MANAGEMENT AND ITS DIMENSIONS

UNIT 2

2.1 CONTRIBUTIONS OF EXPERTS TO MANAGEMENT THEORY

2.1.1 Stalwarts of Management Thoughts

Management is defined as the art of getting things done by making the best use of available
resources. Over the passing centuries, organisational structure has undergone radical changes, and
simultaneously the process of management as well. Hence, several theories were propounded over
centuries which were considered crucial for understanding business operations. These, when
clubbed together, are called Management Thought.

The prominent contributors of management thoughts are:

• Henri Fayol • Peter F. Drucker • Tom Peters

• F.W. Taylor • Michael Porter
• Elton Mayo • C. K. Prahalad

Contribution of Henri Fayol towards Management Thought:

Henri Fayol, the father of Principles of Management was born in 1841 in France and graduated as
a mining engineer in 1860 from the National School of Mining at St. Etienne. In 1860, he joined
the famous French Combine in the mining and metallurgical field-the Commentary-Four
Chambault Company-as an engineer. After a couple of years he was promoted as the Manager of
the collieries and continued as such for twenty-two years. In 1888, the condition of the combine
became precarious. Due to heavy losses the firm was nearly bankrupt. At this time Fayol was
appointed as General Manager. When he retired thirty years later, the company had expanded into
a large Coal-Steel combine with a strong financial position and a long record of profits and
dividends. During his long and successful career as an Industrial Manager, Fayol tried to probe
into the bottom of the principles of administration and management. His work was concerned with
the higher levels of the organisation. He analysed the process of management as he had observed
it first-hand.
His conclusion was that all the work done in business enterprises can be divided into six groups:

1. Technical activities (production, manufacture, adaptation).

2. Commercial activities (buying, selling, exchange).

3. Financial activities (search for optimum use of capital).

4. Security activities (protection of property and persons).

5. Accounting activities (stock taking, balance sheet, costs, statistics).

6. Managerial (administrative) activities (planning, organization, command, coordination and

control).

Fayol believed that if any kind of business was to operate successfully, these six functions had to
be performed. If anyone was neglected, the enterprise would suffer accordingly. Fayol devoted
most of his attention to the managerial activities. In doing so he enunciated certain principles which
hold ground (with suitable modifications) to this day.

The principles laid down by him were:

1. Division of work. 8. Centralisation of authority.

2. Authority and responsibility. 9. Scalar chain.

3. Discipline. 10. Order.

4. Unity of command. 11. Equity of treatment.

5. Units of direction. 12. Stability.

6. Subordination of individual to 13. Initiative.

general interest.
14. Esprit de corps.
7. Remuneration.

Fayol also spelt out the functions of management. The present pattern of management functions
follows broadly the lines set by him. The Junctions of a Manager (at the top level) enumerated by
him were:
 1. Forecasting and planning, 4. Coordination, and

2. Organising, 5. Control.

3. Command,

In addition to his over-all concept of management, Fayol singled out and described with clarity
and understanding-principles of the unity of command and direction. He emphasized the
importance of non-financial incentives.

Criticism - Fayol's theory has been criticised on the following grounds:

1. Too formal: Fayol's theory is said to be very formal. However, in any scientific and
analytical study facts and observations have to be presented in a formal manner.
2. Vague: Some of the concepts have not been properly defined. For example, the principle
of division of work does not tell how the task should be divided. Again, to say that an
organisation needs coordination is merely to state the obvious. In the words of Herbert
Simon, administrative theory suffers from superficiality, oversimplification and lack of
realism.
3. Inconsistency: Principles of administrative theory were based on personal experience and
limited observations. There is too much generalisations and lack empirical evidence. They
have not been verified under controlled scientific conditions. Some of them are
contradictory. For example, the unity of command principle is incompatible with division
of work. The theory does not provide guidance as to which principle should be given
precedence over the other.
4. Pro-management Bias: Administrative theory does not pay adequate attention to workers.
Workers are treated as biological machines or inert instruments in the work process.
5. Historical value: Fayol's theory was relevant when organisations operated in a stable
and predictable environment. It seems less appropriate in the turbulent environment of
today. For example, present-day managers cannot depend entirely on formal authority and
must use persuasion to get the work done. Similarly, the theory views organisations as
power centres and do not recognise the role of a democratic form of organisation.
 6. High Cost & Risks - His model, functional structure rapidly becomes costly in terms of
time and effort, and runs a high risk of misdirecting the energies of the organisation away
from performance.
7. Ignorance of socio-psychological and emotional needs of the employees
8. Too theoretical and unrealistic

Contribution of F.W. Taylor towards Management Thought:

Fredrick Winslow Taylor is known as the founder of Scientific Management. Taylor laid the
foundation for modern scientific management between 1880 and 1890. He began his carrier in
1871 as an apprentice machinist and turner at the Cramp Shipyard at Philadelphia, U.S.A. After
three years he joined the Midvale Steel Works as a machine shop- worker. By dint of his hard
labour, he progressed rapidly to become machinist, gang boss, foreman and finally Chief Engineer
in 1884.

He served Company till 1889. To satisfy his hunger for technical know-how, Taylor joined the
Stevens Institute and obtained the Master’s Degree in Engineering. Then he joined the Bethlehem
Steel Company, where he served from 1898 to 1901. During his carrier as a machinist and
foreman, Taylor saw much disorder and wastage of human and other resources at work-places.
The workers did not produce more than one third of a day’s work. The workmen did not want the
management to know how much work they could do. Because they feared that their wages would
be cut. Moreover, the management did not had any idea about the capacity of the workers and
further, management did not want to pay more to workers. Taylor tried to work out some system
whereby the interests of management and the workers might be the same.

Taylorism - Taylorism is a production system that divides the manufacturing process in small
steps that reduce the degree of skills required to perform each activity. The aim of Taylorism is
to increase productivity and to reduce training times to increase output levels.

What does Taylorism mean? - This workflow method was conceived by Frederick Taylor, an
engineer that developed this practice in the 20th century with the goal of increasing productivity
and efficiency within factories and production processes. Taylor proposed a work organization
that reduced the skills required to perform each task and the time it took each individual to
complete it. To achieve this, he designed the production process as a set of many interrelated,
sequential small tasks that were very mechanical in its nature. Another essential component of
Taylor’s method was motivation. He pointed the fact that workers were stimulated primarily with
the possibility of making more money.

To increase productivity, he established work incentives such as bonuses, to motivate employees

to produce larger quantities in less time. This practice proved to be highly effective and
established the foundations for mass production. There are of course some disadvantages and
negative aspects that come along with the implementation of Taylorism in factory dynamics but
its benefits are widely recognized and they serve as the starting point for many manufacturing
processes designed in modern factories.

The various contributions of Taylor were as follows:

1. Replace working by "rule of thumb," or simple habit and common sense, and instead use
the scientific method to study work and determine the most efficient way to perform
specific tasks.
2. Rather than simply assign workers to just any job, match workers to their jobs based on
capability and motivation, and train them to work at maximum efficiency.
3. Monitor worker performance, and provide instructions and supervision to ensure that
they're using the most efficient ways of working.
4. Allocate the work between managers and workers so that the managers spend their time
planning and training, allowing the workers to perform their tasks efficiently.

Contribution of Elton Mayo towards Management Thought:

Elton Mayo's contribution to management theory helped pave the way for modern human
relations management methods. Based on his well-known Hawthorne experiments, Mayo's
management theories grew from his observations of employee productivity levels under varying
environmental conditions. His experiments drew a number of conclusions about the real source
of employee motivation, laying the groundwork for later approaches to team building and group
dynamics. Mayo management theory states that employees are motivated far more by relational
factors such as attention and camaraderie than by monetary rewards or environmental factors such
as lighting, humidity, etc.
Elton Mayo developed a matrix which he used to illustrate the likelihood that a given team would
be successful. His matrix demonstrates the role those varying combinations of group norms and
group cohesiveness play in team effectiveness. The following are the four combinations of Mayo
theory and the effect of each on team dynamics:

1. Groups with low norms and low cohesiveness are ineffective; they have no impact, since
none of the members are motivated to excel, according to Mayo's theory.

2. Groups with low norms and high cohesiveness have a negative impact, since fellow
members encourage negative behaviour (e.g., gangs).

3. Groups with high norms and low cohesiveness have some degree of positive impact through
individual member accomplishments.

4. Groups with high norms and high cohesiveness have the greatest positive impact, Mayo's
theory predicts, since group members encourage one another to excel.

Mayo concluded that work arrangements in addition to meeting the objective requirements of
production must at the same time satisfy the employee’s subjective requirement of social
satisfaction at his work place. He was of the opinion that the cause of increase in productivity of
the workers is not a single factor like changing working hours or rest pauses, but a combination
of these and several other factors such as less restrictive methods of supervision, giving autonomy
to the workers, allowing the formation of small cohesive groups of workers, cooperation between
workers and manage-ment, opportunity to be heard, participation in decision making etc.

Contribution of Peter F. Drucker towards Management Thought:

He was born and brought up in Austria and then migrated to U.S.A. He has varied experience and
background which include psychology, sociology, law, and journalism. Through his consultancy
assignments, he has developed solutions to number of managerial problems. He has made many
outstanding contributions to the development of management principles. Following are some of
his views on management.

1. Nature of Management: According to Drucker the basic objective of management is to

lead towards innovation. He advocates that management is creative and innovative in
nature rather than bureaucratic. Because managers practice their activities in an ever-
 changing environment, they always deal with the human beings whose behaviour is
complex and unpredictable. He was warned that too much professionalization of
management is dangerous. He has also emphasized that managers should not only have
skills and techniques but should have right perspective putting the things into practice.
2. Management By Objectives: (MBO) Management by Objectives is regarded as one of the
most important contributions of Drucker to the discipline of management. He introduced
this concept in 1954. It is regarded to be his remarkable contribution to the management
thought. It consists of environmental scanning, identification of key result areas, setting
objectives for departments as well as to subordinates, motivation and performance
appraisal. He opines that MBO is a management Philosophy rather than a management
technique.
3. Management Functions: According to Drucker, management is the organ of its institution.
He sees management through its tasks. Drucker has attached great importance to the
objective setting function and has specified eight areas where clear objective setting is
remained. These are market standing, innovation, productivity, physical and financial
resources, profitability, managerial performance and development, worker performance
and attitude and public responsibility.
4. Organisation Structure: Drucker always advocates for the parallel growth of second line
managers because whenever the existing managers vacate their offices, organizations
should not suffer from the non- availability of experienced managers, if there is gap, it is
detrimental to the performance of the organization.
5. Organisation Changes: Further Drucker has forecasted that organizations face many
changes because of rapid social and technological changes. Hence dynamic organization
structures are essential than static and bureaucratic structures.
6. Federalism: Federalism means centralization of control and decision making in
decentralized structure. Drucker has felt the need for close links between the decisions
adopted by the top management on the one hand and by autonomous unit on the other
hand.
7. Activity Analysis, Decision Analysis and Relation Analysis: In the words of Drucker,
organization is a means to the end of business performance and business results. The first
 question that every manager must ask himself is what is our business and what it should
be? Then the organization should be designed to attain the objectives of the business.

The contributions of Drucker, especially his futurism, objective – orientedness and perception of
changes stood as hall – marks in the management evolution.

Contribution of Michael Porter towards Management Thought:

Michael Porter, indisputably one of the most influential thinkers on management and
competitiveness in the world laid the groundwork for strategic positioning in 1980 with his book
Competitive Strategy in which he presented his Five Forces model. His 1985, work, Competitive
Advantage, described his activity-based view and introduced his Value Chain model.

1. Porter’s Five Forces Model of Competition:

One of the most renowned among managers making strategic decisions is the five
competitive forces model that determines industry structure. According to Porter, the
nature of competition in any industry is personified in the following five forces:
i. Threat of new potential entrants
ii. Threat of substitute product/services
iii. Bargaining power of suppliers
iv. Bargaining power of buyers
v. Rivalry among current competitors
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2. Porter’s Generic Strategies

Porter suggested four "generic" business strategies that could be adopted in order to gain
competitive advantage. The strategies relate to the extent to which the scope of a business'
activities is narrow versus broad and the extent to which a business seeks to differentiate
its products.
i. Cost Leadership marketing strategy: It is used to penetrate the industry by using
the cost of company’s products or services. This could be possible when a company
increase efficiency and lowering operation and production costs, a company will be able
to offer its specific products or services at a much lower rate to its target market, this will
effectively make a company more attractive than competitors. Cost Leadership strategy
can be very effective for those companies who want to penetrate a targeted market that’s
dominated by a few high-cost companies. In order to sustain the advantage a company
also needs to regularly improve its product and services while maintaining cost leadership.
ii. Differentiation Strategy: Now a day every company needs to tackle with
saturated market as well as with strong competition. Differentiation strategy means
development of such products and a service which offers unique attributes that are valued
 by customers. So successful company needs to develop and design such products and
services which differentiate it from competitors.
iii. Focus Strategy: Focus strategy utilizes the old “divide-and-conquer” rule. Focus
strategy includes the division of your target market into specific sections. Then a company
needs to develop specific business marketing strategies for each section. Simple words we
can say that focus strategy target a segment to apply both cost leadership and
differentiation strategies.

3. Porter's Value Chain: A value chain refers to the whole series of activities that create and
build value at every step for a particular company. Value chain analysis used to analyze
those specific activities which can create competitive advantages for a company. In simple
words we can say that the value chain analysis separates useful and effective activities
from the wasteful activities and provide a better chance to the companies for getting
competitive advantage. So the main goal of value chain analysis is to know about those
activities which creates value that exceed the cost of providing products and services, and
generate a profit margin for the companies. Porter’s value chain model is made up of
primary and support activities.
Primary Activities of Value Chain:
i. Inbound Logistics refers to getting the material as an input for adding value by
processing it. This also includes relationships with suppliers and all other activities
that are required by a company to receive raw material or input, store, and
disseminate it.
ii. Operations refer to the manufacturing process and it includes all the activities that
are required to transform raw material (inputs) into final products (outputs).
iii. Outbound Logistics refers to the distributions of final products to the point of sale.
This includes all those activities that are required to collect, store, and distribute
the final products.
iv. Marketing & Sales refers to how to sale and promote final products. This includes
those activities required to inform customers about products and services, motivate
or induce customers to purchase them, and facilitate customer their purchase.
v. Service refers to the activities which maintain the functionality of a product. These
are the activities required to keep the product or service working effectively for
the customers after it is sold and delivered to them.

Supportive or Secondary Activities of Value Chain

i. Firm infrastructure allows managers to monitor the environment well. This

consists of different activities or departments such as finance, planning, public
affairs, government relations, quality assurance and legal and quality management
etc.
 ii. Procurement refers to the acquisition of raw materials and other inputs, or required
resources, for the company to create value.
iii. Human Resource management it is the development of skills those are needed to
steer the company well. This includes all those activities associated with hiring,
training, development and compensation of employees.
iv. Technological Development means activities which can give the firm speed,
accuracy and quality. This pertains to research and development, process
automation, and all other procedures and technical knowledge used to support the
value chain activities.

Contribution of C. K. Prahalad towards Management Thought:

C.K. Prahalad became famous as a management guru. He is popularly known for his book ‘The
Core Competence’, co-authored with Gary Hamel. Prahalad’s ideas on management focus
primarily on core competence. Core competence is an organisational skill and capability which is
not possessed by competing firms. It is a bundle of skills and technologies that enables a company
to provide a particular benefit to the customers. Core competencies are the defining characteristics
that make a business or an individual stand out from the competition.

• Identifying and exploiting core competencies is seen as important for a new business
making its mark or an established company trying to stay competitive.
• A company's people, physical assets, patents, brand equity, and capital can all make a
contribution to a company's core competencies.
• The idea of core competencies was first proposed in the 1990s as a new way to judge
business managers compared to how they were judged in the 1980s.
• Examples of companies that have core competencies that have allowed them to remain
successful for decades include McDonald's, Apple, and Walmart.

Some salient features of the concept of core competence may be summarized as under:

(i) Core competence is that strength of a firm which competitors cannot easily match or imitate
i.e. core competence cannot be copied easily by others. However, it is a dynamic concept,
rather than an absolute and static one. It gives advantage for a specific period; because new
competitors may come out with still superior core-competence. However, it is true that by the
 time competitors come out with superior core competence; the company in question has taken
the cream out of the opportunity.

(ii) Core competence is largely a technological competence; because new products are an
outcome of technology. However, core competence as a means of creating competitive
advantage, may be developed in other areas also, such as marketing.

(iii) Core competence does not reside in one particular product; it underscores leadership in a
wide range of products/services. Accordingly, core competence makes for or mars the success
of a company. It may lead to winning or losing the battle for competitive leadership in a
particular field. Failure of one product built on the capitalisation of core competence may lead
to failure of all products based on that core competence and vice-versa.

(iv) Development of core competence requires a learning organisation. In fact, core

competence represents the sum of learning of individual skills and is unlikely to reside entirely
in a single individual or a small team of individuals. Core competence is developed through
collective learning of organisational members.

(v) Core competence requires corporate imagination, to realize its potential. Corporate
imagination, according to Prahalad, implies visualizing new markets and leading customers
rather than following them through making a search for innovative product concepts.

He propagated many other concepts like strategic intent, co-creation rather than competition and
bottom of pyramid which have benefitted the companies and society.

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Contribution of Tom Peters towards Management Thought:

Top Peters worked as a management consultant at Mckinsey & Company from 1974 to 1981. He
contributed to the 7s Framework alongside Mckinsey. In 1981, he left Mckinsey and became an
independent management consultant. He gave ideas on solving business problems and
empowering decision-makers at multiple levels of a company. Tom Peter’s ideas on management
are as follows:
1. He advocates ‘liberation management’ which challenges the rigid organisation structure
that inhibits creativity. Organisation structures should be flexible. Modern managers are
concerned with not only what happens inside the organisation but also with what happens
outside the organisation.

2. Organisational members should be empowered to generate new ideas, products and

relationships. This empowerment is called liberation management by Peters. Power involves
how people view their relationships with each other. Power and individual liberty are linked
together. Managers who exercise power encourage group members to develop the strength
and competence as individuals and members of the organisation.

3. Jobs should be made rewarding and redefined to include greater, legitimate and expert
authority. Empowerment indicates what managers do in these jobs. Two empowering ways
to redesign jobs are:

(a) Job enlargement: It means increasing the job’s scope. Work from two or more
positions may be combined to restore wholeness of the job. This breaks the monotony of
a routine job and makes it interesting and challenging.

(b) Job enrichment:

It increases depth of the job by adding work activities from vertical line of the
organisational unit. Jobs in vertical line are combined into one position to give employees
more autonomy on the job. This develops a sense of accountability by allowing workers
to set their work pace, correct their errors and decide the best way to perform the tasks.
As the work becomes more challenging and responsibility of workers increases, their
enthusiasm and motivation also increases.

4. Organisational members should rethink how they relate to their customers and make
rethinking a part of their organisational practices.

5. All organisations should operate according to rules and procedures. Managers and
employees should deal with customers according to rules.
 6. Organisations should be flexible with management’s attitude biased towards creative
human efforts. According to Peters, “Those who would survive, managers and non- managers
alike, will simply have to make their own firm, create their own projects.”

2.2 PLANNING

2.2.1 Planning – Meaning, Definition, Importance and Types of Planning

Meaning of Planning:

Planning deals with framing organisational objectives and devising ways to achieve them.
Managers plan business activities at all levels: top, middle and low, though planning is required
more at top levels than lower levels.

While top managers plan for the whole organisation, middle-level managers plan for their
respective departments and lower-level managers plan for day-to-day business operations. All
sizes of organisations plan their operations. While large-sized organisations spend more time on
planning, small sized organisations spend comparatively less time.

Planning involves forecasting, framing objectives of the firm, thinking of different courses of
action and deciding the best course of action to achieve the goals. Planning, thus, involves
decision making, that is, deciding a course of action for framing and achieving objectives.

Definition of Planning:

Planning has been defined by the following authors as below:

“Planning is selecting information and making assumptions regarding the future to formulate
activities necessary to achieve organisational objectives.” — Terry and Franklin

“Planning involves the definition of objectives and planning of operations in terms of policies,
plans, and budgets which will establish the most advantageous course for the company. Planning
also requires that managers keep currently informed on all matters which will contribute to
improved planning and performance in the position.” — Louis A. Allen
“Planning involves selecting missions and objectives and the actions to achieve them; it requires
decision- making, that is, choosing from alternative future course of action. Plans, thus, provide
a rational approach to achieving pre-selected objectives.” — Koontz and Weihrich

Importance of Planning:

Planning is important because it enables the organisation to survive and grow in the dynamic,
changing environment. Planning is the basis of distinction between the successful and
unsuccessful organisations. In the dynamic environment, planning helps in scanning the
environmental changes and forecasting the future. It is important to plan because of the following
reasons:

1. Achievement of organisational objectives:

Planning helps the organisation to achieve its objectives. Planning provides the path for
achievement of organisational goals with minimum waste of time, money and energy. It bridges
the gap between where we are and where we want to go.

2. Fulfilment of organisational commitments:

Organisations have long-term and short-term commitments towards society, depending on their
nature. A defence organisation, for example, has long-run commitments while a retailer is more
interested in short-term goals or responsibilities. These commitments or goals of the organisation
can be fulfilled through planning.

3. It facilitates decision making:

Decision-making is deciding what to do when managers face a problem-solving situation and

adopting the best way out of the available courses/ ways of doing it. It is “the process of choosing
a course of action from two or more alternatives.” Managers have to make decisions like: what to
produce and how to produce, what are the organisational resources and how can they be
effectively allocated over different functional areas, what are their primary goals — profit or
social responsibility and many more. Planning helps to decide a course of action that will solve
the specific problem.

4. It provides stability to organisations:

Organisations that plan their operations are more stable than others. Managers foresee risk and
prepare the organisations to face them when they occur. Planning precedes all other managerial
functions and coordinates them for providing stability to the organisation.

Planning before organising (what kind of organisation structure), planning before staffing (what
kind of people), planning before direction (what kind of motivation, leadership and
communication system) and planning before control (the controlling techniques to achieve
standards of performance) promotes group effort and team work to give right direction to
organisational activities.

5. Overall view of the organisation/coordination:

Organisation is a structure of relationships where authority and responsibility are clearly defined.
Planning coordinates the functions performed by individual members and departments and unifies
them into a single goal — the organisational goal. It unifies inter-departmental activities so that
all departments work according to plans.

6. Optimum utilisation of resources / efficiency of operations:

Organisations work with limited resources. Planning allocates these resources over different
objectives and functional areas (production, personnel, finance and marketing) in the order of
priority. This results in optimum utilisation of scarce organisational resources (men, material,
money etc.) and their effective conversion into productive outputs.

7. Development of managers:

Planning involves imagination, thought and creativity by managers. Managers develop their
conceptual and analytical skills to plan and coordinate organisational activities with external
environment.

8. Promotes innovation / creativity:

Planning involves forecasting. Managers foresee future, analyse the strengths of their competitors
and think of new and innovative ways of promoting their products. Planning promotes new ideas,
new products, new relationships and, thus, promotes innovation and creativity.

9. Basis for control:

Planning frames standards of performance and control ensures achievement of standards.
Controlling involves measurement of actual performance, its comparison with standard
performance, finding deviations and taking steps to remove the deviations to make better plans
for future. Unless there are plans, there will be no control. Planning is, thus, the basis for control.

10. Reduction of risk:

Risk is a situation where moderately reliable information is available about future but it is
incomplete. Uncertainty, on the other hand, is a situation where no information is available about
future. Changes in government’s policies is a situation of uncertainty while entry of competitors
in the market with better technology represents a situation of risk. Planning helps to reduce risk
through forecasting.

11. Morale boost up:

If organisational plans succeed and goals are achieved, managers and employees feel satisfied
and morally boost up to concentrate on organisational activities. Successful planning, thus,
promotes success of the organisation and higher standards in the next planning cycle.

12. Facilitates delegation:

Well-designed plans enable managers to concentrate on strategic issues and delegate

routine/operating activities to lower-level managers. It, thus, facilitates delegation.

Types of Planning:

Planning begins with a goal or targeted outcome that the organization wishes to achieve. It may
be comprehensive or limited in scope. Although the basic process of planning is same for every
manager, planning can take many forms and style in practice. Thus, we classified planning
according to the managerial hierarchy, they are called, strategic, tactical and operational plan.
 i. Strategic Plan: Strategic plan is also called grand plan. It has a strong external orientation
and covers the total organization. It begins by asking question regarding the purpose or
mission and the operation to which an organization is devoted. Senior executives are
responsible for the development of these plans.
ii. Tactical plan: Tactical plans translate broad strategic goals and plans into specific goals
and plans. It mainly focuses on functional areas of the organization. Middle level managers
who are responsible for major division or branches in an organization develop the tactical
plan. Tactical plans focus on the major actions that a unit must take to fulfil its parts of the
strategic plan.
iii. Operational plan: Operational plans identify the specific procedures and process required
at the lower level of the organization. These plans are prepared by frontline managers and
supervisors. It mainly focuses on daily activities and routine jobs. They translate the tactical
objectives into specific operational activities to be assigned to individual or groups.

NOTE: Besides above classification, business plans are also classified according to the time
period for which they are established, they are called, long-range, medium range, and short range
plans. Similarly, plans are further classified according to their frequency of use, they are known
as standing plans (such as, policy, procedure rule), and single use plan, (such as, program, project,
budget etc.) These are discussed under types of plans further below.

2.2.2 Methods and Types of Plans

Methods of Planning:

Managers operating at different management levels are involved in planning. According to the
nature and size of an organization, method of planning varies. Generally, there are three method
of planning. They are:

1. Top-Down Planning: It is also called centralized planning method. Under this method, the
central office or headquarter of an organization develops and provide guidelines, which
include, business definition, mission statement, economic and social objectives, etc. to other
branches and levels accordingly.
2. Button-Up Planning: It is also called decentralize planning method. Under this method middle
and lower level management drafted the plan and presented to the higher level management
for its final approval. Discussion and meeting are held to make critical review and final
approval of the plan at the top management level. This method encourages in participation of
lower management in plan formation and ensures their full commitment.
3. Management by Objectives (MBO): MBO is powerful management tool and is considered as
a strong method of planning. Under this method all levels of management are involve in goal
setting process. The value of MBO is that it communicates the mission, goals, and objectives
of the organization to the lower level managers. Lower level manager’s work out their plans
and target in consultation with their subordinates. These are sent o higher levels for
consideration. This involvement of employees increases their motivation and commitment to
their work.

Types of Plans:

SINGLE USE PLAN:

A Single use plan in a business refers to plan developed for a one-time project or event that has
one specific objective. It applies to activities that do not reoccur or repeat. It is specifically
designed to achieve a particular goal. Such plan is developed to meet the needs of a unique
situation. The length of a single use plan differs greatly depending on the project in question, as
a single event plan may only last one day while a single project may last one week or months. For
example, an outline for an advertising campaign. After the campaign runs its course, the short
term plan will lose its relevance except as a guide for creating future plans.
 Types of Single Use Plan

1. Programme: A programme is a single use plan containing detailed statements about project
outlining the objectives, policies, procedures, rules, tasks, physical and human resources
required to implement any course of action.

2. Budget: A budget is a statement of expected result expressed in numerical terms for a

definite period of time in the future.

STANDING PLANS

Standing plans are used over and over again because they focus on organizational situations that
occur repeatedly. They are usually made once and retain their value over a period of years while
undergoing revisions and updates. That is why they are also called repeated use plans. For
example, Businessman plans to establish a new business Entrepreneur drafts business plan before
opening the doors to their business, and they can use their plan to guide their efforts for years into
the future.

Types of Standing Plans

1. Objectives: Objectives are defined as ends for the achievement of which an organization goes
on working. They may be designed as the desired future position that the management would like
to reach. The first and foremost step of the planning process is setting organizational objectives.
Examples increasing sales by 10%, Getting 20% return on Investment etc. Objectives should be
clear and achievable.

2. Strategy: Strategies refer to those plans which an organization prepares to face various
situations, threats and opportunities. When the managers of an organization prepare a new
strategy for the business it is called internal strategy and when some strategies are prepared to
respond to the strategies of the competitors, then such strategies are called external strategies.
Examples, selection of the medium of advertisement, selection of the channel of distribution etc.

3. Policy: Policies refers to the general guidelines which brings uniformity in decision-making
for achievement of organizational objectives. They provide directions to the managers of an
organization. They are flexible as they may be changed as per requirement. Example, selling
goods on cash basis only, reserving some post for women in the organization.
4. Procedure: Procedures are those plans which determine the sequential steps to carry out some
work/activity. They indicate which work is to be done in which sequence/way. They help in the
performance of work. Procedures are guides to action. Example: Process adopted in the Selection
of Employees.

5. Rule: Rules are specific statement that tell what is to be done and whatnot to be done in a
specified situation. They help in indicating which points are to be kept in mind while performing
task/work. Rules are rigid which ensure discipline in the organization. Example: ‘No smoking in
the office premises’. Violation of rules may invite penalty.

6. Method: Methods are standardized ways or manners in which a particular task has to be
performed. There may be many ways/method of completing a task but that method/way must be
selected by which work can be done early at the minimum possible cost. Methods are flexible.
Example, various methods of training are adopted by an organization to train its employees like
apprenticeship training, vestibule training etc.

2.3 ORGANISING

2.3.1 Meaning, Nature, Importance and types of Organizing

Meaning of Organizing:

Organising is indeed one of the most important functions of management. In the language of
business and management, it is a relationship built between people, work and resources in an
organisation that is hence used to achieve the common objectives or goals of the organisation as
a whole.

Organising is that managerial process which seeks to define the role of each individual (manager
and operator) towards the attainment of enterprise objectives; with due regard to establishing
authority-responsibility relationships among all; and providing for co-ordination in the enterprise-
as an in-built device for obtaining harmonious groups action.

Definition of Organizing:

Organizing has been defined by the following authors as below:

“Organising is the establishment of authority relationships with provisions for co-ordination
between them, both vertically and horizontally in the enterprise structure”. — Koontz and O
‘Donnell

“Organising is the process of identifying and grouping the work to be performed, defining and
delegating the responsibility and authority and establishing a pattern of relationship for the
purpose of enabling people work most effectively to accomplish the objective”. — Louis A.
Allen.

“To organise a business is to provide it with everything useful to its functioning; raw materials,
machines and tools, capital and personnel.” — Henri Fayol

Nature of Organizing:

There are some common features of organisation through which a clear idea about its nature can
be obtained. These are indicated below:

1. Process:

Organisation is a process of defining, arranging and grouping the activities of an enterprise and
establishing the authority relationships among the persons performing these activities. It is the
framework within which people associate for the attainment of an objective. The framework
provides the means for assigning activities to various parts and identifying the relative authorities
and responsibilities of those parts. In simple term, organi-sation is the process by which the chief
executive, as a leader, groups his men in order to get the work done.

2. Structure:

The function of organising is the creation of a structural framework of duties and responsibilities
to be performed by a group of people for the attainment of the objectives of the concern. The
organisation structure consists of a series of relationships at all levels of authority. An
organisation as a structure contains an “identifiable group of people contributing their efforts
towards the attainment of goals.” It is an important function of man­agement to organise the
enterprise by grouping the activities necessary to carry out the plans into administrative units, and
defining the relationships among the executives and workers in such units.

3. Dividing and Grouping the Activities:

Organising means the way in which the parts of an enterprise are put into working order. In doing
such, it calls for the determination of parts and integration of one complete whole on the other. In
fact, organisation is a process of dividing and combining the activities of an enterprise. Activities
of an enterprise are re-quired to be distributed between the departments, units or sections as well
as between the persons for securing the benefits of division of labour and specialisation, and are
to be inte-grated or combined for giving them a commonness of purpose.

4. Accomplishment of Goals or Objectives:

An organisation structure has no mean-ing or purpose unless it is built around certain clear-cut
goals or objectives. In fact, an organi-sation structure is built-up precisely because it is the ideal
way of making a rational pursuit of objectives. Haney defines organisation as: “a harmonious
adjustment of specialised parts for the accomplishment of some common purpose or purposes”.

5. Authority-Responsibility Relationship:

An organisation structure consists of vari-ous positions arranged in a hierarchy with a clear

definition of the authority and responsibility associated with each of these. An enterprise cannot
serve the specific purposes or goals unless some positions are placed above others and given
authority to bind them by their decisions. In fact, organisation is quite often defined as a structure
of authority-responsibility relationships.

6. Human and Material Aspects:

Organisation deals with the human and material factors in business. Human element is the most
important element in an organisation. To accomplish the task of building up a sound organisation,
it is essential to prepare an outline of the organisation which is logical and simple. The manager
should then try to fit in suitable men. Henry Fayol says in this connection: “see that human and
material organisations are suitable” and “ensure material and human order”.

Importance of Organizing:

Here is the importance of organising:

• Benefits of specialization: Since a portion of the total work is allocated to each worker and
not the entire job or assignment, the division of work into smaller units and repetitive output
 contributes to specialization, which therefore encourages specialization. In turn,
specialization leads to productive & rapid task efficiency.
• The clarity in working relationships: Organizing is essential because it helps to build well-
defined roles and also to explain the boundaries of each job’s authority and obligation.
• Optimum utilisation of resources: Proper job allocation prevents job overlap/duplication,
which helps prevent confusion and minimise waste of resources and efforts.
• Adaptation to change: Organising indeed enables a well-designed organizational structure that
is flexible and facilitates adjustment to changes in workload caused by technology, products,
resources and markets-related changes in the external environment.
• Effective administration: Organizing provides a clear description of jobs and related tasks that
helps to avoid confusion and duplication, and this clarity in working relationships allows work
to be properly executed, resulting in effective management.
• Development of personnel: On the part of the staff, the sound organization encourages
initiative and relative thinking. It reduces their workload when managers delegate their
authority to concentrate on more important growth & innovation issues.
• Expansion and growth: good organising also contributes to an enterprise’s growth &
diversification by adding more jobs, departments, line managers, product lines, new
geographical territories, etc.

Types of Organizing:

The word “organizing” refers to a process of a managerial function. Studying organizational

structure helps one to clarify the various ways of constructing an organization’s anatomy and
study the similarities as well as the distinctions among its different types. Some of the common
types of organisational structure are as follows:

1. Hierarchical structure:

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

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

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

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

3. Matrix structure:

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

4. Flat structure:

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

5. Divisional structure:

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

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

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

7. Line structure:

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

8. Team-based structure:

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

9. Circular structure:

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

10. Process-based structure

In a process-based structure, the organization is designed around the flow of its processes and
how the duties performed by its employees interact with one another. Instead of flowing from top
to bottom, this structure outline services from left to right.
Additionally, organisation can also be classified as formal organization and informal
organization. An organisation is said to be formal organisation when the two or more than two
persons come together to accomplish a common objective, and they follow a formal relationship,
rules, and policies are established for compliance, and there exists a system of authority. On the
other end, there is an informal organisation which is formed under the formal organisation as a
system of social relationship, which comes into existence when people in an organisation, meet,
interact and associate with each other.

2.3.2 Theories of Organization – Classical, Neo Classical, Modern and Contingency theory;
Mintzberg organisation structure

Theories of Organization:

A theory involves concepts or constructs that are related in such a way as to explain why certain
phenomena occur. An organizational theory involves a set of concepts/constructs that are related
to each other and explain how individuals behave in social units we call organizations.
Some of the theories of organisation are:

• Classical theory • Modern theory

• Neo-classical theory • Contingency theory

Classical Organization Theory:

The classical writers viewed organisation as a machine and human beings as components of that
machine. They were of the view that efficiency of the organisation can be increased by making
human beings efficient. Their emphasis was on specialisation and co-ordination of activities.
Most of the writers gave emphasis on efficiency at the top level and few at lower levels of
organisation. That is why this theory has given streams; scientific management and administrative
management. The scientific management group was mainly concerned with the tasks to be
performed at operative levels.

Henry Fayol studied for the first time the principles and functions of management. Some authors
like Gullick, Oliver Sheldon, Urwick viewed the problem where identification of activities is
necessary for achieving organisation goals. Grouping or departmentation was also considered
essential for making the functions effective. Since this theory revolves around structure it is also
called ‘structural theory of organisation.”

Pillars of Organisation Theory:

According to classical writers, the organisation theory is built around four key pillars division of
work, scalar and functional processes, structure and span of control.

(i) Division of Labour:

Division of labour implies that work must be divided to obtain specialisation with a view to
improve the performance of workers. The classical theory rests on the assumption that more
a particular job is broken into its simplest component parts, the more specialised a worker can
become in carrying out his part of the job.

The specialisation in workers will make the organisation efficient. Various activities of a job
are specified and subdivided into different components so that these may be assigned to
different persons. The workers will go on repeating their work under division of labour. The
 performance of same work will help workers to improve their efficiency and the organisation
as a whole is benefitted by this exercise.

(ii) Scalar and Functional Process:

The scalar process refers to the growth of chain of command, delegation of authority, unity
of command and obligation to report. It is called scalar process because it provides a scale or
grading of duties according to the degree of authority and responsibility. It generates superior-
subordinate relationship in the organisation. The functional process deals with the division of
organisation into specialised parts or departments and regrouping of the parts into compatible
units.

(iii) Structure:

It is the framework of formal relationships among various tasks, activities and people in the
organisation. The basic structural element in the classical theory is position. Each position is
assigned a specific task and authority is delegated for its accomplishment. The efficiency with
which these tasks will be accomplished will determine the effectiveness of the organisation.
The classical writers emphasised line and staff organisations.

(iv) Span of Control:

The span of control means the number of subordinates a manager can control. Classical
thinkers specified numbers at different levels which can be effectively supervised by a
superior. A manager cannot exercise proper control if the number of subordinates increases
beyond a certain figure, on the other hand if the number is less than his capacity and
knowledge cannot be fully utilised.

Drawbacks of Classical Organization Theory:

1. Classical thinkers concentrated only on line and staff structures. They did not try to find
out the reasons if a particular structure is more effective than others.

2. This theory did not lay emphasis on decision-making processes.

 3. Human behaviour was ignored in this theory. Classical thinkers did not realize the
complexity of human nature. They take human beings as inert instrument of organisation
performing the assigned task.

4. The assumption that organisation in a closed system is unrealistic. Organisation is greatly

influenced by environment and vice-versa. A modern organisation is an open system which
has interaction with the environment.

Neo Classical Organization Theory:

The classical theory of organisation focussed main attention on physiological and mechanical
variables of organisational functioning. The testing of these variables did not show positive
results. The Hawthorne Studies conducted by George Elton Mayo and associates discovered that
real cause of human behaviour was somewhat more than mere physiological variables. These
studies focussed attention on human beings in the organisation.

Neo-classical approach is contained in two points:

(i) Organisational situation should be viewed in social, economic and technical terms, and

(ii) The social process of group behaviour can be understood in terms of clinical method
analogous to the doctor’s diagnosis of human organism.

This theory views formal and informal forms of organisation as important. The behavioural
approach followed in this theory is the other contribution of new-classical thinkers. The pillars of
classical theory were taken as given but these postulates were regarded as modified by people
acting independently or within the context of the informal organisation.

The main propositions of neo-classical theory are given as follows:

1. The organisation in general is a social system composed of numerous interacting parts.

2. Informal organisations exist within the formal organisation. Both are affected by and affect
each other.

3. Human being is independent and his behaviour can be predicted in terms of social factors
at work.
 4. Motivation is a complex process. Many socio- psychological factors operate to motivate
human beings at work.

5. A conflict between organisational and individual goals often exists. There is a need to
reconcile the goals of the individual with those of the organisation.

6. Team-work is essential for higher productivity.

7. Man’s approach is not always rational. Often, he behaves non- logically in terms of rewards
which he seeks from his work.

8. Communication is necessary as it carries information for the functioning of the organisation

and the feelings of the people at work.

Drawbacks of Neo- Classical Organization Theory:

1. The assumptions on which this theory is based are sometimes not true. A thinking that there
is always a possibility of finding a solution acceptable to all is not true. There are conflicting
interests among various groups that are structural in character and not merely psychological.
This aspect has not been discussed in the theory.

2. No particular organisational structure can be suitable for all the organisations. Various
organisational formats given by neo- classists are not applicable in all situations.

3. Neo-classical theory is only a modification of classical organisation theory. It suffers from

nearly same drawbacks from which classical theory suffered. It lacks unified approach of
organisation. This theory has also been criticised on the ground that it is nothing more than “a
trifling body of empirical and descriptive information as it was mainly based on Hawthorne
Studies.”

Modern Theory:

The other name of Modern Theory is Modern Organisation Theory. According to one authority,
it was organised in the early 1950s. This theory composed of the ideas of different approaches to
management development. The approach is fully based on empirical research data and has an
integrating nature. The approach reflects the formal and informal structures of the organisation
and due weightage are given to the status and roles of personnel in an organisation. This theory
studies:

i. The parts (individual) in aggregates and the movement of individuals and out of the system.

ii. The interaction of individual with the environment found in the system.

iii. The interaction among individual in the system.

The followings are the some of the essentials of Modern Theory:

i. It views the organisations as a whole.

ii. It is based on systems analysis.

iii. The findings of this theory are based on empirical research.

iv. It is integrating in nature.

v. It gives importance to inter-disciplinary approach to organisational analysis.

vi. It concentrates on both quantitative and behavioural sciences.

vii. It is not a unified body of knowledge.

Criticism of Modern Theory:

i. This theory puts old wine into a new pot.

ii. It does not represent a unified body of knowledge. There is nothing new in this theory
because it is based on past empirical studies.

iii. This theory forms only the questions and not the answers.

iv. It is based on behavioural, social and mathematical theories. These are management
theories in themselves.

Contingency theory:

The Contingency Theory is a class of the behavioural theory that claims that there is no best way
to organize a corporation, to lead a company, or to make decisions. An organizational, leadership,
or decision making style that is effective in some situations, may not be successful in other
situations.

i. Contingency on the Organization:

In the Contingency Theory on the Organization, it states that there is no universal or one best
way to manage an organization. Secondly, the organizational design and its subsystems must
“fit” with the environment and lastly, effective organizations must not only have a proper “fit”
with the environment, but also between its subsystems.

ii. Contingency Theory of Leadership:

In the Contingency Theory of Leadership, the success of the leader is a function of various
factors in the form of subordinate, task, and/or group variables. The following theories stress
using different styles of leadership appropriate to the needs created by different organizational
situations.

iii. Contingency Theory of Decision-Making:

The effectiveness of a decision procedure depends upon a number of aspects of the situation:

a. The importance of the decision quality and acceptance.

b. The amount of relevant information possessed by the leader and subordinates.

c. The amount of disagreement among subordinates with respect to their alternatives.

The optimal organization, leadership, or decision making style depends upon various internal and
external constraints (factors). These factors or constraints include:

(1) The size of the organization

(2) How the firm adapts itself to its environment

(3) Differences among resources and operations activities

Criticism of the Contingency Theory:

It has been argued that the contingency theory implies that a leader switch is the only method to
correct any problems facing leadership styles in certain organizational structures. In addition, the
contingency model itself has been questioned in its credibility.

Mintzberg organisation structure:

An organizational structure helps companies assign duties and responsibilities to various staff and
departments. It also helps everyone understand where they fit in to a business operation and who
they report to. Henry Mintzberg proposed that traditionally organizations (profit making or not
for profit) can be divided into five components. In practice organizational structure may differ
from proposed model.

The structure of an organization can be defined simply as the sum total of the ways in which it
divides its labour into distinct tasks and then achieves coordination among them” – The
Structuring of Organizations, Henry Mintzberg.

The five components of an organisation structure are:

1. Strategic Apex

Strategic apex is the most senior level in the organization. Management working at this level is
referred as board of Directors (chairman, CEO, executes and non- executive directors). They set
the objectives (increase sales by 10% in one year) and strategic direction (new product and
markets developments) of the organization. They take major investing (takeovers) and financing
(Shares issue) decisions. They are not involved in day to day operations of the business. They do
not deal with customers and suppliers except in exceptional cases (dealing with complaints). They
represent the organizational face to external stakeholders (person have interest in the organization
like government). Integrity of organization can be judged by integrity of its board of directors.

2. Middle Line

Middle line managers interprets objectives and strategies of the strategic level management into
feasible plans and standards to get the work done through operational managers. They set budget,
receives reports from management accountants, monitors performances and take corrective
actions where necessary. They often take investing (purchase an equipment) and financing (trade
payable and overdraft management) decision to the extent of authority given by strategic level
management. They synchronize works of individual departments so that all departments works in
single direction towards the achievement of organizational objectives. Making 20000 units of a
product by production department does not help achieve organizational objectives if sales
department cannot sell them.

3. Operational Core

Operational core manager often referred to as operational managers are involved in day to day
running of the organizations. They are the personnel who actually achieves organizational
objectives under the guidance of senior managers. They deals with external stakeholder
(customers and suppliers etc.). They are responsible for quality and efficiency of the
organizational results. They provide important information in deciding strategic directions and
budgeting by senior managers, as they now better what is practicable due their operational
experience.

4. Technostructure

Personnel work in technostructure are employees and managers just in the same way as chain
command runs from strategic apex to operational core. Difference is they do not involved in any
revenue generating or core (for which organization exists) activity. They only assist managers at
all levels performing core activities to perform it effectively and efficiently and report whenever
corrective actions needs to be taken to achieve the performance targets and objectives. What
activity or functional department is considered under technostructure depends on industry like in
banking sector accounting is considered a core activity, while in supermarket accounting is
optional activity because supermarket will not closedown if accountants get absent, they just
provides information on inventory, debtors and creditors information.

5. Support Staff

Support staff is of least importance to the organization as their absence does not directly affects
the performance of organization. Organization still spends on supporting activities because it
provides good working environment and facilities (peon) to core employees to prevent down time.
Departments like canteen, cleaning and maintenance comes under this heading. As like
technostructure, what is considered supporting activities depends on the industry.

Types of Organizational Structure:

Based on the importance of the components, coordinating mechanisms and design decisions
(design of decision making, lateral linkages, superstructure and positions), five structural
configurations were established:

• Simple Structure: The major coordinating mechanism used here is direct supervision. The key
component of the organization in this case would be the strategic apex, and vertical and
horizontal centralization is incorporated in this configuration.
• Machine bureaucracy: The coordinating mechanism here is standardization of work
processes. The key component of the organization here would be the technostructure and
limited horizontal decentralization is used.
• Professional bureaucracy: Standardization of skills is the coordinating mechanism in this
configuration. The operating core forms the key component and both vertical and horizontal
decentralization is used.
• Divisionalized form: Standardization of outputs is the coordinating mechanism and the key
component is the middle line. It is characterized by limited vertical decentralization.
• Adhocracy: Mutual adjustment is the coordinating mechanism in this configuration. The
support staff (in an administrative adhocracy) or the operating core (in an operating
adhocracy) forms the key component. Selective decentralization is used in this case.
2.3.3 Departmentation, Delegation and De-centralization – Meaning, Importance and Types

Departmentation:

Meaning of Departmentation:

Departmentation or Departmentalisation, is grouping of organisational activities into jobs.

Thereafter combine jobs into effective work groups and coordination of these groups into
divisions. In other words, it is a process of grouping activities of an organisation into a number
of separate units for the purpose of efficient functioning. It can provide a necessary degree of
specialisation of executive activity for efficient performance. It can simplify the tasks of
management within a workable span. It also provides a basis on which the top managers can co-
ordinate and control the activities of the departmental units.

Importance of Departmentation:

Departmentation is necessary on account of the following reasons:

1. Advantages of Specialisation: Departmentation enables an enterprise to avail of the benefits

of specialisation. When every department looks after one major function, the enterprise is
developed and efficiency of operations is increased.

2. Feeling of Autonomy: Normally departments are created in the enterprise with cer-tain
degree of autonomy and freedom. The manager in charge of a department can take
inde-pendent decisions within the overall framework of the organisation. The feeling of
autonomy provides job satisfaction and motivation which lead to higher efficiency of
operations.

3. Expansion: One manager can supervise and direct only a few subordinates. Group-ing of
activities and personnel into departmentation makes it possible for the enterprise to expand
and grow.

4. Fixation of Responsibility: Departmentation enables each person to know the spe-cific role
he is to play in the total organisation. The responsibility for results can be defined more
clearly, precisely and accurately and an individual can be held accountable for the
per-formance of his responsibility.
 5. Upliftment of Managerial Skill: Departmentation helps in the development of managerial
skill. Development is possible due to two factors. Firstly, the managers focus their attention
on some specific problems which provide them effective on-the-job training. Sec-ondly,
managerial need for further training can be identified easily because the managers’ role is
prescribed and training can provide them opportunity to work better in their area of
spe-cialisation.

6. Facility in Appraisal: Appraisal of managerial performance becomes easier when specific

tasks are assigned to departmental personnel. Managerial performance can be meas-ured
when the areas of activities are specified and the standards of performance are fixed.
Departmentation provides help in both these areas.

7. Administrative Control: Departmentation is a means of dividing the large and com-plex

organisation into small administrative units. Grouping of activities and personnel into
manageable units facilitates administrative control. Standards of performance for each and
every department can be precisely determined.

Types of Departmentation:

There are several bases of Departmentation. The more commonly used bases are—function,
product, territory, process, customer, time etc.

(A) Departmentation by Functions:

The enterprise may be divided into departments on the basis of functions like production,
purchasing, sales, financing, personnel etc. This is the most popular basis of departmentation.
If necessary, a major function may be divided into sub-functions. For example, the activities
in the production department may be classified into quality control, processing of materials,
and repairs and maintenance.

(B) Departmentation by Products:

In product departmentation, every major product is organised as a separate department. Each

department looks after the production, sales and financing of one product. Product
departmentation is useful when the expansion, diversifica-tion, manufacturing and marketing
characteristics of each product are primarily significant.
 (C) Departmentation by Territory:

Territorial or geographical departmentation is especially useful to large-scale enterprises

whose activities are widely dispersed. Banks, insu-rance companies, transport companies,
distribution agencies etc. are some examples of such enterprises, where all the activities of a
given area of operations are grouped into zones, branches, divisions etc.

(D) Departmentation by Customers:

In such method of departmentation, the activities are grouped according to the type of
customers. For example, a large cloth store may be divided into wholesale, retail, and export
divisions. This type of departmentation is useful for the enterprises which sell a product or
service to a number of clearly defined customer groups. For instance, a large readymade
garment store may have a separate department each for men, women, and children. A bank
may have separate loan departments for large-scale and small- scale businessmen.

(E) Departmentation by Process or Equipment:

In such type or departmentation the activities are grouped on the basis of production processes
involved or equipment used. This is generally used in manufacturing and distribution
enterprises and at lower levels of organi-sation. For instance, a textile mill may be organised
into ginning, spinning, weaving, dyeing and finishing departments. Similarly, a printing press
may have composing, proof reading, printing and binding departments. Such departmentation
may also be employed in enginee-ring and oil industries.

Delegation:

Meaning of Delegation:

Delegation means the granting of authority to subordinates to operate within the prescribed limits.
The manager who delegates authority holds his subordinates responsible for proper performance
of the assigned tasks. To make sure that his subordinates perform all the works effectively and
efficiently in expected manner the manager creates accountability.

Importance of Delegation:
 1. Reduction of Executives’ work load: It reduces the work load of officers. They can thus
utilize their time in more important and creative works instead of works of daily routine.

2. Employee development: Employees get more opportunities to utilize their talent which
allows them to develop those skills which will enable them to perform complex tasks.

3. Quick and better decision are possible: The subordinate are granted sufficient authority so
they need not to go to their superiors for taking decisions concerning the routine matters.

4. High Morale of subordinates: Because of delegation of authority to the subordinates they

get an opportunity to display their efficiency and capacity.

5. Better coordination: The elements of delegation – authority, responsibility and

accountability help to define the powers, duties and answer ability related to various job
positions which results in developing and maintaining effective coordination.

Elements of Delegation:

1. Authority: The power of taking decisions in order to guide the activities of others. Authority
is that power which influences the conduct of others.

2. Responsibility: It is the obligation of a subordinate to properly perform the assigned duty.

When a superior issues orders, it becomes the responsibility of the subordinate to carry it out.

3. Accountability: When a superior assigns some work to a subordinate, he is answerable to

his superior for its success or failure.

Basis Authority Responsibility Accountability

Obligation to
Accountability for the
1. Meaning Right to command perform an
outcome of the assigned task.
assigned task.

Arises from
Arises from formal
2. Origin delegated Arises from responsibility.
position.
authority.

Downward- from Upward- from

Upward- from subordinate to
3. Flow superior to subordinate to
superior.
subordinate. superior.
 Can be withdrawn Cannot be
Cannot be withdrawn once
4. Withdrawal anytime by giving withdrawn once
created.
notice. created.

Types of Delegation:

i. General or Specific Delegation:

When authority is given to perform general managerial functions like planning, organizing,
directing etc., the subordinate managers perform these functions and enjoy the authority
required to carry out these responsibilities. The chief executive exercises overall control and
guides the subordinates from time to time.

The specific delegation may relate to a particular function or an assigned task. The authority
delegated to the production manager for carrying out this function will be a specific delegation.
Various departmental managers get specific authority to undertake their departmental duties.

ii. Formal or Informal Delegation:

Formal delegation of authority is the part of organizational structure. Whenever a task is

assigned to a person then the required authority is also given to him. This type of delegation is
part of the normal functioning of the organization. Every person is automatically given
authority as per his duties. When production manager gets powers to increase production then
it is a formal delegation of authority. Informal delegation does not arise due to position but
according to circumstances. A person may undertake a particular task not because he has been
assigned it but it is necessary to do his normal work.

iii. Lateral Delegation:

When a person is delegated an authority to accomplish a task, he may need the assistance of a
number of persons. It may take time to formally get assistance from these persons. He may
indirectly contact the persons to get their help for taking up the work by cutting short time of
formal delegation. When the authority is delegated informally it is called lateral delegation.

De-centralization:

Meaning of De-centralization:
Decentralisation of authority means dispersal of authority to take decisions throughout the
organization, up to the lower levels. It implies reservation of some authority with the top level
management and transferring rest of the authority to the lower levels of the organization. This
empowers lower levels to take decisions regarding problems faced by them without having to go
to the upper levels.

According to Allen, “Decentralisation refers to systematic efforts to delegate to the lowest level,
all authority except the one which can be exercised at central points.”

Centralization of authority means concentration of decision-making power at the top level of

managerial hierarchy. A high concentration implies high centralization, whereas a low
concentration implies low centralization or what may be called decentralization.

Louis A. Allen described, “Centralization is the systematic and consistent reservation of authority
of central points within an organisation.”

Basis Delegation Decentralization

1. Nature It is a compulsory act. It is an optional policy.

2. Freedom Less freedom to take decisions due More freedom of action due to less
of action to more control by the superiors. control by the top management.

It is a process of sharing tasks and It is the result of policy decisions

3. Status
authority. taken by top management.

Narrow- as it is confined to a Wide- It includes extension of

4. Scope superior and his immediate and delegation to all the levels of
subordinate. management.

To increase the role and the autonomy

5. Purpose To reduce the burden of manager.
of lower level of management.

Importance of De-centralization:

1. Develops initiative amongst subordinates: It helps to promote confidence because the

subordinates are given freedom to take their own decisions.
2. Quick and better decisions: The burden of managerial decisions does not lie in the hands of
few individuals but gets divided among various persons which helps them to take better and quick
decisions.

3. Relieves the top executives from excess workload: The daily managerial works are assigned to
the subordinates which leaves enough time with the superiors which they can utilize in developing
new strategies.

4. Managerial Development: It means giving authority to the subordinates up to the lower level
to take decisions regarding their work. In this way the opportunity to take decisions helps in the
development of the organization.

5. Better Control: It makes it possible to evaluate performance at each level which results in
complete control over all the activities.

Types of De-centralization:

1. Political decentralization

Political decentralization aims to give citizens or their elected representatives more power in
public decision-making. Its goal is to introduce more participatory forms of governance by
giving citizens, or their representatives, more influence in the formulation and implementation
of health policies and plans. Political decentralisation often requires constitutional law reform
as well as changes to other laws.

2. Administrative decentralization

Administrative decentralization involves redistributing authority, responsibility and financial

resources for providing public services from the national government to local units of
government agencies, sub national government or semi-autonomous public authorities or
corporation.

3. Fiscal decentralization

Financial responsibility is a core component of decentralisation. If sub national governments

and private organizations are to carry out decentralised functions effectively, they must have
an adequate level of revenues either raised locally or transferred from the national government–
as well as the authority to make decisions about expenditure. Law changes are likely be
required to give effect to the fiscal devolution, to authorise the transfer of revenue and to
authorise local decision making and revenue raising.

4. Market decentralization

Market decentralisation involves shifting responsibility for health functions from the public to
the private sector including businesses and non-government organizations. Market
decentralisation may involve constitutional law reform as well as the passage of new laws to
allow the private sector to perform functions that had previously been performed by the
government and to regulate the performance of those functions.