MODULE 01

PROGRAM: MBA SEMESTER: I

ORGANIZATIONAL BEHAVIOR
COURSE NAME
COURSE CODE: 1T4 COURSE TYPE: CORE
COURSE: CORPORATE NAME OF THE FACULTY:DR. DHANASHREE
SOCIAL KATEKHAYE
RESPONSIBILITY
CO1: Students will be able to explain the concept of Organization
Design and determine the factors that affect Organization Design.
.

https://www.shrm.org/resourcesandtools/tools-and-samples/toolkits/pages/understanding-
organizational-structures.aspx

Module 1: Organization Design: Understanding Organizations-Basics of an organizational

design Organization and Stakeholders-Organizations and environmental Influences-
Organizational Strategy-Organizational design - Alternative Structures-Management process -
Authority and Responsibility Relationship; organizational control mechanisms; Organizational
decision making.

Books:
Organizational Behavior – Stephen Robbins; Timothy Judge, Seema Sanghi; Pearson Prentice
Hall Publication, 13th Edition, , ISBN 978-81-317-2121-6, Chapter

16 Principles of Management, T. Ramaswamy, 1st Edition, Himalaya Publishing House pvt Ltd.
Chapter No. 7,8,11

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 1. Introduction:
1.1 What is Organization?

A social unit of people that is structured and managed to meet a need or to pursue collective
goals.

All organizations have a management structure that determines relationships between the
different activities and the members and subdivides and assigns roles, responsibilities, and
authority to carry out various tasks. Organizations are open systems they affect and are affected
by their environment.
An organization is defined as a collection of people who work together to achieve a wide variety
of goals. Organizational behaviour is defined as the actions and attitudes of people in
organizations. The field of organizational behaviour (OB) covers the body of knowledge derived
from these actions and attitudes. It can help managers understand the complexity within
organizations, identify problems, determine the best ways to correct them, and establish whether
the changes would make a significant difference.

The term 'Organisation' connotes different things to different people. Many writers have
attempted to state the nature, characteristics and principles of organisation in their own way. It
can be used as a group of persons working together or as a structure of relationships or as a
process of management. Now, let us analyse some of the important definition of organising or
organisation, and understand the meaning of organisation.

1.2 Understanding organizations

Organisation involves division of work among people whose efforts must be co-ordinated to
achieve specific objectives and to implement pre-determined strategies. Organisation is the
foundation upon which the whole structure of management is built.

It is the backbone of management. After the objectives of an enterprise are determined and the
plan is prepared, the next step in the management process is to organise the activities of the
enterprise to execute the plan and to attain the objectives of the enterprise.

The term organisation is given a variety of interpretations. In any case, there are two broad ways
in which the term is used. In the first sense, organisation is understood as a dynamic process and
a managerial activity which is necessary for bringing people together and tying them together in
the pursuit of common objectives. When used in
the other sense, organisation refers to the structure of relationships among positions and jobs,
which is built up for the realisation of common objectives. Without organising managers cannot
function as managers.

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Organisation is concerned with the building, developing and maintaining of a structure of
working relationships in order to accomplish the objectives of the enterprise.
Organisation means the determination and assignment of duties to people, the establishment and
the maintenance of authority relationships among these grouped activities. It is the structural
framework within which the various efforts are coordinated and related to each other. Sound
organisation contributes greatly to the continuity and success of the enterprise.

According to Eteioni;"Wearebom) organizations, educated by organizations and most of us

spend much of our lives working for organization
"Pater Drucker observes, "Your people today will have to learn organizations the ways their
forefathers learnt farming, Our Society is composed of many different health, religious, political,
industrial, governmental, social and educational organizations: These organizations affect our
lives depend on how effectively these organizations achieve their objectives
These organizations provide the setting in which most persons spend a large part of their time
working. Realizing the pervasiveness of organisations in our lives, behavioural and social
scientists have exerted a great deal of effort in the study
of organizations and their processes. Before studying Organizational Behaviour we must know
What is an Organization and 'How we leave in the World of Organizations'?

1.3 Definition of Organization

According to Sheldon, "Organisation is the process of so combining the work which individuals
or groups have to perform with facilities necessary for its execution, that the duties so performed
provide the best channels for efficient, systematic, positive and coordinated application of
available effort."

In the words of Chester I Bernard, "Organisation is a system of co-operative activities of two or

more persons."

Mc Ferland has defined organisation as, "an identifiable group of people contributing their
efforts towards the attainment of goals".

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

According to North Whitehead, "Organisation is the adjustment of diverse elements, so that their
mutual relationship may
exhibit more pre-determined quality."

In the words of Theo Haimann, "Organising is the process of defining and grouping the
activities of the enterprise and establishing the authority relationships among them. In
performing the organising function, the manager defines,departmentalises and assigns activities
so that they can be most effectively executed."

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In the words of Mooney and Railey, "Organisation is the form of every human association for
the attainment of a common purpose."

According to John M Pfiffner and Frank P Sherwood, "Organisation is the pattern of ways in
which large number of people, too many to have intimate face-to-face contact with all others,
engaged in a complexity of tasks, relate themselves to each other in the conscious, systematic
establishment and accomplishment of mutually agreed purposes."

In the words of Koontz and O'Donnell, "Organisation involves the grouping of activities
necessary to accomplish goals and plans, the assignment of these activities to appropriate
departments and the provision of authority, delegation and co- ordination."

According to Noirthcott, C H, "Organisation refers to arrangements by which tasks are assigned

to men and women so that their individual efforts contribute effectively to some more or less
clearly defined purpose for which they have been brought together."

.
These are some simple-to-understand definitions of organization by authors:
An identifiable group of people contributing their efforts towards the attainment of goals is
called an organization.

McFarland“Organization is the process of identifying and grouping the work to be performed,

defining and delegating responsibility and authority, and establishing relationships for the
purpose of enabling people to work most effectively together in accomplishing objectives.
Organization is the form of every human association for the attainment of a common purpose.

Mooney and Railey Organization involves the grouping of activities necessary to accomplish
goals and plans, the assignment of these activities to appropriate departments, and the provision
of authority, delegation, and coordination.Koontz and O'Donnell

2. Importance of Organization

The basic purpose of the organizational function is to ensure the optimum utilization of the
available resources in an organization. The organizing function is so crucial that even a small
mismatch between jobs, people, and authority can lead to big trouble.
The following are the importance of organization:
1. It helps in establishing a clear relationship between the different positions.

2. It provides the hierarchy of roles and responsibilities in an organization.

3. The organization defines the degree to which authority can be delegated and responsibility
can be assigned.

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4. It facilitates the attainment of the organization’s objective friction.

5. It helps in understanding the similarity of jobs leading to departmentation.

6. It is a science of defining positions and an art of establishing relations between them.

7. More simplicity in structure means a more integrated system.

3. Characteristics of Organization

The following are the important characteristics of organization:

1. Division of Labor
2. Common Purpose
3. Communication
4. Authority Responsibility Structure
5. People
6. Environment
7. Coordination
8. Rules and Regulations

Division of Labor

The entire work of an organization is divided into functions and sub-functions. Division of labor
leads to specialization because men acquire greater skill and knowledge when they perform a
single operation again and again.

Division of labor helps to overcome wastage of efforts and duplication of work. Effective and
proper division of labor leads to an increase in the quality and quantity of output.

Common Purpose

The basis of any organization is to achieve some common goal. The structure is bound together
by the pursuit of specific and well-defined objectives.

An objective cannot be achieved without an organization, likewise, an organization cannot exist

for long without goals and objectives. The structure of an organization should reflect these
objectives so as to make the entire organization bound by a common purpose.

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Communication

Effective communication is vital for success in management. Every organization has its own
methods and channels of communication.
These channels are necessary for mutual cooperation and understanding among the members of
an organization. The channels are communication may be upward, downward, vertical, formal,
or informal.

Authority Responsibility Structure

In an organization, there is a proper arrangement of positions into a graded series. There is a

clear definition of authority in each position.

It specifies who is to direct whom and who is responsible for what result. The structure helps an
individual in the organization to know what his role is and how he is related to other roles.

People

An organization is made up of a group of people who constitute the dynamic human element of
an organization. Therefore, authority provisions and grouping of activities must take into
account the customs and limitations of people.
Environment

An enterprise functions in a very dynamic environment which comprises social, political,

economic, and legal factors. Thus, the structure is designed to adapt itself to the changing
environment.

Coordination

An organizational structure provides for the effective coordination of different activities and
parts of an organization so that it functions as an integrated whole.
People in an organization perform different functions but all of them have only one aim i.e. to
accomplish the enterprise’s objectives for which the organization provides a suitable method to
ensure that there is proper coordination of different activities.

Rules and Regulations

Rules and regulations are provided for the orderly functioning of people in every organization.
These may be in writing or implied from customary behavior.

Process of Organization

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The organization is the most important function of management. It is an executive function.
After planning, management has to do the organizing. There are different activities included in
organizing that explain the process of the organization.

Division of work: The organising function starts with division of total work into smaller units.
Each unit of a total work is called a job. An individual in the organisation is assigned with one
job.

Grouping of activities/Jobs: After dividing the work into smaller jobs, it can be grouped
together. The grouping can be done by the organisation on their own style and put under one
department.
Ex: All the jobs related to sales are grouped under sales department.

Assigning duties: Each individual working in the concern is assigned with a duty matching to
his skill and qualification. The work is assigned on the basis of the ability of individuals.
Employees are assigned duty by giving them a document called job description. This document
contains the details regarding the job, what to do and what not to do. Therefore it results in
efficiency.

Establishing authority and responsibility: For doing the job allotted every individual needs
some authority. The assignment of the authority results in creation of superior subordinate

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 relationship and the question of who reports to whom is clarified. So with establishment of the
authority the individual can perform their jobs and everyone knows who will report to whom.
Delegation of Authority: Each employee is delegated with authority. Without authority the
employees cannot carry out their responsibility. Authority is the right to give orders and power
to get the work done. The authority given to the employee should be equal to the responsibility
given to them.

Providing employees all required resources: After defining the authority relationship the
employees should be provided with all resources which is needed to perform the job.

Coordinating all activities: The efforts of all activities are brought together to attain the
common goal.

Types of organization

A Company is a legal group created by an individual or a group of individuals to work and

regulate in a commercial market. A company can be coordinated in many ways for financial
liability and tax purposes, depending on the Companies Act of its management. A company's
branch usually decides which corporate structure to choose, such as partnership, company, or
corporation. In such cases, the company can be considered a kind of business. On the basis of
shareholders, the company is divided into- Private Sector Company and a Public Sector
Company.

Types of Companies vary according to their ownership, and there are millions of companies
across the globe having billions of employees. Before moving on to its types, let’s first
understand what a company is! A company is a legal body that represents the association of
people. These people can be naturally or legally linked with each other for some specific
objectives under consideration. Additionally, the members of a company share the same
interests and work to achieve some pre-declared goals.

Types of Companies

Types of
organization
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Private Public Joint

organization organization Organization

Sole Joint stock Co-operative Departmental Statutory Government

Partnership
Proprietorship company society Understanding corporation companies
1)Individual ownership or Sole Proprietorship.

As the name suggests, such type of business is owned & operated by one person. This is the
oldest and simplest form of business organization. The businessman invests capital, employs
labor & machines. Stance owner alone enjoys the profits and suffer the losses in his business.
Therefore, he is the supreme authority to decide into different matters concerning it his business
and has unlimited freedom of action within legal jurisdiction. Overall control in single hand
helps him in quick decision efficient administration and working. Such organization owner
himself is responsible for the liabilities. Hence the creditor can collect the money even from the
personal property.

Applications

 In small enterprise requiring small capital which can be spared by one man.

 Where management by one man is possible.

Advantages

 Such individual enterprises can easily be formed and simple to sun.

 Minimum if legal restrictions.

 Owner’s interest, care & efficiency directly affect the profit in the business.

 Retain of all profit to the owner.

 Ease of dissolving firm.

 In this system owner himself is in touch with customers and hence can know their
likings.

 Since it is supervised by the proprietor himself, the fixed cost over heads are nary less
and products can be obtained cheaply.

 Most of the businesses have their no competitor of certain secrecy in their functioning. In
this form of organization such secret functions are performed by the owner himself.
There fore, he has the greatest possibility of running business well.

 If at any time the owner feels some benefit in dong some work, he can act quickly
without any body’s advice and can avail the benefit.

Disadvantages:

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  Amount of the capital that can be invested is limited; therefore, modern factory cannot
be run with this system of organization.

 Owner cannot be the master of all techniques management, sales, engineering processes
etc, since work suffers.

 Due to unlimited liability owner cannot take risk to start a big industry.

 Limited opportunity for employee’s because organization is not permanent.

Uncertainty of duration I-e death imprisonment or insanity automatically terminates the firm
possibility that overall direction may become a burden on owner when business grows.

Partnership Organization:
A partnership business, by definition, consists of two or more people who combine their
resources to form a business and agree to share risks, profits and losses. Common partnership
business examples include law firms, physician groups, real estate investment firms and
accounting groups.

By comparison, a sole proprietorship puts all of those responsibilities on one person, while a
corporation operates as its own legal entity, separate from the individuals who own it. A limited
liability company, or LLC, is a hybrid of a partnership and a corporation, allowing owners to
take on profits and losses without any personal liability or taxes on the business itself.

For many individuals, going into business with a partner is a chance to forge experience,
expertise and endeavors with others. To maximize some of these benefits, it helps to understand
exactly what a partnership business is.

Advantages

 Stronger financial position. The ability to pool resources can provide your business
with more capital and access to new investors, while better positioning the company to
borrow money. Sharing business expenses with your partners can help you save more
than you might have on your own.
 Brain trust. Being able to share skills and institutional knowledge is a key benefit of a
business partnership. This can help broaden your expertise and the versatility of your
business.
 A broader network. By sharing contacts and connections with your business partners,
you can develop new relationships and expand your professional network.
 Fresh eyes. Bringing in partners can provide new perspectives on how you do business
by seeing things from a different angle. Partners can offer fresh ideas, market strategies
and inspiration to grow your business.
 Tax savings. If your business is set up as a general partnership, your company may not
need to pay income taxes. In Canada, a partnership by itself does not pay income tax on
its operating results and does not file a tax return. Instead each partner includes a share
of the partnership income or loss on a personal, corporate or trust income tax return.1

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Disadvantages

 Liability. The primary drawback of a partnership is that all partners share losses, debt
and risk, and are fully liable for the financial obligations of the business. This means
creditors can seize any partner's personal assets if these obligations are not met.
 Loss of full control. Sole proprietors who are used to doing everything their own way
might be in for a bit of an adjustment when switching to a partnership business. Partners
share decision-making and may need to compromise when they can't agree.
 Potential for conflict. Having more than one person making business decisions creates
the potential for differences of opinion that can lead to conflict. Partners may also
become bitter if they feel like one person isn't contributing his or her fair share.
 Difficult to sell. A partner cannot sell a business without the consent of all of the other
partners, potentially creating a stalemate when one of the owners is ready to leave.
 Risk of instability. Without a plan in place, one partner's death, illness or withdrawal
from the business may put the future of the company in jeopardy.

4. Co-operative Societies:

• This type of business setting is also based on voluntary relationship of its members.
• The co-operative societies are based on the notion of self-help or help of its members.
• The functioning of these societies is such that volunteers come together to form a group,
combine their resources and consume it effectively in order to provide benefits to all the
members.

Examples Co-operative Societies

National Cooperative Land Development Banks Federation Limited,
National Federation of State Cooperative Banks Limited,
National Cooperative Union of India Limited.
National Agricultural Cooperative Marketing Federation of India Limited.
Public Sector Organization
State Ownership

Such ownership is the only serious competitor to the joint stock companies. This form is most
suitable for the establishment & development of modern industries, because of facilities like
owner, transport; Credit, insurance etc. are easily available to them. The private ownership & the
joint stock company gave rise to exploitation of labors & of the consumers. Government either
starts or nation aliases certain industries to prevent the economic unbalance in the nation. It
serves as a means to obstruct the monopolistic tendencies.

Main reason for Theodora in the above mentioned state ownership is that they cannot be
bundled like private enterprise.

1. Government Departmental Organizations:

Types of organizations

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 1. Management through the Concerned ministry:

It is managed by the officials of the government under the chair of the secretary of the ministry
concerned. The examples are posts & Telegraphic, Railways, Defense, Industries, Broadcasting.

2. Management by Inter department Committee:

In certain organization cooperation is required from several ministries; Therefore a board or

committee of representatives from concerning ministries is formed so that co-operation
consultation & quick decisions may be taken.

All the governmental organizations have following essential characteristics;

1. Financed out of government bud get.

2. All the rules regulations of government are applicable.
3. Direct control of the concerned ministry.
4. Employees are government servant.
Merits:

 Because of the government control it is easy to achieve the economical political & social
objectives.

 Such organizations are suitable for public utility serviced & defense industries.

 Because of the government control, complete secrecy is possible like in ordinance

factories etc.
Demerits:

 Because of bureaucratic control generally timely decision are not taken.

 Government officials prefers to work according to certain rules & regulation & thus it
becomes difficult to ring out major modifications is innovation etc.

 Lack of initiative because promotions are seniority based rather than merit based.

2. Public Corporations:

A public corporation is wholly owned by the Government Centre to state. It is established

usually by a Special Act of the parliament. Special statute also prescribes its management
pattern power duties & jurisdictions. Though the total capital is provided by the Government,
they have separate entity & enjoy independence in matters related to appointments, promotions
etc.

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Merits:

 These are expected to provide better working conditions to the employees & supported
to be better managed.

 Quick decisions can be possible, because of absence of bureaucratic control.

 More Flexibility as compared to departmental organization.

 Since the management is in the hands of experienced & capable directors & managers,
these ate managed more efficiently than that of government departments.
Demerits:

 Any alteration in the power & Constitution of Corporation requires an amendment in the
particular Act, which is difficult & time consuming.

 Public Corporations possess monopoly & in the absence of competition, these are not
interested in adopting new techniques & in making improvement in their working.

3. Government Companies:

A state enterprise can also be organized in the form of a Joint stock company; A government
company is any company in which of the share capital is held by the central government or
partly by central government & party by one to more state governments. It is managed b the
elected board of directors which may include private individuals. These are accountable for its
working to the concerned ministry or department & its annual report is required to be placed
ever year on the table of the parliament or state legislatures along with the comments of the
government to concerned department.

Merits:

 Its is easy to form.

 The directors of a government company are free to take decisions & are not bound by
certain rigid rules & regulations.
Demerits:

 Misuse of excessive freedom cannot be ruled out.

 The directors are appointed by the government so they spend more time in pleasing their
political masters & top government officials, which results in inefficient management.

Joint Stock Company

Joint Stock Company

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A joint stock company is an organisation which is owned jointly by all its shareholders. Here, all
the stakeholders have a specific portion of stock owned, usually displayed as a share.

Each joint stock company share is transferable, and if the company is public, then its shares are
marketed on registered stock exchanges. Private joint stock company shares can be transferred
from one party to another party. However, the transfer is limited by agreement and family
members.

The simplest way to describe a joint stock company is that it is a business organisation that is
owned jointly by all its shareholders. All the shareholders own a certain amount of stock in the
company, which is represented by their shares.

Professor Haney defines it as “a voluntary association of persons for profit, having the capital
divided into some transferable shares, and the ownership of such shares is the condition of
membership of the company.” Studying the features of a joint stock company will clarify its
structure.

Features of Joint Stock Company

1. Separate Legal Entity – A joint stock company is an individual legal entity, apart from
the persons involved. It can own assets and can because it is an entity it can sue or can be
sued. Whereas a partnership or a sole proprietor, it has no such legal existence apart from
the person involved in it. So the members of the joint stock company are not liable to the
company and are not dependent on each other for business activities.
2. Perpetual – Once a firm is born, it can only be dissolved by the functioning of law. So,
company life is not affected even if its member keeps changing.
3. Number of Members – For a public limited company, there can be an unlimited number
of members but minimum being seven. For a private limited company, only two
members. In general, a partnership firm cannot have more than 10 members in one
business.
4. Limited Liability – In this type of company, the liability of the company’s shareholders
is limited. However, no member can liquidate the personal assets to pay the debts of a
firm.
5. Transferable share – A company’s shareholder without consulting can transfer his
shares to others. Whereas, in a partnership firm without any approval of other partners, a
partner cannot move his share.
6. Incorporation – For a firm to be accepted as an individual legal entity, it has to be
incorporated. So, it is compulsory to register a firm under a joint stock company.

Types of Joint Stock Company

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The joint stock company is divided into three different types.

 Chartered Company – A firm incorporated by the king or the head of the state is
known as a chartered company.
 Statutory Company – A company which is formed by a particular act of parliament is
known as a statutory company. Here, all the power, object, right, and responsibility are
all defined by the act.
 Registered Company – An organisation that is formed by registering under the law of
the company comes under a registered company.

Example of Joint Stock Company

Few examples are mentioned below.

 Indian Oil Corporation Ltd.

 Tata Motors Ltd.
 Reliance Industries Ltd.

Advantages of a Joint Stock Company

 One of the biggest drawing factors of a joint stock company is the limited liability of its
members. their liability is only limited up to the unpaid amount on their shares. Since
their personal wealth is safe, they are encouraged to invest in joint stock companies

 The shares of a company are transferable. Also, in the case of a listed public company they
can also be sold in the market and be converted to cash. This ease of ownership is an added
benefit.

 Perpetual succession is another advantage of a joint stock company. The

death/retirement/insanity/etc does affect the life of a company. The only liquidation under
the Companies Act will shut down a company.

 A company hires a board of directors to run all the activities. Very proficient, talented people
are elected to the board and this results in effective and efficient management. Also, a
company usually has large resources and this allows them to hire the best talent and
professionals.
Disadvantages of a Joint Stock Company

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  One disadvantage of a joint stock company is the complex and lengthy procedure for
its formation. This can take up to several weeks and is a costly affair as well.

 According to the Companies Act, 2013 all public companies have to provide their financial
records and other related documents to the registrar. These documents are then public
documents, which any member of the public can access. This leads to a complete lack of
secrecy for the company.

 And even during its day to day functioning a company has to follow a numerous number of
laws, regulations, notifications, etc. It not only takes up time but also reduces the freedom of
a company

 A company has many stakeholders like the shareholders, the promoters, the board of
directors, the employees. the debenture holders etc. All these stakeholders look out for their
benefit and it often leads to a conflict of interest.

Organizational Structure

Definition of an Organizational Structure

A system that outlines how specific activities are handled to fulfill a strategic mission is known
as an organizational structure. Rules, roles, and obligations are all part of these activities.

The organizational structure also determines the flow of information between divisions within the
corporation. A centralized structure, for example, makes choices from the top-down, whereas a
decentralized structure distributes decision-making power throughout the organization.

THE MOST IMPORTANT THINGS TO KNOW

An organizational structure describes how specific operations are directed to meet a company's
objectives.

Effective organizational structures clarify each employee's role and how it interacts with the rest
of the system.

Decentralized systems provide practically every individual a high level of personal agency,
whereas centralized structures have a defined chain of command.

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Functional, divisional, flatarchy, and matrix structures are examples of organizational structures.

Before determining which style of organization is ideal for their company, senior leaders should
consider several aspects, including the company's goals, industry, and culture.

Understanding the Structure of an Organization

Businesses of all types and sizes rely heavily on organizational structures. They establish a
hierarchy inside an organization.

Each employee's role and how it integrates into the larger system are defined by a successful
organizational structure. Simply defined, the organizational structure establishes who does what
in order for the company to fulfill its objectives.

This structuring provides a visual representation of a company's structure and how it can best
fulfill its goals. Organizational factors vary, but they are frequently shown as a pyramid chart or
diagram, with the most powerful people at the top and the least powerful people at the bottom.

Certain organizations may find it difficult to function without a defined structure in place.
Employees, for example, may be unsure to whom they should report. This might lead to
confusion about who is responsible for what in the company.

A structure can help with efficiency and provide clarity for everyone at all levels. This implies
that each department can be more productive because it will focus more on energy and time.

1. Line Structure Organization

Meaning of Line Structure Organization: – Line structure organization is
the simplest and oldest form of organization structure. It is called as a scalar
type of military or divisional or organization. Under this system, authority
flows directly and vertically downward from the top of the managerial hierarchy to
different levels of managers and subordinates, and down to the operative level of
workers. It is also known as the chain of command or scalar principle.

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Advantages of Line Structure Organization: –
 Simple to understand and simple to operate;
 Communication is fast and easy;
 Feedback can be acted upon faster;
 Responsibility is fixed and unified at each level and authority and accountability
are clear-cut, hence each individual knows to whom he is responsible and who is
or in truth responsible to him;
 Since it is especially useful when the company is small in size, it provides for
greater control and discipline in the organization.
 It is a stable form of organization.
Disadvantages of Line Structure Organization: –
 It is a rigid and inflexible form of organization;
 Line authority has a tendency to become dictatorial;
 It overloads the executive with suppressive activities so that long-range planning
and policy making are often neglected;
 A line organization can suffer from a lack of specialization. This is because each
department manager is concerned only with the activities of his
own department.
 Different departments may be more interested in their interests rather than
overall organizational interests and welfare;
 This is likely to encourage nepotism;
 It might stop progress and prevent the unit to work effectively.
 It does not provide any means by which a good worker can be rewarded and a
bad one can be punished.
2. Line and Staff Organization

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Meaning of Line and Staff Organization: – Line and staff
organization, in management, approach authorities (For example: –
managers) establish goals and instructions that are then met by employees
and other workers. A line and staff organizational structure attempts to present a large
and complex enterprise in a more flexible way without sacrificing managerial authority.
Staff groups support those who are engaged in the central productive activity of the
enterprise. They back up their work. Staff groups help the organisation in analysing,
researching, counselling, monitoring, and in evaluating activities.

Advantages of Line and Staff Organization: –

 Line officers can mainly focus on the task as planning and checking is done by
the employees. Specialization provides expert advice and proficiency in
management.
 Since the organization includes line and staff functions, decisions can be made
easily.
 Staff officers provide complete factual data to line officers covering activity
within and without their units. This will help to create more coordination.
 It provides ample opportunities for the advancement of workers.
 Staff services provide a training ground for various positions.
 This arrangement is flexible for newcomers in that employees can be forced to
make early adjustments to the line arrangement.
 Staff experts are ideologically oriented to look forward and have time to
undertake program and strategic planning and analyze the potential impacts of
future potential events.

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Disadvantages of Line and Staff Organization: –
 Confusion and conflict may arise between the line and the staff. Because the
allocation of authority and responsibility is not clear and the lower level
members may be confused with various line orders and staff advice.
 The staff usually advises the lines, but the line makes decisions and tasks. So
employees often feel powerless.
 Too much reliance on staff officers may not be beneficial to the business as line
officers may have to lose a lot about their decisions and duplication.
 Since staff specialists demand high pay, it is expensive.
 Employees are unable to carry out its plan or recommendations due to lack of
authority. So they sometimes become ineffective, this will make them careless
and indifferent to their jobs.
 As the line is performed, with advice provided by employees, if things go right,
the employee takes credit and if things go wrong, the line gets the blame for it.
3. Functional Structure Organization
Meaning of Functional Structure Organization: – Functional
Structure Organization is one of the most common structures of organization.
They are grouped based on their specific skills and knowledge. Under this
structure, the employees are divided into groups by the organization according to a
particular or group of tasks. Where functional structures operate well in stable
environments, where business strategies have little inclination for change or mobility,
the level of bureaucracy makes it difficult for organizations to react quickly to market
changes.

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Advantages of Functional Structure Organization: –
 The executive or the team leader has the knowledge and experience of that
particular field. For example, the person heading the IT department will have the
education and skill necessary to shoulder this responsibility and successfully run
his team.
 Because the employee has expertise in that particular field, the work is more
efficient and precise. There are fewer mistakes. This also helps with
the motivation of the employees of the company.
 Since all team members come from similar backgrounds it allows them to share
ideas and come up with solutions. There is a sharing of knowledge, which is
always beneficial.
 The employees also having a clear idea of the hierarchy of the firm. They need
not report or answer to several managers.
 Also, the employees feel secure in their work. They see that their work and
efforts is not going unnoticed. This sense of security helps them perform better.
Disadvantages of Functional Structure Organization: –
 The work can be quite one dimensional. After a while, the employees may start
feeling monotony or boredom. The lack of new challenges can make them
unenthusiastic for the job at hand.

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 In this structure, the manager must take care of the appraisal system. If the
correct approach is not taken then conflicts may arise between the employees
regarding promotions or appraisals.
 Also, this form of organization requires a high degree of specialization which is
difficult to establish
 If there is a necessary change of personnel it can disrupt the whole system and
its balance. Also, it is quite a rigid structure, not leaving a lot of scope
for adaptation.
 In Functional Organizational Structure, the employees never gain any knowledge
or skills outside their own department. This can cause difficulties in inter-
departmental communication.
4. Matrix Structure Organization
Meaning of Matrix Structure Organization: – A matrix organizational
structure is a structure of organization in which some individuals report to
more than one supervisor or leader, which is described as solid line or dotted
line reporting. More broadly, it can also describe the management of cross-functional,
cross-business groups and other work models that do not maintain rigid business units
or silos grouped by function and geography. For example, an employee may have a
primary manager they report to as well as one or more project managers they work
under.

Advantages of Matrix Organization: –

 Since there is both vertical and horizontal communication, it increases
coordination and this leads to greater and more effective control over
operations.
 As the matrix organization is handling many projects, the available resources will
be fully utilized.
 It focuses organizational resources on specified projects, thus enabling better
planning and control.
 It is highly flexible in following rules, procedures etc. Experience here is the best
guide for setting rules and procedures.
 As any department has to put its efforts towards the completion of any one
project, employees are effectively motivated.

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Disadvantages of Matrix Organization: –
 Since, there is more than one supervisor for each worker, this causes confusion
and conflict and reduces effective control.
 There is continuous communication both vertically and horizontally, which
increases paper work and costs.
 It is difficult to achieve downward balance on projects technical and
administrative aspects.
5. Project Structure Organization
Meaning of Project Structure Organization: – A project structure
organizational structure is used to determine the hierarchy and authority
of people involved in a specific project. This organizational structure is temporarily
created for specific projects for a particular period, for the project to achieve the goal of
developing a new product, specialize in various functional departments such as
production, engineering, quality control, marketing research etc. and will be ready to
work together. These specialists return to their duties as soon as the project is
completed.
In fact, the project organization is established with the aim of overcoming the major
weakness of functional organization, such as absence of unity of command, delay in
decision making and lack of coordination.

When to use the project structure organization?

 It is a one-time task and is fixed in the context of a single, specific goal.
 It is big in scope It is unfamiliar or lacks precedent.
 It is complex and calls for a high degree of freedom.
 Successful completion of the project has a high stake.
 The result is very important for the organization.
Advantages of Project Structure Organization: –

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 It is a notable depiction of the relationship between environment, strategy and
structure.
 The team can focus properly.
 The clustering of activities on the basis of each project initiates new
authorization patterns.
 As experts from different organizations are ready to work together under the
project organization, it helps in coordination.
 This makes for personal control and determination of personal responsibility.
Disadvantages of Project Structure Organization: –
 The uncertainty can be attributed to the diverse background of the professional
who is deputed in the project.
 The project manager finds it difficult to control in the traditional way in order to
motivate and control employees, in the absence of a norm of lines and norms
responsible for communication.
 Project completion may be delayed.
 Effective project management can also be hindered by top management who
may not be fully aware of the problems in the project center.

ORGANISATION DESIGN
“Organization design” involves the creation of roles, processes and
structures to ensure that the organization’s goals can be realized.

Some people associate organization design with the mechanical

arrangement of positions and reporting lines on the organization chart.

It is certainly true that organizational designers also need to define the

vertical structure, including reporting lines.

However, organization design is much more than “boxology”.

Organization design problems are often some of the hardest problems

that leaders face. Finding the right design often requires inventing a
new solution to resolve a dilemma. And decisions made with regard to
formal structure, roles and processes directly impact the jobs and
careers of employees – and the ability of the firm to realize its
strategic objectives.

In an organization re-design process one may consider elements

at different levels:

 The overall organizational “architecture” (e.g., the corporate

level, the role of the headquarters versus business areas in a
large firm, etc.)

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  The design of business areas and business units within a larger
firm
 The design of departments and other sub-units within a business
unit
 The design of individual roles

Features of Organization Design

Main features of an organisational design are described as below:

1) Getting Work Done:

This mainly deals with the manner in which various tasks are performed. The relationship
between the objectives of the firm and the manner in which staff and managers are performing
together to fulfil these goals is evaluated by it.

2) Organisational Goals Fulfilment:

Organisational design involves activities for enhancing the chances of organisational success by
evaluating and reframing the various positions and set-ups so that the organisational objectives
are fulfilled effectively.

3)Way of Integration:

It can be seen as a guided and formal procedure of combining the technology, information, and
individuals of an organisation.

4) Aligning Strategic Actions:

The attempts are made to have a close alignment between the organisational structure and the
various objectives which are supposed to be accomplished by the organisation.

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5) Deciding Organisational Structure: Decisions regarding the formation of formal organisational
arrangement consisting various formal processes, structures, and systems which create an
organisation are also associated with it.

6 Allocation of Resources:

Work allocation and reporting relationships are handled by it so that some tools are obtained to
achieve a complete organisational fit between people' and function'

Theories of Organization Design

The body of knowledge and methods that strives to provide valuable guidance to organisations
about their structures (and other aspects) which is required to achieve their objectives is known as
organisational design.The theories of organisational culture are the source of organisational
design.

The understanding of the consequences of several structures is produced by the theories of

organisational culture.

The theories of organisational design are as follows:

Objectives Organizational Design structure

The four objectives of organisational design are briefly discussed in the following paragraphs:

Responding to change:

“Nothing lasts forever”, “Change is inevitable”, “Either change or perish”, “Change is the only
thing that is permanent” – these could be the slogans of organisational designers.

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For a firm to remain competitive, it must respond to changes in the environment – competition,
technology, global economy and consumer needs – as well as the changes that emerge from the
company’s evolutionary development and proactive initiatives.

Integrating new elements:

As organisations grow, evolve, expand and respond to changes, many new positions and
departments will have to be added to deal with factors in the external environment or with new
strategic needs. These new elements will have to be integrated into the overall structure of the
organisation which means virtually restructuring the organisation. For instance, the strategic need
to enhance quality of customer service may need dismantling of functional departments, creating
teams and re-delegating authority.

Coordinating the components:

After creating new departments, managers need to find a way to tie all the departments together
to ensure coordination and collaboration across the departments. The departments have to work
together either through reporting relationships, cross-functional teams or task forces in order to
avoid conflicts and problems and to meet customer needs.

Encouraging flexibility:

Organisationai designers want to build into the organisation – with all its authority, chains of
command, bases of departmentalisation – flexibility for decision making, for responding and
redirecting resources and for focusing employee’s talents this objective differs from that of
responding to changes.

The Importance of Organisational Design:

Increased global competitiveness and increasing use of advanced information technology has
made organisational design as one of management’s top priorities in the present business

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environment. Managers of today are under pressure to search for new and better ways to
coordinate and motivate their employees to increase the value created by their organisations.

Organisational design has major implications for an organisation’s ability to deal with
contingencies, achieve competitive advantage, effectively manage diversity and increase its
efficiency and ability to innovate new goods and services.

The design of an organisation determines how effectively an organisation responds to various

factors in its environment and obtains and makes use of the scarce resources it has. An
organisation can design its structure to increase control over its environment.

More effective types of structures are developed to respond to the increasing pressures from
competition, consumers and the government which will make the environment more complex and
difficult to respond to. Organisational design becomes more important in a global context
because to become a global competitor, a company often needs to create a new structure.
Changing technology also puts pressure on organisations to respond.

For example, today the emergence of Internet as an important new medium through which
organisation manage relationships with their employees, customers and supplies is fundamentally
changing the design of organisational structure (for example call centers and back offices).

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 Process of Organization
Review of Objectives and Policies
The organization is a tool for achieving objectives. Objectives are
determined by top management. So it is necessary to take review
objectives and policies. Therefore it is the first step in the process of
the organization.

By knowing the exact objectives, it is possible to establish the exact

structure of the organization. The objectives are to be explained to the

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people involved in the organization. On the basis of it, meaningful
work division becomes possible.
Determination of Activities
The next step in the process of organizing is to identify and list out the
different activities and jobs which are undertaken in an enterprise. An
exhaustive list of all activities is prepared.
It is a primary and basic exercise that lay down the foundation for all
the further steps of organizing. The list is verified with the help of a
checklist and is finalized.

Grouping of Activities
The listed out activities are grouped on the basis of inter-relation and
inter-linkage. The main activity with its related sub-activities is divided
into groups. Grouping and sub-grouping depend upon size, nature, and
competition.

It is a classification of activities for interconnecting and smoothly

coordinating activities. It is essential for effective supervision and even
avoiding repetition.

Establishing Departments
Establishing departments is the next step in the process of organizing.
Classifications of groups are further grouped into sub-sections,
sections, sub-departments, departments, and divisions as per the
requirement of a business.

The advertising section, sales section, sales promotion section, after-

sales service section, customer redressal section, credit section,
market research section, etc. sections may be grouped into Marketing
Department.
After-sales service section may have sub-section such as repairs,
spare part supply, customer relation, replacement, home service, etc.
Establishing the departments also depends on the size, policy, and
financial provisions of a business.

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Job Specification and Man Specifications
Before the actual distribution of activities and jobs, job specifications
and main specifications are undertaken. An expert team is appointed
for this purpose. It analyses different jobs and identifies their
characteristics.

A team also identifies man-specifications i.e. required skills and

qualities for performing a particular job. It facilitates the distribution of
jobs and activities which leads to the matching of jobs and employees.

Distributing Jobs
On the basis of job specifications and man specifications, different jobs
and activities are distributed among employees of an enterprise.

Skills, qualifications, experience, traits, training and qualities of an

employee are major considerations for assigning jobs. This is the most
important phase of the process. Hence it is done thoughtfully and
scientifically.

Delegating Authority
Granting necessary powers to employees is essential for performing
their jobs. Hence authority is delegated as per the requirement of a
job assigned to an employee. Every job requires a certain kind of
authority.

An employee can perform his job-related duties effectively with

authority. Of course, the quantum of authority to be delegated is
decided in advance by the management. A line and span of authority
are also explained to an employee which defines his liberty.

Determining Responsibilities
Authority is followed by responsibility. Once necessary authority is
delegated to an employee, corresponding responsibilities are clearly
determined for his job. Determinations of responsibility help him to
use his authority more cautiously and carefully.

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Fixation of responsibility makes him more aware of his performance.
The Quantum of responsibility shall correspond with the quantum of
authority. Otherwise, it may affect his performance adversely.

Defining Scalar Chain

Defining relation among employees is an important phase of the
organizing process, by which superior and subordinate relation is
determined. Who shall issue orders to whom, who shall receive orders
from whom, and who shall report to whom, this relation among
employees is clearly defined.

These relations between superiors and subordinates constitute a

scalar chain in an organization. It ensures discipline and timely
execution of orders.
Coordination System
A separate coordinating system is established because different jobs
and activities are distributed among employees for higher efficiency
and better performance. Basically all jobs/activities are interconnected
to each other.

Hence proper coordination of different jobs which are distributed

among different employees and groups is essential for the attainment
of the ultimate objectives of a business. All these job groups are
coordinated on the basis of interconnections among different jobs.

Actual Executing
After completing all the above steps, it constitutes an effective
organization that is set for actual functioning. It means that an
organization starts its work and executes orders or directives.

It initiates actions by superiors and subordinates for fulfilling pre-

determined goals. In fact, this is the last step of the process of
organizing. All these steps are interdependent, so it is necessary to
think about them collectively.

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There may be a merging of some steps and the process may be
shortened or maybe the addition of any new step. It depends on the
philosophy of the enterprise.

Principles of Organization
The principles are guidelines for planning an efficient and sound
organizational structure. Therefore, for good organization, a clear
understanding of these principles is essential. The important principles
of organization are:
1. Unity of Objectives
2. Division of Work and Specialization
3. Span of Supervision
4. Chain of Command
5. Unity of Command
6. Principle of Exception
7. Clear Definition of Authority and Responsibility
8. Unity of Direction
9. Balance between Authority and Responsibility
10. Absoluteness of Responsibility
11. Flexibility
12. Simplicity
13. Efficiency
14. Continuity

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 Principles of Organization
Unity of Objectives
The objectives of an enterprise should be stated in clear and precise
terms because it is the objectives of an enterprise that help in
determining the type of organization structure.

In other words, only after the objectives have been laid, an

organizational structure should be developed to achieve them.

Division of Work and Specialization

The organization structure should be designed in such a way, that as
far as possible every individual should perform only a single function
according to his aptitude and ability.

This is also called the principle of specialization. The performance of

work will be better when a person performs it continuously.

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Span of Supervision
According to this principle, no individual should be allowed to
supervise more subordinates than he can effectively manage. For
effective decision-making and communication, the number of levels of
authority should be as few as possible.

Chain of Command
The line of authority should be clear and unbroken. It should run from
top to bottom of the organization. Every individual in
the organization should know to whom he will have to report and who
will have to report to him.
Unity of Command
According to this principle, every individual in the organization should
have only one superior to whom he will have to report. If a subordinate
reports to two or more superiors, then there will be confusion in the
organization and this will lead to indiscipline.

Principle of Exception
Every manager according to this principle is given authority to make
routine decisions. Only in exceptional cases where it is beyond the
scope of his authority, he should seek the help of higher authorities.

Clear Definition of Authority and Responsibility

The authority and responsibility of each individual in the organization
should be clearly defined so that each one knows what is expected of
him. This will help in removing any overlapping of authority and gaps
between responsibilities.

Unity of Direction
According to this principle, each group of actors with the same
objective should have one head and one plan. This provides for better
coordination among various activities to be undertaken by an
organization.

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Balance between Authority and Responsibility
There should be a proper balance between authority and
responsibility. Responsibility should always be coupled with
corresponding authority. Each individual should have sufficient
authority to discharge the responsibility entrusted to him. This is
otherwise called parity of authority and responsibility.

Absoluteness of Responsibility
In an organization, an individual cannot pass on his responsibility to
others. Only authority can be delegated whereas responsibility cannot
be delegated. Even when a manager has delegated his authority to a
subordinate, he is held responsible for the work performed by his
subordinate.

Flexibility
The organization structure should always be flexible in order to adapt
and adjust itself to any environmental change. There should always be
scope for expansion.

Simplicity
The organization structure should be clear and simple with a few levels
of authority. This helps in free and effective communication and
proper coordination.

Efficiency
The organization structure design should help the business unit to
function effectively and efficiently to achieve its objectives with
minimum effort and cost.

Continuity
This is another important principle of organization. Continuity of the
business unit for a long period is essential to help people gain

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experience in positions of responsibility. It also helps in the growth and
expansion of a business unit.

These principles are considered as the essential requirements of a

sound organization and knowledge of these principles is the first
prerequisite for sound organizing.

FQA Related to Organization

What is meaning of organization?
An identifiable group of people contributing their efforts towards the
attainment of goals is called an organization.

What is a simple definition of organization?

Organization is the form of every human association for the
attainment of a common purpose. By Mooney and Railey
What are the characteristics of organization?
Following are the characteristics of organization:
1. An defined objective, purpose or goal.
2. The activities needed to achieve the defined objective.
3. The classification of activities to make groups of similar activities.
4. The authority and responsibility needed for each activity.
5. Relationship between the activities.

What are the 8 characteristics of organization?

Following are the characteristics of organization:
1. Division of Labor
2. Common Purpose
3. Communication
4. Authority Responsibility Structure
5. People
6. Environment

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7. Coordination
8. Rules and Regulations.

What are the steps of process of organization?

Following are the process of organization:
1. Review of Objectives and Policies
2. Determination of Activities
3. Grouping of Activities
4. Establishing Departments
5. Job Specification and Man Specifications
6. Distributing Jobs
7. Delegating Authority
8. Determining Responsibilities
9. Defining Scalar Chain
10. Coordination System
11. Actual Executing.

What are the principles of organization?

Following are the principles of organization:
1. Unity of Objectives
2. Division of Work and Specialization
3. Span of Supervision
4. Chain of Command
5. Unity of Command
6. Principle of Exception
7. Clear Definition of Authority and Responsibility
8. Unity of Direction
9. Balance between Authority and Responsibility
10. Absoluteness of Responsibility
11. Flexibility
12. Simplicity
13. Efficiency
14. Continuity.

Related posts:

1. 9 Importance of Organization
2. 11 Principles of Organization
3. 5 Elements of Organizing in Management

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4. 6 Approaches to Job Design
5. Departmentalization in Management and Types
6. 6 Process of Organization
7. 12 Principles of Organizing
8. History of Management | Approaches to Management
Classical, Contingency
9. Planning in Management: Meaning, Definitions, Natures,
Importances, Features, Principles, Approaches
10. Directing: Definitions, Features, Importance, Elements,
Principles
11. Importance of Organising
12. Methods of External Sources of Recruitment
13. Controlling: Meaning, Definition, Importance, Process,
Characteristics, Elements
14. Limitations of Planning
15. Decision-Making Process
TAGS: CHARACTERISTICS OF ORGANIZATION, DEFINITION OF ORGANIZATION, IMPORTANCE OF
ORGANIZATION, MANAGEMENT, MEANING OF
ORGANIZATION, ORGANIZATION, ORGANIZATIONS, PRINCIPLES OF ORGANIZATION, PROCESS OF
ORGANIZATION, WHAT IS ORGANIZATION
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Dr. Ambedkar Institute of Management Studies and Research, Deekshabhoomi, Nagpur (For internal circulation only)

RTM Nagpur University MBA - 2022-23 / Semester – I / Dr. Dhanashree Katekhaye