consistently across the organization rather than being replicated (at cost) in each unit.

v. Useful in Crisis: In emergencies, centralized authority enables faster, more decisive response from the top.

8.3 Arguments For Decentralization

i. Relieves Top Management Burden: By distributing decisions to lower levels, top management is freed to focus on strategic matters.

ii. Faster Decision Making: Decisions made closer to the point of action are faster — no need to wait for headquarters approval. Critical in competitive markets.

iii. Develops Managerial Talent: Giving lower-level managers decision-making responsibility develops their capabilities, building the leadership pipeline for the future.

iv. Improves Motivation: Managers with genuine authority are more motivated and committed than those who merely implement instructions from above. According to Frederick Herzberg, responsibility and autonomy are intrinsic motivators.

v. Better Local Responsiveness: Decisions made by managers close to local conditions — customers, suppliers, employees — are more relevant and better informed than those made at a distant headquarters.

vi. Supports Organizational Growth: As organizations grow, centralized decision-making becomes a bottleneck. Decentralization allows the organization to scale without overloading the top.

8.4 Difference Between Delegation and Decentralization

Basis	Delegation	Decentralization
Nature	Personal act between manager and subordinate	Organizational policy for distributing authority
Scope	Narrow — specific tasks	Broad — general authority across functions
Purpose	Getting specific work done	Building organizational capacity
Withdrawal	Can be withdrawn at any time by the delegating manager	Requires formal organizational change
Responsibility	Manager retains ultimate responsibility	Both authority and accountability are distributed
Initiative	Comes from individual manager	Comes from top management as policy

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9. Organizing in the Nepali Context

i. Public Sector Structure: Nepal’s government ministries and departments use a functional departmentalization combined with geographic decentralization — functional departments at the centre, with field offices in provinces and districts. The transition to federalism under the 2072 BS Constitution has significantly decentralized authority to provincial and local governments.

ii. Commercial Banks: Nepal’s commercial banks — NIC Asia, Nabil, Everest Bank — typically use a combination of functional structure (at headquarters) and geographic structure (branch network), with increasing use of matrix elements for project-based digital transformation initiatives.

iii. Delegation in Nepali SMEs: Delegation remains a significant challenge in Nepal’s predominantly family-owned SME sector, where founders are often reluctant to delegate authority to professional managers — limiting organizational growth capacity.

iv. Cooperatives: Nepal’s cooperatives use a democratic organizational structure — members elect a board of directors, which appoints management. Authority is formally decentralized to members but practically concentrated in elected leadership and management.

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Conclusion

Organizing is the management function that converts plans into structures and structures into action. According to Alfred Chandler, “Structure follows strategy” — the organizational structure must be designed to support the strategic direction established in the planning process. When structure and strategy are misaligned, even the best strategies fail in execution.

As Peter Drucker observed, “The purpose of an organization is to make common men do uncommon things.” Through clear division of work, appropriate departmentalization, well-designed authority structures, and effective delegation, organizing enables ordinary people to achieve extraordinary collective results — the fundamental purpose of all management.

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Prepared for NEB Grade 12 Business Studies — Chapter 4: Organizing Aligned with the National Curriculum Framework 2076, Curriculum Development Centre, Sanothimi, Bhaktapur