Different Types of Organisations and their purpose! This article will also help you to learn about the followings:

  1. 3 Types of Organizations
  2. Types of Organizations Formal and Informal
  3. Types of Organizations Formal and Informal Commercial and Non-Commercial Organization
  4. Different Types of Organisations and their Purpose

Types of Organizations in Management

Indian Cabinet is an organization, Indian Football team is an organization, Microsoft Company is an organization and Apollo hospital is an organization, and so on. Organizations are all pervasive- in every field of activity, and may have endless categories.

For our purposes, we would discuss two broad categorizations:

1. Commercial and non-commercial organisations


2. Formal and informal organisations

1. Commercial and Non-Commercial Organisations:

i. Commercial Organizations:

A commercial organization exists primarily to generate profit. The owners can decide to keep all the profit themselves, or they can spend some or all of it on the business itself. Or, they may decide to share some of it with employees through the use of various types of compensation plans, e.g, employee profit sharing. It may take any legal form, including sole proprietorships, partnerships and corporations.

ii. Non-Commercial Organizations:


Very simply put, a non-commercial organisation is an organisation whose main objective is providing a typical service to the community. It is not established for the purpose of earning profit. “Profit” in this context is a relatively technical accounting term, related to but not identical with the notion of a surplus of revenues over expenditures.

Typical types of non-commercial services are – arts, civic, cultural, education, health and human service. These organisations range in size from extremely large (e.g., Red Cross, large hospitals, etc.) to extremely small (e.g., organizations like small clubs that have no full-time personnel, and operate only with volunteers).

Most non-commercial organisations are organized into corporations like societies established under Societies Registration Act, 1860, or trusts established under Indian Trusts Act. These organisations may take form of a company also, by getting registered under section 25 of the Companies Act, 1956. However, many non-commercial organisations exist in the non-corporate form.

Non-commercial organisations work from their overall mission, or purpose, to identify a few basic service goals, which must be reached to accomplish their mission. Like UNICEF work to develop children throughout the world, and, WHO works to promote health of people.


The organisational structure of a non-commercial organisation generally involves a governing body who decides about the setup of the organisation. The structure of such organisations do not differ largely from commercial organisations. However, generally it is not very complex structure as the main focus of the organisation is – Programmes and fund-raising.

Programs are made to accomplish the goal. For instance, a typical WHO program may include identifying a village in the remote South of India, study the health hazards over there, and taking steps to remove those hazards and educating the public about them.

It often helps to think of programs in terms of inputs, process, outputs and outcomes. Inputs are the various resources needed to run the program, e.g., money, facilities, program staff, etc. The process is how the program is carried out, continuing with the WHO example, selecting right combination of people to go and conduct study, contact­ing village people, creating health facilities, etc.

The outputs are the units of service, e.g., how many people are cared for, how many health problems have been tackled with, and so on. Outcomes are the impacts on the persons receiving services, e.g., increased mental and physical health, increased awareness of hygiene and health.


Since non-commercial organisations do not work for profit, it is always a concern to arrange and manage funds for conducting the programmes.

There are many avenues of funds which can be resorted to for fundraising in a non-commercial organisation:

a. Fees:

Fees may be associated with these services and billed to either the person receiving the service (e.g. the parent with a child in daycare) or to a third party such as a Government agency that supports such services. Unlike the commercial organisation, where the price of a product or service must cover all costs, non-commercial organisations rarely meet all their costs based upon sales and fees.


b. Grant:

Grants may be given by Government agencies, foundations or corporations, usually to operate a specific program. Grants from foundations or corporations are generally provided up front and require a report on program activities and expenditures at the end of the grant period.

For example- if Government gives a grant of Rs.1,00,000 to organisation X to run free food program in a backward municipality area for a period of six months, the organisation would have to report the utilisation details of the grant to the Government after the expiry of six months.

c. Donation:


Individual donations may come from an organization’s membership or constituents (e.g. viewers of public television or residents of a neighbourhood commu­nity). These are generally small donations, ideally from a large number of people. Sizable gifts may come from individuals who are referred to as major donors. Cultivating relationships with major donors requires the energy and resourcefulness of the govern­ing body.

d. Organising Special Events:

A non-commercial organisation may hold special events to raise money. For instance, some musical show can be organised in order to raise fund for a specific program or institution.

e. Self-Sustaining Activities:


Some commercial activities may be undertaken by the organisations to fund their programmes. For instance, blind schools often sell greeting cards and handicraft material made by the blind students in order to raise money for their schooling and living.

f. Endowment Funds:

These are those funds which are invested to provide permanent income to the organisation, like regular interest income. These may be created by the donors or by the governing body of the organisation, if they have such kind of funds available with them.

Thus, organising non-commercial organisation mainly consists of organising programs and organising funds for the programmes. Fund raising can be a full-time job (or a full- time obsession) for governing body of the non-commercial organisation. It is a challenge to balance the time between raising money and program management. If too much time is spent on fundraising, programs and staff may not get the direction and coaching they need. On the other hand, if fundraising takes a back seat to program management, the organization’s cash flow will suffer.

Structure of such organisations depends upon the kind of programmes required to accomplish the mission of the organisation, and the kind of funds available with it, which determines the scale of its working.

2. Formal and Informal Organizations:

i. Formal or Organisation:


Formal organisation is a formally created structure of jobs and positions with clearly defined functions and relationships. Under it, the activities of its members are consciously co-ordinated towards a given objective. For example- a college is a formal organisation created to disseminate education to degree level students. It has a formal structure of administra­tive staff and faculty with different roles, and a defined set of activities to be performed by them.

Scot has defined a formal organization as “a system of coordinated activities of a group of people working towards a common goal under authority and leadership”.

Features of a Formal Organisation:

1. Formal organisation is consciously designed.

2. It provides for specialisation.

3. It is based on delegated authority.


4. It is based on ideal relationship; the authority, responsibility and accountability of each level is clearly defined.

5. The principle of unity of command is usually observed.

6. It is deliberately impersonal.

7. It is supported by organisational charts.

ii. Informal Organization:

Informal organisation is a network of informal groups which emerge because of human element of the organisation. When people work at one place, there tend to emerge personal relationships among them which take form of various groups. Such groups may have social ties or common interests outside the business. They may hunt and fish, play golf or tennis, swim, or play bridge together and entertain each other’s families.


In the words of Keith – “Beneath the cloak of formal relationship in every institution, there exists a more complex system of social relationships called informal organization”.

Features of an informal organisation:

1. An informal organisation arises spontaneously.

2. It is based on personal attitudes, emotions, likes and dislikes.

3. It provides social satisfaction to its members.

4. It is an integral part of a total organisation and the management cannot eliminate it.


5. It has no place in the formal chart.

6. It is a network of personal and social relations.

7. It has its own rules and traditions.

8. It is indefinite and has no structure.

Informal groups can neither be eliminated nor ignored. Management must take cognizance of them, and it should use them to augment communication flow and to enhance job satisfaction on the part of group members. This will make the overall organization more efficient in action.

It is an important principle of good organization to remember that informal groups, when present, must be considered in developing, modifying, and evaluating an organi­zation structure. If the informal group becomes overly powerful and is not channelled skilfully into the formal organization, it may disrupt the efficient operation of the concern, and cause mal-functioning leading to higher operating costs than necessary.


Types of Organisation: Formal and Informal Organization Structure

There are two types of Organisation Structure:

1. Formal Organisation Structure

2. Informal Organisation Structure.

Organizations are basically classified on the basis of relationships. There are two types of organizations formed on the basis of relationships in an organization.

1. Formal Organisation Structure:

The formal organisation refers to the structure of jobs and positions with defined functions and relationships. In a formal organization the work is delegated to each individual of the organization. Employee works towards the attainment of definite goals, which are in compliance with the goals of the organization.

To facilitate the co-ordination of various activities in the organization, the authority, responsibility and accountability of individuals in the organization are very well defined therefore, facilitating the coordination of various activities of the organization very effectively.

The manager instructs people in the organization to do certain things in a specified manner, to obey orders from designated individuals, and to work cooperatively with others.

The type of organisation employed by companies varies considerably they can be of following types:

1. Line Organisation

2. Line and Staff Organisation

3. Functional Organisation

4. Project Management Organisation

5. Matrix Organisation.

1. Line Organisation:

This is the oldest as well as the most common type of organisation. Each superior has a direct authority over his subordinates who in turn exercise it over his immediate subordinate.

The line structure is based on the scalar principle, where the authority, orders, commands and instructions, thus, flow from top to bottom in a line while the responsibility flows from bottom to top in a line. In this way, the information flows from top to bottom in a line. Every person in the organisation is in the direct chain of command.

Merits of Line Organisation:

i. This is very simple form of an organisation to understand. Each individual knows who his boss is and correspondingly who is the subordinate.

ii. Since the entire structure is based on the task to be performed, the objectives are more likely to be attained at a faster speed. So it is economical and effective.

iii. Clearly defined authority and responsibility enables each person to carry out his/her part of the overall task and thus proper order is being maintained.

iv. Each superior maintains direct contact with his subordinate and can therefore exercise control over him.

v. It is less expensive due to non-involvement of staff personnel and is more stable.

Demerits of Line Organisation:

i. As line organization flows in a scalar chain from top to bottom so it suffers from lack of specialisation & lack of expert advice.

ii. It is rigid and inflexible.

iii. Based on autocratic system of management.

iv. Ignorance of social values.

v. Managers are overburdened.

The Line Organisation System can be Successfully Utilised:

i. Where scale of business is small

ii. Continuous process industries.

iii. Work of routine nature.

iv. Where the machinery are automatic.

v. Labour management problems are easy to solve.

2. Line and Staff Organisation:

In a small and simple group of people (organizations) one single person can efficiently achieve this objective but with the increase in the size of the organizations, the complexi­ties and problems also increase and therefore, one single individual cannot alone bear the responsibility of achieving the major goals of the organisation.

In fact, he does not even acquire the necessary skill to solve all the problems of different functional areas of management. It therefore, becomes essential for him to seek the expert advice of specialists. The people who provide this specialized assistance to the line managers are called as ‘staff’.

Line & Staff organisation is one in which there are two sets of officers for administration, viz.:

(1) Line officers who have the authority and command over the subordinates and are responsible for the accomplishment of the results,

(2) Staff officers or specialists who render experts’ advice to the line officers to help them to discharge their functions efficiently.

An example showing line’ and ‘staff activities’. In an organisation, there are many activities which take place to achieve the organisational objectives. Those activities that are primary and directly related to the achievement of organisational objec­tives are said to be line activities, e.g. Production, Finance, Marketing, etc. All secondary, subsidiary and supportive activities which facilitate and smoothen the performance of line activities are said to be staff activities.

Example of staff activities are public relations, research and development, legal service etc. whether an activity is line or staff will depend on the type of organisation and its objectives.

Thus, there arises a clear separation between ‘thinking’ and ‘doing’; the staff being the ‘thinkers’ and the line being the ‘doers’.

Merits of Line and Staff Organisation:

i. The line executives are relieved of the extra burden of looking into every organizational matter; through the assistance of the staff they can concentrate their efforts on more important and strategic issues.

ii. Better decisions as staff specialist are there to advice line personnel.

iii. The stability & discipline of the line managers are preserved only the specialists are added.

Demerits of Line and Staff Organisation:

i. Because of the need to appoint staff executives, this form of organisation is costly and particularly unsuitable for small sized firms.

ii. The ‘staff experts’ are only considered as a supportive member, whose advice may or may not be accepted by the line executives. This may be a source of frustration for the staff specialists.

iii. Line managers if are too much dependent on staff experts can lose much of their judgment & initiative.

iv. Since the ultimate decision making authority lies with the line managers, the organisation tends to be more centralized. So there is a likely possibility of conflicts between the line managers and staff experts.

3. Functional Organisation:

Under this system, the whole task of management and direction of subordinates is divided according to the type of work involved. The term functional organisation is defined as an organisation in which line authority, staff authority and a third type of authority known as functional authority exist together.

Functional structure is created by grouping the activities on the basis of function required for the achievement of organizational objectives. Under functional organization, various activities of the organization are classified accord­ing to certain functions like Production, Marketing, Finance, Personnel, etc. and are put under the charge of functional specialists.

For example, the purchase department deals with purchases on behalf of the entire organization, and the personnel department, would recruit, train and deal with the people required for all the other departments. The scope of the work is limited but the area of authority is unlimited.

Functional authority is a limited form of line authority given to functional experts over certain specialized activities under the normal supervision of managers belonging to other departments.

Merits of Functional Organization:

i. By grouping people together on the basis of their specialist expertise, the organization can facilitate both their utilization and their coordination in the service of the whole organization.

ii. It brings order and clarity by prescribing what one is expected to do.

iii. Organizational resources are utilized in a best way.

Demerits of Functional Organisation:

i. As high degree of specialisation is needed, functional organisation is difficult to establish and even difficult to coordinate.

ii. Maintenance of specialist’s staff is also expensive for a concern.

iii. Supervisory staff of equal rank may not always agree on certain issues. There may be frequent conflicts between different authority relationships.

4. Project Management Organisation:

Project management is set up within an organisation for the purpose of completing a project laid down by the management. Project management organisation may involve development and introduction of a new product, complete redesigning of an existing product line, installing a new plant.

The project structure is designed to manage a project. It is a temporary structure in the sense that it is meant to be terminated once the project is completed. The project manager is the central part of the structure and he designs as well as coordinates the different activities of project and is responsible to the Chief Executive.

The personnel in the project are mostly on temporary basis. The Project manager forms a project team from those personnel of other departments. He co-ordinates the diverse skills, expertise and perspectives of the team. Moreover, project manager’s authority is functional within the limits of the project.

Resulting Organisation Structure:

Project management usually requires prompt decisions and actions from a number of functional areas. The flow of information is largely lateral and not vertical. At times, he innovates and makes decisions to keep up the team effective concentrating more on unification and coordination than on whatever authority is given to him, he adopts informal approach to management.

Merits of Project Organisation:

i. It facilitates unified approach & prompt decision relating to the project.

ii. It facilitates speedy communication between the project manager and the team members; and provides flexibility in handling various tasks.

iii. It ensures on time & with budget completion of the project.

Demerits of Project Organisation:

i. As it takes people from the organisation it disturbs the normal working of the organisation.

ii. The entire project becomes meaningless, if the project manager fails to coordinate the activities of the project properly.

iii. The job of the project manager becomes very difficult because he has to deal with specialists from a number of diverse fields.

5. Matrix Organisation:

A matrix organization structure is a blend of functional organization and project organization. The group members of a project are not only associated with the project but they are also accountable to their functional heads. The project employees are assigned to a project only for the time duration of the project by the various functional heads.

The employees, thus, have a dual accountability in this kind of an organisation structure:

(1) They are accountable to their functional heads in the vertical chain of command. The functional head is their line superior.

(2) They are accountable to their project manager who exercises project authority over them. This accountability is shown in horizontal lines in the matrix organisation chart.

The matrix structure is used in advertising agencies, banking firms, construction compa­nies, hospitals, Government agencies, universities, management consulting firms, and entertainment companies. Once the project is completed, the employee either report back to their functional heads or are assigned another project by their functional heads.

Merits of Matrix Organisation:

i. The direct and frequent contact between the different functional specialists in the matrix ensures better communication and more flexibility.

ii. It ensures the effective utilization of the services of the people with highly specialized skills.

Demerits of Matrix Organisation:

i. The basic principle of unity of command is violated in this type of an organisation structure.

ii. Conflict between functional manager and project manager.

2. Informal Organisation:

An informal organization always exists together with a formal organization in every enterprise. Informal organization refers to the relationship between people in the organization, based on personal attitudes, emotions, prejudices, likes, dislikes and not on procedures. Their relations are not developed according to procedures and regulations laid down in the formal organization structure.

Barnard viewed informal organisation as joint personal activity without conscious joint purpose, even though possibly contributing to joint results. According to Keith, “An informal organization is that network of personal and social relations which is not established by formal organization”. Thus informal organisations are based on customs, social norms and ideas by which people are influenced.

Features of Informal Organisation:

Informal organisation is characterised by the following features:

i. It comes into existence in a natural course and spontaneously and it is not designed and pre-planned.

ii. It emerges from the formal organization and it is not based on any rules and regulations as in case of formal organization. The relationship among the members is informal, personal and friendly.

iii. Fulfilment of personal, social and psychological and to some extent economic needs, motives of the employees is the basic object of informal organization. It does not aim at profit earning.

iv. The informal organization does not have any place in the formally designed organizational chart of the enterprise but it cannot be fully abolished.

v. It is all pervasive and exists in every enterprise.

vi. The leadership in such organization is self-inspired and motivated.

Functions of Informal Groups:

i. Informal groups help to satisfy personal and social needs.

ii. The group develops system of communication in order to meet wants and to keep its members informed about what affects them.

iii. Such kind of organization is useful for communication, contact and updated information to the formal organization.

iv. Informal organization assists in making the attitude and behaviour of the employee’s positive to the management. Therefore the management of the formal organization should give its full support to informal organizations set up for productive causes.

Problems Associated with Informal Organization:

(i) Resistance to Change:

Since informal organization are bound by conventions, customs, culture, values and norms, so it shows greater resistance to change introduced by management.

(ii) Role Conflict:

Due to informal organization, every person has to perform two roles, one relates to his official position while another relates to satisfaction of members of his group. These two roles are often conflicting in nature and thus creates obstacles in the smooth working of an organization.

(iii) Rumour:

The employees are likely to ignore their work in formal organization and indulge in chit­chat, rumour, etc. which has its adverse effect on organizational efficiency.

(iv) Conformity:

Social control of informal groups exerts strong pressures for conformity because the existence of informal organizations very much depends on mutual trust, cooperation, faith, welfare and prosperity of the working community.

Benefits of Informal Organisation:

Following are the benefits of the Informal Organization:

i. Make the total system more effective.

ii. Informal groups lighten the workload of managers and employee morale and motivation gets enhanced.

iii. Satisfaction of personal and social needs.

iv. They are supplementary and supportive to formal organization in resolving may issues and problems.

v. Provides a meaningful channel of communication.

Control of Informal Organisation:

The benefits of informal organisation can be obtained only if the following points are borne in mind by the manager:

i. He should accept the existence of informal organisation.

ii. He should influence the informal organisation so that its positive aspects can be used off & negative side is minimized.

iii. He should integrate the informal organisation with formal so that informal can even contribute to the accomplishment of organisational objective.

iv. He should make informal organisation secondary to formal organisation.

Types of Organisation (With Merits and Demerits):

Organisation structure represents the hierarchical arrangement of various positions in the enterprise. It helps in allocating authority and responsibility formally. It also lays down the pattern of communication and co-ordination in the enterprise. Thus, the need for a clear-cut authority, responsibility, relationship structure, what has come to be called as “Forms of Organisation Structure” of an enterprise.

The management of every enterprise has to evolve its own organisation structure.

The form organisation structure mainly depends upon:

(a) The nature of activities of the business

(b) Competence of personnel and

(c) The philosophy of management.

There are seven basic types of organisation. Structures which are quite popular in this business world.

They are:

1. Line organization / authority

2. Line and staff organization / authority

3. Functional organization / authority

4. Committee pattern

5. Product organisation

6. Project structure / organisation

7. Matrix system / organisation.

1. Line Organisation or Scalar:

J. D. Mooney and A. C. Reiley propounded the idea of Line Organisation which is based on the Scalar Principle. They pointed out that -“the gradation of authority is found in all organisation as on un-interrupted scale or series or steps.” The essence of scalar principle is that – in any organisation there must be a series of superior sub-ordinate or relationship from the top of the organisation to every position in the structure.

If the structure of an organisation is single track only then it can never be anything else. What is known in military organisation as a line synonymous with what we have called the scalar chain and there can be but one chain of line authority.

The line of Authority flows from top to bottom throughout the organisation. The quantum of authority is highest at the top and reduces at each successive level down the hierarchy. Every person in the organisation is in the direct chain of command.

The Line of Authority consists of an un-interrupted series of authority steps and forms a hierarchical arrangement. The line of Authority not only becomes the avenue of command to operating personnel but also provides the channel of communication, co-ordination and accountability in the enterprise.

Merits or Advantages of Line Organisation:

Following are the merits or main advantages of Line Organisation:

(i) Simplicity:

It is the simplest form of organisation. It is simple to understand and implement. It can be easily defined and explained to all the workers.

(ii) Fixed Responsibility:

The responsibility in this form of organisation is fixed at every level. Each one knows to whom he is answerable and who are accountable to him. Shifting of responsibility under this form of organisation is not possible as it is not divided but fixed.

(iii) Unified Control:

Greater control discipline and better direction is possible in this form of organisation because of fixed responsibility. Lower level personnels favourably react to simple than multiple authorities.

(iv) Quick Decision:

Single authority, unified control and fixed responsibility to help in quick decision.

(v) Flexibility:

The most important advantage of this form of organisation is that it is flexible in character. It is capable of adjusting itself quickly to changing circumstances. This obviously flows from fixed responsibility because of which the executive is sole master in his own sphere of activity.

Demerits or Disadvantages of Line Organisation:

Following are the demerits of Line Organisation:

(a) Concentration of Authority at the Top:

There is concentration of authority at the top. If the top executives are not able, competent and professionally sound, the enterprise will not be successful.

(b) Over-Loading:

The executive is overloaded at each level of organisation. He has to look to too many jobs of diverse nature. His efficiency therefore does not always remain the same. The work also suffers because of overloading.

(c) No Communication from Bottom Upwards:

There is practically no communication from bottom upwards because of concentration of authority at the higher levels. If superiors take a wrong decision, it would be carried out without anybody having the courage to point out its deficiencies.

(d) Lack of Specialization:

Line organisation is not suitable to big organisations because there is lack of specialization. Many jobs create problems of their own which require specialization by the persons concerned. Too many jobs of diverse nature are looked, supervised and controlled by the executive. It is physically not possible for him to learn and acquire the skills of the jobs he looks into and at the same time be able to do justice to each and every job.

He cannot claim to be an expert in all types of jobs he handles. At present business are complex in nature and industrial organisations need specialization. If unfortunately it is not there, the attainment of objectives may not be smooth and orderly.

In spite of these drawbacks, the line organisation structure is very popular particularly in small organisations, where there are less levels of authority and a small number of people.

A modification of this structure is “Line and Staff Organisation” under which specialists are attached to line executives to prove them specialized assistance on matters of great importance to the enterprise.

2. Line and Staff Organisation:

Line and Staff Organisation structure has gained popularity because certain problems of management have become so complex that in order to deal with them expert knowledge is necessary which can be provided by the staff officers.

For example—Personnel department is established as a staff department to advise the top executives and other line executives on personnel matters.

Similarly, accounts, law and public relations departments may be set up to advise on problems related to accounting, legal issues and public relations. In line and staff organisation, Line authority moves down in the same manner as in the line organisation.

In addition, specialists are attached to line managers to advise them on important matters. These specialists stand ready with their speciality to serve line men as and when their services are called for to collect information and to give help that will enable the line officials to carry out their activities.

Ordway Tead observed that-“the distinction between line and staff departments, individuals and services is vital. The Line Officials issue orders in the line of their own operating responsibilities. The staff officials justify themselves as they are able to influence fellow executives at all levels by virtue of their factual or technical mastery, consultative skill, advisory persuasiveness—in short by their effectiveness.”

In a Line and Staff form of organisation two distinct staff positions are organized in two different ways-(i) Personal staff and (ii) Specialised staff.

Personal staff is created to aid and assist the concerned manager. Personal staff functions as a “thought man.” Of the Line manager who provides advice and service to Line manager but who refrains from taking any decision.

Specialised staff—In contrast to Personal Staff specialized staff is meant for providing staff advice, counsel and even service to all, taking the whole enterprise as one unit.

Merits or Advantages of Line and Staff Organisation:

The Line and Staff Organisation has all the benefits of the Line Organisation.

It has the following additional advantages:

(a) Benefits of Specialized Knowledge:

Line managers get the benefit of specialized knowledge of staff specialists.

(b) Problems of Line Organisation are Properly Covered:

Many problems that are ignored or poorly handled in the Line Organisation can be properly covered in the line and staff organisation by the use of staff specialists.

(c) It Relieves the Line Managers from Botheration of Concentrating on the Specialized Functions:

Staff specialists relieve the line managers from the botheration of concentrating on the specialized functions like accounting, selection and training public relations etc.

(d) It Helps in Providing Better Decisions:

Staff specialists help the Line Executives in taking better decisions by providing them with adequate information of right moment and expert advice.

(e) It is More Flexible as Compared to the Line Organisation:

General staff can be employed to help line managers at the various levels.

(f) It Increases Efficiency:

It helps in increasing efficiency of all workers at all levels.

(g) In this Productivity and Profitability Both Increases:

Here production and profit of the firm increases because of better organisation.

Demerits or Disadvantages:

This form of organisation suffers from certain dis-advantages which have not been overcome even after the best efforts made by different thinkers and professionals.

The demerits of line and staff organisation may be enumerated as follows:

(a) All Demerits of Line Organisation:

Is carried over to this form of organisation also.

(b) Lack of Responsibility:

This can be seen at every level of organisation. Carelessness creeps into thinking behaviour and working of the staff at every level which naturally harms the interest of the enterprise.

(c) Possibility of Dispute:

Possibility of simple dispute over a minor issue cannot be ruled out. Usually generalists and specialists cannot compromise even over routine and normal matters. Both want to impose themselves on each other. Bitterness and disharmony result therefrom.

(d) Encroachment of Authority:

There is generally a conflict between the line and staff executives. There is danger that the staff men may encroach on the line authority. Line managers feel that staff specialists do not always give right type of advice and staff officials generally complain that their advice is not properly attended to.

(e) Allocation of Duties not Very Clear:

The allocation of duties between the line and staff executives is generally not very clear. This may hamper co-ordination in the organisation.

(f) Difference between Orientations of the Line and Staff Men:

Line executives deal with the problems in a more practical manner. But staff officials who are specialists in their fields tend to be more theoretical.


(1) Line and staff organisation is more suitable in a large organisation as compared to line organisation because of the need of expert and up-to-date information for taking certain important decisions.

(2) Line can exist independently but staff leans heavily on the line organisation for existence.

(3) Line managers can make use of the expert advice of staff specialists in case of line and staff organisation.

Therefore, line and staff organisation is definitely better than line organisation.

3. Functional Organisation / Authority:

Functional Organisation was propounded by F. W. Taylor who evolved this organisation for planning and controlling manufacturing operations on the basis of specialization. But, in practice, functionalization is restricted to the top levels of the organisation structure and is not carried down to the lowest level in the organisation as recommended by Taylor.

Functional organisation occupies a midway position between line and staff authority. It is a means of putting the staff specialists in top positions for the entire enterprise and it confers upon the holders a limited power to command over the people of their departments concerning their functions.

F. W. Taylor listed ten qualities that man should possess in order to achieve perfection in the job he is handling.

The qualities according to him are as follows:

(i) Brain (ii) Education (iii) Special or Technical knowledge (iv) Manual dexterity or strength (v) Tact (vi) Energy (vii) Grit (viii) Honest (ix) Judgement or Common sense and (x) Good Health.

He found that a man who possessed five was hard to find and man with six more was rather impossible to find. He was in a fix. Out of the dilemma came out his staff or Functional Form of Organisation. In this form of organisation authority does not flow downward from the top. In other words, single authority is done away with and multiplicity of authority is introduced.

Under Functional Organisation each worker instead of getting order and instructions from (eight) different bosses, every boss gives order and issue instructions pertaining to his specialized function.

Taylor sub-divided the work of one gang, boss or Line-manager into eight specialists-(i) routine clerk, (ii) instruction card man, (iii) cost and time clerk for planning work, (iv) gang boss, (v) speed loss inspector, (vi) repair boss for execution of work (vii) shop disciplinarian for the maintenance of discipline and (viii) morale of workers.

Thus, in this form of organisation authority becomes functional and specialized. The worker in this form of organisation is responsible and answerable to all his superiors from whom he takes orders and instructions of each of this specialized job. His superiors are responsible for their specialized jobs and answerable individually to their superior under whom they are working. The authority here is divided and does not flow from ONE but from MANY in a diffused manner.

Merits or Advantages of Functional Organisation:

The merits of Functional Organisation are as follows:

(a) Specialisation:

Functional organisation helps in achieving the benefits of specialization of work. Every functional in charge is an expert in his area and can help the subordinates in better performance in his area.

(b) Division of Labour and Specialization:

Is possible consequently the advantages of both accrue to the enterprise.

(c) Executive Development:

A functional manager is required to have expertise in one function only. This makes it easy to develop executives.

(d) Reduction of Work Load:

Functional organisation reduces the burden on the top executives. There is joint supervision in the organisation. And every functional in charge looks after his functional area only.

(e) Large-Scale Production:

Large scale production is rendered possible because of specialization. Standardisation and availability of experts, specialized and technical knowledge.

(f) Scope for Expansion:

Functional organisation offers a great scope for expansion as compared to line organisation. It does not face the problem of limited capabilities of a few line managers.

(g) Better Control:

The expert knowledge of the functional managers also facilitates better control and supervision in the organisation.

(h) Elastic in Nature:

Functional organisation is comparatively more elastic. Consequently, adaptability and adjusting capability is present there in this form of organisation.

(i) A Better Industrial Relation and Mutual Co-Operation:

This is possible among different personnel under this form of organisation.

Demerits or Disadvantages:

Functional Organisation suffers from the following drawbacks:

(1) Discipline is the First Casualty in this Form of Organisation:

In this type of organisation discipline is the first casualty because of the multiplicity of authority. The worker has to take and follow orders and instructions from different executives. Obviously, the worker is not prepared mentally for such multiplicity which in most of the cases is unable to assimilate and digest.

(2) Problem of Co-Ordination:

There arises a problem of co-ordination which usually cannot be effective for the same reason of multiplicity of authority.

(3) Double Command:

Functional organisation violates the principle of unity of command since a person is accountable to a large number of bosses.

(4) Work Cannot be Understood Easily by the Workers:

The operation of functional organisation is too complicated to be easily understood by the workers. Workers are supervised by a number of bosses. This creates confusion in the organisation.

(5) Limited Perspective:

A functional manager tends to create boundaries around him and thinks only in terms of his own department rather than of the whole enterprise. This results in loss of overall perspective in dealing with business problems.

(6) Problem of Succession:

Functional organisation develops specialists rather than generalists. This may create problem in succession of top executive positions.

(7) Delay in Decision-Making:

There is delay in decision making when a decision problem requires the involvement of more than one specialist. This is because of lack of personal contact and co-ordination among the functional executives.

(8) Unsuitable for Small and Medium Sized Enterprise:

This form of organisation is unsuitable for small and medium sized enterprises since it is costlier as compared to line form of organisation. .

4. Committee Form of Organisation:

In modern business houses, there is a widespread use of committee for performing certain administrative task.

According to Hicks-“A Committee is a group of people who meet by plan to discuss or make a decision for a particular subject.

In the words of Newmann,-“A Committee consist of a group of people specifically designated to perform some administrative acts. It functions only as groups and requires the interchange of ideas among its members.”

Further Louis A. Allen has defined a Committee-“as a body of persons appointed or elected to meet on an organized basis for the consideration of matters brought before it.”

In other words- “It is a group of persons performing a group task with the object of solving certain problems.”

A Committee may formulate plans, make policy, decisions or review the performance of certain units. In some cases, it may have only the power to make recommendations to a designated official. Committees have come to be recognized as an important instrument in the modern business as well as non-business organisations. They help in taking collective decisions, coordinating the affairs of different departments and meeting communication requirements in the organisation.

Thus, a Committee consists of a group of persons specially designed to perform some administrative acts. Committees are widely used in the modern concerns for the purpose of discharging advisory functions of management relating to personnel, finance, industrial relations, production etc. A Committee’s duties, responsibilities and authority are well defined and are accountable to the authority that appoints it.


The objectives of the Committee are as follows:

(1) To have consultation with various persons to secure their view-points on different aspects of business.

(2) To give participation to various groups of people.

(3) To secure co-operation of different departments.

(4) To-co-ordinate the functioning of different departments and individuals by bringing about unit of direction.

Types or Kinds of Committees:

On the basis of their constitution and functions committees may be classified as follows:

(1) Line or Staff:

Line Committees have powers to take decisions and their decisions are carried out invariably. But Staff Committees are those whose relationship to a superior is advisory. Staff Committees are formed to deliberate certain problems without any authority of decision. They can simply make recommendations.

(2) Permanent or Temporary:

Permanent Committees are standing Committees which continue to exist in the organisation. But temporary committees are ad-hoc bodies which are formed for a particular purpose only.

(3) Formal or Informal:

Committees formed as a part of the organisation structure and vested with certain authority to carry out some specific responsibilities are formal in nature. Informal Committees are those which do not form a part of organisation structure and are without specific delegated authority.

In a big enterprise committees are constituted for dealing with different subjects. Usually each department is assisted by a Committee. The Chief executive is the coordinator and some-times convener of all these committees. He often assumes the role of a leader who helps in arriving at a decision acceptable to all.

(4) Standing or Ad hoc One:

In a big enterprise the following committees may be constituted:

(a) General Advisory Committee:

This Committee assumes the role of general administrator and helps the organisation in arriving at decisions concerning general administration of the enterprise. This Committee also functions as an advisory to the chief executives.

(b) Joint Advisory Committee:

This Committee is constituted with a view to:

(i) Crystallise all the problems relating to labour; and

(ii) To establish a cordial relation between the management and the labour.

The representatives of both-labour and management find a place on this committee.

(c) Plant Advisory Committee:

This Committee in most cases is constituted under the chairmanship of works manager and deals with all problems concerning the factory including production plan and programmes.

(d) Sales Advisory Committee:

This Committee functions under the chairmanship of the sales manager and is responsible for taking decision on production, market research, advertising, sales promotion etc.

(e) Co-Ordination Committee:

A Committee consisting of departmental heads under the chairmanship of the Chief executive is normally constituted for coordinating the activities of different committees.

(f) Purchase Advisory Committees:

Similarly, on the same lines, Purchase Advisory Committees, Finance Advisory Committees; Advisory Committee on Planning and for Public Relations may also be constituted to deal with different specified functions.

(g) Executive Committees:

In the case of Executive Committees they are vested with line authority. These committees take decisions but also have the power to enforce its decisions. For example—The Board of Directors of a Company is an example of an executive committee. Executive Committees are more or less of a permanent nature and are not likely to be dissolved.

Advantages or Merits of Committees:

Committees have got several advantages which are as follows:

(1) It Facilitates Co-Ordination:

Co-ordination which is essential in any group activity can be facilitated by the creation of committees. In case of a big organisation, several managers meet together in a committee and discuss their common problems. A direct contact between them enables them to achieve uniformity of action and to remove common hurdles in the achievement of their objectives.

(2) It Helps in the Transmission of Information:

Committees may be used for the quick transmission of information throughout the enterprise. Committees provide the forums for communicating objectives and policies of the enterprise to the managers and through them to the workers.

(3) It Helps in the Solution of Intricate Problems:

Combined abilities of a group of persons are brought together for the solution of many intricate problems that cannot possibly be solved by one single executive. Group deliberations ensure a thorough consideration of problems with all their facts and ramifications before arriving at a decision. Thus, committees are the means for extending personal capacity of executives through an exchange of ideas, opinions, knowledge and experience with a group of persons.

(4) It is Helpful in the Consolidation of Authority:

Many special problems arising in individual departments or sections of the business cannot be solved by authority vested in departmental or section managers and they require authority concurrence of other executives. The committee devices management to consolidate authority that is ‘splinder’ over several departments.

According to the importance of the problem, committee may be formed at the highest level under the chairmanship of a top executive or at the lower level by the inclusion of departmental managers themselves.

(5) It Participates in Decision-Making Process and in Motivation:

Managerial decisions cannot be successfully put into action without the voluntary support of the operative personnel to gain their confidence and co-operation; Subordinates are allowed to participate in decision-making by taking their representatives on the Committees. Participation enables the sub-ordinates to satisfy their basic urge of belonging to the enterprise and of accomplishing something worthwhile for the organisation.

(6) It Escapes Responsibility and Avoids Action:

The Committee is an important means of cooling off agitation and temper on the part of the affected people. Executives who want to avoid action and to escape responsibility may take resort to the committee device. Establishment of the committee is recognized as a strategy for overcoming resistance opposition or pressure from the affected parties.

For purposes of strategy, committees have a wider application in Government educational and other non-business institutions.

(7) It is Check against Misuse of Powers:

It acts as a check and safeguard against the abuse and misuse of powers. Numerous boards and Commissions are established by the Governments of all nations to circumscribe the executive authority and to hold it in balance.

Even in business, the Board of Directors is a plural executive which reviews and oversees the operations of the Chief Executive of the company. Plural executive in the form of Committees are more common in non-business organisations than in business organisations.

(8) It is a Forum for Polling of Knowledge and Experience:

Here, the advantage of expert advice, experience and knowledge of those who do not belong to one department or the other but are represented on the committees. In Committee meetings, decisions are taken after taking into consideration the different views of its members and thus the committee provides a forum for the polling of knowledge and experience of many persons.

(9) It Encourages Team Spirit:

The Committee encourages team spirit and co­operation of various departments in the execution of the plans.

(10) It Develops Awareness of the Problems:

The Committee’s work develops awareness of the problem of other departments among the members and this promotes co-ordination of the various activities of an enterprise.

Demerits or Dis-Advantages or Limitations or Short-Comings of Committee’s Organisation:

Koontz and O’Donnell has sarcastically described a committee as “a group of units engaged by the unwilling to do the unnecessary.”

Koontz and O’Donnell has described the short-comings of Committees which are as follows:

Demerits of Committee’s Organisation:

(1) It is an expensive device.

(2) It is indecisive in action.

(3) Decisions are arrived at on the basis of compromise.

(4) Irresponsible character.

(5) Dominance of a few person.

(6) Suppression of ideas.

(7) Difficult to maintain secrecy regarding decisions.

(1) It is an Expensive Device:

The Committees are expensive. The sessions last long. The sitting absorbs the Collective salary of the group represented on the committees.

The preparation of a session of the Committee also takes away much of time, energy and money. Paper work increases without adding fruitful advantage to the department. The Committee form of organisation is sheer wastage of time, money, efforts particularly when informal discussions among the staff of the department may do the same amount of work in lesser time and efforts. Sometimes, a single executive can do better than a committee and here the wastage becomes all the more glaring.

(2) It is Indecisive in Action:

Slow work is in the very nature of committee. Any quick and decisive action therefore is not possible under committees. This makes matter worse. Discussions should be fruitful and should be based on joint thinking. But it is seldom, the members have reservation, vacillation and sometimes in opposition also. This all lead to indecisive action.

(3) Decisions are Arrived at on the Basis of Compromise:

Decisions may be arrived at on the basis of compromise among the members or the decisions may reflect accommodation of various view points of the members and because of this the decision is watered down and not the best from anyone’s view point.

Committee usually follows the path of least resistance in order to avoid opposite view points and slowness of work. The decisions of committee are not the result of joint thinking and group judgement but that of compromise which ultimately lacks co­operation of all.

(4) Irresponsible Character:

The important aspect of this is that the members are jointly responsible for the conclusions and decisions taken. And a joint responsibility means no real responsibility. This brings inefficiency to the enterprise as a whole.

(5) Dominance of a Few Person:

A chairman or any strong member of the committee becomes dominant. Groupism starts, committee actions are sabotaged. Stronger personality overshadows and manipulation game starts to the dis-advantages of mutual respect and co-operation.

(6) Suppression of Ideas:

Dominance by a few results into bitterness; discontent and frustration, smart members because of hard feelings keep their mouths shut and often become inactive and dis-interested.

(7) Difficult to Maintain Secrecy Regarding Decisions:

Because of the large number of members in a committee, it is difficult to maintain secrecy regarding committee’s decisions.

5. Product Organisation:

Product organisation is also known as ‘Product departmentation’ or ‘Divisional structure’ by product. It always calls for decision of organisation work on product basis. Each product line has separate organisation of its own having his own functional structure for various activities essential for the product. It is expensive as a great deal of capital is required for each product.

In India, many business units have diversified into unrelated business and have found functional structure quite unsuitable for them. Some of these companies are D.C.M. Limited, Voltas Limited, Century Spinning Mills, Gwalior Rayon etc. these have adopted product organisation.

Structure of Product Organisation:

In Product Organisation the enterprise is divided into smaller units having fairly autonomous status, on the basis of product. Each product unit though a part of total organisation is independent in its operation. Each unit is called division or unit having its own manufacturing, engineering, marketing or personnel departments. But a unit is a separate legal entity. It is a part of total organisation.

Characteristics of Product Organisation:

Following are the important Characteristics of Product Organisation:

(1) It is based on outputs:

The product structure is organized according to organisation outputs. It is based on outputs.

(2) It has autonomous limits:

The product structures involve dismemberment of the monolithic functional organisation into autonomous units. Within each of these units there lies another organizational form and it is always of the functional type.

(3) In it there are several divisional heads:

The divisional head is always responsible for the net results. He holds complete strategic and operating decision making authority.

(4) It is multi-product enterprise:

This kind of organisation structure is generally adapted by a multi-product enterprise whose basic aim is to expand and diversify products having distinct manufacturing and marketing features.

Advantages of Product Organisation:

The advantages of Product Organisation are as follows:

(1) It has the merit of accountability:

In this all the activities relating to a product are brought under one manager, therefore, it is easy to fix accountability.

(2) Better integration among different specialities:

In product organisation the procedures and systems can be standardized to better integration among different specialities.

(3) Training and development of managers:

Product organisation structure serves as an excellent vehicle for training and development of general managers. The managers have to meet many difficulties and challenges which they overcome with courage. They, thus gain training by experience.

(4) It increases emphasis on product development, market exploitation etc.:

The different units like marketing finance, engineering, sales and personnel are dedicated to the interests of one or a few related products. Therefore, it increases emphasis on product development.

(5) It focuses vision and efforts of managers:

Product organisation focuses vision and efforts of managers directly on business performance and results. All units are independently accountable for their performance. Unprofitable units are not allowed to flourish at the cost of the profitable ones.

Limitations or Dis-Advantages of Product Organisation:

The important limitations of Product Organisation are as follows:

(1) Overhead Cost Increases:

As division or product unit carries almost the same activities, it leads to duplication of efforts. Hence, the overhead costs of the product are increased.

(2) Conflicts between Various Units:

Conflicts are created between various units and between product units and head-quarters over trifling matters. A tremendous amount of managerial time and energy is wasted on adjudicating disputes between them.

(3) Limited Autonomy to Divisional Managers:

The autonomy of divisional manager is exercised within limits; this breeds resentment as divisional heads feel that authority is inadequate to meet the challenges.

6. Project Structure Organisation:

The Project Organisation is a device for bringing specialized people together in flexible group as long as a particular need exists. Under project organisation, a separate division or project unit is created for each project.

Project organisation is created when the project is subject to high standards of performance as in case of aircraft companies. This organisation is to execute a project or programme and for that a project team is created consisting of specialists from different departments. The specialist of each department gets the services and support of its members as and when required. The activities of the project team are co-ordinated by the project manager.

Project manager has the authority to obtain the advice and service of personnel of different departments as and when required. Lockheed of U.S.A. makes use of extensive project organisation for its aircraft programmes.

An industrial enterprise may use the project organisation to design and develop new products. It is a temporary set up for executing a particular project. Once the project is complete the project organisation is disbanded and the functional specialists go to their respective departments.

In practice—it takes a permanent form when the duration of the project is quite long and it may become a regular autonomous project division functionally organized.

Running organisations or enterprises resort to Project Organisation under the following circumstances:

(1) The project or assignment is a one-time talk with well-defined specifications and the organisation wants to continue to concentrate on its regular activities.

(2) The assignment presents a unique or unfamiliar challenge.

(3) Successful completion of the project is critical for the organisation.

(4) The assignment is to be completed within the given time limit.

7. Matrix Organisation:

Authors of management are of this opinion that matrix organisation is a very complex organisation.

This organisation is created by merging two complementary structures, namely:

(1) Pure project organisation, and

(2) Functional organisation.

It is known as grid structure. It has been evolved as an answer to the growing size and complexity of business undertakings which require an organisation structure more flexible and technically oriented than the traditional line and staff and functional structure.

Defining the Matrix Organisation Davis and Lawrence has said, “Any organisation that employs a multiple command system that includes not only the multiple command structure but also related support mechanism and an associated organizational culture and behaviour pattern.”

Matrix organizational structure is the latest organizational design which facilitates flexible structure to achieve a series of project objectives. In this a pure object organisation is super imposed on the functional organisation. It is created by merging the two structures the project and the functional. Personnel for any particular project are drawn from functional departments in matrix organisation.

Functional departments are permanent whereas projects have temporary character to which personnel are assigned for the life time of the project or for specific period. They return to their original functional departments when their assignment is over. Their activities on the project are co-ordinated and controlled by the project manager.

During his assignment on the project, an employee has two bosses i.e., his permanent head in the functional department and his project manager.

Merits or Advantages of Matrix Organisation:

The merits of Matrix Organisation are as follows:

(1) Concentrated Attention on a Single Project:

Matrix organisation focuses attention and resources on a single project which facilitates better planning and control. It permits efficient utilization of resources especially manpower. Specialised knowledge is available to all project products on an equal basis. Further, knowledge and experience may be transferred from one project to another.

(2) Timely Completion of the Work:

This organisation is of much help in the completion of the project in time. A better balance between cost, time and performance can be obtained in matrix organisation through the inbuilt checks and balances and the continuous negotiations carried between the project and functional organisation.

(3) More Flexible in Nature:

Matrix Organisation is more flexible than the traditional functional organisation. It can be applied more usefully to an organisation involved in project ranging from small to large.

It encourages constant interaction among project unit and functional department members. Functional services are released with ease and flexibility as individual projects are completed. Quick decisions may be taken. The organisation may counter the changing and uncertain environment in a better way.

(4) It Gives Motivation to the Personnel Engaged:

It provides motivation to the personnel engaged in the project. It helps employees to grow and develop. It enlarges their experience and broadens their outlook. In this, the process of job rotation helps them to learn something of other specialities.

(5) Helpful in Communication and Co-Ordination:

It improves communication and co-ordination by facilitating direct contact between the project manager and the functional groups.

(6) In this the Services of Professionals are Better Utilized:

In this organisation more emphasis is placed on the authority of knowledge than rank of the individuals. It leads to better utilization of professional services. Therefore, lower level people can contribute more towards organizational objectives. They can have greater say in important decisions.

Demerits or Dis-Advantages of Matrix Organisation:

The demerits of Matrix Organisation are as follows:

(1) It Gives Rise of Jurisdictional Conflicts in the Organisation:

It violates the principle of Unity of Command as personnel receive orders from the project manager and the functional boss. This may give rise of jurisdictional conflicts in the organisation.

(2) Here the Organizational Relationships are More Complex and they Create the Problem of Co-Ordination:

In this organisation besides the formal relationships, informal ones also operate. Therefore, the organizational relationship become more complex and they create the problem of co-ordination.

(3) Conflicts between Two or More Functional Groups:

Here, the functional groups normally visualize the significance of their respective functions. They may lead to conflicts between two or more functional groups.

(4) Lack of Commitment to Project Objectives on the Part of Personnel:

In this organisation people are drawn temporarily from different departments and the project manager does not have the ‘Line authority’ over them. This may give rise to lack of commitment to project objectives on the part of the personnel. Moreover, ‘Project Group’ is not a homogenous one due to which morale of the personnel may be low.

(5) Delay in Taking Decisions:

In this organisation the decisions are very often delayed as there is a lack of proper understanding and accommodation among functional and project managers.

(6) It is a Costly Affair:

Thus, matrix organisation have been reported as costly due to cumbersome, bureaucratic and inhibiting technical achievement, overburdening top management, demotivating people and detrimental to their development.