 Welcome learners to this session. In this session, we will study or we will discuss a topic of business organization. That topic is included in the become for semester business organization and business ethics. The unit 2 business organization discusses about different aspects of an organization. Let us move forward to this session. So first of all, what we mean by the term business? We use the term business, but what is the meaning? When we use the term business, it comes to our mind certain activities. These activities are related to production, sale, purchase, distribution, transportation, banking, warehousing, etc. So business when I use this term business, it refers to these different activities. Now the main objective of any of these activities that we have mentioned is profit earning. So if you can find the element or the objective of profit earning in a particular activity, then we generally term it as business. Another aspect associated with business is social responsibility. Business is not an organization to earn profit only as it is a social organization. It exists in the society, it must discharge certain responsibilities to the society. So business is basically performing on certain activities like production, purchase, sale, distribution, etc. And the main objective is to earn profit at the same time it has to discharge its responsibilities to the society. Let us come to the second term that is organization. What is organization? Simply organization is a group of people working to achieve a particular objective. So there are different people, they have come from different backgrounds, they have come from different places, but when we use the term organization, it refers to all those people who work together to achieve the common goal. So business organization, it is an organization performing activities related to production, distribution, sales, banking, warehousing, insurance, etc. And their common or the main objective is to earn profit to maintain their sustainability, to maintain their growth. Again when we use the term business organization, we can study it into defined aspects. In this particular session, we will discuss it in the terms of internal organization of business organization and the external organization of business organization. So we classify the business organization for better understanding into two aspects, the internal organization of the business organization and the external organization of the business organization. So let us move towards internal organization. In case of internal organization, it generally refers to the internal activities, internal structure of the organization. It means the people working there will have certain activities to perform, they will have certain relationships among them and accordingly they will work to achieve the organizational objectives that is the common objectives that they have set for their organization. So internal structure of the organization means the internal organization. And the business organization is internally structured in defined ways, we will discuss all these things. So it is described in terms of duties and responsibilities of the employees. So let us see this diagram. Here we have classified as superior and subordinate, superior is termed, we termed it as chief. Then at level 1 there are two subordinates, subordinate A and subordinate B. Again under subordinate A there are two more subordinates at level 2, subordinate A1 we named it as subordinate A1 and subordinate A2. Similarly under subordinate B at level 2 there is one subordinate that is subordinate B1. So this is the internal structure of the organization. So each people whether it is superior or subordinate will perform their duties as assigned and all these activities when performed will help in the achievement of the organizational objectives. Now when we refer to this term the internal structure or internal organization it will give us certain concepts to understand. Number 1 delegation of authority and responsibility. So in the diagram that we have mentioned the chief, the superior at the top level cannot perform all the activities of the organization. So he or she will delegate some of his authority, some of his responsibilities that will matched with the authority and responsibility to the next level that is in case of our diagram it is level 1. So the chief, the superior will delegate some authority and responsibility to subordinate A1 and subordinate B1. Again subordinate A1 will delegate some authorities and responsibilities to his subordinates at the level 2, subordinate A1 and subordinate A2. So in this way there will be delegation of authority and responsibility from the superior to subordinate. Secondly it will create the relationship between the superior and the subordinate. It will also depict the person to whom the subordinate will report means who will report to whom and it will also show the line of communication, how the communication will flow within the organization. So if we again consider the diagram that we have mentioned here the superior will delegate some of his authority, again he will delegate some of his responsibility so that the subordinate can perform the duties assigned. At the same time the subordinate at level 2, for example subordinate A1, how he will communicate? He will first communicate with his superior that is subordinate A at level 1. It is very rare that he will directly communicate to superior that is chief that we have termed. So the flow of communication will be if we consider as from bottom to top from subordinate A1 and subordinate A2 the communication will flow to subordinate A at level 1 and subordinate A from level 1 will communicate to the chief. Similarly, in case of subordinate B will communicate to his superior that is chief and subordinate B1 will first communicate to subordinate B that is superior or subordinate B1. So in this way the communication line will move from the top to bottom or from bottom to top. Now when we discuss about this internal organization there is another aspect that is very important that is coordination of the activities of the employees. If we again consider our picture our diagram the chief will coordinate the activities of his employees of his subordinates. So chief will coordinate the activities of subordinate A at level 1 and subordinate B at level 1. Subordinate A will coordinate the activities of subordinate A1 and subordinate A2. Subordinate B at level 1 will coordinate the activities of subordinate B1 at level 2. In this way all the activities will be coordinated by the chief. So these coordinated activities will help in achieving the overall objectives of the organization. So if there is no coordination even if they perform the activities it will be difficult for the organization to achieve the common goals. So the organization will move in the light of the overall objective and to achieve those objectives the chief, the superior have to coordinate the activities of his or her subordinates. So these objectives as you aware it may relate to profit maximization, wealth maximization, increasing market share, satisfaction of customers, etcetera, etcetera. In internal organization another aspect is very important let us discuss this. This is departmentation. Departmentation means it is compartmentalization. We divide the organization. So it is the process of dividing the activities of the organization into some groups. So all the activities will be identified and these activities will be grouped and that is known as departmentation. Perform the departments it may also be termed as divisions, etcetera. So let us discuss some of the facts about departmentation. When we talk about departmentation the activities that has to be divided must be of similar nature. The similar nature activities must be grouped under a particular group. Let us take an example. Suppose there are only two activities purchase and sale. We divided it in the departments of purchase department and sales department. Now purchase related activities will be grouped only under department of purchase not under the department of sales. Again suppose the activities of advertising and sales promotion that is under sales department will not be controlled or not be supervised by the purchase department. So there will be clear line of demarcation between the departments and the related activities. So who will perform what will be clearly known to everyone. Now how many departments will be created in the organization? The number of departments in an organization depends on the size of the organization, the requirement of the particular business organization. If the organization is a big one then the number of departments will be more as compared to a smaller organization where the number of departments will be less naturally. The third point regarding departmentation is it fixes accountability. So when we classify the activities of the organization and grouped it into particular departments and in each department there will be some employees and each employee will be interested with certain responsibilities, certain tasks that to be performed. So it helps in fixing the responsibility and accountability on a particular individual. That individual is responsible to perform that part of his or her work and that will be again coordinated by his or her superior as we have already discussed. In this way the activities will be broken down into smaller parts known as departmentation. Each individual employee will be assigned certain task that will be coordinated and it will lead to the achievement of organizational goals. So for better understanding we can consider the diagram that we have already mentioned. Here we have changed the names for superior we have termed it as chief manager and the departments are production department at level 1 and sales department at level 1. So there are two departments, we classify the activities of the organization into two departments production and sales. Now under production department there will be subordinate A1, subordinate A2 under sales department there will be subordinate B1. So here accountability will be fixed on subordinate B1 for example in case of sales department. So he is responsible for performing sales related activities and if he is not performed then the accountability will be fixed on him or her. Now let us discuss certain basis of departmentation means how we can departmentalized our organization, how we can classify the activities. Number one functional departmentation, functional departmentation means that departmentation will be done on the basis of the main activities of the organization that we have already discussed. So there may be a production department, there will be sales department, there will be finance department and there will be human resource department. So this is the departmentation based on the major functions of the organization that is why it is termed as functional departmentation. Number two product wise departmentation, so an organization may devise activities on the basis of the products that it produces or sales. So a company may departmentalize as products for baby, products for woman, products for men. So in this way we can departmentalize the activities of the organization on the basis of the product it produces. Third territorial departmentation, it means the organization will be departmentalized on the basis of the geographical areas where it has some business. So suppose a particular business organization have its business in the north eastern states. So accordingly it can divide its activities for the state of Assam, for the state of Manipur, for the state of Midyuram, for the state of Nagaland etc. So in this way the organization may departmentalize its activities. Third customer wise departmentation. So we can again classify our activities on the basis of some customer. For example, a car manufacturing company can classify its activities as passenger car or as commercial vehicle or four wheeler or two wheeler. So the customers of two wheeler, customers of four wheeler, customer of passenger car, customer of commercial vehicle will be different. On that basis the organization may classify its activities means their departmentation on the basis of customer that it serves. Process wise departmentation. Let us take an example. Suppose a person is going to a hospital for treatment. So what will be the process? First of all, he will take admission. Then there will be some test, there will be some health checkups and then there according to the need there may be some surgery and after that he will release from the hospital. So this is the process and accordingly the departmentation can be done on the basis of this process means admission will be a separate department, surgery will be a separate department, laboratory will be a separate department and discharge will be a separate department taking care of each and every process and lastly combined form of departmentation. So a particular organization may form its departments on the basis of the defined basis that we have discussed. It is generally happens in case of a very big organization having very large customer base spread over to different geographical areas and the customers are varied, products are varied. So they can combine the different forms or different basis of these departmentations and accordingly they will divide their activities to function smoothly. Now let us come to the different forms of internal organization. Number 1, line organization. Line organization clearly defines the superior subordinate relationship. As we have already discussed and shown in the diagram, the superior, the subordinate at level 1 and subordinates at level 2, this type of structure is known as line organization where superior directs give orders to his subordinates directly for implementation of the decisions. The second form of internal organization is staff organization. In case of staff organization, some specialists are appointed. The specialists provide guidance, provide advice to the line managers. However, it is not mandatory on the part of line managers to listen to every advice. The line managers are the executives, they execute the work. The staff managers, the staff organization, the staff provide advice to the line managers to implement the decision. Third, functional organization. So this is formed on the basis of the functions of the organization. So there will be departments, there will be, so there will be departments based on functions like production, sales, then human issues, finance, etc. Next form of internal structure is line and staff organization. Means it is a combination of line structure and staff organization. All these will be combined, line managers will implement the decision and staff managers will advise them in performing their activities. Project organization. So under this specialist will be put under a project manager. The specialist may come from different departments and they will be grouped and they will work under a project manager. Then committee form of organization is just similar to the project organization. In case of committee organization, some committee will be formed by taking into account the different persons from different departments. Then next task force. So again this will be created by forming a group of specialist from different special areas. Now let us move to the second aspect. That is the external organization of business organization. By external organization, we mean the legal or ownership form of the organization. You are aware about the different legal forms of business organization. Like soldier business, partnership, joint stock company, cooperative firm, state enterprise, public corporation, government company, government department, joint ventures, public private partnership etc. These are the external structures of a business organization. So we have different structures, different external structures and the business organization can start this business by choosing any of these parts. There are certain factors that have to be considered or that influence the decision what is choice of a particular form of business organization. Number one, requirements of capital. A business organization needs capital. If your business is small, the requirement of capital is less. If your business organization is very big, then requirement of capital will be more. So in case of requirement of capital is more, company form of organization is better than a soldier business. Because a soldier business is managed by a single person having limited source of capital. Then second aspect managerial and administrative requirement. If it is a small business, it can be managed by a soldier business or by the partners. But if it is a very large business, then the company form of organization is suitable because there will be separate persons to manage the day to day affairs of the company. But this is not possible for soldier business and partnership. They have to manage their own business. Then third one, liability. Liability as you are aware that in case of soldier business, the liability of the soldier is unlimited. That is his personal property may be utilized for paying business liabilities. Same is the case with partnership business. But in case of joint stock company, the liability of the shareholders is limited to the value of the shares that they have purchased. Then the fourth point is continuity. Joint stock continuity of a business depends on the soldier in case of soldier business. If the soldier or in case of partnership business, if the partner dies, then the business may be discontinued, the business may be stopped. But in case of joint stock company, it is a legal form of organization means it is an artificial person having his own identity. So the debt of shareholder will not affect the continuity of the business of a joint stock company. So this is the particular aspect. If soldier dies, there will be some problems in the continuity of the business. But in case of joint stock company, there will be no problem regarding the debt of a particular shareholder, the company will continue its business. Next one is tax liability. In case of joint stock company, the tax liability is more. The company will be charged as an individual as a corporate personality. So the tax liability will be more as compared to our soldier business or partnership business. Government regulations. In case of soldier and partnership business, there are very limited control or limited restrictions on the business from the government. Any person can start its business having very limited registration requirements. But in case of joint stock company, the requirements from the government is more. It have to get it registered with the register of companies, for this it have to prepare memorandum of association, articles of association, prospectors, etc. So there are the different documents that are required to be filled up with the register of companies before a company can start its business. Nature of business activities. Now nature of business activities also influence the choice of a business organization. If the scale operation is very small or the market is local, then soldier business and partnership form of business is suitable. But if the scale of operation is large and the market served is national market or international market, then the company form of organization is suitable for that kind of business. Relationship between ownership and management. In case of soldier business and partnership business, the owners or the managers, they manage their own business. In case of joint stock company, the ownership and management are two different aspects. The owners or the shareholders and board of directors manage the day to day affairs of the company. So owners do not take interest in the day to day affairs of the company. It is generally managed by the board of directors. Last one is information. The soldier business can be easily formed whereas a joint stock company requires various documents, various registration process to form. So depending on the business, the form of organization will be chosen. So learners, we have discussed in this lecture the different aspects regarding the organization. That is internal and external structure of a business organization. In case of internal organization, it creates the relationship between superior and subordinate. Shows the movement of information from one level to another level etc. And the external organization shows the suitable form of business organization depending on the different factors like soldier, partnership, joint stock company etc. So thank you very much. We will discuss some other aspects in some other lectures. Thank you.