Organising: Steps, Importance, Functional and Divisional Structures (ISC Class 12)
Updated 18 October 2026 · Fact-checked
Organising is identifying and grouping work, assigning duties and establishing authority and reporting relationships. Its steps are identification and division of work, departmentalisation, assignment of duties and establishing reporting relationships. A functional structure groups by functions and suits single-product firms; a divisional structure groups by products or markets, treats each division as a profit centre and suits large multi-product firms.
Understand Organising: Steps, Importance and Functional and Divisional Structures
1. Meaning. Organising is the process of identifying and grouping the work to be done, defining and delegating authority and responsibility, and establishing relationships so that people can work together effectively towards objectives.
2. Steps
1. Identification and division of work into manageable tasks.
2. Departmentalisation: grouping similar tasks into departments or units.
3. Assignment of duties to suitable persons according to skills.
4. Establishing reporting relationships: who reports to whom; authority and responsibility.
3. Importance
- Benefits of specialisation: repetition makes people efficient.
- Clarity in working relationships: avoids confusion and duplication.
- Optimum use of resources.
- Adaptation to change: structures can be modified.
- Effective administration: clear roles and authority.
- Development of personnel through delegation.
- Expansion and growth: new departments and positions can be added.
4. Functional structure. Activities are grouped by major functions (production, purchase, marketing, finance, HR), each under a functional head who reports to the chief executive.
*Merits*: specialisation; efficiency through repetition; easy control and coordination within functions; minimal duplication (economical); easy training. *Demerits*: functional heads may put their own department first; poor coordination across functions; inflexibility; hard to fix responsibility for overall results; unsuitable for diversification.
5. Divisional structure. Activities are grouped by products, services or markets into divisions, each having its own functional departments; each division acts as a profit centre.
*Merits*: product specialisation and managerial development; easy to fix responsibility for results; flexible, quick decisions; easy expansion by adding divisions. *Demerits*: duplication of functions and higher cost; conflicts between divisions over resources; divisional heads may ignore company goals.
6. Comparison
| Basis | Functional | Divisional |
|---|---|---|
| Grouping | Functions | Products or markets |
| Specialisation | Functional | Product |
| Responsibility for results | Hard to fix | Easy: profit centre |
| Cost | Economical | Costly (duplication) |
| Coordination | Difficult across functions | Easy within a division |
| Suitable for | Single-product, medium-sized firms | Large, multi-product firms |
7. Cost of duplication (imaginary). In a functional structure a firm has one finance head costing Rs 9,00,000 a year. With three divisions, each needs its own finance manager at Rs 6,00,000: 3 x 6,00,000 = Rs 18,00,000, which is Rs 9,00,000 more, the price paid for easy responsibility and flexibility.
Organising: Steps, Importance and Functional and Divisional Structures: key facts
- Steps
- Divide work
- Departmentalise
- Assign duties
- Reporting relationships
- Four steps.
- Functional structure
- Grouped by function
- Economical
- Hard to fix responsibility
- Single-product firms.
- Divisional structure
- Grouped by product or market
- Profit centres
- Costly
- Multi-product firms.
How to answer Organising: Steps, Importance and Functional and Divisional Structures questions
Questions describe an arrangement and ask for the step or the structure, or ask for merits, demerits and a comparison.
- 1Check how activities are grouped: by function or by product or market.
- 2If each group has its own functions and results can be measured, it is divisional.
- 3When merits are asked, write merits, not features.
- 4For comparison give at least four bases in a table.
Organising: Steps, Importance and Functional and Divisional Structures in real life
The idea, met in an everyday situation. Answer the question in your own words, then compare with the model answer. The one-line hook is what to remember.
Divisional structure
Suppose a group runs a hotel business, a travel business and a tea-estate business, each with its own purchase, sales and accounts staff, and each reporting its own profit.
Name the structure and one merit and one demerit.
Try it first, then show the solutionSolution
- Grouped by product with own functions: divisional.
- Merit: responsibility for results can be fixed on each division; demerit: functions are duplicated, raising cost.
Answer: Divisional structure; easy responsibility but higher cost.
Memory hook: Each division is a mini-business.
Functional structure
Imagine a small firm making one kind of bicycle with separate heads for production, purchase, sales and finance.
Name the structure and why it suits the firm.
Try it first, then show the solutionSolution
- Activities are grouped by function.
- A single-product firm gains specialisation and economy.
Answer: Functional structure; specialisation and economy for a single product.
Memory hook: Function groups like with like.
Tricks to remember Organising: Steps, Importance and Functional and Divisional Structures
Short memory aids. Say each one aloud once, then use it on a question the same day.
D-D-A-R
Divide, Departmentalise, Assign, Reporting relationships.
Use it when: Four steps in order.
Functional is cheap, divisional is clear
Functional saves cost; divisional fixes responsibility.
Use it when: Comparing structures.
Organising: Steps, Importance and Functional and Divisional Structures: solved examples
Ordered from board level to HOTS. Try each one before you open the solution.
Example 1: Identify the step · 1 mark · MCQBoard level
A hospital groups its work into surgery, pathology, pharmacy and administration departments. This is the step of:
(a) assignment of duties
(b) departmentalisation
(c) establishing reporting relationships
(d) control
Try it first, then show the solutionSolution
- Grouping similar tasks into units is departmentalisation.
Answer: (b)
Example 2: Merits of functional structure · 4 marks · Short answerBoard level
State two merits and two demerits of the functional structure.
Try it first, then show the solutionSolution
- Merit: specialisation and efficiency through repetition.
- Merit: economical, as there is little duplication.
- Demerit: poor coordination across functions.
- Demerit: hard to fix responsibility for overall results.
Answer: Merits: specialisation, economy. Demerits: poor coordination, hard to fix responsibility.
Example 3: Cost of duplication · 4 marks · Short answerHarder board level
A functional firm pays one finance head Rs 9,00,000 a year. On changing to three divisions it appoints one finance manager per division at Rs 6,00,000 each. Calculate the extra yearly cost and explain what the firm gains for it.
Try it first, then show the solutionSolution
- New cost = 3 x 6,00,000 = Rs 18,00,000.
- Extra cost = 18,00,000 - 9,00,000 = Rs 9,00,000 a year.
- Gains: each division is a profit centre, so responsibility for results can be fixed easily.
- Also quicker decisions and easier expansion by adding divisions.
Answer: Extra Rs 9,00,000; clearer responsibility and flexibility.
Example 4: Choose the structure · 4 marks · Short answerHarder board level
Suppose a company with 30 employees makes only leather belts, and another with 2,000 employees makes tyres, batteries and lubricants. Recommend a structure for each with two reasons.
Try it first, then show the solutionSolution
- Belt maker: functional structure; it makes one product, so specialisation and economy are gained without duplication.
- Second company: divisional structure; it is large and multi-product, so each product can be a profit centre with its own functions.
- Divisional also gives product specialisation and easy expansion.
- Functional would struggle to coordinate three products.
Answer: Functional for the belt maker; divisional for the multi-product company.
Example 5: Reorganise a growing firm · 8 marks · Long answerHOTS / competency
Suppose a firm that began as a single-product maker now sells five products in several regions. Its functional heads blame one another for losses, decisions are slow and no one can say which product loses money. Diagnose the problem and propose a reorganisation, with benefits and costs.
Try it first, then show the solutionSolution
- Diagnosis: the functional structure fails to fix responsibility for results, coordinates poorly across functions and is unsuitable for diversification.
- Proposal: divisional structure with one division per product or market, each with its own functional departments, working as a profit centre.
- Benefit 1: easy to fix responsibility for results.
- Benefit 2: quick decisions and flexibility; easy expansion by adding divisions.
- Cost 1: duplication of functions and higher cost.
- Cost 2: possible conflict between divisions over resources, so top management must link divisional goals to company goals.
- Follow the steps of organising: divide, departmentalise, assign duties and set reporting lines.
Answer: Move to a divisional structure; gains in responsibility and flexibility; costs of duplication and conflict.
Where students lose marks in Organising: Steps, Importance and Functional and Divisional Structures
The slips examiners see most often, and what to write instead.
Mistake: Writing features instead of merits
The chapter warns that merits are asked, not features.
Wrong working
Merit of functional structure: activities are grouped by function.
Right working
Merit: specialisation raises efficiency through repetition.
Do this: A merit states the benefit.
Usually costs: 1-2 marks.
Mistake: Calling departmentalisation 'division of work'
They are the first two different steps.
Wrong working
Grouping tasks into departments is division of work.
Right working
Dividing work into tasks is step one; grouping similar tasks into units is departmentalisation.
Do this: Divide first, group second.
Usually costs: 1 mark.
Mistake: Saying divisional structure is economical
Functions are duplicated.
Wrong working
Divisional structure is cheaper.
Right working
Divisional structure is costlier because each division has its own functions.
Do this: Divisional: costly.
Usually costs: 1 mark.
Exam tips
- Learn four steps with one line each.
- Use a table of six bases to compare structures.
- Do not write features when merits are asked.
- Name the structure from how the activities are grouped.
Practice questions on Organising: Steps, Importance and Functional and Divisional Structures
Write each answer on paper first. Open the hint only if you are stuck, and the answer only when you have finished.
Q1 · 1 mark · Very short answerBoard level
Name the structure in which each division acts as a profit centre.
Hint
Product groups.
Answer
Divisional structure.
Q2 · 2 marks · Short answerBoard level
State two points showing the importance of organising.
Hint
Specialisation and clarity.
Answer
Benefits of specialisation and clarity in working relationships (also optimum use of resources, adaptation to change, effective administration, growth).
Q3 · 2 marks · Short answerHarder board level
Why are functional heads in a functional structure sometimes criticised?
Hint
Own department first.
Answer
They may give priority to the interest of their own department over the whole organisation, which harms coordination across functions.
Q4 · 4 marks · Short answerHarder board level
A firm has one marketing head costing Rs 7,50,000 a year. On adopting four divisions, each hires a marketing manager at Rs 5,00,000. Calculate the extra cost and identify the demerit shown.
Hint
Four times the new cost.
Answer
New cost = 4 x 5,00,000 = Rs 20,00,000. Extra = 20,00,000 - 7,50,000 = Rs 12,50,000. The demerit is duplication of functions, which raises cost.
Q5 · 4 marks · Short answerHOTS / competency
Suppose a manager says, 'A divisional structure is always better because responsibility is clear.' Evaluate the claim.
Hint
Cost and suitability.
Answer
The claim is too strong. Divisional structure suits large, multi-product firms and fixes responsibility, but it duplicates functions and costs more, and can cause conflict between divisions. A single-product, medium-sized firm is better served by the economical functional structure.
Test your recall
Answer in your head or on paper first, then open the card. Pulling an answer out of memory makes it stick far better than re-reading.
1.What is departmentalisation?Show answer
Grouping similar tasks into departments or units.
2.For which firms is a functional structure suitable?Show answer
Single-product, medium-sized firms.
3.Name one demerit of divisional structure.Show answer
Duplication of functions and higher cost.
4.What is a profit centre?Show answer
A division whose results can be measured separately.
Organising: Steps, Importance and Functional and Divisional Structures: frequently asked questions
Can a firm use both structures?
Large firms often use divisional structure with functional departments inside each division.
Which step assigns duties?
Step three, assignment of duties according to skills.
Why is organising important for growth?
New departments and positions can be added easily to a clear structure.