An 

organizational structure is a system that outlines how certain activities are directed in order to
achieve the goals of an organization.

An organizational structure defines how activities such as task allocation, coordination, and supervision
are directed toward the achievement of organizational aims. Organizational structure affects
organizational action and provides the foundation on which standard operating procedures and routines
rest.

Factors considered in formulating structure:

Strategy

The best approach to organizational design tailors it to a company's strategic plans. The plans,
meanwhile, follow from a company's vision, which itself follows from the company's mission. Mission is
a business' reason for being -- its purpose. Vision is a company's ultimate accomplishment, the
realization of the mission. All strategy tries to fulfill the vision, and the organizational structure should
support that effort. For instance, a company that has decided to expand to overseas markets might
organize itself into geographical divisions. Changes in strategy call for an updated structural design.

Environmental Factors

The business environment that employees work within cannot be ignored by organizational designers.
An unpredictable, rapidly changing environment demands flexibility, adaptability and interdepartmental
cooperation. In such a situation, a rigid, mechanized structure would stifle the agility and
responsiveness of staff. Designers can instead build an organic, horizontal structure, which flattens
management levels and decentralizes decision-making. A stable environment, meanwhile, allows for
the controls, well-defined tasks and centralized authority found in the mechanistic structure with its
vertical tiers of increasing power.

Company Size

Small businesses with few people often have an overlap of roles, behave informally and don't write a lot
of rules. Since this organization arises organically, it would be a mistake to try to overlay a formal,
mechanistic structure on it. Doing so would be an exercise in futility. Also, the unnecessary
bureaucracy could get in the way of operations. Large organizations need more control and oversight.
A mechanistic structure creates clear accountability and responsibility and is, therefore, suitable for
companies with many employees.

Company Age

At the beginning of a company's life, its small size allows the organic structural qualities that encourage
flexibility and responsiveness. As it matures and expands, a company begins to mechanize, adding
rules, policies and procedures; closely defined tasks; extensive internal systems of control and
command chains. In short, maturity gives rise to bureaucracy. The older the company, the more likely
the bureaucracy has become unwieldy, presenting a barrier to innovation, adaptability and quick
reactions. Organizational design should factor in the extent to which an older company needs to
restructure itself to reduce its mechanized structure.

Structural Designs

Structural designs have pros and cons, so designers should consider the structural design carefully.
Two common structures are the functional and divisional structures. The functional structure creates
departments according to business activities, such as production, marketing and finance. Having
activities so grouped increases efficiency but can lead to barriers between departments. The divisional
structure groups people according to product, customer or geography, in effect creating small
companies with their own marketing, finance and production capabilities. This makes divisions focused
and responsive, but duplicates business activities between divisions and within the company as a
whole.

1. Strategy:

Strategy determines a course of action to direct the organisational activities. It makes plans to co-ordinate
human and physical resources to work towards a common objective. It defines a course of action through
which organisation can align its activities with the environment, in order to achieve its goals. Strategy is a
pre-requisite to organisation structure and also follows it.

The relationship between strategy and organisation structure is depicted as follows:

Strategies are made to achieve organisational goals by designing the desired organisation structure.
Strategy and organisation structure are closely related to each other. When a strategy is framed to
achieve the organisational goal, the organisation structure is designed to suit the strategy framed.
Organisation structure helps in implementing the strategy. The structure is, thus, a means to the end (the
objective desired to be achieved through the strategy.)

The organisation structure, thus, follows the strategy. Changes in strategy are followed by changes in the
organisation structure so that new strategy can be effectively implemented. If not so done, there will be
behavioural and administrative problems in achieving the objectives with the existing organisation
structure.
However, the new structure is designed only if the existing structure cannot achieve the objectives with
the new strategy. The re-designing of structure, thus, follows only if there are problems which affect
profitability of the organisation.

The structure following the strategy, thus, follows the following sequence:

1. Creation of new strategy.

2. New administrative problems in executing the new strategy with the existing organisation structures.

3. Decline in organisational performance.

4. Change in the organisation structure.

5. Effective strategy execution resulting in improved organisational performance.

The structure is, thus, designed according to the need of the strategy and, therefore, follows it. Strategy is
pre-requisite to the organisation structure. Strategy also follows the organisation structure. Organisation
structure also affects the choice of strategy.

The structure is designed by the top management keeping in view the organisational goals and the
environmental (internal and external) variables which will affect these goals. Within the confines of these
goals and the environmental variables, the strategy is designed suitable to the organisation structure.

The strategy and organisation structure are, thus, interdependent. One depends on the other for effective
attainment of the organisational goals. Strategies to diversify product lines or markets require
decentralised organisation as decision-making is done at wider level and strategies for organisations
working in stable environment where managers do not diversify their operations require a centralised
organisation structure.

As the organisation moves from small size, single product company where decision making is centralised
to a larger structure diversified into multiple products where departmental heads are appointed who
specialise in managing their functional areas to further decentralised structures which allow decisions to
be taken at the level where the problem arises rather than reporting them to the departmental heads, the
firms adopted the strategy of changing the organisation strategy, that is, moving away from the functional
structure to divisional structure.

2. Technology:
The technology for manufacturing also affects the organisation structure. The effect of technology on
organisation structure was studied by Joan Woodward in her research of 100 firms in London.

Types of technology:
(a) Mass production technology:

This technology is used for producing same products at a mass scale, for e.g., manufacturing
automobiles. The products are stocked and assembled differently for different customers. They are by
and large standardised but lie within the range of standardisation that is suitable to the needs of
customers.

Though homogeneous, they are heterogeneous based on the way they are assembled. Cars, for
example, use mass production technology but same brand sells in different models (LX, VX, AX etc.) to
meet the needs of heterogeneous customers.

(b) Continuous production technology:

This technology is used where inputs are transformed into outputs in a continuous process, for e.g.,
production of pharmaceuticals or paper. Most of these processes are automated and, therefore, require
very few workers. Goods are produced in anticipation of demand and production techniques are primarily
standardised and automated.

(c) Unit or small-scale production technology:

This type of technology is used to manufacture goods which meet the constantly changing consumer
preferences, for e.g., garments. Goods are heterogeneous and produced in small quantities with
individual production runs. Customer orders, where separate production runs are required to meet their
demands utilize small batch or unit technology.

In case of mass production technology, mechanistic organisation structure is more appropriate because
mass production technologies involve standardisation and specialisation of work activities. In case of
mass-production technology, activities of departments and individuals are inter-dependent.

Work groups (individuals and departments) are specialised in their activities (as in case of manufacture of
automobiles) and, therefore, horizontal relationships amongst them are more important than the vertical
relationships. Departments focus more on departmental goals than the overall goals so that top managers
have to exercise control from the top. The focus is on hierarchy and, thus, a mechanistic organisation
structure.
In case of continuous production or small-scale production technology, the appropriate form is organic
structure because continuous or unit production technologies require low levels of standardisation and
specialisation.

In case of unit production technology, work performed by different individuals or groups is not inter-
dependent and, therefore, coordination required amongst their activities is also not huge. People perform
tasks according to their skills and there is no hierarchy of command. The organic structure is, thus,
suitable for unit production technology.

 3. People:

People are important organisational asset or resource and greatly affect the design of organisation
structure. Both superiors and subordinates, their behaviour patterns, ways of thinking, needs and
motivators desired to satisfy those needs affect the organisation structure. Organisation has to be a
source of satisfying people’s individual needs so that people also satisfy organisational needs.

Organisation structure has to be encouraging and need satisfying so that cordial behaviour patterns are
observed at the work place. Different people in different organisations have different needs and
organisation structure should be suitably designed to meet the needs of maximum number of people.

People can affect organisation structure in the following ways:

(a) Top management philosophy regarding organisation’s interaction with the environment, competitors’
policies, type of industry, autonomy to subordinates for decision making, faith in subordinates’
competence to make decisions affect the structure of the organisations.

If top managers feel that subordinates are committed, have the decision-making ability and strong
communication network, they prefer to adopt the organic structure. If they feel that subordinates have low
decision-making ability and are not highly committed to work, that is, belong to Theory X assumptions of
McGregor’s theory, they would prefer mechanistic organisation structure.

(b) Skills and need satisfaction of employees largely affects the organisations structure. If people are
skilled, experienced and motivated to satisfy their higher-order needs, organic structure is more
appropriate. If people are unskilled and inexperienced, mechanistic or classical form of organisation
structure is more suitable. Skilled people are more professional and involved in their jobs.

They have a sense of individuality and prefer to work in an environment of achievement and recognition.
Organic structure is conducive to satisfy their need for autonomy and participative decision-making.
Organisation structure defines work, groups it into departments and appoints people to run those
departments. People at different jobs must have the skill, knowledge and efficiency to accomplish the
related tasks.

4. Tasks:

Tasks are the activities performed by people which transform organisational plans into reality.

Various task characteristics are:

(a) Skill variety:
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It is the extent to which creativity and variety of skills and talent are required to do a task. People with high
degree of task varieties (for example, a dress designer) perform tasks that increase their intellectual
ability and give them high job satisfaction.

(b) Task identity:

Task identity determines whether to produce a product in whole or in parts. When a product is produced
as a whole, it has greater task identity. People performing tasks with high task identity (for example, a
computer programmer) perform various job functions related to that task from beginning to the end, derive
job satisfaction out of their work and feel motivated to repeat those tasks.

(c) Task significance:

The importance of task affecting the well-being or lives of people inside and outside the organisation
determines significance of the task. People performing tasks with high task significance, i.e., tasks which
positively affect the well-being and safety of others (for example, traffic police inspector), feel satisfied
with their job and perform work of high quality and esteem.

(d) Autonomy:

Whether or not an individual plans the task on his own determines autonomy of the task. It determines the
extent to which a person enjoys the freedom of performing various job activities and determines the
procedure to carry them out.
People who are responsible for all the functions and schedules related to a job (for example, a project
manager) hold accountability for that job and enjoy greater autonomy with respect to that task and derive
greater job satisfaction.

(e) Feedback:
It is the information that people receive about successful completion of their task. It enables a person to
know effectiveness of his job performance through superiors, peers or subordinates. People who have
quick feedback on the job perform better in future.

Organisation structure should be designed in a manner that people perform jobs with high degree of all
the five task characteristics. It should provide job satisfaction and motivation to perform high quality work.
This will reduce labour turnover and absenteeism.

Organisations where people perform activities with high task characteristics are designed according to
organic structures and organisations where activities have low task characteristics are designed on the
basis of mechanistic structures. Managers analyse these task characteristics so that right task can be
assigned to the right person. This promotes superior-subordinate relationships and, thus, organisational
productivity.

 5. Decisions:

Questions like who makes decisions – top level or lower-level managers, how does information flow in the
organisation for decision-making affect the organisation structure. Centralized decision-making powers
give rise to mechanistic structures and decentralized decision-making processes give rise to organic or
behavioural structures.

Decisions can broadly be grouped into two categories:

Programmed decisions and Non-programmed decisions. Decisions related to structured situations, where
the problem is more or less routine and repetitive are known as programmed decisions. Managers
depend on pre-established criteria for taking decisions.

Various policies, schedules and procedures guide these decisions and, therefore, policies and procedures
should be as clear as possible. Since decisions are based on pre-defined standards, they do not require
much of brain storming and are taken normally by middle and lower-level managers.

Such decisions usually support mechanistic structures. Non-programmed decisions are taken in
unstructured situations which reflect novel, ill-defined and complex problems. The problems are non-
recurring or exceptional in nature. Since they have not occurred before, they require extensive
brainstorming. Managers use skills and subjective judgment to solve the problems through scientific
analysis and logical reasoning.

These decisions involve fair degree of uncertainty since outcomes of decisions are not always known.

As we move up the organisational hierarchy, the need for taking non-programmed decisions increases.

Such decisions usually support organic structures.

Environment of decision-making represents the known and unknown environmental variables in which
decisions are made. Some decisions are taken in situations of complete certainty and others in the
situation of complete/partial uncertainty.

In the environment of certainty, mechanistic organisation structures are more suitable and in environment
of uncertainty, organic structures are more suitable as clear lines of hierarchy cannot support decision-
making in risky/uncertain environment conditions. It requires free flow of communication amongst
members of the organisation at various levels.

 6. Informal Organization:

Informal organisations are an outgrowth of formal organisations. Social and cultural values, religious
beliefs and personal likes and dislikes of members form informal groups which cannot be overlooked by
management. P.J. Stonich rightly puts it, “where the organisation design specifically attempts to frustrate
part of the informal organisation, harmful conflict may result”.

Where informal relationships between organisational members are recognised, organic structure is
appropriate. Mechanistic structure is preferred where formal relationships are dominant forces of decision
making.

7. Size:

A group known as Aston Group conducted research on firms of different sizes and concluded that as
firms increase in size, the need for job specialisation, standardisation and decentralisation also increases
and organisations are structured accordingly.  
Which increase in size, the organisation moves from organic to a more formal or mechanistic structure.
Small-sized organisations have better coordination, control, communication and interaction is limited to
small groups of people.

There is less need for formal structures and, therefore, it supports the organic structure. Large-sized
organisations have more formal reporting relationships amongst the members and, thus, a formal control,
co-ordination and communication system is supported by a mechanistic structure.

8. Environment:

Organisation structure cannot ignore the effects of environment. Organisations must adapt to the
environment, respond to environmental opportunities and satisfy various external parties such as
customers, suppliers, labour unions etc..

Organisations are part of the environment and cannot survive without active interaction (input-output
conversion) with the environment. However, depending upon the degree of interaction, organisations may
be more or less open systems. More the interaction, more open are the systems. The nature of
environment (stable or dynamic) largely affects the structure of the organisation.

In stable environment where people perform routine and specialised jobs which do not change frequently,
a closed or mechanistic organisation structure is appropriate. In the changing and dynamic environment
where rules, regulations and technology are constantly changing, where jobs are constantly restructured,
and where communication flows freely in all directions, organic structure is more appropriate.

 9. Managerial Perceptions:

Organisations where top managers perceive their subordinates as active, dynamic and talented
entrepreneurs prefer organic form of structure. If they hold negative opinion about their subordinates, they
prefer mechanistic organisation structure.

Types:

1. Hierarchical structure

In a hierarchical organizational structure, employees are grouped and assigned a supervisor. It is

the most common type of organizational structure. Employees may be grouped together by their
role or function, geography or type of products or services they provide. This structure is often
depicted as a pyramid because there are multiple levels or authority with the highest level of leadership at
the top, their direct employees below them and so forth.
Benefits of this type of structure include:

 Establishing clearly defined levels of authority

 Promoting teamwork and department loyalty

 Fostering employee development and promotion opportunities

Potential disadvantages include:

 Limiting collaboration
 Restricting innovation

 Creating bureaucracy that must be managed

2. Functional structure

In a functional structure, the organization is divided into groups by roles, responsibilities or

specialties. For example, within an organization you may have a marketing department, finance
department and sales department with each overseen by a manager who also, has a supervisor that
oversees multiple departments. A functional structure can be beneficial because departments can trust
that their employees have the skills and expertise needed to support their goals.

Benefits of this type of structure include:

 Establishing clearly defined roles and expectations

 Facilitating improved performance and productivity

 Allowing for skill development and specialization

Potential disadvantages include:

 Creating barriers, or silos, between functions

 Limiting employees’ communication and knowledge with other departments

 Inhibiting collaboration and innovation

3. Matrix structure

The matrix organizational structure resembles a grid in which employees with similar skills are
grouped together and report to more than one manager. This often includes a functional manager
who oversees projects and their progress and a product manager who is responsible for the company's
strategy and success regarding product offerings. The matrix structure is typically used by large,
multinational organizations and promotes the sharing of skills and knowledge across departments to
complete goals.

Benefits of this type of structure include:

 Enabling a flexible work environment

 Fostering a balanced decision-making process

 Promoting open communication and shared resources across the business

Potential disadvantages include:

 Creating confusion about authority

 Tracking budgets and resources can be difficult

 Limiting efficiency of key performance indicators (KPIs)

4. Flat structure

In a flat organizational structure, most levels of middle management are removed so there is little
separating staff-level employees from upper management. Employees are given more
responsibility and decision-making power without the usual hierarchical pressures or supervision
and can often be more productive. This type of structure is mostly used by small companies and early-
stage start-ups because they often have fewer employees and projects to manage. It may also be
referred to as a “horizontal structure.”

Benefits of this type of structure include:

 Reducing budget costs due to lack of middle management

 Building relationships between staff and superiors

 Facilitating a quicker, easier decision-making process

Potential disadvantages include:

 Requiring extensive planning to be effective

 Causing confusion over who makes decisions

 Requiring contingency plans to resolve conflicts

5. Divisional structure

In a divisional structure, organizations are split into divisions based on specific products,
services or geographies. For this reason, this structure is typically used by large companies that
operate in wide geographic areas or own separate, smaller companies. Each division has its own
executive leadership, departments and resources. For example, a large software company may separate
its organization based on product type, so there's a cloud software division, corporate software division
and a personal computing software division.

Benefits of this structure include:

 Allowing divisions to work independently

 Meeting individual divisions' needs more quickly and specifically

 Promoting focus of specific products or services

Potential disadvantages include:

 Scaling limitations
 Duplicating resources or activities
  Decentralizing decision-making

6. Network structure

In a network structure, managers at an organization will coordinate relationships with both

internal and external entities to deliver their products or services. For example, a retail company will
just focus on selling clothing items but will outsource the design and production of these items in a
partnership other companies. This structure focuses more on open communication and relationships than
hierarchy.

Benefits of this type of structure include:

 Giving the organization more agility and flexibility

 Allowing the core company to focus on what it's best at

 Helping lower costs through outsourcing

Potential disadvantages include:

 Duplicating services and resources

 Creating confusion about specific roles and job functions

 Growing too complex and difficult to manage

7. Line structure

In a line structure, authority within the organization flows from top to bottom and there are no specialized
or supportive services. It is one of the simplest types of organization structure. The organization is
typically divided into departments that are overseen and controlled by a general manager, and each
department has its own manager with authority over its staff. The departments work independently to
support the organization's primary goal.

Benefits of this type of structure include:

 Fostering effective communication and stable environment

 Providing clearly defined responsibilities and lines of authority

 Adapting easily to changing conditions or situations

Potential disadvantages include:

 Limiting specialization
 Becoming rigid and inflexible

 Giving too much power to a manager

8. Team-based structure

In a team-based organizational structure, employees are grouped into skills-based teams to work on
specific tasks while all working toward a common goal. Often, this is a flexible structure that allows
employees to move from team to team as they complete projects. This structure focuses on problem-
solving and employee cooperation.

Benefits of this type of structure include:

 Helping streamline an organization's processes by breaking down silos

 Enabling more decision-making power with minimal management

 Increasing flexibility by focusing on experience instead of seniority

Potential disadvantages include:

 Decreasing organization consistency

 Limiting contact with other functions

 Increasing potential for conflict

9. Circular structure

A circular organizational structure relies on hierarchy to depict higher-level employees within the
inner rings of a circle and the lower-level employees along the outer rings. Seated at the center of
the organization, leaders do not send orders down the chain of command, but rather outward.
While many of the other structure types contain different departments that work independently with
individual goals, this structure removes that strict separation and looks at the bigger picture with all
departments being part of the same whole.

Benefits of this type of structure include:

 Encouraging communication across all levels of staff

 Promoting free flow of information across the business

 Collaborating amongst departments, rather than separation

Potential disadvantages include:

 Causing confusion over who to report to

 Requiring more resources and training

 Causing slowdown in decision-making

10. Process-based structure

In a process-based structure, the organization is designed around the flow of its processes and how the
duties performed by its employees interact with one another. Instead of flowing from top to bottom, this
structure outline services from left to right.

An executive at the top of the structure oversees the departments below, which represents the different
processes, but each process cannot start until the one before it has finished. And each department will
have its own management and team working to fulfill their duties so that the business can move onto the
next task and eventually reach its ultimate goal, such as selling a product to consumers.
Benefits of this type of structure include:

 Improving business' efficiency and speed

 Encouraging teamwork between departments

 Adapting easily to meet industry changes

Potential disadvantages include:

 Erecting barriers, or silos, between groups

 Limiting communication
 Requiring more resources to achieve process optimization

Meaning of Division of Labour:

Division of Labour means that the main process of production is split up into many simple parts and each
part is taken by different workers who are specialised in the production of that specific part.

Now, a day’s production has become so technical and complex that different workers are put to different
tasks according to their capacity and ability.

One becomes specialised in the production of those goods for which he or she is best suited.

Different workers perform different parts of production on the basis of their specialisation. The result is
that goods come to the final shape with the co-operation of many workers. For example – In a large scale
readymade garment factory, a man does cutting of cloth, the second man stiches clothes with machines,
the third buttons, the fourth makes folding and packing etc.

This way of doing the work is called division of Labour, because different workers are engaged in
performing different parts of production.

Definitions of Division of Labour:

(1) In the words of Prof. Watson – “Production by Division of Labour consists in splitting up the productive
process into its component parts, concentrating specialised factor on each sub-division and combining
their output into particular forms of consumption output required.”

(2) According to Hanson – “Division of Labour means specialisation of process.”

(3) According to Chapman – “The specialisation of works is called Division of Labour.”

Essential Conditions or Pre-Requisites of Division of Labour:

(1) Wide Market:

It is the opinion of the economists that Division of Labour will function well and its success depends on
wide market. If there will be small market Division of Labour will not develop much. Division of Labour is
mostly found in big factories, where commodities are produced on a large scale only then it will be
possible to split up the job into different processes and to assign process to a different set of workers.

(2) Large Scale Production:

For the complete success of Division of Labour the goods must be produced on large scale. When there
is large scale production more labourers will be employed and then Division of Labour will be possible in a
nice way.

(3) The Quantity of Capital Available:

Sufficient capital is needed for a successful and better Division of Labour. Shortage of capital and money
not available on time may help the company not to go for Division of Labour.

(4) Nature of Demand:
Some industries are of such nature that it is not possible to split up the work into distinct and separate
processes. Here also the scope of Division of Labour is limited. Possibility of splitting up production is
essential for Division of Labour.

(5) Organising Ability:
Division of Labour involves the employment of a large number of workers in one factory. To handle them
properly and to assign to each worker a suitable job requires judgment of human nature of a high order.
Hence, the entrepreneur must have the necessary ability to organise production on a large scale.

(6) Spirit of Co-operation:
If the workers are not co-operative. They are quarrelsome and cannot work together amicably, Division of
Labour is out of question. There must be a spirit of co-operation, a spirit of compromise and a team spirit
should exist. Without the spirit of give and take, Division of Labour cannot be introduced.

(7) Laws of Increasing Returns:

Where the law of increasing returns prevails, the possibilities of Division of Labour are greater, because
production will be on a large scale.
(8) Availability of More Labour and Capital:
Division of Labour implies large scale production. Large number of workers is needed. Further Division of
Labour and use of machinery go together, large amounts will have to be spent on machinery. If the
required number of labour and capital are not forthcoming, Division of Labour cannot be extended and
cannot be possible to the required extent.

(9) There should be Development of Means of Transport and Communication:

For the success of Division of Labour means of transport and communication must be developed. If there
is development of means of transport raw-materials can be easily available and finished goods can be
sent outside for sale.

Different Forms of Division of Labour:

There are four forms of Division of Labour, They are:

1. Occupational or Simple Division of Labour.

2. Division of Labour into complete processes or complex Division of Labour.

3. Division of Labour into sub-processes or incomplete processes.

4. Territorial or geographical Division of Labour.

1. Occupational or Simple Division of Labour:

This means division of people in society according to occupations or trades. In this each individual takes a
particular type of occupation for which he is best suited. Thus, in a community some are teachers, some
are doctors, some are merchants, brokers and soon. When the whole work of a particular production is
carried on by the same worker, it is called a Simple Division of Labour.

2. Division of Labour into Complete Processes Or Complex Division of Labour:

When the entire work in production of a community is divided into different processes and each process is
allotted to different persons it is called “Process Specialisation”. Under process specialisation there is
division and each division or process is undertaken by one person, the Division of Labour so implied is
termed as “Complex Division of Labour”.

Modern Mass Production is based on such Complex Division of Labour. For example—Shoe-making in a
modern shoe factory involves Complex Division of Labour, where the upper portion of the shoe are
prepared by one group of workers, while bottom portion are prepared by another group, stitching work by
a third group and polishing, finishing etc. by a fourth group of workers.

In fact it may be noted that in a modern shoe making factory there are many processes, performed by
different workers on different machines. This is the real Division of Labour which aims at increasing
output.

3. Division of Labour into sub-processes or into Incomplete Processes:

When the complete processes are divided into sub-processes and then the work is completed then it is
called Division of Labour of sub-processes. Here one process is incomplete without the help and co-
operation of other process. This is also called “Personal Division of Labour.”

4. Territorial or Geographical Division of Labour:

This is also known as “Localisation of industries”. Under this when a particular place or region is
specialised in a particular industry or in the production of a particular commodity, it is called territorial or
geographical Division of Labour. For example—Hosiery at Ludhiana, Cotton Textiles in Ahmedabad and
Bombay, Jute Industry in Kolkata etc.

Advantages of Division of Labour:

Advantages of Division of Labour can be divided under the following heads:
1. Advantages to Producers.

2. Advantages to Consumers.

3. Advantages to Labourers.

4. Advantages to Nation,

Advantages to Producers:
Producers can derive following advantages from Division of Labour:
1. Increase in Production:
With the adoption of Division of Labour, the total production increases. Adam Smith has written in his
book that the advantage of Division of Labour can be ascertained when a worker can produce only twenty
pins daily. If the making of pins in a modern factory is divided in various processes, then eighteen workers
can produce 20,000 pins in a single day.

2. Reduction in the Cost of Production:

Division of Labour increases production which reduces the average cost of production. Saving of capital
tools and machinery etc. also help in the reduction of cost of production.

3. Maximum Utilisation of Machinery:

The Division of Labour is the result of the large scale production which implies more use of machines. On
the other-hand, the Division of Labour increases the possibility of the use of machines in the small-scale
production also. Therefore, in modern times the use of machines is increasing continuously due to the
increase in the Division of Labour.

4. Large Scale Production:

Due to use of plant and machinery under Division of Labour production starts increasing which results in
less cost of production. Less cost of production increases profit to producer.

5. Saving of Time:
There is no need for the worker to shift from one process to another. He is employed in a definite process
with certain tools. He therefore goes on working without loss of time, sitting at one place. Continuity in
work saves time and helps in more production at less cost.

6. Encouragement to Inventions:
In Division of Labour each work is divided into small parts which helps much in the invention of new
things. In this connection Robbin’s has said—”By Division of Labour the work is divided in small divisions
which helps much in new inventions.”

7. Production of Goods of Superior Quality:

Division of Labour is beneficial in making goods of superior quality. When the worker is entrusted with the
work for which he is best suited he will produce superior quality goods.

8. Best Selection of the Workers:

Division of Labour helps the producers in the best selection of workers. As the work is divided into
different parts and each part is taken up by such a worker who is more suitable for it, the producer can
select very easily the man who is best suited for the work.

9. Increase in Profit:
Division of Labour gives more profit to the producer of the goods as the cost of production of the
commodity diminishes.
Advantages to Consumers:
Following are the advantages which consumers get from Division of Labour:
1. Availability of Commodities at a Cheaper Price:
Division of Labour helps in mass production. Thus, production becomes less expensive and more
economical. Therefore, cheaper goods are produced by manufacturers. Availability of cheaper goods for
consumers improve the standard of living of the consumers and the people.

2. Better Quality of Commodities:

Division of Labour implies splitting up of production into a number of processes. Each person is given the
job for which he is best suited. There will be no round pegs in sequence holes. In this way, a right man is
placed at the right job which helps in getting better quality of commodities.

3. Increase in Consumer’s Satisfaction:

There are always the wishes of consumers to get best quality of goods at lesser price. Under Division of
Labour consumer gets new quality goods at reasonable price which gives maximum satisfaction to
consumers.

Advantages to Labourers:
Labourers get following advantages from Division of Labour:
1. Increase in Efficiency of Labour:
With the Division of Labour a worker has to do the same work time and again, and he gets specialisation
in it. In this way, the Division of Labour leads to a great increase in efficiency.

2. Increase in Skill:
Division of Labour contributes to the development of skill to a great extent. Because with the repetition of
the same type of work, he becomes well versed and specialized in it. This specialisation enables him to
do the work in the best possible way, which improves his skill.

3. Increases Mobility of Labour:

Division of Labour facilitates greater mobility of labour. Here the production is split up into different parts
and a worker becomes trained in that very specific task in the production of the commodity which he
performs time and again. He becomes professional, which leads to the occupational mobility. On the
other hand, Division of Labour implies a large-scale production and labourers come to work from far and
near. Thus, it increases geographical mobility of labour.

4. Increase in Employment Opportunities:

Division of Labour further leads to the diversity of occupations which further leads to the employment
opportunities. On the other hand, the scale of production being large, the number of employment
opportunities also increases.

5. Best Use of Tools:

In this system, it is not necessary to provide each worker with a complete set of tools. He needs a few
tools only for the job in which he can make their best use. Therefore, the continuous use of tools is
possible which are used at different stage.

6. Work According to Taste:

Generally, it has been seen that workers have their own taste in production. For example – A person can
take up that type of job for which he considers himself to be the most suitable and which is in accordance
with his taste. Division of Labour extends the work to such an extent that every person can find work
according to his taste and interest.

7. Saving of Capital and Tools:

Division of Labour helps in the saving of capital and tools. It is not essential to provide a complete set of
tools to every worker. He needs a few tools only for the job he has to do. Thus, there is the saving of tools
as well as capital. For example – A tailor stitches the shirt; he requires a sewing machine, scissors etc.
But on the basis of Division of Labour one can do the cutting and the other can stitch the clothes. In this
way two tailors can work with the help of one pair of scissors and one machine only.

8. Saving of Time and Expenses in Training:

Under Division of Labour a worker has to train himself in a small part of production. There is no need to
learn the complete process of production. It ensures saving of time as well as expenses in training.

9. Development of International Trade:

Division of Labour increases the tendency of specialisation not only in the workers or industries, but in
different countries also. On the basis of specialisation, every country produces only those goods in which
it has a comparative advantage and imports such goods from those countries which have also greater
comparative advantage. Therefore, Division of Labour is beneficial for the development of international
trade also.

10. Spirit of Co-operation among Worker:

Division of Labour gives chances of working under the same roof and with the co-operation of each other.
It further gives rise to the feeling of co-operation and trade unionism in their daily lives. The work cannot
be completed unless they co-operate with each other. They help each other at the time of adversities as
well.

Advantages to Nation:
Nation also is benefitted with the Division of Labour, Important advantages are:
1. Full Utilisation of Natural Resources:
Division of Labour in the country helps much in the full utilisation of natural resources, because large
scale production is carried on.

2. Increase in the Number of Efficient-Organizers:

Division of Labour helps much in the earnings of profit, therefore, in India entrepreneurs are investing
money and are helping organisation to establish well-equipped company.

3. It is an Index of Economic Growth:

Establishment of good organisation, earning more profit and distributing more bonus and dividend to
workers and investors is an index and sign of economic growth of the country. Therefore, we can say that
Division of Labour has contributed enough for the development and growth of an individual to company
and organisation.

Dis-Advantages of Division of Labour:

Division of Labour has also certain demerits or dis-advantages which may be divided as under:
1. Dis-advantages to Producers.

2. Dis-advantages to Consumers.

3. Dis-advantages to Labourers.

4. Dis-advantages to Nation.

Dis-Advantages to Producers:
Producers derive following demerits or dis-advantages from Division of Labour:
1. Danger of Over-production:
Over-production means that the supply of production is comparatively more than its demand in the
market. Because of the Division of Labour when production is done on a large scale, the demand for
production lags much behind its increased supply. Such conditions create over-production which is very
harmful for the producers as well as for the workers when they become unemployed.
2. Loss of Responsibility:
Many workers join hands to produce a commodity. If the production is not good and adequate none can
be held responsible for it. It is generally said that “every man’s responsibility is no man’s responsibility.”
Therefore, the Division of Labour has the dis-advantage of loss of responsibility.

3. Increased Dependence:
When the production is divided into a number of processes and each part is performed by different
workers, it may lead to over-dependence. For example – In the case of a readymade garments factory, if
the man cutting cloth is lazy, the work of stitching, buttoning etc. will suffer. Therefore, increased
dependence is the result of Division of Labour.

4. Evils of Factory System:

The modern industrial or factory system has been developed as a result of the Division of Labour. This
system further gives rise to the evils like dense population, pollution, class conflict, bad habits of gambling
and drinking, low standard of living, poor food, clothes and housing etc.

5. Increased Dependence on Machines:

As Division of Labour increases there will be an increased use of machines. Almost all the workers work
on different types of machines. It is very difficult for them to work without machines. Thus, Division of
Labour increases the dependence on machines.

6. Administrative Difficulties and Industrial Disputes:

Industrial disputes mean strikes by workers, closure of factory, etc. due to clashes between the
employees and the employers. This creates acute administrative problems and difficulties. Division of
Labour results in the division of society into workers and employers.

The employer always tries to increase his profits by exploiting the workers and workers from trade unions
against the employees to put an end to their exploitation or to make them increase their wages. It gives
rise to a severe conflict between the employers and the workers in the form of strikes, closures and
lockouts of factories.

Dis-Advantages to Consumers:
Division of Labour gives many dis-advantages to consumers and important of them are as
follows:
1. Consumers cannot get Variety of Goods:
The worker deteriorates in technical skills. Instead of making the whole article of variety, the worker is
required just to repeat a few simple movements. The skills with which the artisan once made the article
products gradually dies out. He simply becomes a machines tender.

For example:
The weaver of Dacca muslin fame is now or more.

2. Division of Labour Kills Creative Instinct:

Since many workers contribute to the making of an article, none can claim the credit of making it. Man’s
creative instinct is not satisfied. The work gives him no pride and no pleasure since no worker can claim
the product as his own creation.

3. Dependence on Others for Satisfaction of Wants:

In olden days when Division of Labour was not developed then whatever articles a man was in position to
produce he used to consume himself. But now-a-days the consumer is entirely dependent on others for
the satisfaction of his wants.

Dis-Advantages to Labourers:
A labourer can have following dis-advantages from Division of Labour:
1. Monotony of Work:
Under Division of Labour a worker has to do the same job time and again for years together. Therefore,
after sometime, the worker feels bored or the work becomes irksome and monotonous. There remains no
happiness or pleasure in the job for him. It has an adverse effect on the production.

2. Division of Labour can Neither Give Pride nor Pleasure:

In the absence of Division of Labour, a labourer feels a lot of pleasure on the successful completion of his
goods. But under Division of Labour no-body can claim the credit of making it. The work gives him neither
pride nor pleasure. Therefore, there is total loss of joy, happiness and interest in the work.

3. Fear of Unemployment:
The danger of unemployment is another dis-advantage of Division of Labour. When the worker produces
a small part of goods he gets specialised in it and he does not have complete knowledge of the
production of goods. For example – If a man is expert in buttoning the clothes and if he is removed or
dismissed from the job, it becomes difficult for him to find the job of building. Thus, Division of Labour has
a fear of unemployment.

4. Reduction in Mobility of Labour:

It has been observed that the mobility of labour is reduced on account of Division of Labour. The worker
performs only a part of the whole task. He is trained to do that much part only. So, it may not be easy for
him to find out exactly the same job where else, if he wants to change the place. In this situation the
mobility of labour gets retarded.

5. Creative Pleasure is killed:

Division of Labour kills the creative pleasure of producing an article because many men contribute to the
making of an article, none can claim the credit of making it. Man’s creative instinct is not satisfied. The
work cannot give him pleasure as no worker can claim the product as his own creation.

6. Lack of Responsibility:
In this none can be held responsible for bad production because none makes the whole article. When the
result is bad everybody tries to shift the responsibility to somebody else. This adds to the difficulties of
administration.

7. Exploitation of Labour:
As we are that Division of Labour is concerned with large scale production in big factories which are
owned by the rich people. No poor worker can afford to start his own production. Therefore, they have to
seek employment in big factories of rich people.

These employers pay fewer wages to them as compared to their marginal productivity, because there is
no other alternative to the workers but to work at very low wages. Therefore, Division of Labour results in
the exploitation of labour.

8. Employment of Women and Children:

Division of Labour results in the large scale production in which children and women are also employed. It
is because a simple and small part of the whole task can be easily performed by them. Thus, the number
of employed women and children increases. They are also exploited by the employers by paying them
lower wages.

Dis-Advantages to Nation:
Sometimes nation also has to suffer due to Division of Labour.

Important situations are as follows where nation has to suffer:

1. Birth of Monopoly Situation:
In Division of Labour producer is the alone producer of goods and to increase his profit, he adopts unfair
tactics.
2. Maximum Production Leads to Depression in the Country:
In Division of Labour if maximum production is done then depression in the country takes place and the
bad effect of depression directly falls on social and economic situation of the county.

Conclusion:
Division of Labour is no doubt attended with a number of drawbacks. But the advantage has outweigh the
dis-advantages. The evils can be minimised by shortening the hours of work and providing more leisure to
the worker. It is no longer possible nor it is desirable, to do away with this system. Remember Division of
Labour is beneficial to the workers, to the producers and to the society as a whole.

Remedies and Mitigation of Division of Labour:

Various dis-advantages of the Division of Labour can be mitigated or remedied as under:
1. Monotony of Work can be Avoided:
It has been observed that most of the monotony of work can be avoided when worker’s opportunities of
vertical mobility in the occupation are increased through training imparted under Division of Labour.

2. Psychological Satisfaction of Work is to be Sacrificed:

In mass production when the psychological satisfaction of creative work is to be sacrificed, it is not every
significant as compared to the physical satisfaction of increased income and consumption and high
standard of living enjoyed by the worker as a result of the Division of Labour.

3. Risk of Unemployment:
Risk of unemployment causes frictional or technical unemployment due to mechanisation of the process.
This may be short-term phenomenon. But, in fact, the Division of Labour in the long run increases
employment opportunities within the firm or industry and in other fields also. For example – The
increasing use of machinery will promote work and employment in the repair and spare parts industries of
the country.
4. It Causes Lack of Responsibility:
Division of Labour causes lack of responsibility among the workers. But if proper checks are introduced,
workers can be made more responsible to their job.

5. Increases the Mobility of Labour:

Division of Labour and the resulting specialisation will not inhibit but, on the contrary increase the mobility
of labour. Because to specialise in some alternative job will not take much time as the worker is required
to learn only a part of the work. Moreover, the number of employment exchange centres may be
increased by the government to enhance the occupational mobility of labour.
Limitations of Division of Labour:
Economists are of this opinion that the Division of Labour is very useful and beneficial to the workers, the
entrepreneur and the society in general. But it has serious limitations. Its introduction and operation
depends on certain conditions. Unless these conditions are fulfilled, Division of Labour will be either out of
the question or will not be useful for the organisation.

1. Size of Market:
The demand for a commodity depends on the size of the market. A wide market constitutes a large
demand for the product and a small market will obviously has a small magnitude of demand. Thus, if the
demand is small, it will not be advantageous to produce it on a large scale and therefore, there will be
less possibility of a complex Division of Labour.

On the other hand, a wide market calls for a large scale production, hence a greater possibility of
extensive Division of Labour. A complex Division of Labour and large scale of production are possible
only when there is a sufficiently large market to absorb all the supply of goods produced.

2. Nature of Product and Nature of Occupation:

Nature of product imposes another limitation. If the product is such that its manufacture cannot be split up
into distinct process, no Division of Labour will be possible. Similarly, when a job is such which cannot be
split into different processes, there cannot be Division of Labour. For example – In farming when there is
time-gap between sowing and harvesting, Division of Labour is futile. Similarly in driving a car, there
cannot be a Division of Labour.

3. Spirit of Co-operation:
Division of Labour can be successful when there is perfect co-ordination among different processes and
full co-operation among workers. Without the spirit of co-operation and compromise or team spirit,
Division of Labour cannot be effective.

4. Physical or Technical Limit:

Beyond a point of physical and technical limit, further Division of Labour is not possible. For Example – It
is technically impossible to further break-up the processes of hammering or working on a sewing
machine.

5. Ability of the Manager or the Entrepreneur:

A complex Division of Labour involves large co-ordination of work and extensive organisation and
administration on the part of the manager or the entrepreneur. If this ability is lacking the system of
Division of Labour cannot be sustained for long.
6. Machinery of Commerce and Transportation:
The extent of Division of Labour is also indirectly determined by the machinery of commerce and
transport facilities in the country. The facility of transport, the banking system etc. help to an extent the
market areas which determine the extent of Division of Labour.