NCERT Solutions for Class 12 Business Studies Chapter 5: Organising

Hello Students. Are you Searching for Class 12 Business Studies NCERT Solutions of Chapter 5? If yes then you are in the right place. Here we have provided you with the Question and Answers of Chapter 5: Organising. These solutions are written by expert teachers and are so accurate to rely on. These solutions can eliminate any lingering doubts you may have regarding the concepts.

Chapter5. Organising
SubjectBusiness Studies
CategoryNCERT Solutions for Class 12

NCERT Solutions for Class 12 Business Studies can be a great tool for the students who have taken Business Studies stream for higher studies. These NCERT Class 12 Business Studies solutions are written by expert teachers and faculties to make your practice and revision easier. On this page, we have provided you with the complete solutions of Chapter 5: Organising.

NCERT Solutions for Class 12 Business Studies Chapter 5

Organising Solutions

Very Short Answer Questions

Q1) Identify the network of social relationships which arises spontaneously due to interaction at work.

Answer) A network of social relationship that arise spontaneously due to interaction at work is called informal organisation. It emerges 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 concerned with the transfer of authority and responsibility to the subordinates.

Q2) What does the term ‘span of management’ refer to?

Answer) Span of management refers to the number of subordinates that a manager can efficiently handle. It is the determining factor for the nature and structure of an organisation. Span of management can be classified into the following two categories.

  1. Narrow Span of Management: If the number of subordinates reporting to a particular manager is small, the span of management is said to be narrow. Narrow span of management leads to tall organisational structures that have multiple levels of management.
  2. Wide Span of Management: Span of management is said to be wide if, there are large number of subordinated reporting to a manager. Wide span of management leads to flatter organisational structures with only a few levels of management.

Span of management depends on various factors such as ability of the manager in terms of leadership, control, etc., extent of decentralisation followed in the organisation, working ability of the subordinates, nature of work, etc.

Q3) State any two circumstances under which the functional structure will prove to be an appropriate choice?

Answer) Functional structure requires grouping and organising activities that are of similar nature. Under functional organisation each group functions separately and specialise in their work. Financial structure is suitable for organisations that are large and which have various functions.

Here are two circumstances that under functional structure is appropriate:

  1. Large sized organisations need to have a functional structure in order to operate smoothly. There will be many departments within the organisation and making differentiation based on departments is very much helpful for a organisation. It helps in improving efficiency of the managers so that the work progresses smoothly.
  2. A high degree of coordination is required for managing various functions. It is done to improve efficiency. If an organisation is having a clear division of work, a functional structure helps in promoting coordination between the various departments and thereby ensures all functions go on smoothly.

Q4) Draw a diagram depicting a functional structure.


Draw a diagram depicting a functional structure


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) In the given situation a functional organisation structure would be more suitable. The following points justify the use of functional organisation structure

  • As it is a large organisation proper departmentalisation would help in improving overall managerial efficiency and degree of control over various activities.
  • The organisation is dealing with diverse functions simultaneously, thereby requires high degree of coordination. This can be achieved in a better manner through clear division of activities in various departments as done under functional structure.
  • Functional structure would promote specialisation which would help in performing the diverse functions in a better manner.
Short Answer Questions

Q1) What are the steps in the process of organising?

Answer) The following are the steps involved in a successful process of organising.

  1. The first step that is involved in organising is identifying the number of activities and accordingly dividing them as per the plan. Actions are taken as per the defined objectives. Having a clear division of work keeps duplicity at bay.
  2. Actions that are fixed earlier are now arranged in groups based on similarity. This ensures that the department specialising in the work has access to it.
  3. The next step in organising is assigning the roles and responsibilities to the person best suited for the job. Work is allocated as per the skills of the members.
  4. The next part in organising is the presence of a hierarchy in an organisation. It is very helpful when a person is aware of his immediate superior. A defined organisation structure helps in ensuring successful functioning of the activities of the organisation.

Q2) Discuss the elements of delegation.

Answer) Delegation refers to the transfer of authority and responsibility to the subordinates. The following are the basic elements of delegation.

  • Authority: It refers to the power given to an individual to command and direct the subordinates. It implies the right to take decisions regarding what is to be done and by whom. Scalar chain in a formal organisation gives rise to authority as it entails the link between various jobs and determines the relation of who is to report to whom. It is a downward flowing channel, i.e. superior commands authority over the subordinates. The extent of authority at the top level management is the highest and it becomes lesser at the middle level and the lowest at the lower level management. However, the scope of authority delegated, depends on the rules and regulations of the organisation. Assigning authority helps in maintaining obedience and compliance.
  • Responsibility: Responsibility refers to the adherence and answerability of the subordinate to complete the given task. That is, once a duty has been assigned to a subordinate, it is his responsibility to perform the task properly. A subordinate should be obedient and loyal towards the duty assigned to him. The superior-subordinate relationship gives rise to a sense of responsibility. As against authority, responsibility flows upward i.e. the subordinate is responsible to his superior. However, care should be taken that while assigning responsibility to a subordinate, he must also be given a certain degree of authority. On the other hand, an individual who is given authority must also have some responsibility. This is because authority without responsibility may lead to the misapplication of power. On the other hand, responsibility without authority may lead to inefficiency.
  • Accountability: Accountability implies the answerability of the superior for the final outcome of the work he assigned. Though the superior delegates the work to his subordinate but he still will be responsible for the final outcome. For this the superior, through regular feedbacks and supervision ensures that the subordinate performs the tasks properly and satisfactorily. The concept of being accountable arises out of responsibility itself. We may say that while responsibility is assumed, accountability is imposed.

Q3) How does informal organisation support the formal organisation?

Answer) The network of relations that is created from the social interactions taking place outside of the office is called as informal organisation. It traces its origin from the formal organisations and are not created at will by management. These relationships are built on friendship that develops between co-workers. It supports the formal organisations in following ways

  1. A free flow of communication is established in an informal organisation which leads to communication channels outside the organisation. In this way communication spreads easily and assists the formal organisation.
  2. In informal organisations people develop good bonding among themselves and thus towards organisation. It helps in increasing coordination among the members and also promotes mutual trust and respect. The result of such bonding is it lowers the level of conflicts.
  3. Informal organisations help in fulfilling organisational objectives. Managers can get to know about the workers issue and ask for suggestions on improving the work conditions. Happy workers will be more contributing towards organisation.
  4. It helps in building a harmonious work environment by encouraging cooperation among workers and managers. A peaceful work environment is more productive.
  5. An informal organisation helps in increasing efficiency among the workers. The workers understand their importance and actively contribute towards organisation growth.

Q4) Can a large sized organisation be totally centralised or decentralised? Give your opinion.

Answer) No, any organisation cannot work smoothly if it is either completely centralised or completely decentralised. Rather a balance is required between the two.

Centralisation refers to a situation where the decision making power is concentrated only in the hands of the top level management. Herein, only the top level managers are authorised to take the needed decisions. All the functions related to policy making, planning and controlling are curtailed to the top level management. In contrast to this, decentralisation refers to a situation where the decision making power is delegated to the lower level managers. Herein, the power of taking actions and deciding the policies is distributed at different levels.

An organisation cannot function either with extreme centralisation or with extreme decentralisation. As an organisation grows in size, it cannot maintain complete centralization. Rather, a need arises to move towards decentralisation. For a smooth functioning, the individuals involved in the actual work must have certain degree of authority and responsibility. With decentralisation, the overall management of the work becomes more efficient. It allows for better control of the work at each level of hierarchy. Moreover, as the organisation grows in size, decentralisation would facilitate quick decision making. This is because in a decentralised system the decision making power is near the point of actual work. Thereby, the delay in work is avoided.

However, an organisation cannot also follow extreme decentralisation. If all the decision making power is delegated to the lower level managers, then it may harm the harmony of the organisation. It is possible that lower level managers at each department mould the rules and policies according to their own convenience and thereby, diverge from the organisational goals. Thus, certain degree of authority and control must be retained at the top level management so as to maintain integrity of the organisation.

Hence, we can say that a large sized organisation cannot be totally centralised or totally decentralised, rather it must maintain a balance between the two.

Q5) Decentralisation is extending delegation to the lowest level. Comment.

Answer) Both decentralisation and delegation relate to downward delegation of authority and responsibility. Under delegation, the authority is shared by the superior to the immediate subordinate. On the other hand, under decentralisation this concept is extended and the authority is distributed at not just one but multiple levels. That is, while delegation involves just two persons, i.e. the superior and subordinate, decentralisation is a wider concept of the same (delegation) where the power gets transferred to numerous levels. For example, suppose the director of an organisation delegates the responsibility of completing a task, hiring the required workers and supervising them to a project head. The project head in turn shares his responsibility of hiring and supervising the workers with the project lead. The project lead further delegates the responsibility of supervising the workers to the team lead. Thus, delegation at each level from the director, to project head, project lead and further to the team lead results in decentralisation. Hence, it can be said that delegation at each level leads to decentralisation and decentralisation is extending delegation to the lowest level.


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) The organisation structure that Neha can follow is that of divisional organisation structure. Under this system there will be separate departments which will be taking care of different products. There will be separate personnel for managing the departments.

The divisional structure is recommended for the following reasons:

  1. Each of the department will have a head who will be accountable for the overall performance of the department. The performance of individual departments can be determined easily and the best and worst performers can be identified and necessary steps can be taken.
  2. Decision making will be quick as each department has a specialist to manage it.
  3. Having a divisional structure allows adding more divisions without impacting the functions of the organisation.


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 blame the foreman. This is because while the foreman was given the responsibility he was not given the authority. Authority and responsibility must be accompanied by each other. When responsibility is given certain degree of authority must also be given for smooth functioning.

Long Answer Questions

Q1) Why delegation is considered essential for effective organising?

Answer) Delegation implies transfer of authority, from a superior to his subordinate. It is an essential concept for effective organisation as it lowers the burden on the manager and thereby, facilitates the manager to focus on activities that command high priority. Also, the managers can extend his area of operations once he delegates the work to subordinates. In addition to this, it provides the subordinates with more opportunities for growth. It helps in efficient completion of tasks as the subordinates can now show their skills and exercise initiative. The following points highlight the importance of delegation in effective organising.

  • Managerial Efficiency: Delegation of the work to the subordinates, help the managers to concentrate on other areas of concern. With delegation of routine work to the subordinates, the manger can focus on other high priority areas. Besides, it provides them the opportunity to explore and innovate into new areas. For example, if the manager delegates the basic work to the subordinate he can put his mind into exploring ways to improve efficiency.
  • Employee Proficiency: By delegating the work, managers empower his subordinates by providing them opportunities to apply their skills. Herein, the subordinates get a chance to prove his abilities, gain experience and develop his career. Thus, delegation in a way helps in preparing future managers.
  • Motivation: Along with improving the managerial and employee efficiency, delegation provides the employees with the psychological benefits. It acts as a motivational guide for the workers. It imparts a feeling of mutual trust and commitment between the superior and subordinate. With responsibility the employee gains confidence and he gets encouraged to give their best to the organisation.
  • Growth: Delegation facilitates easy growth and expansion. Delegation helps in the preparation of efficient and experienced mangers that can take up leading positions at times of growth of the organisation. That is, workers trained and prepared through delegation contribute to the expansion and growth of the organisation more efficiently.
  • Hierarchical Structure: Delegation forms the basis of the hierarchical structure of an organisation. It decides the superior-subordinate chain and determines who has to report to whom. It clearly states down the reporting relationships which helps in smooth working of the organisation.
  • Coordination: Delegation promotes coordination of work. It reduces overlapping of work by defining the reporting relationships. All the elements of delegation such as authority, responsibility and accountability helps in providing a clear working relationship, thereby, increasing efficiency.

Q2) What is divisional structure? Discuss its advantages and limitations.

Answer) Divisional structure is a system where work is divided into different departments. There is a separate head for each department and there is no overlapping of responsibilities in such a structure. The field of work is clearly defined.

Here are some of the advantages of a divisional structure:

  1. Managers and workers get ample opportunity to grow among their department and become specialist in the product. It is helpful in increasing efficiency of the workforce.
  2. Each division or department can be tracked individually for their performance. It leads to identification of best and worst performing divisions.
  3. The divisions are independent to take their own decisions which makes the decision-making process quick. The rapid decision making enables faster implementation which is beneficial for the organisation.
  4. Having a divisional structure allows adding more divisions without impacting the functions of the organisation

The following are some of the disadvantages of a divisional structure:

  1. There can be conflicts among departments with regards to allocation of funds and resources.
  2. There can be rise in cost due to duplication of work among departments. There might be some activities that are common across all departments and employing separate personnel for each department for these activities can drive the cost higher.
  3. There can be a chance that due to more focus on improving the individual departments the growth of organisation as a whole can get hampered.

Q3) Decentralisation is an optional policy. Explain why an organisation would choose to be decentralised.

Answer) Decentralisation refers to the dispersal of the decision making power among the middle and lower level managers. It is an optional policy as it depends on the organisation how much power the top level management wants to delegate to the lower levels. An organisation may choose to be centralised or decentralised depending on the objectives and the decisions of the top level managers. Following are a few factors that explain why an organisation would choose to be decentralised.

  • Initiative: Decentralisation allows a sense of freedom to the lower managerial levels as it lets them take their own decisions. It gives them a higher degree of autonomy to take initiative. Moreover, it promotes a feeling of self-confidence and self-reliance among them. When the power is delegated to lower level managers, they learn to face new challenges and find solutions for the problems themselves. This helps in spotting those potential managers who can take the needed initiative.
  • Managerial Competence: Once the authority is delegated to the managers at lower levels, it provides them the needed opportunity to develop themselves. It provides them with the opportunity to gain experience and thereby, develop the skills and knowledge to face new challenges. Decentralisation gives them a chance to prove their talent and get ready for higher positions. It also helps in pre-identification of the future managers who are well-equipped with the necessary talent required to deal with managerial problems.
  • Control: Decentralisation helps in evaluating the performance of the organisation in a better manner. Decentralisation helps in analysing and evaluating the performances of each department separately. Thus, the extent of achievement of each department and their contribution to the overall objectives of the organisation can be easily can be easily evaluated.
  • Active Decision Making: Since through decentralisation, the authority of making decisions is passed on to lower levels of management, decisions are taken quickly and timely. This is because the decision can be taken at the nearest points of action which thereby, helps in easy adjudication of the problems.
  • Growth: Managerial efficiency is developed to a large extent with the help of decentralisation. Decentralisation results in greater authority to the lower level managers. It promotes competition among the managers of various departments. In a race to outperform each other, they give their best shot and thereby, increase the overall productivity and efficiency. The organisation gains from the increased overall performance and thereby, grows.
  • Reduced Workload of Top Managers: Delegation of authority provides freedom to top level managers. It helps them in shifting the workload to their subordinates and gives them time to concentrate on more important and higher priority work such as policy decisions. Moreover, direct supervision by the top level management is decreased, as the subordinates are given the rights to take the decisions by their own.

Q4) Distinguish between centralisation and decentralisation.

Answer) The points of difference between centralisation and decentralisation are as follows:

Basis of DifferenceCentralisationDecentralisation
AuthorityAuthority remains concentrated only in few hands at the higher level of management.Authority is delegated to lower levels of management.
CreativityRestricts creativity of middle and lower level managers.Promotes creativity and innovation at all the levels.
Work LoadHigher work load on the top level managers.Lesser workload as sharing of authority and responsibility is done.
Scope of DelegationScope of delegation is limited as power is concentrated in a few hands.Wider scope of delegation as authority can be transferred.
Subordinate InitiativeLimits the scope of initiatives by subordinates as the workers have to work on the pre-decided path.Encourages the subordinates to come forward and take initiative as they are allowed the needed freedom for working.
Decision MakingThe decision making is slowed down as the power lies only with the top management.The decision making is quick as the authority lies near the actual action.

Q5) How is functional structure different from a divisional structure?

Answer) The following points highlight the difference between a functional structure and a divisional structure.

Basis of DifferenceFunctional structureDivisional structure
CreationFunctional structures are created on the basis of functions in an organisation.Divisional structures are created on the basis of products as well as functions.
CostsBy minimising duplication of work, it becomes economical.Duplication of work is more as same work is done between various departments.
Decision MakingCentralised decision making as decisions are being made by the head of respective departments.Decentralised decision making as there is a separate decision-making authority for each of the product.
Overlapping of WorkMinimised as separate functional departments are thereIncreased as each department has same levels of work.
SuitabilityCompanies focusing on operational specialisation will find this structure more feasibleSuitable for companies focusing on creating differentiated products
Functional HierarchyArranging departments on the basis of important operations leads to formation of horizontal functional hierarchy.When departments are arranged in the basis of product line it results in formation of vertical functional hierarchy.


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

Answer) As the company is now diversifying into new products it must follow a divisional organisational structure. Divisional structure refers to an arrangement where activities are separated on the basis of products. There are different units and divisions which deal with varied products. In the given situation different units can be for simple toys and electronic toys. Each division would have its own divisional manager who would supervise the whole unit and would have the authority for it. Each of the divisions can then have further functional departments such as under electronic toys there will be resource inputs, advertising, production, sales, etc. The same will be under simple toys.

The benefits that the company would derive from following a divisional structure are as follows:

  1. Under divisional structure each head is responsible for the profit and loss of his own division. This helps in clear identification of the performances by each department separately. Once the head is accountable for the revenues and costs of their own department, it becomes easier to gauge the actions of each. This also helps in taking corrective actions in case of poor performance.
  2. As under divisional structure, each division functions independently, decision making becomes quick. Once the departments are divided, the heads have the authority to take their own decisions whenever needed.
  3. Under divisional structure expansion of an organisation becomes easier as new divisions can be easily added without affecting the functioning of other divisions.


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.

Answer) The major change that is required to correct the situation is to move away from a complete formal organisation structure and allow for some informal structure. An informal structure is a network of social relationships that arise out of personal interactions among employees of an organisation beyond their officially defined roles.

An informal structure would benefit the organisation in the following manner.

  1. As no definite path or channel of communication is followed, information spreads faster.
  2. An informal organisation allows for personal communication beyond the officially defined roles. This unofficial interaction provides a sense of belongingness among the employees towards the organisation and towards each other. This helps in lowering the employee turnover.
  3. An informal organisation supports the working of formal organisation, thereby helps in fulfilment of organisational objectives in a better manner.

The company can diversify in other sewing related products as better and technologically advanced sewing machines, machines with advance features such as embroidery.


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.


i. What organisation structure changes should the company bring about in order to retain its market share?
ii. How will the changes suggested by you help the firm? Keep in mind that the sector in which the company is FMCG.

Answer) A major change that needs to be adopted is a move towards decentralisation. As the organisation is growing it cannot maintain complete centralisation. The employees must be given some authority and responsibility to ensure smooth and efficient functioning of the organisation. Moreover, it would enable quick decision making in the organisation.

Decentralisation would benefit the organisation in the following manner:

  1. With decentralisation the lower level managers would get freedom and autonomy to take initiatives.
  2. Decentralisation would help in developing managerial competence which would prove useful in the process of growth.
  3. With decentralisation the decisions are taken quickly and in a timely manner. This is useful in finding solutions to the problems easily.

That’s it. These were the solutions of NCERT Class 12 Business Studies Chapter 5 – Organising. Our team hopes that you have found these solutions helpful for you. If you have any doubt related to this chapter then feel free to comment your doubts below. Our team will try their best to help you with your doubts.

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