NCERT Solutions For Class 12 Business Studies Chapter 5

NCERT Book Solutions For Class 12 Business Studies Chapter 5

NCERT Solutions For Class 12 Business Studies Takshila Learning’s NCERT Solutions for Business Studies are an advanced and next stage of Class 11 NCERT Solutions in business studies. We provide the basic fundamentals of the subject in Class 11 and then move on to an advanced degree of concepts in Class 12. The business studies topics are related to our practical life and dealt with in an easy way for understanding.

NCERT Solutions For Class 12 Business Studies Chapter 5 provides us with all-inclusive information on all concepts. As students would have to learn the basics about the subject in class 12, this curriculum for class 12 is a comprehensive study material, which explains the concepts in a great way.

Questions Covered In NCERT Solutions For Class 12 Business Studies

1. Which of the following is not an element of delegation?

(a) Accountability

(b) Authority

(c) Responsibility

(d) Informal Organisation

Ans: Informal organization is not an element of delegation. Delegation refers to the transfer of authority to subordinates. Accountability, responsibility and authority are the key elements of delegation. On the other hand, informal organization refers to the relationship that arises from informal communication between employees in an organization. Such communication is purely informal in nature and delegation does not include any such formal communication.

2. A network of social relationship that arise spontaneously due to interaction at work is called:

(a) Formal Organisation

(b) Informal Organisation

(c) Decentralisation

(d) Delegation

Ans: A network of social relationships that arise spontaneously due to interaction at work is called informal organization. It originates from the free flow of social interaction and communication between the employees of an organization. On the other hand, formal organization refers to a formal system based on superior subordinate relations. Whereas, delegation and decentralization are concerned with the transfer of authority and responsibility to subordinates.

3. Which of the following does not follow the scalar chain?

(a) Functional structure

(b) Divisional Structure

(c) Formal organisation

(d) Informal organisation

Ans: Scalar chains refer to a pre-defined, formal route of authority and the order of communication from highest to lowest. Informal organizations do not follow a scalar chain because they arise from an informal relationship between workers and managers. For example, it may arise from a conversation that occurs at a lunch or office party. Other structures such as formal organization, departmental structure and functional structure follow a properly defined scalar chain.

4. A tall structure has a

(a) Narrow span of management

(b) Wide span of management

(c) No span of management

(d) Less levels of management

Ans: A long structure of an organization is one that has several levels of hierarchy. A long structure of the organization has a narrow period of management. That is, under such a structure a manager has charge of only a few subordinates.

5. Centralisation refers to

(a) Retention of decision making authority

(b) Dispersal of decision making authority

(c) Creating divisions as profit centers

(d) Opening new centers or branches

Ans: Centralization refers to the determination of the right to make decisions. Centralization refers to a situation where decision-making power is maintained by top-level management. Under such a system, other levels of management do not have the right to interfere with policy making. In such a system, power and authority remain concentrated in few hands.

6. For delegation to be effective it is necessary that responsibility be accompanied with necessary

(a) Authority

(b) Manpower

(c) Incentives

(d) Promotions

Ans: For delegation to be effective it is necessary that responsibility lies with the authority. Responsibility refers to the obligation to complete a task that has been assigned by the superior. In its complement, authority refers to the power to command and instruct subordinates. Successful delegation requires both authority and responsibility to run together. That is, if a person is given the responsibility to perform a task, he should also be given the necessary authority to complete it.

7. Span of management refers to

(a) Number of managers

(b) Length of term for which a manager is appointed

(c) Number of subordinates under a superior

(d) Number of members in top management

Ans: Span of management means the number of subordinates that can be well-handled by a superior. Any organisational structure is based on its span of management.

8. The form of organisation known for giving rise to rumours is called

(a) Centralised organisation

(b) Decentralised organisation

(c) Informal organisation

(d) Formal organisation

Ans: The rumors are a result of informal organization. They can adversely affect the work environment. This can result in a debate or confrontation between the people of the organization. For example, a rumor about a boss may pop up during a communication between a group of employees, which may affect the superior-subordinate relationship.

9. Grouping of activities on the basis of product lines is a part of

(a) Delegated organisation

(b) Divisional organisation

(c) Functional organisation

(d) Autonomous organisation

Ans: Sometimes an organization has more than one product line. Under such a scenario the organization groups activities based on the product line. Such group of activities based on product line is known as divisional organization. Each division has its own sub-departments such as production, finance, etc.

10. Grouping of activities on the basis of functions is a part of

(a) Decentralised organisation

(b) Divisional organisation

(c) Functional organisation

(d) Centralised organisation

Ans: Functional organization involves grouping of tasks of a similar nature. Each group forms a separate department that reports to a head. For example, departments may be divided based on tasks such as production, human resources, etc. that report to the managing director of the organization.

Short Answer Type:

1. Define ‘Organising’?

Ans: Organizing refers to the process of aligning activities in a certain order. This includes creating roles and directing people towards achieving goals. Human efforts are brought together with resources and coordinated under this task. The focus of the function enables people to work together and implement plans for the successful attainment of objectives. Through organization, an organization’s working relationships are clearly defined, thereby ensuring its smooth functioning. The process of organizing includes:i. Identifying tasks and dividing them according to plansii. Grouping works of similar nature and creating departments for the same.iii. Assigning officers to the right personneliv. Designating reporting relationships

2. What are the steps in the process of organising?

Ans: The following are the steps involved in a successful process of organizing.(i) Identifying and dividing tasks: Under organizing, there is a very first step with identifying activities and dividing them according to defined plans. The tasks are divided according to the objectives. A clear division of work is done so that any duplication can be avoided.(ii) Creating a department: Here, the divided functions are classified into units based on similarities in nature. That is, similar activities are grouped together. Such departmentalization promotes specialization. Each department specializes in a particular task. Departments can be formed based on several criteria, such as working profile, region, product, etc.(iii) Delegation of duties: The third step under organizing deals deals with assigning roles and responsibilities to personnel. Under each department, various members are allotted work according to their skills and abilities.While assigning duties it should be ensured that the most suitable and skilled person for the work is selected.(iv) Establishing relationships: Any organization needs a properly hierarchical structure to function efficiently. Everyone should know who he is working under and whom to report. The clear establishment of such relationships helps in the smooth running of an organization.

3. Discuss the elements of delegation.

Ans: Delegation refers to the transfer of authority and responsibility to subordinates.The following are the core elements of delegation:(i) Authority: It refers to the power given to a person to order and direct subordinates. This implies the right to decide what is to be done and in relation to whom. In a formal organization, the scalar chain gives rise to authority because it connects the link between different jobs and determines whom to report. It is a downward flowing channel, that is, superior command authority over subordinates. The authority level is the highest in top level management and it becomes lower in middle level and lowest in lower level management. However, the scope of the authorization depends on the organization’s rules and regulations. Assigning authority helps maintain obedience and compliance.

(ii) Responsibility:Responsibility refers to the adherence and accountability of a subordinate to carry out a given task. That is, once a subordinate is assigned a duty, it is his responsibility to act properly. A subordinate must be obedient and loyal to the duty assigned to him. The superior-subordinate relationship gives rise to a sense of responsibility. Unlike authority, responsibility flows upward i.e. the subordinate is responsible for his superior. However, it should be kept in mind that while delegating responsibility to the subordinate, he should also be empowered to a certain degree. On the other hand, a person who is empowered must also have some responsibility. This is because authority can be caused by misuse of power without responsibility. On the other hand, responsibility without authorization can lead to inefficiency. (iii) Accountability: Accountability means accountability of the superior for the end result of the work he has assigned. Although the superior assigns the task to his subordinate, he will still be responsible for the final result. For this, through better, regular feedback and supervision, it is ensured that the subordinate performs the tasks correctly and satisfactorily. The concept of being accountable is born of responsibility. We can say that accountability is brought about while assuming responsibility.

4. What does the term ‘span of management’ refer to?

Ans: The term of management refers to the number of subordinates a manager can handle efficiently. It is the determining factor for the nature and structure of an organization. The duration of management can be classified into the following two categories.i. Narrow extension of management: If the number of subordinates subordinate to a particular manager is small, the duration of management is stated to be narrow. The narrow spread of management leads to tall organizational structures that have multiple levels of management. ii. Wide span of management: A span of management is called elaborate if, a manager has a large number of subordinate reporting. Extensive periods of management flatter organizational structures with only a few levels of management.The extent of management depends on various factors such as the ability of the manager in terms of leadership, control etc., extent of decentralization in the organization, work capacity of subordinates, nature of work etc.

5. Under what circumstances would functional structure prove to be an appropriate choice?

Ans: A functional structure seeks to organize and group activities of a similar nature together. That is, work under functional organization activities or of a similar nature is grouped together. Each group functions as a separate department and specializes in its work. For example, an organization may have departments such as production, human resources, finance, marketing etc. Each department in turn reports to a coordination head. Functional structures are generally suitable for large organizations, which deal with the number of different types of tasks that require a high degree of expertise. The following points highlight the suitability of the functional structure.i. Large Size: A large-sized organization can function smoothly if the work is divided into different departments. Departmentalization in a large organization improves managerial efficiency and degree of control. Which makes the work move smoothly. ii. Differential tasks: A high level of coordination is required to improve efficiency to deal with different types of tasks simultaneously. By having a clear division of activities into different departments, a functional structure promotes coordination between different functions and, thus, ensures smooth functioning.iii. Need for specialization: It can be better to work in an organization if specialization is dealt with. With departmentalization, each department can function independently and specialize in their respective functions.

6. Draw a diagram depicting a divisional structure.

Ans: Sometimes when an organization has more than one product line, it groups its activities based on the product line. Such a group of activities based on a product line is known as a divisible structure. Each department in the organization specializes in its respective product lines. In addition, each division has several functions under it such as production, sales, marketing, etc. There is a functional structure within each division. Suppose an organization operates in four product lines, such as shoes, garments, jewelery, and leather goods. Based on these product lines, the organization has four departments that report to the managing director. Next to each division are four departments, Production, Sales, Marketing and Advertising. The partition structure for such an organization is depicted by the following figure:

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

Ans: No, no organization can function smoothly if it is either fully centralized or fully decentralized. Rather, a balance between the two is necessary.Centralization refers to a situation where decision-making power is concentrated only in the hands of top-level management. In this, only the top level managers are authorized to make the necessary decisions. All functions related to policy formulation, planning and control are linked to top level management. In contrast, decentralization refers to a situation where decision-making power is delegated to lower-level managers. In this, the power to take action and decide policies is distributed at various levels. No organization can function with either extreme centralization or extreme decentralization. As an organization grows in size, it cannot maintain full centralization. Rather, a need arises to move towards decentralization. For smooth functioning, the persons involved in the actual work should have some degree of authority and responsibility. With decentralization, overall management of work becomes more efficient. This allows better control of the task at each level of the hierarchy. Furthermore, as the organization grows in size, decentralization will facilitate quick decision making. This is because decision-making power in a decentralized system is near the point of actual work. Thereby avoiding delay in work.However, not even an organization can follow extreme decentralization. If all decision-making power is delegated to lower level managers, it can harm the cohesion of the organization. It is possible that the lower level managers in each department adapt the rules and policies as per their convenience and, thus, deviate from the organizational goals. Thus, to some extent authority and control should be maintained at the top level of management so that the integrity of the organization is maintained.Therefore, we can say that a large-sized organization cannot be fully centralized or fully decentralized, rather it must maintain a balance between the two.

8. Decentralisation is extending delegation to the lowest level. Comment.

Ans: Decentralization and delegation both relate to downward delegation of authority and responsibility. Under delegation, authority is shared by the superior subordinate. On the other hand, under decentralization this concept is extended and authority is distributed not on one but multiple levels. Namely, while delegation involves only two persons, namely superior and subordinate, decentralization is a broad concept of the same (delegation) where power is transferred at multiple levels. For example, suppose the director of an organization entrusts the responsibility of completing a task, hiring the necessary workers, and overseeing the project head. The project head, in turn, shares his responsibility for hiring and supervising workers with the project leadership. The project leadership assigns workers the responsibility of leading the team.Thus, delegation at every level from the director, to the head, to lead the project and to lead the result in further team decentralization. Therefore, it can be said that delegation at every level leads to decentralization and decentralization is increasing delegation to the minimum level.

Long Answer Type:

1. Why is delegation considered essential for effective organising?

Ans: Delegation refers to the transfer of a superior person to a subordinate officer. It is an essential concept for an effective organization as it reduces the burden on the manager and as such, allows the manager to focus on activities that give high priority. Once he assigns work to subordinates, managers can expand their area of ​​operations. Additionally, it provides more development opportunities to subordinates. This helps in completing tasks efficiently as subordinates can now show their skills and exercise initiative. The following points highlight the importance of delegation in effective planning. (i) Managerial efficiency: Assigning tasks to subordinates helps managers to focus on other areas of concern. Along with assigning regular tasks to subordinates, Manger can focus on other high priority areas. In addition, it gives them an opportunity to explore and innovate in new fields. For example, if the manager assigns the original work to the subordinate then he can devote his mind to searching for ways to improve efficiency. (ii) Employee Proficiency:By delegating work, managers empower their subordinates by giving them opportunities to apply their skills. In it, subordinates get a chance to prove their abilities, gain experience and develop their career. Thus, delegation in a way helps prepare future managers. (iii) Motivation: Along with improving managerial and employee efficiency, delegation provides psychological benefits to employees. It serves as a motivational guide for workers. It provides a feeling of mutual trust and commitment between the superior and the subordinate. Employees gain confidence with responsibility and are encouraged to give their best to the organization.(iv) Development: Delegation facilitates easy development and expansion. Delegation helps to create skilled and experienced mangoes that can take the lead in the development of the organization. That is, workers trained and prepared through representatives contribute more efficiently to the organization’s expansion and development. (v) Hierarchical structure: Delegation forms the basis of hierarchical structure of an organization. It sets the superior-subordinate chain and determines whom to report. It clearly states the reporting relationships that help the organization function smoothly. (vi) Coordination: Delegation promotes coordination of work. This minimizes overlapping of work by defining reporting relationships. All elements of delegation such as rights, responsibility and accountability help to provide a clear working relationship, thereby increasing efficiency.

2. What is divisional structure? Discuss its advantages and limitations.

Ans: Divisional structure refers to an arrangement where activities are separated based on products. There are different units and divisions that work with different products. Each division has its own divisional manager, who oversees the entire unit and is the authority for it. Organizations that grow in size and deal in a diverse range of products or categories opt for this type of structure. Under each head of the mandal structure, a functional structure develops itself, namely that each mandal unit is further subdivided based on its functions. For example, a company dealing with various products has divisions such as clothing, footwear and electronics.Now these units will have more functional departments, such as under footwear, resource input, advertising, production, sales, etc. Similarly, under clothing there will also be resources, advertising, production and sales departments. It will be under the electronics division. Here, each department has to take care of its profit and loss and is responsible for its work.

Some of the major benefits of the divisional structure are the following.(i) Managerial efficiency: The departmental structure provides many opportunities for the development of managers and workers. Along with product expertise it also leads to the development of skills and knowledge of the working personnel. Departmental heads experience benefits as they relate to a variety of tasks for which they should be responsible. This helps him to develop and become more efficient in his work. (ii) Gagging performance: Under a divisible structure each head is responsible for the profit and loss of its own division. This helps in clear identification of individual performances by each department. Once the head is accountable for the revenue and costs of its own department, it becomes easier to measure the actions of each. It also helps in taking corrective action in case of poor performance. (iii) Flexibility and initiative: Under the divisional structure, with each division functioning independently, the decision-making process is expedited. Once the portfolios are divided, the chiefs have the right to take their own decisions whenever needed. This promotes initiative among personnel as they are now able to take decisions at the right place and right time.(iv) Development: Expansion becomes easier under the division structure of an organization as new divisions can be easily added without affecting the functioning of other divisions.A divisional structure also has some disadvantages. Some of the disadvantages of departmental structure are:(i) Departmental conflict: There may be conflict between various divisions regarding the decisions and functions of the organization such as those related to allocation of funds and resources. For example, suppose that a company dealing in leather products such as shoes, bags, etc. decides to allocate resources (workforce) to each department. Here, conflicts between different departments can arise because which department gets more workforce. (ii) Cost increase: There is duplication of activities under the divisional structure. Since each department has the same set of functions, there is a possibility of overlapping of activities. This results in an increase in costs for the organization. For example, suppose that there are two units of advertising in two different product divisions and they follow the same technique of advertising. Now, although the products are different, but due to the same methodology, the cost of the organization increases as there is duplication of work. (iii) Ignorance of overall objectives: One of the disadvantages of being divided is that over time, there may be a possibility that organizational goals may backfire. The head of department handling various units mainly focus on achieving their own divisional objectives. This can lead to ignorance of organizational objectives overall and each department in the race to move forward may target its interests at the expense of the overall interests of the organization.

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

Ans: Decentralization refers to the spread of decision-making power among middle and lower level managers. This is an alternative policy because it depends on the organization how much authority the top level management has to delegate to the lower levels. An organization may be centralized or decentralized depending on the objectives and decisions of top level managers. The following are some factors that explain why an organization would be chosen decentralized. (i) Initiative: Decentralization allows lower managerial levels a sense of independence as it allows them to make their own decisions. This gives them a high degree of autonomy to take initiative. In addition, it promotes a sense of confidence and self-reliance in them. When power is delegated to lower level managers, they learn to face new challenges and find solutions to problems themselves. This helps to spot potential managers who can take the necessary initiatives. (ii) Managerial competence: Once authority is delegated to managers at lower levels, it gives them the necessary opportunities to develop themselves. It gives them an opportunity to gain experience and thus, develop skills and knowledge to face new challenges. Decentralization gives them the opportunity to prove their talent and prepare for higher positions. It also helps in the pre-identification of future managers who are well equipped with the necessary talent required to tackle managerial problems.(iii) Control:Decentralization helps to better evaluate the performance of the organization. Decentralization helps in analyzing and evaluating the performance of each department separately. Thus, the extent of achievement of each department and their contribution to the overall objectives of the organization can be easily evaluated. (iv) Active decision making: Through decentralization, decision-making authority is passed to lower levels of management, decisions are taken quickly and on time. This is because decisions can be taken at the nearest points of action, which helps in easier resolution of problems. (v) Development: Managerial efficiency is developed to a great extent with the help of decentralization. Decentralization gives lower level managers more authority. It promotes competition among managers of different departments. In the race to outdo each other, they give their best shot and thus, increase overall productivity and efficiency. The organization has increased overall performance and as such, increases.

(vi) Reducing the charge of top managers: Delegation of authority gives freedom to top level managers. This helps them to assign workloads to their subordinates and gives them time to focus on more important and high priority tasks such as policy decisions. In addition, direct supervision by the top-level management is deficient, as subordinates are given the right to make decisions themselves.

4. How does informal organisation support the formal organisation?

Ans: Informal organization refers to a complex network of relationships that arise from social contact outside the office. They originate from within the formal organization and are not intentionally created by management. These relationships are based on friendships that develop between workers who act like nature. The following are the factors of informal organization that support the work of formal organization.(i) Free flow of communication: Informal organization helps in establishing free flow of communication. This allows workers to form informal relationships outside the organization. It facilitates the rapid dissemination of information, thereby aiding the formal organization. For example, if A needs to talk to E about a problem, then in a formal structure it must follow a scalar series, which may delay finding a solution for it. Thus, he can discuss it at lunch, which reduces the length of communication.

(ii) Coordination:Through informal relationships, working people develop a sense of belonging to each other and to the organization. This also helps them at their place of work. It promotes coordination between them by developing mutual trust and understanding. Thereby, it helps in reducing the rate of collision between people. For example, if A and B are friends outside the office, they will work in coordination with each other at the workplace as well. (iii) Organizational objectives: Personal goals as well as informal relationships help in meeting organizational objectives as well. Managers can informally interact with workers and assess their reactions to various matters. They can ask workers their suggestions and ideas regarding inadequacies in the formal structure. So as to better contribute to the overall organizational objectives.

(iv) Harmonious environment: By developing healthy relationships, informal structure helps in creating a harmonious work environment. It encourages cooperation between people and maintains a peaceful environment at work. For example, if C and D dispute a case. They can discuss it outside the office and resolve it without harming the formal working environment. Thus, preserving the working environment. (v) Efficiency and productivity: Informal organizations increase efficiency among work personnel. Helps to increase their productivity, by contributing to their well-being. Such relationships help to meet the social and psychological needs of employees and thus, increase their efficiency.

5. Distinguish between centralisation and decentralisation.

Ans: Following are the differential factors between Centralisation and Decentralisation.

6. How is functional structure different from a divisional structure?

Ans: The following points highlight the difference between a functional structure and a divisional structure.