PRINCIPLES OF MANAGEMENT

DIPLOMA IN CREDIT MANAGEMENT (DCM)

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ACCOUNTING TECHNICIAN DIPLOMA (ATD)

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STUDY TEXT
KASNEB JULY 2018 SYLLABUS

Revised on: January 2019

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 CONTENT

CHAPTER 1
Introduction to management……………………………………..………….3
CHAPTER 2
Approaches to management thought………………………………………..24
CHAPTER 3
Planning function……………………………………………..……………..37
CHAPTER 4
Organizing function…………………………………………………………57

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CHAPTER 5

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Directing leading function…………………………………………..………91

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CHAPTER 6

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Staffing function………………………………………...…………………136

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CHAPTER 7
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Control function…………………………………..……………………….145
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CHAPTER 8
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Emerging issues and Current trends…………………….…………………173

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 CHAPTER 1

INTRODUCTION TO MANAGEMENT
Management is a universal phenomenon. It is a very popular and widely used term.
All organizations - business, political, cultural or social are involved in management
because it is the management which helps and directs the various efforts towards a
definite purpose. According to Harold Koontz, “Management is an art of getting
things done through and with the people in formally organized groups. It is an art of
creating an environment in which people can perform and individuals and can co-
operate towards attainment of group goals”. According to F.W. Taylor,
“Management is an art of knowing what to do, when to do and see that it is done in
the best and cheapest way”.

Management is a purposive activity. It is something that directs group efforts

towards the attainment of certain pre - determined goals. It is the process of working
with and through others to effectively achieve the goals of the organization, by
efficiently using limited resources in the changing world. Of course, these goals
may vary from one enterprise to another. E.g.: For one enterprise it may be
launching of new products by conducting market surveys and for other it may be
profit maximization by minimizing cost.

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Management involves creating an internal environment: - It is the management

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which puts into use the various factors of production. Therefore, it is the

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responsibility of management to create such conditions which are conducive to

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maximum efforts so that people are able to perform their task efficiently and

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effectively. It includes ensuring availability of raw materials, determination of
wages and salaries, formulation of rules & regulations etc.

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Therefore, we can say that good management includes both being effective and
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efficient. Being effective means doing the appropriate task i.e, fitting the square
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pegs in square holes and round pegs in round holes. Being efficient means doing the
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task correctly, at least possible cost with minimum wastage of resources.

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Importance of Management

1. Encourages Initiative
Management encourages initiative. Initiative means to do the right thing at the right
time without being told or influenced by the superior. The employees should be
encouraged to make their own plans and also to implement these plans. Initiative
gives satisfaction to employees and success to organisation.

2. Encourages Innovation
Management also encourages innovation in the organisation. Innovation brings new
ideas, new technology, new methods, new products, new services, etc. This makes
the organisation more competitive and efficient.

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3. Facilitates growth and expansion
Management makes optimum utilisation of available resources. It reduces wastage
and increase efficiency. It encourages team work and motivates employees. It also
reduces absenteeism and labour turnover. All this results in growth, expansion and
diversification of the organisation.

4. Improves life of workers

Management shares some of its profits with the workers. It provides the workers
with good working environment and conditions. It also gives the workers many
financial and non-financial incentives. All this improves the quality of life of the
workers.

5. Improves corporate image

If the management is good, then the organisation will produce good quality goods
and services. This will improve the goodwill and corporate image of the
organisation. A good corporate image brings many added benefits to the
organisation.

6. Motivates employees
Management motivates employees by providing financial and non-financial
incentives. These incentives increase the willingness and efficiency of the
employees. This results in boosting productivity and profitability of the

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organisation.

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7. Optimum use of resources

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Management brings together the available resources. It makes optimum (best) use of

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these resources. This brings best results to the organisation.

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8. Reduces wastage

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Management reduces the wastage of human, material and financial resources.
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Wastage is reduced by proper production planning and control. If wastage is
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reduced then productivity will increase.

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9. Increases efficiency
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Efficiency is the relationship between returns and cost. Management uses many
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techniques to increase returns and to reduce costs. Higher efficiency brings many
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benefits to the organisation.

10. Improves relations

Management improves relations between individuals, groups, departments and
between levels of management. Better relations lead to better team work. Better
team work brings success to the organisation.

11. Reduces absenteeism and labour turnover

Absenteeism means the employee is absent without permission. Labour Turnover
means the employee leaves the organisation.
Labour absenteeism and turnover increases the cost and causes many problems in
the smooth functioning of the organisation. Management uses different techniques
to reduce absenteeism and labour turnover in the organisation.

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12. Encourages Team Work
Management encourages employees to work as a team. It develops a team spirit in
the organisation. This unity bring success to the organisation.

Objectives of Management
The main objectives of management are:
1. Getting Maximum Results with Minimum Efforts - The main objective of
management is to secure maximum outputs with minimum efforts &
resources. Management is basically concerned with thinking & utilizing
human, material & financial resources in such a manner that would result in
best combination. This combination results in reduction of various costs.
2. Increasing the Efficiency of factors of Production - Through proper
utilization of various factors of production, their efficiency can be increased
to a great extent which can be obtained by reducing spoilage, wastages and
breakage of all kinds, this in turn leads to saving of time, effort and money
which is essential for the growth & prosperity of the enterprise.
3. Maximum Prosperity for Employer & Employees - Management ensures
smooth and coordinated functioning of the enterprise. This in turn helps in
providing maximum benefits to the employee in the shape of good working

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condition, suitable wage system, incentive plans on the one hand and higher

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profits to the employer on the other hand.

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4. Human betterment & Social Justice - Management serves as a tool for the

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upliftment as well as betterment of the society. Through increased

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productivity & employment, management ensures better standards of living
for the society. It provides justice through its uniform policies.

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Principles of Management
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A principle refers to a fundamental truth. It establishes cause and effect relationship

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between two or more variables under given situation. They serve as a guide to
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thought & actions. Therefore, management principles are the statements of

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fundamental truth based on logic which provides guidelines for managerial decision
making and actions. These principles are derived: -

a. On the basis of observation and analysis i.e. practical experience of

managers.
b. By conducting experimental studies.

There are 14 Principles of Management described by Henri Fayol.

1. Division of Labor
a. Henri Fayol has stressed on the specialization of jobs.
b. He recommended that work of all kinds must be divided & subdivided
and allotted to various persons according to their expertise in a
particular area.
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 c. Subdivision of work makes it simpler and results in efficiency.
d. It also helps the individual in acquiring speed, accuracy in his
performance.
e. Specialization leads to efficiency & economy in spheres of business.

2. Party of Authority & Responsibility

a. Authority & responsibility are co-existing.
b. If authority is given to a person, he should also be made responsible.
c. In a same way, if anyone is made responsible for any job, he should
also have concerned authority.
d. Authority refers to the right of superiors to get exactness from their
sub-ordinates whereas responsibility means obligation for the
performance of the job assigned.
e. There should be a balance between the two i.e. they must go hand in
hand.
f. Authority without responsibility leads to irresponsible behavior
whereas responsibility without authority makes the person ineffective.

3. Principle of One Boss

a. A sub-ordinate should receive orders and be accountable to one and
only one boss at a time.
b. In other words, a sub-ordinate should not receive instructions from

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more than one person because -

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- It undermines authority

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- Weakens discipline

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- Divides loyalty

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- Creates confusion
- Delays and chaos

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- Escaping responsibilities

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- Duplication of work
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- Overlapping of efforts
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c. Therefore, dual sub-ordination should be avoided unless and until it is

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absolutely essential.
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d. Unity of command provides the enterprise a disciplined, stable &

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orderly existence.
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e. It creates harmonious relationship between superiors and sub-

ordinates.

4. Unity of Direction
a. Fayol advocates one head one plan which means that there should be
one plan for a group of activities having similar objectives.
b. Related activities should be grouped together. There should be one
plan of action for them and they should be under the charge of a
particular manager.
c. According to this principle, efforts of all the members of the
organization should be directed towards common goal.
d. Without unity of direction, unity of action cannot be achieved.
e. In fact, unity of command is not possible without unity of direction.

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 CHAPTER 2

APPROACHES TO MANAGEMENT THOUGHT

Importance of Theory
This lesson mainly traces the history behind the development of management
theory. The theories and history of management are important to managers for
various reasons. History helps managers understand current development and avoid
mistakes of the past. History and theory together foster an understanding and
appreciation of current situations and developments and facilitate the prediction of
future conditions.

Theory helps managers organize information and therefore approach problems

systematically. Without theories all managers would have are, intuition, hunches
and hopes which may not be useful in todays very complex and dynamic
organizations. However there is not yet any verified and generally accepted theory
of management that managers can apply in all situations. Therefore managers must
familiarise themselves with the major theories that exist.

Ancient Management

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As a scientific discipline management is only a few decades old. However

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indications of management in use go back thousands of years into ancient

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civilizations. For example one of the earliest recorded uses of management is the

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Egyptians construction of the pyramids. It is also recorded that the Chinese used

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management in government from as early as 1500 B.C.

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The Greeks also used management in government from as early as 1000 B.C.

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Babylonians have also been recorded to have used management in government from
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as early as 2700 B.C.
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The management of the Great-Roman empire could not have succeeded without use
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of management. It is recorded that from about 800 B.C the Romans were practising
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organizing principles. A lot of bureaucracy for instance was in practice in the

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ancient Roman Army. The works of people like Socrates (400 B.C) and Plato
(350B.C.) all indicate some elements of management. However despite this
widespread practice of management there was little interest in management as a
scientific discipline until a century ago. It was not until the late nineteenth century
that large businesses requiring systematic administration started to emerge. Also
before the late 19th century governments and military organizations were not
interested in the profits so they paid little attention to efficiency and effectiveness.
Our study of the theory of management will focus on the three well established
schools of management theory.
The Classical School
The Behavioural School
The Management Science School

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THE CLASSICAL SCHOOL

This school of thought emerged around the turn of the twentieth century. It is
divided into two sub areas: Scientific management, which historically focused on
the work of individuals and classical organization theory (administrative
management which was concerned with how organizations should be put together).

SCIENTIFIC MANAGEMENT

The main objective of Scientific Management in the early days was to determine
how jobs could be designed in order to maximise output per employee (efficiency).
The main contributor to scientific management was Frederick W. Taylor until the
Husband Team of Frank and Lillian Gilbreth also added more light to scientific
management.

(a) Frederick W. Taylor and Scientific Management

Taylor was an Industrial Engineer who worked in the United States at a time when
industries were facing shortage of skilled labour. For factories to expand
productivity, ways had to be looked for to increase the efficiency of employees.
Management faced questions such as, whether some elements of work could be
combined or eliminated, whether sequence of jobs could be improved or whether

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there was "one best way" of doing a job. In trying to answer these questions Taylor

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slowly developed a body of principles that constitute the essence of scientific

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management.

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Taylor's first job was at Midvale Steel Company in Philadelphia:While here Taylor
analysed and timed steel workers movements on a series of jobs. With time he was

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able to establish the best way to do a particular job. But he noticed the workers did

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not appreciate the speed factor because they feared that work would finish and they
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would be laid off. So Taylor encouraged employers to pay the more productive
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workers at a higher rate based on the profits that would result. This system is called
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the differential rate system. Taylor was encouraged by the results of his work and
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decided to become a private consultant. His most significant work was while he was
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consulting for two companies: Simonds Rolling Machine Factory and Bethlehem
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Steel Corporation.

At Simonds he studied and redesigned jobs, introduced rest breaks and adopted a
piece rate pay system. In one operation he studied 120 women employed in tedious
work with long working hours. The work involved inspecting bicycle ball bearings.
Taylor started by studying the movements of the best workers and timed them. Then
he trained the others in the methods of their more effective co-workers and either
transferred or laid off the inefficient ones. He introduced rest periods and the
differential rate system and the results were that accuracy of the work improved by
two-thirds, wages rose by eighty to hundred percent, worker morale increased and
thirty five inspectors were now able to do work previously done by 120.

At Bethlehem Steel Taylor and a co-worker studied and timed the operations
involved in unloading and loading railcars. At the time each worker earned $1.15

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per day unloaded an average of 12 1/2 tons. Taylor introduced rest periods in the
day and realised that each man could handle about 48 tons a day. He set a standard
of 47 1/2 tons and a rate of $1.85 for those who met the standard. The results were
increased efficiency.
However despite his achievements trade unionists and workers started to resist the
ideas of Taylor and in defending his philosophy Taylor outlined that it rested on
four major principles.

The development of a true science of management so that for example the

methods for performing each task could be determined.
The scientific selection of the worker so that each worker would be given
responsibility for the task for which he/she was best suited.
The scientific education and development of the worker, and
Intimate, friendly cooperation between management and labour.

In conclusion Taylor said that the principles could only succeed if there was a
complete mental revolution on the part of both management and labour to the effect
that they must take their eyes off the profits and together concentrate on increasing
production, so that the profits were so large that they did not have quarrels about
sharing them. He strongly believed that the benefits from increased productivity
would accrue to both management and labour.

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(b) The Gilbreths

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Frank (1888-1924) and Lilian (1878-1972) were a husband and wife team who also

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contributed to scientific management. Lilian focused her studies on ways of

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promoting the welfare of the individual worker. To her, scientific management has
one ultimate aim: to help workers reach their full potential as human beings. Lilian

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also assisted Frank in the areas of time and motion studies and industrial efficiency

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and was an earlier contributor to personnel management. Frank who began his work
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as an apprentice bricklayer, developed a technique that tripled the amount of work a
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bricklayer could do in a day. He studied motion and fatigue and said that they were
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intertwined. Every motion that was eliminated also reduced fatigue. Both Gilbreths
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argued that motion study would raise morale because of its obvious physical
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benefits. They developed a three position plan of promotion that was intended to
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serve as an employee development program as well as a morale booster. According

to this plan a worker would do his or her present job, prepare for the next one and
train his or her successor all at the same time. Thus every worker would always be a
doer, a learner and trainer and hence workers would look forward to new
opportunities.

(c) Henry L. Gantt (1861-1919)

Henry Gantt who was an associate of Taylor developed the Gantt Chart - a device
for scheduling work after a span of time. Gantt also developed the bonus system of
paying workers. Both the Gantt Chart and the bonus system of paying workers are
in use in todays complex organizations.

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Limitations of Scientific Management

During Tayor‘s time, the mental revolution he advocated rarely came about
and often increased productivity and led to layoffs.
It assumed people were rational and therefore motivated only by material
gains. Taylor and his followers overlooked the social needs of workers.

They assumed that one had only to tell workers what to do to increase their earnings
and they would do it. But people have a need for other things other than money e.g.
recognition

They also overlooked the human desire for job satisfaction and workers became
more willing to go out on strike over job conditions than salary.

So the scientific model of the worker as a rational being interested only in higher
wages became increasingly inappropriate as time went on and employer and
labourers got increasingly dissatisfied with it.

An evaluation of scientific management indicates that scientific management was

developed to achieve two objectives to increase workers' productivity and to
improve workers' economic welfare. The first objective was achieved because the

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methods of scientific management such as time and motion, piece rate incentives,

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Gantt Chart and production standardization were accepted by industries. The second

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objective was however not fully achieved. Managers used scientific management to

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improve workers' productivity but they often did not see the benefits. Productivity

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often led to layoffs or changes in piece rates, so that workers had to produce more
for the same income. The enthusiasm for scientific management ended around 1930.

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PRINCIPLES OF WORK MANAGEMENT FROM THE SCIENTIFIC
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MANAGEMENT SCHOOL OF THOUGHT

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THE CLASSICAL ORGANIZATION THEORY

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This is the other branch of classical management. Classical organization theory

grew out of the need to find guidelines for managing complex organizations such as
factories. Henry Fayol is recognised as the father of classical organization theory
because he was the first man to systematize managerial behaviour. Another
contributor to classical organization theory was Max Weber.

(a) Henry Fayol (1841-1925) and the Classical Organization Theory

Fayol believed that sound managerial practice falls into certain patterns that can be
identified and analyzed. Fayol who was trained as a mining engineer worked his
way from a junior executive to director of the French Coal and Iron Combine
Company. Fayol often confessed that he did not attribute his success to his personal
abilities but rather to the methods that he practised. He strongly believed that
management was not a personal talent but a skill like any other and therefore it

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 CHAPTER 3

THE PLANNING FUNCTION

DEFINITIONS AND IMPORTANCE OF PLANNING

Whatever individuals or organizations do, they need to plan. Planning is the basic
process by which we select our goals and determine how to achieve them.

If order for managers to design an enabling climate for the effective performance of
individuals working together as groups in the organization, they must see to it that
purposes and objectives and procedures of attaining them are clearly understood. If
group effort is to be effective people must know what they are expected to
accomplish. This is the essence of planning.

Planning is the most basic of all managerial functions. In defining it Koontz says
that planning involves selection from among alternatives future courses of action
for the firm as a whole and for every department or section within it.

So when planning managers select organizational objectives and departmental

goals and determine ways of achieving them. It thus provides a rational approach

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to pre-selected objectives.

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It will therefore involve:

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selecting what objectives are to be achieved

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deciding the actions to be taken assigned these activities

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deciding who will be responsible for the action to achieve them
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Deciding the organizational position to planning can be looked at, therefore, as the
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process of developing plans. A plan is a blue print or framework used to describe

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how the organization expects to achieve its goals. Planning then is simply the
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process of determining which path among several the organization wishes to

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follow. When you plan you map out a course of action in advance.

Any goal might be approached in several different ways. Planning is the process
of determining which is the best way to approach a particular goal.

Importance of Planning

a) The purpose of every plan and of all derivative plans is to facilitate the
accomplishment of enterprise purpose and objectives.

b) Planning therefore gives direction to the activities of the organization.

Without plans people would not know what is to be expected of them.

c) Planning also facilitates control. The plans act as standards against

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 which performance can be measured and evaluated. Deviations from
plans help to point out weaknesses in the organizational process.
d) Since managerial operations in organizing, leading and controlling are
designed to support the accomplishment of enterprise objectives,
planning logically precedes the execution of all other management
functions. Without planning other management functions would be
impossible.

Given the importance of planning then it is essential to identify planning

responsibilities. That is who in the organization does planning? By its very nature
it is obvious that the responsibility for planning rests with the management. All
managers are involved in the planning process.

Planning starts with top management. These top managers working in

consultation with the Board of Directors establish the broad goals and strategies
of the firm. Middle managers work together to assist with strategic planning and
they work individually to develop and implement planning activities within their
respective divisions/or units.

First line managers also plan for their units and develop operational plans to
actualise the planning done at middle level.

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Types of Plans

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Given the variety of the areas that organizations plan for, it is obvious that plans

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fall into different categories. Plans can either be described in terms of different

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levels of scope or different time frames. Described by different levels of scope

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we have:

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a) Strategic Plans 0 ny
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Which are the broad plans developed by top managers to guide the
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general direction of the firm. They follow from the major goals of
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the firm and indicate what business the firm is in or what business it
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intends to be. Strategic plans therefore indicate how or where the

firm will position itself within its environment (They are of large
scope and extended time frame).

b) Tactical Plans

These have a moderate scope and intermediate time frame. They are
concerned with how to implement the strategic plans that are already
developed. They deal with specific resources and time constraints.
They mainly focus on people and action. Tactical planning is mainly
associated with middle management.

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 c) Operational Plans

They have the narrowest focus and shortest time frame. They fall
into many types that include:

Standing Plans:

Plans developed to handle recurring and relatively routine

situations. They include policies which are general guidelines
governing relatively important actions within the organization.
Standard operating procedures which are more specific guidelines
for handling a series of recurring activities. Finally rules and
regulations which are statements of how specific activities are to
performed.

Single Use Plans

This is the second category of operational plans. These are plans set
up to handle events that happen only once. The two types are
programs and projects.A program is a single use plan for a large set
of activities while a project usually has a narrower scope than a
programme otherwise they are similar.

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Time frame for planning

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Regardless of the kind of plan a manager is developing recognition of the

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importance of time is essential. Plans either fall under long range, intermediate or
short range plans.

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Long range planning: Covers several time periods, from five years to as long as
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several decades. Long range plans are mainly associated with activities such as
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major expansion of products or facilities, development of top managers, large

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issues of stocks or change of manufacturing systems. Top managers are

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responsible for long range planning in most organizations.

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Intermediate planning: range in time from one year to five years. Because of the
uncertainties associated with long range plans, intermediate plans are the
primary concern of most organizations. They are usually developed by both top
and middle management. They are the building blocks in the pursuit of long
range plans.

Short range planning: covers time periods of one year or less. They focus on day
to day activities and provide a concrete base for evaluating progress towards the
achievement of intermediate and long range plans.

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EFFECTIVE MAKING
PLANNING

Introduction

The plans used/made in an organization are not random but rather they are
arranged in a hierarchy that corresponds to the organizations structure. At each
level plans have two purposes:

i. They provide the means for achieving the objectives set in the plans of the
next higher level.

ii. They provide the objectives to be met by the plans in the next lower
level.

As already discussed plans are of two major types:

i. Strategic plans which are designed to meet the broad objectives of the
organization

ii. Operational plans which provide the details of how the strategic plans will
be accomplished.

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The operational plans are divided into two main types i.e. standing plans which

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are standardized approaches for dealing with recurrent and unpredictable

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situations and single use plans which are developed to achieve specific purposes

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and dissolved when these purposes have been achieved. Standing plans include

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policies, standard procedures, rules and regulations. Once established standing
plans allow managers to conserve time used for planning and decision making as

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similar situations are handled in a predetermined and consistent manner.

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Single use plans include programs, projects and budgets. These are detailed
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courses of action that are unlikely to be repeated

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Planning being a rational approach to accomplishing objectives should be a

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flexible process which takes into account the various changes taking place in and
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outside the organization.

Objectives must be set in the light of the economic, social, cultural, political,
technological, legal and ethical elements of the organizations environment.

The interactions of plans with every element of the environment are many and
complex and they affect the efficiency and effectiveness of plans. But since
planning is a vital part of all managerial jobs managers should strive to make it
more effective by:

i. Understanding and following the steps in planning

ii. Understanding the barriers to effective planning

Overcoming the barriers to effective planning

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 CHAPTER 4

ORGANISING FUNCTION

MEANING OF ORGANIZING FUNCTION

The word organization has two common meanings. The first meaning signifies an
institution, for example we refer to a school as an organization. The second deals
with organization as a process i.e. the process of organizing which is the second
basic managerial function and which mainly refers to the way work is divided
and allocated among members of the organization with the aim of goal
attainment.

The process of organizing involves balancing a company's needs for both stability
and change. It is the structure of an organization that gives stability to the actions
of its members. Change is adapted by altering an organizations structure. This
lesson is going to focus on the process of organizing with particular attention to
the basic elements of the process of organizing which include:

Division of work, departmentation, co-ordination, span of management, authority

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and power, line and staff relations and organizational design.

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Definition of Organizing

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Koontz defines organizing as "the grouping of activities necessary to attain

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objectives, the assignment of each grouping of activities to a manager with

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authority necessary to supervise it, the provision for coordination vertically and

a.
horizontally in the enterprise structure.‖ 0 ny
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73 me

Another definition refers to organizing as the process of identifying and

07 .so

grouping the work to be performed, defining and delegating responsibility and

07 ww

authority and establishing relationships for the purpose of ensuring people to

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work together effectively.

Specifically organizing is the process of grouping activities and resources in a

logical and appropriate fashion.

Most organizations start in one form and then evolve into other forms as they grow,
shrink or otherwise change. Organization process involves shaping the organization
as it grows, shrinks or changes.

Any step or activity that is undertaken and which leads to changes in the
organization e.g creating new jobs is part of the process of organizing. One can
never truly finish the process of organizing. New opportunities, threats and
challenges keep arising and these cause the manager to modify or adjust his
organization.

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THE PROCESS OF ORGANIZATION

The Key Organizing Components and Concepts

The process of organizing involves certain key components and concepts which
actually constitute various aspects of an organizational structure. These include:

(a) Job design

(b) Grouping of jobs
(c) Authority and responsibility
(d) Coordination
(e) Span of management
(f) Line and staff relations

(a) Designing Jobs

Job design is the process of determining what procedures and operations are to
be performed by the employees in each position.

s
The basis for all design job activities is job specialization which involves a

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no
definition of the tasks that distinguish one job from others. Jobs are broken into

e
small simple and separate operations in which each work can specialize.

pl
am
Because no one person is physically able to perform all the operations in most

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complex tasks, and no one person is able to acquire all the needed skills for a
job, there is need to specialize and divide work according to the areas of

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specialization. Job specialization therefore has certain advantages: People are

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a.
able to become experts in their areas of function, simplified tasks can be
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learned in a relatively short time and can be completed quickly, the
7 ak

availability of a variety of jobs makes it possible to choose. Managers are able

73 me

to exercise greater control over workers, as they can easily observe and
07 .so

monitor employees doing simple jobs. However it is possible to overspecialise

07 ww

and this has various disadvantages: It can lead to boredom and dissatisfaction,
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and staff may look for more exciting work elsewhere, too much time may be
spent passing the work from one person to another so that efficiency is
actually reduced.

The limitations of job specialization can however be overcome by

using other alternatives to specialization. These include:

Job rotation: where employees are rotated across several narrowly

defined and standardized jobs.
Job enrichment: where there is more discretion or freedom how jobs
may be completed.
Job enlargement: where the job is changed to include more activities.

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(b)Grouping jobs (departmentalization)
After jobs have been designed the next step in organizing process is to group
them into logical sets. The step is important because properly grouped jobs
make coordination and integration of activities much easier. This process of
grouping jobs is known as departmentalization.

Departmentation usually groups jobs according to one of these three bases:

function, product and location.

Departmentation by function—in this form of departmentation employees

who are involved in the same or very similar functions are grouped together.
Most organizations using this form of departmentalization end up with the
four basic functional departments: marketing, production, finance and human
resource.

CEO

Accounting Marketing Finance Human Resource

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te
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Departmentalisation by function has certain advantages:

pl
am
It is logical because it groups like or similar activities together.

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This facilitates specialization which could lead to increased

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productivity.

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a.
Coordination is improved since work is not duplicated. 0 ny
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It also contributes to organizational simplicity.

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07 ww

Each department is staffed by experts in that particular function and

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therefore managers in charge of each function can keep close control of

the activities.

Departmentalisation of functional areas also has certain limitations. It is

ideal for small organizations but as the organization grows some
weaknesses become apparent and complex.
The chain of command becomes excessively long as new levels are
added. This may slow down communication.
It does not allow departmental managers to develop much
understanding of the activities in other departments—so it
becomes difficult to develop well rounded executives.
It tends to slow decision making. Employees might concentrate so
much on their functional specialities that they lose sight of the
total organization.

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(b) Departmentalisation by product

Here the activities associated with individual products or closely related

product lines are grouped together. It is extensively used in many retailing
and manufacturing organizations. This form of departmentalization has
certain advantages:

All activities associated with unique products are

ar kept together;

s
te
no
It facilitates use of specialised capital, facilitates a certain type of

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coordination and permits maximum use of personal skills and

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specialized knowledge.

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Internal competition is promoted
promoted—oneone product line competes with

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a.
another. The performance of the manager of a product is measured
in part by comparing his results against those of the manager of 0 ny
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another product. A good example in Kenya would be EAI and its

73 me

brand managers.
07 .so
07 ww

Profitability of various products is more easily evaluated. It is

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possible to determine which products or product lines are

making losses.

This form of departmentalization also has certain disadvantages:

additional management personnel may be required to handle

different product lines.
some duplication of efforts may result. Each product line may
require its own accountant, engineer, marketing and production
staff. Personnel costs may as a result outweigh the benefits of
product departmentation.
Coordination may be difficult. This is especially true for
firms with many product lines i.e. complex organizations.

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 CHAPTER 5

DIRECTING LEADING FUNCTION

INTRODUCTION

This lesson on directing sets out to convey three aspects of management which when
put together constitute directing. These include motivation, leadership and
communication, a short review of corporate culture and Japanese management is also
included.

Directing is an interesting and challenging managerial function because basically, there

is no one best way to lead, motivate or communicate. Directing is also of critical
importance to management because unless people are motivated, lead and effectively
communicated to, not much in the way of results can be achieved even with very good
plans and organization structures.

MOTIVATION

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Understanding Motivation

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Motivation is a key part of the managers job because through it the manager is able to

pl
am
make people want to perform activities so that goals can be achieved.

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Motivation has been defined as the set of processes that determine behavioural choices.
That is the processes which influence people to behave the way they do. Motivation is

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a.
therefore concerned with the reasons for human behaviour, it explains why people
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behave in a certain manner.
7 ak
73 me

Motivation is derived from motive which is an inner force that moves a person to
07 .so

behave in a certain way. Motives may stem from both physiological and psychological
07 ww

needs. Motivation is greatly affected by the environment in which the employee is

w

operating, and therefore management of the environmental factors that affect workers is
one way to lighten the function of motivation.

The concepts of reward and punishment are basic to motivation. For example most
modern theories of motivation stress rewards as motivational factors. While
punishments can also serve to motivate, it is difficult to draw reliable evidence that
punishments help produce more effective or desirable behaviour. For example few
prisoners get rehabilitated by prison conditions. How rewards and punishment are used
in management depends on each individual manager. Management thinking on
motivation has progressed through three distinct stages:

(a) Traditional view

This view of motivation was held during the era of Frederick W. Taylor and scientific

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management. This was a simplistic way of looking at employees. The opinion was that
employees worked only for economic reasons and presumably the more they were paid,
the harder
der they worked. It is also known as the rational or economic concept of
motivation.

(b) Human related view

This approach was advocated by the behavioural school of management thought. It

argued that social forces were the primary determinants of motivation. The opinion was
that the more satisfied people were with their jobs the harder they worked. Also known
as the social concept of motivation.

(c) Human resources review

this view takes the most positive attitude towards employees' motivation. It argues that
people
eople are actually resources that can benefit the organization. It also argues that people
want to help and managers should look upon them as assets.

The Motivational Process

Human motivation is a complex process that begins with human needs. (Needs are
ar
drives or forces that initiate behaviour).

s
te
no
When needs become very strong people engage in efforts to fulfil these needs. As a

e
result of such efforts people experience various levels of need satisfaction. The extent

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to which people find their needs satisfied
satisfied serves to influence the future choices to

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satisfy the same or similar needs. The diagram illustrates:

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a.
0 ny
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7 ak
73 me
07 .so
07 ww
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The motivational process is a dynamic one. An individual has at any one time several
needs to satisfy and one can be at different positions in the cycle for each need.
Satisfaction of the needs also takes different time frames but at any rate the starting
point is always needs.

Motivation is a complex problem in organizations because the needs, wants and desires
of each employee differ. Each employ
employee
ee is unique in his biological and psychological
make up.

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Motivation is further complicated by the fact that it is not exactly clear who is
responsible for employee motivation i.e. whether the manager or the employee himself
(is the individual expected to provide his own motivation or is motivation a function of
management?).

Motivation can either be external or internal.

External motivation emanates from management, and employees react either positively
or negatively to what their managers do. Managers must therefore use external
motivation that generates positive responses from employees.

Internal motivation originates from within the individual as he tries to satisfy his
various needs. It may be caused by factors within the individual e.g. personality or
factors that are under the control of management e.g. job context (salaries, policies,
working conditions) and job content (recognition, advancement, status and
responsibility).

Persons find that organizations allow them to achieve goals that they cannot achieve
alone. This may imply a large degree of self-motivation or internal motivation on the
part of each individual. Many people however do not realize that by working toward the
organizational goals they are also achieving their own individual goals. Such people are

s
rarely self motivated enough to share in organizational goals and usually want jobs with

te
no
salaries that can pay bills. For such people management must provide external

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motivation in order to encourage them to work towards organizational goals.

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am
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Theories of Motivation

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Motivation theories are divided into two main categories:

c
a.
i. Content Theories
0 ny
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ii. Process Theories
7 ak
73 me

Content Theories attempt to explain the specific things that actually motivate an
07 .so

individual at work. They are concerned mainly with identifying people's needs, their
07 ww

relative strengths and the goals people pursue in order to satisfy these needs. Their main
w

focus is on what motivates. Included here are Abraham Maslow's Hierarchy of Needs,
Herzberg's Two Factor Theory, Alderfer's Modified Need Hierarchy and McClellands
achievement motivation. Process Theories concern themselves with identification of the
dynamic variables that make up motivation. Mainly process theories focus on how
behaviour is initiated, directed and sustained. They include, expectancy-based models
of Vroom and Porter, and Lawler and Adam's equity theory.

CONTENT THEORIES I.Herzberg's Two Factor Theory

The two factor theory was developed by Fredrick Herzberg from his study of 200
accountants and engineers. It is also known as the hygiene theory. It is a theory of
external motivation because the manager controls the factors that produce job
satisfaction or dissatisfaction.

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Prior to Herzberg's study it was generally believed that employee satisfaction and
dissatisfaction and hence motivation or lack of it were two opposite ends of the same
continuum (scale) i.e. people either satisfied with their jobs or they were dissatisfied or
something in between. Herzberg's study however showed that this was not the case. He
found out that satisfaction was influenced by one set of factors while dissatisfaction
was influenced by another set (hence the two factor theory). Factors which influenced
dissatisfaction he called dissatisfiers (hygiene or maintenance factors). These included
company policy, administration, supervision, working conditions, salary, status, job
security and interpersonal relations. If these factors are present in high quality and
quantity, people are simply not dissatisfied and not necessarily satisfied. So presence of
these factors does not motivate in the sense of yielding satisfaction. When these factors
were absent or deficient, people were dissatisfied yet when they were present people
were not necessarily satisfied— instead they were simply not dissatisfied.

Factors which affected satisfaction, he called them satisfiers or motivators. Included

here were achievement, recognition, responsibility, growth and advancement. When
these factors fell below an acceptable level, they contributed very little to job
dissatisfaction but they did prevent satisfaction i.e. when they were present employees
tended to be satisfied, but when they were deficient employees were merely not
satisfied, but were not necessarily dissatisfied. If a job does not offer an employee
advancement, challenging work, responsibility and recognition he will not necessarily
be dissatisfied with it but neither will he derive any satisfaction from it.

s
te
no
This theory has a clear message for managers in trying to motivate employees, the first

e
step should be to eliminate dissatisfaction by ensuring that pay, working conditions,

pl
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company policies are reasonable. But pay and those other improvements will not lead

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to motivation, so the next step would be for managers to enhance motivation by
improving factors that cause satisfaction. So managers should ensure there are

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opportunities for advancement, achievement, authority, status and recognition. From

c
a.
the theory it can be concluded that:
0 ny
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7 ak

(a) The factors that cause job satisfaction are separate and distinct from the factors
73 me

that cause job dissatisfaction.

07 .so

(b) The opposite of job satisfaction is no job satisfaction and not dissatisfaction.
07 ww

(c) The opposite of job dissatisfaction is no dissatisfaction and not satisfaction.

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The applicability of this theory has been questioned and it must be approached with
caution and not treated as a solution to motivational problems.

II. Abraham Maslow's Need Hierarchy

Maslow developed the hierarchy of needs theory of motivation based on the idea that
human needs can be arranged in order of importance from the most basic. Once a need
is fairly well satisfied it no longer motivates behaviour and man is then motivated by
the next higher level of needs. Maslow divided human needs into five levels:

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-S
om
.c
Email:

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0 ny
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[email protected]
7 ak
73 me
[email protected]
07 .so

[email protected]
07 ww
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 CHAPTER 6

STAFFING FUNCTION

STAFFING
The managerial function of staffing involves manning the organization structure through proper and
effective selection, appraisal and development of the personnels to fill the roles assigned to the
employers/workforce.
According to Theo Haimann, “Staffing pertains to recruitment, selection, development and
compensation of subordinates.”

Nature of Staffing Function

1. Staffing is an important managerial function- Staffing function is the most important
managerial act along with planning, organizing, directing and controlling. The operations of
these four functions depend upon the manpower which is available through staffing function.
2. Staffing is a pervasive activity- As staffing function is carried out by all mangers and in all
types of concerns where business activities are carried out.
3. Staffing is a continuous activity- This is because staffing function continues throughout the
life of an organization due to the transfers and promotions that take place.
4. The basis of staffing function is efficient management of personnel’s- Human resources can

s
be efficiently managed by a system or proper procedure, that is, recruitment, selection,

te
no
placement, training and development, providing remuneration, etc.

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5. Staffing helps in placing right men at the right job. It can be done effectively through proper

pl
am
recruitment procedures and then finally selecting the most suitable candidate as per the job

-S
requirements.

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6. Staffing is performed by all managers depending upon the nature of business, size of the
company, qualifications and skills of managers, etc. In small companies, the top management

c
a.
generally performs this function. In medium and small scale enterprise, it is performed
0 ny
89 e
especially by the personnel department of that concern.
7 ak

Steps involved in Staffing

73 me

1. Manpower requirements- The very first step in staffing is to plan the manpower inventory
07 .so

required by a concern in order to match them with the job requirements and demands.
07 ww

Therefore, it involves forecasting and determining the future manpower needs of the concern.
w

2. Recruitment- Once the requirements are notified, the concern invites and solicits applications
according to the invitations made to the desirable candidates.
3. Selection- This is the screening step of staffing in which the solicited applications are screened
out and suitable candidates are appointed as per the requirements.
4. Orientation and Placement- Once screening takes place, the appointed candidates are made
familiar to the work units and work environment through the orientation programmes.
Placement takes place by putting right man on the right job.
5. Training and Development- Training is a part of incentives given to the workers in order to
develop and grow them within the concern. Training is generally given according to the nature
of activities and scope of expansion in it. Along with it, the workers are developed by providing
them extra benefits of indepth knowledge of their functional areas. Development also includes
giving them key and important jobs as a test or examination in order to analyse their
performances.
6. Remuneration- It is a kind of compensation provided monetarily to the employees for their

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 work performances. This is given according to the nature of job- skilled or unskilled, physical
or mental, etc. Remuneration forms an important monetary incentive for the employees.
7. Performance Evaluation- In order to keep a track or record of the behaviour, attitudes as well
as opinions of the workers towards their jobs. For this regular assessment is done to evaluate
and supervise different work units in a concern. It is basically concerning to know the
development cycle and growth patterns of the employeesin a concern.
8. Promotion and transfer- Promotion is said to be a non- monetary incentive in which the
worker is shifted from a higher job demanding bigger responsibilities as well as shifting the
workers and transferring them to different work units and branches of the same organization.

Manpower Planning
Manpower Planning which is also called as Human Resource Planning consists of putting right number
of people, right kind of people at the right place, right time, doing the right things for which they are
suited for the achievement of goals of the organization. Human Resource Planning has got an important
place in the arena of industrialization. Human Resource Planning has to be a systems approach and is
carried out in a set procedure.
The procedure is as follows:
1. Analysing the current manpower inventory
2. Making future manpower forecasts
3. Developing employment programmes
4. Design training programmes
Steps in Manpower Planning

s
1. Analysing the current manpower inventory- Before a manager makes forecast of future

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no
manpower, the current manpower status has to be analysed. For this the following things have

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to be noted-

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am
 Type of organization

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 Number of departments

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 Number and quantity of such departments

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 Employees in these work units

a.
Once these factors are registered by a manager, he goes for the future forecasting.
0 ny
89 e
2. Making future manpower forecasts- Once the factors affecting the future manpower forecasts
7 ak
73 me

are known, planning can be done for the future manpower requirements in several work units.
07 .so

The Manpower forecasting techniques commonly employed by the organizations are as follows:
07 ww

i. Expert Forecasts: This includes informal decisions, formal expert surveys and Delphi
w

technique.
ii. Trend Analysis: Manpower needs can be projected through extrapolation (projecting
past trends), indexation (using base year as basis), and statistical analysis (central
tendency measure).
iii. Work Load Analysis: It is dependent upon the nature of work load in a department, in a
branch or in a division.
iv. Work Force Analysis: Whenever production and time period has to be analysed, due
allowances have to be made for getting net manpower requirements.
v. Other methods: Several Mathematical models, with the aid of computers are used to
forecast manpower needs, like budget and planning analysis, regression, new venture
analysis.
3. Developing employment programmes- Once the current inventory is compared with future
forecasts, the employment programmes can be framed and developed accordingly, which will
include recruitment, selection procedures and placement plans.
4. Design training programmes- These will be based upon extent of diversification, expansion
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 plans, development programmes, etc. Training programmes depend upon the extent of
improvement in technology and advancement to take place. It is also done to improve upon the
skills, capabilities, knowledge of the workers.

Importance of Manpower Planning

1. Key to managerial functions- The four managerial functions, i.e., planning, organizing,
directing and controlling are based upon the manpower. Human resources help in the
implementation of all these managerial activities. Therefore, staffing becomes a key to all
managerial functions.
2. Efficient utilization- Efficient management of personnel’s becomes an important function in
the industrialization world of today. Setting of large scale enterprises require management of
large scale manpower. It can be effectively done through staffing function.
3. Motivation- Staffing function not only includes putting right men on right job, but it also
comprises of motivational programmes, i.e., incentive plans to be framed for further
participation and employment of employees in a concern. Therefore, all types of incentive plans
becomes an integral part of staffing function.
4. Better human relations- A concern can stabilize itself if human relations develop and are
strong. Human relations become strong trough effective control, clear communication, effective
supervision and leadership in a concern. Staffing function also looks after training and
development of the work force which leads to co-operation and better human relations.
5. Higher productivity- Productivity level increases when resources are utilized in best possible

s
manner. Higher productivity is a result of minimum wastage of time, money, efforts and

te
no
energies. This is possible through the staffing and it's related activities ( Performance appraisal,

e
training and development, remuneration)

pl
am
Need of Manpower Planning

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Manpower Planning is a two-phased process because manpower planning not only analyses the current
human resources but also makes manpower forecasts and thereby draw employment programmes.

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Manpower Planning is advantageous to firm in following manner:

c
a.
1. Shortages and surpluses can be identified so that quick action can be taken wherever required.
0 ny
89 e
2. All the recruitment and selection programmes are based on manpower planning.
7 ak

3. It also helps to reduce the labour cost as excess staff can be identified and thereby overstaffing
73 me

can be avoided.
07 .so

4. It also helps to identify the available talents in a concern and accordingly training programmes
07 ww

can be chalked out to develop those talents.

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5. It helps in growth and diversification of business. Through manpower planning, human

resources can be readily available and they can be utilized in best manner.
6. It helps the organization to realize the importance of manpower management which ultimately
helps in the stability of a concern.
Obstacles in Manpower Planning
Following are the main obstacles that organizations face in the process of manpower planning:
1. Under Utilization of Manpower: The biggest obstacle in case of manpower planning is the
fact that the industries in general are not making optimum use of their manpower and once
manpower planning begins, it encounters heavy odds in stepping up the utilization.
2. Degree of Absenteeism: Absenteeism is quite high and has been increasing since last few
years.
3. Lack of Education and Skilled Labour: The extent of illiteracy and the slow pace of
development of the skilled categories account for low productivity in employees. Low
productivity has implications for manpower planning.

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 4. Manpower Control and Review:
a. Any increase in manpower is considered at the top level of management
b. On the basis of manpower plans, personnel budgets are prepared. These act as control
mechanisms to keep the manpower under certain broadly defined limits.
c. The productivity of any organization is usually calculated using the formula:
Productivity = Output / Input
. But a rough index of employee productivity is calculated as follows:
Employee Productivity = Total Production / Total no. of employees
d. Exit Interviews, the rate of turnover and rate of absenteeism are source of vital
information on the satisfaction level of manpower. For conservation of Human
Resources and better utilization of men studying these condition, manpower control
would have to take into account the data to make meaningful analysis.
e. Extent of Overtime: The amount of overtime paid may be due to real shortage of men,
ineffective management or improper utilization of manpower. Manpower control would
require a careful study of overtime statistics.
Few Organizations do not have sufficient records and information on manpower. Several of those who
have them do not have a proper retrieval system. There are complications in resolving the issues in
design, definition and creation of computerized personnel information system for effective manpower
planning and utilization. Even the existing technologies in this respect is not optimally used. This is a
strategic disadvantage.

Types of Recruitment

s
Recruitment is of 2 types

te
no
1. Internal Recruitment - is a recruitment which takes place within the concern or organization.

e
Internal sources of recruitment are readily available to an organization. Internal sources are

pl
am
primarily three - Transfers, promotions and Re-employment of ex-employees. Re-employment

-S
of ex-employees is one of the internal sources of recruitment in which employees can be invited
and appointed to fill vacancies in the concern. There are situations when ex-employees provide

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unsolicited applications also Internal recruitment may lead to increase in employee’s

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productivity as their motivation level increases. It also saves time, money and efforts. But a
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drawback of internal recruitment is that it refrains the organization from new blood. Also, not
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all the manpower requirements can be met through internal recruitment. Hiring from outside
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has to be done.
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Internal sources are primarily 3

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a. Transfers
b. Promotions (through Internal Job Postings) and
c. Re-employment of ex-employees - Re-employment of ex-employees is one of the
internal sources of recruitment in which employees can be invited and appointed to fill
vacancies in the concern. There are situations when ex-employees provide unsolicited
applications also.
2. External Recruitment - External sources of recruitment have to be solicited from outside the
organization. External sources are external to a concern. But it involves lot of time and money. The
external sources of recruitment include - Employment at factory gate, advertisements, employment
exchanges, employment agencies, educational institutes, labour contractors, recommendations etc.
a. Employment at Factory Level - This a source of external recruitment in which the applications
for vacancies are presented on bulletin boards outside the Factory or at the Gate. This kind of
recruitment is applicable generally where factory workers are to be appointed. There are people
who keep on soliciting jobs from one place to another. These applicants are called as unsolicited

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 CHAPTER 7

CONTROL FUNCTION

Introduction

Controlling is the fourth function of managing and it involves the measurement and correction of the
performance of employees, and of other organizational resources in order to ensure that everything is
going according to plan. Any manager charged with putting plans into action must carry out control.
Controls help to point deviations from plans so that corrective action can be taken. Controlling
therefore assists the realization of plans. Before controlling can be done management must ensure the
two prerequisites of the control system:

i. Controls require plans

Controls must be based on plans. One cannot know whether something is wrong unless what needs to be
done is clearly spelt out. Managers cannot determine whether their units are achieving what is expected
unless they know what is expected in the first place. Managers must first set plans and these plans
become standards against which performance is measured. This implies that any good control
techniques are in effect planning techniques. It is useless to try to design controls without taking into

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account plans and how well they are formulated.

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ii. Controls require a clear organizational structure

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The essence of control is to take corrective action and to be able to do this we must know where in the

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organization the responsibility for deviation from plans is situated. Organizational responsibilities must
be clear and definite so that when something goes wrong one can tell at which position it did. Lack of a

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good structure means that managers may know something is going wrong but they cannot tell exactly
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where the responsibility for the problem lies. Without clear knowledge of exactly where things are
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going wrong, corrective action is impossible.

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The Steps in the Control Process

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The methods used for control of the various resources, techniques and procedures are basically the same
regardless of where it is being done or what is being controlled. The process has three major steps:

Step One: Establishment of Standards

The first step in the control process is to establish plans which serve as the standards against which
performance is measured. In establishing the standards for control purposes, critical points must be
selected. These are the points at which if anything went wrong, there would be devastating effects on
the organization. It is difficult to control every aspect of the firm. Standards is the measure by which
performance is judged as "good" or "bad", "acceptable" or "unacceptable". The standards set may be of
many kinds and among the best are the verifiable goals and objectives, which stipulate the desired
results. These goals and objectives may be in physical terms e.g units to be produced, sales volume,
products rejected, profits earned, customer complaints etc.

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Step Two: Measurement of Performance

This step involves measurement of actual performance in the light of the standards set. The objective of
this step is to answer the question of "how well are we doing in meeting the standards set for our
activities?" Where possible standards should be such that they can detect deviations before they
actually occur so that appropriate corrective action can be effected.

Step Three: Correction of Deviations

Taking the necessary corrective action is actually what completes the control process. Deviations from
standards can either be positive or negative. When positive, then performance is better than expected
and even if this is good, it is necessary to evaluate the standards and check for their accuracy and
adequacy. Correction of negative performance is the point at which control is seen as part of the whole
system. Corrective action is the step at which all other managerial functions are integrated into the
process of control. The overlap of control with other functions of management demonstrates the
systems unity of the managers job and the integrated nature of the managerial process.

Note

The three steps interrelate. For example corrective action cannot be taken unless the measurement of
performance dictates so. Measurement cannot take place unless there is a yardstick against which to
measure.

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Controlling is the activity that makes right what is wrong and is therefore one of the most challenging

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activities that managers perform.

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Controls therefore help managers to answer a very important question, "how well are we doing?" It also

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helps them decide on ways to improve performance that is below standard.

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The Steps Elaborated

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(A) SETTING STANDARDS
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Many managers fail to set standards. More often than not, what constitutes "an honest day's work" or
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"good service" is not clear. The failure in clearly defining performance standards make effective control
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impossible. Performance standards are needed for all activities performed by a firm. Standards are
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performance targets. Managers attempt to at least meet them and perhaps, exceed them. They may be
either quantitative or qualitative.

Quantitative Standards

Quantitative standards are criteria for judging performance that can be expressed in money time
exposed, proportions and percentages, weights, distance or some other numerical style. Quantitative
standards have two major advantages; they are reasonably precise. That is required level of
performance is stated in terms managers understand, they are relatively easy to measure. This is simply
because quantitative standards mean about the same thing to all supervisors. Some of the most common
quantitative standards are discussed below:

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Time Standards

They indicate how much time is needed for a specific result. Each employee will work 40 hours per
week; interview time per employee is 30 minutes; and each semester should take 17 weeks are
examples of time standards.

Cost Standards

Cost standards indicate how much money should be spent to perform a particular task. Material cost per
unit should be Kshs.100; labour cost per unit should be Kshs.250.50 are examples of cost standards.

Revenue Standards

Revenue standards show how much income should be earned from specific activities. For example,
revenue per sales person per month should be Ksh.500,000.

Historical Data

Organizations often use past performance as a basis for estimating future satisfactory performance. A
farmer may know from past records that average maize production per hectare is 50 bags. He may then
use 50 bags as the standard for future years. Although historical standards are easy to establish, they do
not take into consideration changes that may occur in future

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Market Share

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This standard concerns the percentage of the total market that a firm would want to acquire and

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maintain. A toilet soap company like EAI may seek to attain a market share of 30 per cent of all units

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sold. The problem with using the market share is that it does not by itself indicate profitability. To
acquire or maintain a certain market share may require an organization to spend so much on

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promotional campaigns such that the action may greatly reduce profits.

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Productivity
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Productivity standards are needed in all activities in an organization. Productivity is a key standard,
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since it indicates the efficiency with which activities are conducted.

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Standards for measuring sales productivity may be expressed as sales per sales person per day week or
other time period like sales per distribution outlet. On the other hand, productivity standards might be
stated as units produced per machine per shift, units produced per man-hour worked etc.

Return on Investment (ROI)

Is the ratio of net income to invested capital. Firms with several divisions often use ROI as a measuring
device for different divisions as well as for the company as a whole. It helps to show managers of
divisions how well they have employed the capital assets assigned to them.

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Profitability (Return on Sales)

Can be expressed as a ratio of net profits to sales. If a firm falls below what management considers a fair
return on sales, corrective action is indicated. Profitability standards may be based on past experience,
performance of other similar firms, and judgement.

Quantitative Personnel Standards

Personnel standards can be set for such items as employee turnover, accidents, absenteeism, and
suggestions received from employees. Setting personnel standards is not easy. However, personnel
factors should be set for them even if such standards are based only on "good judgement". Without
standards, there is no basis for measurement.

Qualitative Standards

A basic drawback of qualitative standards is that it is difficult to apply them to all operations in a firm.
Not all standards can be expressed in time, weights, percentages, money. or other measures. For
examples the goal of an organization may be "to maintain a good relationship with the trade union".
Does the absence of a strike or showdown necessarily indicate existence of a good relationship with the
union? Because of this basic drawback, qualitative standards are also needed.

Qualitative standards are subjective standards used to evaluate situations that cannot be expressed

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numerically. For example, "employees are expected to be neatly dressed". Because they are subjective,

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qualitative standards are difficult to use in performance evaluation.

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Guidelines for setting standards

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These guidelines can help in choosing appropriate standards and winning support for them:

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(a) Set standards at appropriate levels
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Standards should be set at a reasonably attainable level under the prevailing conditions. If work
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standards are set too low, resources (human and non-human) are wasted; if
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they are set too high, mistakes, frustration and a host of other problems will result. Managers should
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carry out time-and-motion studies of production activities in order to develop realistic standards.
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(b) Keep standards to a reasonable number

In many cases an excessive number of standards are set. This wastes managers time and creates
resentment. Some jobs are "over-engineered". So many standards are set that it becomes too time-
consuming. This interferes with managers "real" or important activities.

(c) Have people expected to meet standards, help set them.

Many people do not like standards that are imposed on them without their having any say in the matter.
Participation in setting standards goes a long way in making them acceptable.

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or
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To get the complete notes either in softcopy form or in

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 CHAPTER 8

EMERGING ISSUES AND CURRRENT TRENDS

SOCIAL AND ETHICAL RESPONSIBILITIES OF MANGEMENT

Definition of Ethics

As noted in lesson one managers carry out different functions and play different roles in the
organisation. By implication managers pursue multiple objectives and multiple sets of priorities. Often
managers must juggle goals and priorities and make choices between these goals. The choices they
make affect the ability of employees, customers, suppliers, stockholders and anyone with interests in
the organisation. Mangers must often decide ―who has the right to what and when‖. No matter what
they do, the actions of managers allocate benefits and detriments to people.

 Ethics as applied to management refers to the concept of interactive responsibility: who is?
Who should be? Benefited or harmed by an action. It is also a study of ―who has a or should
have rights of any kind in the organization
 Ethics is the discipline dealing with what is good or bad, or what is right or wrong or
specifically with moral duty and obligation.

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 Ethics could also be described as the study of how our decisions affect other people or as the

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study of people‘s rights and duties and the rules that people apply in making decisions. In

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business we cannot avoid ethical issues just like in other areas of our lives.

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Levels of Ethics

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In business most of the ethical issues will fall into one of the following four levels.

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i. Social Level 89 e
This level deals with the basic institutions in society eg. Issues on the role of the government in the
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market place, merits or demerits of political parties or ideologies. Managers of organisations have an
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obligation to shape debates on social welfare.

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ii. Stakeholders Level

Employees, suppliers, customers shareholders, etc. Certain ethical considerations affect this group of
people. A company must deal with the issue of how its decisions affect all those groups of people eg.
What obligations does a company have to its suppliers, to its customers, or even to its owners?

iii. Internal Policy Level

At this level the question of interest is the nature of a company‘srelationship with its employees and
mangers. ―What kind of contract is fair? What rights should employees have?‖

iv. Personal Level

How do people treat one another within a corporation? Should they be honest with one another? What
obligations do employees have to their bosses, to subordinates or to peers. These questions deal with
the day-to-day issues of life in any organisation. Ethical questions are everywhere, at all levels of
business activity. Ethical issues concern the ground rules of individuals, companies and social
behaviour. Being ethical calls for people to examine their actions and be critical of the ground rules

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they apply in their activities.
vities. A seller for example should ask such questions as ―should I tell the
harmful? A buyer should ask ―should I tell the clerk he gave me too much
customer the product is harmful?‖
change?

It can be seen that ethics consist of two relationships, indicated by

by arrows in the figure. A person or
organization is ethical if these relationships are strong and positive There are a number of sources that
one might use to determine what is right or wrong, good or bad, immoral or moral behaviour. These
include the Bible,e, the Koran and a number of other holy books. They also include that ―still small
voice‖‖ referred to as the conscience. Another source of guidance is the behaviour of what psychologist

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call the ―significant‖ others – our parents, friends, role models, associates,
ociates, peers etc. The laws of the

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country prohibit any acts that are sufficiently hurtful to others and therefore laws offer guides to

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ethical behaviour. But distinction must be made between what is illegal and what is unethical. Not

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everything that is unethical
nethical is illegal. For example the law has limits regarding honesty. If one picks a

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lost item and keeps it, he probably has not done anything illegal but his act is unethical. If a clerk
steals from his company in order to feed the poor, he has done an illegal
illegal thing but for ethical reasons.

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Decisions of ethics are quite difficult but all mangers need to know is that ethics goes beyond the

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minimum requirements by law and by market economy. There are so many unethical things that can
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Simply having strong beliefs about what is right and wrong and basing them on the proper sources
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does not make one ethical. Behaviour should conform with what we believe about right and wrong.
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Type II ethics is the strength of the relationship between what one believes and how one behaves. To
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do what one believes is wrong is unethical. But to be ethical one must have both types of ethics. Type
I ethics refers to the strength of the relationship between what an individual or organization believes
and what the sources of guidance suggest is morally correct.

Business Ethics (Managerial)

Business ethics also called managerial ethics is the application of ethical principles to business
relationships and activities. Managers who run business are human beings who despite the laws set
cannot behave the same regardless of the circumstances. Managers face many ethical dilemmas (two
or more situations) where both seem right but which are conflicting.
Managerial ethics could apply in these
th areas.

a) relationships of the firm to the employees:

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 how they are to be treated
what are fair wages, fair dismissals etc.

relationship of the employee to the firm

how should they behave vis a vis the firm e.g. issues of competing loyalties, accepting
incentives from suppliers, cases of moonlighting, secrecy or espionage and honesty in
small items; pens, paper, telephone etc

Relationship of the firm to the environment

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Ethical issues arise in how the firm relates to the various elements of the environment eg.
customers competitors, stockholders dealers and the community.

Many industries and organizations companies have formal, written codes of ethics that provide
specific guideline for managers and other employees. But the question is whether when individuals
violate the code of conduct, the organization enforces it.

Many companies in an attempt to manage ethics have developed specific codes of ethics. These
establish guidelines for ethical decision making in business. Areas covered may be truthfulness in
advertising, improper use of company assets political contributions, payments in connection with

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business transactions, conflict of interest, trade secrets etc. There are advantages for organizations to

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form industry associations to develop and promote improved codes of ethics. It is difficult for a single

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firm to pioneer ethical practices if its competitors undercut them by taking advantage of unethical

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shortcuts. If ethics are to be improved, it is very important for top executives to support and

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emphasize ethical behaviour by adhering to ethic themselves and also train their staff in ethics.

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The Tools of Ethics Ethical Language

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The key terms of the ethical language are values, rights, duties and rules.
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Values are permanent desires that seem to be good in themselves like peace. Values are the answers
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of questions of ―why‖―why for example should managers behave ethically?‖.

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Rights and duties; a right is a claim that entitles a person to something . A duty is an obligation to take
specific steps; eg to pay taxes.

Moral rules are the rules that guide us through situations where competing interests collide.

Common Morality

Which is the body of rules covering ordinary ethical problems i.e. rules that we live by most of the
time. Examples include:

promise keeping
non malevolence
mutual aid

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 respect for persons and
respect for property

Below is a list of twelve questions for examining the ethics of a business decision.

Have you defined the problem accurately?

How would you define the problem if you stood on the other side of the fence?
How did this situation arise in the first place?
To who/what do you give your loyalty as an individual member of the organization?
What is your intention in making this decision?
How does this intention compare with the probable results?
Whom could your decision harm?
Can you discuss the problem with the affected party before you make your decision?
Will the decision remain valid for a long time?
Could you disclose your decision without fear to your superiors, family, board of Directors and
society?
What is the symbolic potential of your action if understood or misunderstood?
Under what conditions would you allow exceptions to your stand?

Source: James A.F, Stoner, R. Edward Freeman

Management Fourth Edition

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Companies should try their utmost to institutionalize the process of ethical decision making, so that

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each decision builds upon the decision that preceded it. There are several ways of doing this,

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Having codes of conduct
Forming ethical committees.

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Using ombudsmen

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Using ethics training or judicial boards and using social audits.
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Social Responsibility and Management Introduction

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During this century there has been much change in what society expects of its institutions and in what
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managers regard as the proper roles in organization. This change has gradually developed into a new
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concept of corporate social responsibility. Increasingly many managers are adopting the view that
besides the obligations they have to their organizations, they have a personal responsibility to the
society. Managers are increasingly being held accountable for the social effects of their actions. The
questions however remain of where such social responsibility begins and where it ends. For example:

should managers place the interest of stockholders before those of society or environment?
should a company be responsible for the social consequences of its operations e.g. When
drunken husbands assault their wives should Kenya Breweries be held accountable?
what does the company owe to its employees, suppliers, customers and the community?
should a company contribute to the welfare of society? E.g. pay fees for destitute children or
repair roads?

Such are the questions that arise when corporate social responsibility is considered.

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