Organising Important Questions for CBSE Class 12 Business Studies Organisational Structure and Types of Organisation Structure

1. Meaning of Organisational Structure An organisational structure shows the authority and responsibility relationship between various positions in the organisation and also clarifies who will report to whom.
2. Types of Organisational Structure
(i) Functional structure It is an organisational structure which is formed by grouping of jobs of similar nature under various functional departments.
Advantages of functional structure are:

  • It promotes control and coordination within a department.
  • It is the most logical, time proven form of organisation structure.
  • It leads to minimal duplication of effort, which results in economies of sacle and this lowers cost.
  • It ensures that different functions get due attention.

Disadvantages of functional structure are:

  • (a) It becomes difficult to hold a particular department responsible for any problem.
  • It may lead to inflexibility as people with same skills and knowledge may develop a narrow perspective.
  • A functional structure places less emphasis on overall enterprise objectives than the objectives pursued by a functional head.

(ii) Divisional structure Under the divisional structure an organisation is divided into different divisions or units on the basis of products or geographical area.
Advantages of divisional structure are:

  • Decisions are taken much faster in divisional structure.
  • It facilitates expansion and growth as new divisions can be added without interrupting the existing operations.
  • It leads to specialisation of physical facilities and human talent.

Disadvantages of divisional structure are:

  • There is a duplication of physical facilities and functions.
  • It suffers from the under utillisation of plan capacity.
  • Conflict may arise between different divisions on allocation of funds and other resources.

Previous Years Examination Questions

1 Mark Questions
1. Distinguish between functional structure and divisional structure on the basis of
formation.  (Compartment 2014)
Ans. Functional structure is formed on the basis of functions, whereas divisional structure is formed on the basis of various product lines, which is further supported by functions.

2. Define organisation as a structure. (Foreign 2014)
Ans. An organisation structure can be defined as the framework within which managerial and operating tasks are performed. It specifies the relationships between people, work and resources.

3. State the suitability of functional structure of organising. (Compartment 2014)
Ans. Functional structure is roost suitable when the size of the organisation is large, has diversified activities and operations requires a high degree of specialisation.
3 Marks Questions
4. Identify the type of suitable organisational structure for a large scale organisation having diversified activities requiring high degree of specialisation in operations.  (HOTS; All India 2013)
Ans. Functional structure Under functional structure, an organisation is divided into different departments or units on the basis of major functions performed. All departments report to a coordinating head, e.g. in a manufacturing concern the key functions will include production, purchasing, marketing, personnel, etc. This structure tries to achieve high level of specialisation by grouping similar jobs together.

5. Explain when and why the need is felt for having a framework, within which
managerial and operating tasks are performed to accomplish desired goals. Name this framework also.
(HOTS; Delhi 2010)
Ans. It is an organisational structure.
Need of organisational structure is felt in the following cases:
(i) It is required when an organisation grows in size or leads to complexity.
(ii) It is required when an organisation is new and is required after planning but before staffing.
(iii) It is required as it helps in effective administration, expansion, growth and better utilisation of resources.

6. In a fashion designing unit, following are the main functions
(i) Manufacturing                     (ii) Finance
(ii) Marketing                            (iv) Personnel management
 Which organisational structure will you prefer for this type of a company and why?  (HOTS; Delhi 2009C)
Ans. For this company, functional organisational structure will be more appropriate.
It has the following advantages:
(i)It promotes control and coordination within a department because of similarity in the tasks being performed.
(ii) It helps in increasing the managerial and operational efficiency and this results in increased profit.
4/5 Marks Questions

7. A steel manufacturing company has the following main jobs
(i) Manufacturing
(ii) Finance
(iii) Marketing
(iv)Personnel
(v) Research and development
Which type of organisational structure will you choose for this type of a company and why? State any four advantages of this organisational structure.  (HOTS; Delhi 2010C)
Ans. I would suggest the functional organisational structure as all these major functions could be performed well under separate departments.
It offers following advantages
(i) A functional structure leads to occupational specialisation since emphasis is placed on specific functions.
(ii) It promotes control and coordination within the department.
(iii) It helps in increasing managerial and operational efficiency.
(iv) It leads to minimal duplication of effort. Hence, it is economical.

8. Aman runs a factory wherein he manufactures leather shoes. The business is doing well and he intends to expand by diversifying into leather bags as well as leather jackets. Which type of organisation structure would you recommend for his expanded organisation and why? Give two reasons. (HOTS; All India 2009)
Ans. I would recommend the divisional organisational structure.
This is because (Any two):
(i) The number of main products is more than one.
(ii) Different manufacturing technologies and marketing methods are required.
(iii) Each division is equipped with its own resources in order to function independently
6 Marks Questions

9. Explain the concept of functional structure of an organisation. Also explain any four disadvantages of functional structure. (All India 2014)
Ans. Functional structure Under functional structure, an organisation is divided into different departments or units on the basis of major functions performed. All departments report to a coordinating head, e.g. in a manufacturing concern the key functions will include production, purchasing, marketing, personnel, etc. This structure tries to achieve high level of specialisation by grouping similar jobs together.
” Disadvantages of functional structure are:
(i) Specialists working in different departments may not be able to see the perspective of the organisation as a whole, e.g. the production department may get involved in producing a quality product without regard to the fact it might not sell at a high price. As a result, it becomes difficult to achieve the objectives of the organisation.
(ii) It becomes difficult to hold a particular department responsible for any problem, e.g. when sales are declining, who is responsible? It is difficult to determine whether the marketing department or the production department is responsible for not producing a quality product.
(iii) Functional heads do not obtain experience required for top management positions. Specialised skills and narrow perspective may lead to inflexibility.
(iv) Conflict often arises when the interests of two or more departments are not compatible.

10. Differentiate between functional and divisional structure of organising on the  basis of the following?
(i) Meaning                                          (ii)     Formation
(iii) Specialisation                              (iv)       Responsibility
(v) Managerial development            (vi) Cost involved    (Foreign 2014)
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11. What is meant by functional structure of an organisation? State any five advantages of this form of organisational structure.   (All India 2014; Delhi 2011)
Ans. Functional structure Under functional structure, an organisation is divided into different departments or units on the basis of major functions performed. All departments report to a coordinating head, e.g. in a manufacturing concern the key functions will include production, purchasing, marketing, personnel, etc. This structure tries to achieve high level of specialisation by grouping similar jobs together.
Advantages of functional structure are as follows:
(i) A functional structure provides occupational specialisation, since, emphasis is placed on specific functions.
(ii) It promotes control and coordination within a department because of similarity in the task being performed.
(iii) It increases managerial and operational efficiency and this results in higher profit.
(iv) It makes training of employees easier as it focuses on a limited range of skills.
(v)  It ensures the performance of all activities necessary for achieving organisational objectives. Due attention can also be given to different functions.

12. What is meant by divisional structure of an organisation? For which type of business enterprises is this structure most suitable? State any four advantages of this form of organisational structure. (All India  2011)

Ans. Divisional structure Under the divisional structure, an organisation is divided into different divisions or units on the basis of products or geographical area. Each division is a self contained, semi-autonomous business unit. Each unit has a divisional manager responsible for performance and who has authority over the unit. There are certain matters, which are determined at the apex level only, viz goal determination and policy formation.
It is suitable for those enterprises where:
(i) A large variety of products are manufactured.
(ii) An organisation grows and needs more employees, more departments.
Advantages of divisional structure are as follows:
(i) Product specialisation helps in the development of varied skills.
(ii) It helps in the fixation of responsibility as divisional heads are accountable for profits, revenues and costs related to their departments.                                                                                                                                                                                                                                                                                                   «
(iii) It promotes flexibility and initiative because each division functions as an autonomous unit which leads to faster decision-making.
(iv) It facilitates expansion and growth as a new division can be added without interrupting the existing -operations.

13. What is meant by functional structure of   organising?     Explain       its   any     two  advantages and any two limitations.                        (Delhi 2011)
Ans.  Functional structure Under functional structure, an organisation is divided into different departments or units on the basis of major functions performed. All departments report to a coordinating head, e.g. in a manufacturing concern the key functions will include production, purchasing, marketing, personnel, etc. This structure tries to achieve high level of specialisation by grouping similar jobs together.
Advantages of functional structure are as follows:
(i) A functional structure provides occupational specialisation, since, emphasis is placed on specific functions.
(ii) It promotes control and coordination within a department because of similarity in the task being performed.
(iii) It increases managerial and operational efficiency and this results in higher profit.
(iv) It makes training of employees easier as it focuses on a limited range of skills.
(v)  It ensures the performance of all activities necessary for achieving organisational objectives. Due attention can also be given to different functions.
Limitations of functional structure
Functional structure Under functional structure, an organisation is divided into different departments or units on the basis of major functions performed. All departments report to a coordinating head, e.g. in a manufacturing concern the key functions will include production, purchasing, marketing, personnel, etc. This structure tries to achieve high level of specialisation by grouping similar jobs together.
” Disadvantages of functional structure are:
(i) Specialists working in different departments may not be able to see the perspective of the organisation as a whole, e.g. the production department may get involved in producing a quality product without regard to the fact it might not sell at a high price. As a result, it becomes difficult to achieve the objectives of the organisation.
(ii) It becomes difficult to hold a particular department responsible for any problem, e.g. when sales are declining, who is responsible? It is difficult to determine whether the marketing department or the production department is responsible for not producing a quality product.
(iii) Functional heads do not obtain experience required for top management positions. Specialised skills and narrow perspective may lead to inflexibility.
(iv) Conflict often arises when the interests of two or more departments are not compatible.

14. What is meant by divisional structure of   organising?       Explain       its   any     two  advantages and any two limitations.    (Delhi 2011c; All India 2009)
Ans. Divisional structure of organisation
Divisional structure Under the divisional structure, an organisation is divided into different divisions or units on the basis of products or geographical area. Each division is a self contained, semi-autonomous business unit. Each unit has a divisional manager responsible for performance and who has authority over the unit. There are certain matters, which are determined at the apex level only, viz goal determination and policy formation.
It is suitable for those enterprises where:
(i) A large variety of products are manufactured.
(ii) An organisation grows and needs more employees, more departments.
Advantages of divisional structure are as follows:
(i) Product specialisation helps in the development of varied skills.
(ii) It helps in the fixation of responsibility as divisional heads are accountable for profits, revenues and costs related to their departments.
(iii) It promotes flexibility and initiative because each division functions as an autonomous unit which leads to faster decision-making.
(iv) It facilitates expansion and growth as a new division can be added without interrupting the existing -operations.
Limitations of divisional structure are as follows :
(i) Expensive Such a structure involves heavy financial costs due to the duplication of supporting functional units for the divisions. It also requires adequate number of capable managers to take charge of their respective divisions.
(ii) May ignore organisational interests All the divisions work as autonomous units. Divisional heads may gain power and ignores organisational interests.

15. Shreyskar runs a locks manufacturing factory. He wants to expand his business.  For expansion, he contemplates to enter into the manufacturing of locks for cars as  an ancillary company. By doing this, his company will be able to provide many    tory and why? State any five advantages of this organisational Structure.
 (HOTS; All India 2010)
Ans. Divisional structure will be chosen for this factory because factory is producing more than one type of products.
Divisional structure Under the divisional structure, an organisation is divided into different divisions or units on the basis of products or geographical area. Each division is a self contained, semi-autonomous business unit. Each unit has a divisional manager responsible for performance and who has authority over the unit. There are certain matters, which are determined at the apex level only, viz goal determination and policy formation.
It is suitable for those enterprises where:
(i) A large variety of products are manufactured.
(ii) An organisation grows and needs more employees, more departments.
Advantages of divisional structure are as follows:
(i) Product specialisation helps in the development of varied skills.
(ii) It helps in the fixation of responsibility as divisional heads are accountable for profits, revenues and costs related to their departments.                                                                                                                                                                                                                                                                                                   «
(iii) It promotes flexibility and initiative because each division functions as an autonomous unit which leads to faster decision-making.
(iv) It facilitates expansion and growth as a new division can be added without interrupting the existing -operations.
NOTE Under the divisional structure, an organisation is divided into different divisions or units on the basis of products or geographical area.

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