Fundamentals of Management BCB501

Visvesvaraya Technological University

(State University of Government of Karnataka Established as per the VTU Act, 1994)
“Jnana Sangama”, Belagavi-590018, Karnataka

NOTES ON
FUNDAMENTALS OF MANAGEMENT
MODULE#1

By:
Dr.Firozkhan
Assistant Professor (AH)
Department of Management Studies
Visvesvaraya Technological University Belagavi-590018
Email: [email protected]

Department of Computer Science & Engineering

B.Tech in Computer Science & Business Systems
Visvesvaraya Technological University Belagavi-590018

Faculty of Management Studies, VTU, Belagavi-590018 Dr.Firozkhan

Fundamentals of Management BCB501

Course Code: BCB501

Course objectives:
This course will enable students to,
• Understand the role of the company in the society and the different business cultures.
• Understand how companies are organized and managed from a business concept to ongoing
operations with the support of strategic planning, formulation of objectives and management
control.
• Explore to the development of organizations and maintain competitive advantage.

Course Outcomes

At the end of the course, the student will be able to:

 Describe the importance of management for coordinating the industrial activities and to
use the
 Scientific management principles for effective utilization of resources. Illustration of
Effective plan, coordination, control, lead and communication for smooth
 Functioning of the organization. Illustrate the different categories of enterprise,
organizational structure, responsibilities
 Authorities in an organization. Identify the areas to motivation and control and Select the
Appropriate controlling
 Methods/Techniques. Describe the organizational behavior and its implication on
organizational success.

MODULE-1

Introduction to Management: Definition, Nature and Scope, Functions, Managerial Roles, Levels
of Management, Managerial Skills, Challenges of Management; Evolution of Management-
Classical Approach- Scientific and Administrative Management; The Behavioral approach; The
Quantitative approach; The Systems Approach; Contingency Approach.

Faculty of Management Studies, VTU, Belagavi-590018 Dr.Firozkhan

Fundamentals of Management BCB501

Copyright Notice:
These academic notes are compiled from the following sources, referenced by VTU Belgaum:
Suggested Learning Resources:

Text Books:
1. Prasad L.M., “Principles and Practice of Management”, 10e, Sultan Chand & Sons, 2020
2. Stephen P. Robbins, Timothy A. Judge, Neharika Vohra, Organizational Behaviour, Pearson
Education, 18e, 2018

Reference Books:
1. Harold Koontz, Heinz Weihrich, Essentials of Management, McGraw Hill 11e, 2021.
2. Chandrani Singh and Aditi Khatri, Principles and Practices of Management and
Organisational Behaviour, Sage Publication, 2016.
3. Ramesh B. Rudani, Principles of Management, Tata McGraw-Hill, 2e, 2019
4. Stephen P. Robbins, Fundamentals of Management, Pearson Education, 9e, 2016
5. Griffin, “Management: Principles and Practices”, Cengage Learning, 2013
6. Daft, R. L. The new era of management (10th Edition). Cengage Publications, (2013).
7. Luthans, F., Luthans, B. and Luthans, K. (2015). Organizational Behavior: An Evidence
8. Based Approach, 13th edition, International Age Publishing, Inc. 12e.
9. Pareek U. Understanding Organizational Behavior, 3rd edition, Oxford University Press,
(2011).

These notes are intended for educational purposes only and are intended to be used solely by
students and faculty of VTU Belgaum. Unauthorized reproduction, distribution, or commercial
use of these notes is prohibited. If you wish to use any material from these sources beyond what
is permitted by fair use, you must obtain permission from the respective copyright holders.

Faculty of Management Studies, VTU, Belagavi-590018 Dr.Firozkhan

Fundamentals of Management BCB501

INTRODUCTION TO MANAGEMENT

Concept of Management The study of a discipline should start with its definition delineating
properly its contents and characteristics, defining its scope and boundary, and prescribing the
objectives for which it stands from this point of view, we can proceed further only when we
define management.

The term management is used in three contexts:

1. As a discipline
2. As a group of people
3. As a process
4. Management as a Discipline:
Discipline refers to a field of study having well-defined concepts and principles. When we refer
to management as a discipline, we include in it the various relevant concepts and principles, the
knowledge of which aids in managing. From this point of view management can be treated either
as an art or science, the two basic and broad disciplines. However, since management prescribes
various principles and how these principles can be applied in managing an organization, it has
the orientation of both, science and art.

Management as a Group of People: Management as a group of people refers to those persons

who perform the functions relevant for managing organizations. For example, when you say
"Management of ABC & Company does not take adequate care of its employees" , you are
referring, to management as a group of people of ABC & Company. Thus, management is simply
defined a 'Management is what managers do'. However, this approach of defining management
is no adequate because it does not spell out the types of activities that managers undertake.

Management is a process: Process is a systematic method of handling, activities. Thus,

management is defined as follows: Management is the process of getting things done with the
aim of achieving organizational objectives. Thus, all those activities which meet this criterion are
managerial activities.
According to George R. Terry, "Management is a distinct process consisting of planning,
organizing, actuating and controlling, performed to determine and accomplish stated objectives
by the use of human beings and other resources".
• According to Peter Drucker, "Management is a multi-purpose organ that manages
business and manages managers and manages workers and work".

• According to Henry Fayol, "To manage is to forecast and to plan, to organize, to

command, to coordinate and to control".

• According to Mary Parker Fallett, "Management is the art of getting things done through
people".

Faculty of Management Studies, VTU, Belagavi-590018 Dr.Firozkhan

Fundamentals of Management BCB501

• According to Harold Koontz, "Management is the art of getting things done through and
with people in formally organized groups‖.

Features of management are as follows:

1. Group Activity: Management is a group activity because it comes into existence only in a
group which has two categories of people: those who manage (known as managers) and those
who are managed (known as operatives). Because of group activity, people are placed in
superior-subordinate relationships. A superior directs his subordinates to perform specified
activities to achieve group's objectives while subordinates perform those activities.

2. Goal-oriented Process: Management is a goal-oriented process. A goal is a result or a set of

end results which is to be achieved by the management process. For example, business
organizations adopt management processes to produce desirable products, to earn profit, and to
discharge social responsibility.

3. Continuous Process: Management is a continuous process. In a continuous process, there is

no apparent beginning or end of a particular activity. Elements of management process (known
as management functions) - planning, organizing, staffing, directing, and controlling - can be
separated from each other but a manager may perform all these functions in a single day but not
necessarily in the sequence presented above.

4. Integrating Force: Management works as an integrating force. An integrating force is one

that keeps various related elements together and in proper form just like cement keeps various
building materials like bricks, sand, steel, etc. together as a building. In an organization,
management integrates various resources - human, physical and financial-to achieve
organizational objectives.

5. Intangible Force: Management is an intangible force which cannot be touched or seen but it
can be inferred by the way in which an organization works. The quality of management a an
intangible force is perceived by analyzing how the organization is achieving its objectives

6. Universal: Management is universal. This feature of management has two implications First,
management is relevant in all types of organizations: business or non-business public or private,
small or large. Second, management is relevant throughout the world USA, Russia, India, etc.
However, management practices may differ from country to country because of differences in
their cultures

PURPOSE OF MANAGEMENT:

Purpose of management is to achieve the following types of objectives in an organization:

1. Organizational Objectives: Since an organization is a purposive creation, it has certain

objectives.

Faculty of Management Studies, VTU, Belagavi-590018 Dr.Firozkhan

Fundamentals of Management BCB501

These objectives are defined in three forms: survival, profit, and growth. (a) Survival Objective,
(b) Profit Objective & (c) Growth Objective

2. Individual Objectives: Individual objectives emerge because individuals join it to satisfy their
needs.

3. Social Objectives: An organization is an organ of the society. Therefore, it has social

objectives which can be achieved by putting emphasis on (a) quality products at fair prices, (b)
fair dealings with suppliers, dealers.

MANAGEMENT FUNCTIONS

Functions of management include all those activities which managers perform in an organization
to achieve its objectives. These functions are planning, organizing, staffing, directing, and
controlling. A brief discussion of various management functions is presented here. Their detailed
discussion will be presented later in respective parts of the text.

Planning: Planning involves determination of future course of action to achieve the desired
results. This involves deciding why an action, what action, how to take action and when to take
action. Through these decisions, planning provides base for other management functions. Thus,
planning aims at bridging the gap between present state of affairs and desired future state of
affairs.

Organizing: Organizing is the process of dividing work into convenient tasks, grouping such
tasks in the form of positions, grouping of various positions into departments, assigning tasks to
various positions, and delegating authority to these positions so that the work is performed as
planned. Organizing function contributes to the efficiency of the organization by ensuring that all
necessary activities are performed by the relevant persons.

Staffing: Staffing involves manning various organizational positions created by organizing

process. It involves identification of positions to be filled, recruitment and selection, placement
of employees at relevant positions, training, employee mobility, performance appraisal, and
compensation. There is a controversy about whether staffing is a function of management to be
performed by every manager or it is a function of Human Resource (HR) department which

Faculty of Management Studies, VTU, Belagavi-590018 Dr.Firozkhan

Fundamentals of Management BCB501

performs major functions included in staffing. In fact, staffing is a function of management and
is performed by every manager. However, staffing function is too complicated and a manager
cannot perform it without the help of staffing specialists. Such specialists work in HR
department and provide support to all managers in performing staffing functions. For example,
mangers in all functions use appraisal forms for appraising performance of employees working
under them. Designing of such forms is too complicated for managers not well-versed in human
resource management. Therefore, HR department designs these forms. Employee performance is
not directly appraised by HR department; it suggests further actions to be taken like the type of
training to be provided to the employees, etc., and keeps records of appraisal. Similar is the case
with other aspects of staffing. Thus, staffing is a function of management like other functions:
planning, organizing, directing, and controlling.

Directing: Directing is the process of instructing, guiding, motivating, and leading people in the
organization to achieve its objectives. When people are available in the organization through
staffing process, they must know what they are expected to do. This is done by superiors through
directing. Initially, they communicate their subordinates what to do and how to do. Afterwards,
there is continuous process of directing in the form of motivating subordinates and leading them
for better performance.

Controlling: After performance results are available, controlling comes in picture. Controlling
involves identification of performance results, comparing these with standards set, identifying
deviation between the two, and taking necessary corrective action if the deviation is beyond the
acceptance level.

MANAGEMENT ROLES

Henry Minaberg has ident fed pales of on aches to describe what managers do organizational
positions. According to Mintzberg, there are three broad categories of roles that a manager
performs in an organization: interpersonal roles, informational roles, and decisional roles. Within
each category of roles, there are different types of roles as shown in Figure 1.

Management roles depend on the formal authority and status of organizational positions. In
performing the roles, the managers use their skills and characteristics.

Figure 1

Faculty of Management Studies, VTU, Belagavi-590018 Dr.Firozkhan

Fundamentals of Management BCB501

Image Source: https://www.simplinotes.com

Interpersonal Roles

Interpersonal roles of a manager are concerned with his interacting with others, both within the
organization and outsiders. There are three types of interpersonal roles: figurehead, leader, and
liaison.

1. Figurehead Role

Figurehead role of a manager includes those activities which are of ceremonious and symbolic
nature. These activities are greeting the visitors, attending social functions involving employees,
and handing out merit certificates and other awards to outstanding employees.

2. Leader Role

Leader role of a manager involves leading his subordinates and motivating them for willing and
enthusiastic contribution. This type of contribution comes when subordinates see in a manager
certain exemplifying behaviors.

3. Liaison Role

Liaison role of a manager serves as a connecting link between his organization and outsiders or
between his unit and other units of the organization. The major objective of liaison role is
maintaining a link between the organization and its external environment.

Informational Roles

Faculty of Management Studies, VTU, Belagavi-590018 Dr.Firozkhan

Fundamentals of Management BCB501

Informational roles of a manager include communication - giving and receiving information -

both within and outside the organization. There are three types of informational roles: monitor
role, disseminator role, and spokesperson.

1. Monitor Role: Monitor role of a manager is to constantly collect information about those
factors which affect his activities. Such factors may be within the organization and outside it.

2. Disseminator Role: Disseminator role of a manager involves sharing of information with his
subordinates who may otherwise not be in a position to collect it.

3. Spokesperson: In the role of spokesperson, a manager represents his organization while

interacting with outsiders - customers, financiers, suppliers, government, and other agencies of
the society

Decisional Roles

Decisional roles of a manager involve making decisions resulting in choosing the most
appropriate alternative out of the several alternatives so that when the chosen alternative is put
into action, the organizational objectives are achieved. There are four decisional roles -
entrepreneur, disturbance handler, resource allocator, and negotiator.

1. Entrepreneur: In performing entrepreneur role, a manager assumes certain risk which is

involved in terms of outcomes of an action because these are affected by a variety of external
factors. Since these factors are dynamic and change constantly, the manager is required to bring
changes in the organizational processes to align these to the requirements of the environment.

2. Disturbance Handler: As a disturbance handler, a manager is required to contain those forces

and events which tend to disturb the organizational equilibrium and normal functioning. There
are many such forces and events like strike by employees, shortage of raw materials, etc.

3. Resource Allocator: As a resource allocator, a manager allocates organizational resources of

various types to different organizational units.

4. Negotiator: As a negotiator, a manager negotiates with various interest groups in the

organization - shareholders, employees, and outsiders.

VALIDITY OF MANAGEMENT ROLES

Management roles identified by Mintazber are based on close observation of activities of five
chief executives. Therefore, a question arises: are management roles really valid in describing
what managers do? Some research studies on the management roles indicate that this approach of
defining what managers do suffers from the following two limitations:

1. The types of management roles identified by Mintzberg are not applicable to managers at all
levels of management, more particularly at lower levels.

Faculty of Management Studies, VTU, Belagavi-590018 Dr.Firozkhan

Fundamentals of Management BCB501

2. There are other management roles, even at top level, which have not been included by
Mintzberg, for example, as a controller, as a coordinator, etc.

In spite of these limitations, management roles approach of defining what managers do finds
support from some quarters.

RECONCILING MANAGEMENT FUNCTIONS AND ROLES:

Management functions and management roles do not exist opposite to each other but are two
ways of interpreting what managers do. Therefore, management functions and management roles
can be reconciled as shown in Figure 2.

Figure 2

Image Sources: https://edukedar.com

LEVELS OF MANAGEMENT

In an organization, people are arranged in a hierarchy. Hierarchy denotes putting people in

superior-subordinate relationships. These relationships denote levels of management in an
organization. Thus, there may be as many levels of management as the number of superior-
subordinate relationships in a hierarchy. This results in so many levels of management making it
difficult to specify the exact nature of levels of management and functions performed managers
of each level. In order to overcome this problem, nature of functions performed by a group of
people is taken as the basis for determining the levels of management.
For example, in middle management, there may be numerous superior-subordinate relationships
in a hierarchy. However, since all people falling under these relationships perform the functions
of same nature, they are grouped into a single level of management - middle management. Based
on this criterion, managerial personnel of an organization are grouped into three levels as shown
in Figure 3.
Figure 3

Management

Faculty of Management Studies, VTU, Belagavi-590018 Dr.Firozkhan

Fundamentals of Management BCB501

Top Management Middle Mgt Supervisory Mgt

Board of Directors Departmental Head Senior Supervisor

Chairman Divisional Heads Intermediate Supervisors

Chief Executive Sectional Heads Front-Line Supervisor

Diagram Sources: L.M. Prasad (2022), Principles and Practice of Management, Sultan Chand
& Son 10(20).

Top Management
Top management consists of Board of Directors, Chairman of Board of Directors (simply called
Chairman), and Chief Executive. In some organizations, the positions of Chairman and Chief
Executive are assigned to one person, for example, Mukesh Ambani is Chairman and Managing
Director (CEO) of Reliance Industries Limited. Further, an organization, particularly the large
one having diversified businesses, may follow the practice of having multiple chief executive
system with each of them looking after a particular business. Moreover, many organizations have
the practice of constituting Management Group or Strategic Management Group having
members below the level of Chief Executive. This group is collectively responsible for top
management functions. Top management is responsible for overall management of the
organization. The main functions of top management are as follows:
1. Formulation of long-term organizational objectives.
2. Formulation of long-term overall plans.
3. Formulating strategies for the organization as a whole, known as corporate strategies.
4. Formulation of broad policies covering entire organizational operations.
5. Prescribing overall organization structure.
6. Appointment of key managers in the organization.
7. Providing guidance and direction to departmental heads.
8. Allocating resources to different business units and departments.
9. Coordinating the operations of different departments - created function wise or product-wise.
10. Reviewing and controlling overall organizational performance.
11. Keeping liaison with various external agencies like shareholders, industry associations,
Thus, it can be seen that top management functions are of strategic nature and have
long-term impact on organizational functioning.

Middle Management

Middle management lies in between top management and supervisory management. Sometimes,
middle management is put into three categories - upper, middle, and lower middle management -
because of large number of superior-subordinate relationships within the middle management.
However, the nature of functions at all these levels remains the same. The main functions of
middle management are as follows:

Faculty of Management Studies, VTU, Belagavi-590018 Dr.Firozkhan

Fundamentals of Management BCB501

1. Formulating tactical plans for short term based on overall long-term plans of the organization
for implementing long-term plans, strategies, and policies formulated by top management.
2. Allocating resources - human as well as non-human - to different sections and activities of the
department.
3. Recruiting supervisory personnel.
4. Providing guidance and direction to supervisory management.
5. Coordinating functions of various sections of the department.
6. Developing supervisory personnel through training.
7. Reviewing and controlling departmental functioning.
Thus, it can be seen that middle management functions are mostly of tactical nature and
relate to effective utilization of resources committed by top management .

Supervisory Management

Supervisory management, also known as lower or operational management, lies at the bottom of
the management hierarchy. It deals directly with operatives (employees who are engaged in
handling business operations). A supervisor acts as a link between management and operatives.
The main functions of supervisory management are as follows:
1. Formulating day-to-day plans for carrying out business operations.
2. Providing resources required by operatives.
3. Providing safe and congenial working conditions.
4. Supervising and guiding operatives.
5. Providing training to operatives.
6. Maintaining good industrial relations.
7. Conveying grievances of operatives upward.
8. Reviewing and controlling performance of operatives.

MANAGEMENT SKILLS

In order to perform various management functions, managers must have certain skills. Skills
refer to practical ability or expertness required in an action or doing something. From the very
beginning of development of management thought, management researchers and practitioners
have emphasized different skills for managers. As a result, list of these skills has become quite
long. Robert Katz has put various management skills into three broad categories: technical skills,
human skills, and conceptual skills. This classification of management skills is more popular:

Technical Skills

Technical skills refer to knowledge and proficiency in processes, procedures, methods, and
techniques which are used in doing a work. These skills are hard skills and are easily visible in a
person. Technical skills are developed by accountants, engineers, managers, and other persons
through the actual practice by doing things. For manages, technical skills are required for
effective performance of the following managerial jobs:

1. Managers are required to maintain workflow in the organization. Workflow involves initiation
of action, that is, who will initiate the action and who will receive it. For example, in production,

Faculty of Management Studies, VTU, Belagavi-590018 Dr.Firozkhan

Fundamentals of Management BCB501

stores section gives raw materials to manufacturing section which receives this. For prescribing
the workflow, managers must have technical knowledge of the work concerned.

2. Managers are required to maintain order in the work system. Order in the work system states
that there should be place for everything and everything must be on its place. For maintaining
effective order in the work system, managers must have knowledge of work system and
workflow.

Human Skills

Human skills, also known as human relations skills or administrative skills, are the ability of a
person to work with others on a person-to-person basis and to build cooperative group relations
to achieve group objectives and, consequently, organizational objectives. Human skills are
required in managers for effective performance of the following managerial jobs:

1. Managers interact with others on one-to-one basis: superior, subordinate, peer, and outsider.
Similarly, they interact with others as a member of groups, formed formally or informally that
they can to make thus interaction effective, the managers should have good interpersonal skills
so that they can understand others and make them understood by others.

2. Manager communicates frequently with others - within the organization and outside it. for
making communication effective managers must be good orators and have ability to be empathic
to understand the others' views in right perspective.

3. Managers influence behaviour of subordinates to get intended results. For this purpose, they
cannot rely merely on the use of their positional authority but they must have leadership ability
to influence behaviour of the subordinates to work willing

4. For getting better results, managers must motivate their subordinates so that they put their
utmost efforts. For motivating subordinates, managers must have motivating skills.

5. Organizational conflicts are natural phenomena. Many times, these conflicts arise because of
misinterpretation of the issues involved in the conflicts. Managers are required to handle these
conflicts amicably. For this purpose, they must have skills for handling conflicts.

Conceptual Skills
Conceptual skills, also known as general management skills, are related to concepts and mental
perception - conceptual framework intended to develop new ideas, products, etc. Conceptual
skills refer to the ability to see the whole picture to recognize significant elements in a situation
and to understand the relationship among these elements. Conceptual skills are required for
effective performance of the following managerial jobs:
1. Managers, particularly at higher levels, are required to make strategic decisions. These
decisions are relevant for solving unusual/unique problems like launching new products,
expansion of business in different lines, etc. Conditions for making these decisions are highly
uncertain and fluid and various alternatives for making decisions cannot be identified in advance.
Conceptual skills are required to identify and interpret these conditions properly so that suitable
strategic decisions are made.
Faculty of Management Studies, VTU, Belagavi-590018 Dr.Firozkhan
Fundamentals of Management BCB501

2. Managers are required to build models like model showing how different business activities
will contribute to revenue generation, model for predicting environmental variables, etc. A
model is an abstraction of reality; a simplified representation of some real-world phenomenon.
For constructing a model, only partial information is available to the managers. They can use
their conceptual skills to generate desired additional information to fill the information gap.
In short, technical skills deal with things, human skills deal with people, and conceptual
skills deal with ideas. Managers require these skills. However, what will be proportion of these
skills in managers depends on the management levels at which they work. Managers at lower
level require technical skills more; managers at middle level require human skills more, and
managers at top level require conceptual skills more.
Besides these three skills, various writers and researchers have provided other skill sets
for various levels of management.

Top Management Skills

In the academic world, much attention has been focused on the skills and their development in
top management because this level is the major driving force in an organization. In a survey of
90 global chief executives, conducted by Anderson Consulting, a US-based consultancy firm,
shows that the chief executives require fourteen skills. Accordingly, a chief executive thinks
globally, anticipates opportunities, creates a shared vision, develops and empowers people,
appreciates cultural diversity, builds teamwork and partnership, embraces changes, shows
technological savvy, encourages constructive challenge, ensures customer satisfaction, achieves
a competitive advantage, demonstrates personal mastery, shares leadership, and lives the values.?
In Indian context, one such study of 125 chief executives has identified various relevant personal
skills as analytical skills, creativity, sense of high achievement, risk-taking aptitudes, business
aptitudes, leadership; job-related skills such as corporate perspective, knowledge of external
environment, outside contacts, planning processes, and accuracy in work.

Middle Management Skills

In middle management group, there may be managers at different levels placed between the top
management and supervisors. Usually, they are concerned with a particular functional area of the
organization. There is a tendency of faster movement of this group of managers. Therefore, they
require a variety of skills which must be relevant for their entire career. While at the lower end of
middle management, more of technical and human skills are required; at the higher end of
middle management, more creative and integrative skills are required. Thus, the managers in the
middle management require human relations skill, leadership skill, motivating skill, and
integrative skill.

Supervisory Management Skills

Supervisors may also be classified into front-line, intermediate, and senior. Since they are
directly concerned with operatives where the actual operations of the organization take place,
supervisors should possess skills which help them to get things done by operatives. Every
supervisor in the organization should have sound technical knowledge of his field to provide
proper instructions and guidance to operatives, interpersonal Skill to develop cohesive operative-
management relations, accuracy in work, motivational skill for creating proper work
environment, and communication skill for interacting with higher management.
Faculty of Management Studies, VTU, Belagavi-590018 Dr.Firozkhan
Fundamentals of Management BCB501

MANAGEMENT SKILLS

In order to perform various management functions, managers must have certain skills. Skills
refer to practical ability or expertness required in an action or doing something. From the very
beginning of development of management thought, management researchers and practitioners
have emphasized different skills for managers. As a result, list of these skills has become quite
long. Robert Katz has put various management skills into three broad categories: technical skills,
human skills, and conceptual skills. This classification of management skills is more popular.

Technical Skills

Technical skills refer to knowledge and proficiency in processes, procedures, methods, and
techniques which are used in doing a work. These skills are hard skills and are easily visible in a
person. Technical skills are developed by accountants, engineers, managers, and other persons
through the actual practice by doing things. For manages, technical skills are required for
effective performance of the following managerial jobs:

1. Managers are required to maintain workflow in the organization. Workflow involves initiation
of action, that is, who will initiate the action and who will receive it. For example, in production,
stores section gives raw materials to manufacturing section which receives this. For prescribing
the workflow, managers must have technical knowledge of the work concerned.

2. Managers are required to maintain order in the work system. Order in the work system states
that there should be place for everything and everything must be on its place. For maintaining
effective order in the work system, managers must have knowledge of work system and
workflow.

Human Skills

Human skills, also known as human relations skills or administrative skills, are the ability of a
person to work with others on a person-to-person basis and to build cooperative group relations
to achieve group objectives and, consequently, organizational objectives. Human skills are
required in managers for effective performance of the following managerial jobs:

1. Managers interact with others on one-to-one basis: superior, subordinate, peer, and outsider.
Similarly, they interact with others as a member of groups, formed formally or informally. To
make this interaction effective, the managers should have good interpersonal skills so that they
can understand others and make them understood by others.

2. Managers communicate frequently with others - within the organization and outside it. For
making communication effective, managers must be good orators and have ability to be empathic
to understand the others' views in right perspective.

Faculty of Management Studies, VTU, Belagavi-590018 Dr.Firozkhan

Fundamentals of Management BCB501

3. Managers influence behaviour of subordinates to get intended results. For this purpose, they
cannot rely merely on the use of their positional authority but they must have leadership ability
to influence behaviour of the subordinates to work willingly and enthusiastically.

4. For getting better results, managers must motivate their subordinates so that they put their
utmost efforts. For motivating subordinates, managers must have motivating skills.

5. Organizational conflicts are natural phenomena. Many times, these conflicts arise because of
misinterpretation of the issues involved in the conflicts. Managers are required to handle these
conflicts amicably. For this purpose, they must have skills for handling conflicts.

Conceptual Skills

Conceptual skills, also known as general management skills, are related to concepts and mental
perception - conceptual framework intended to develop new ideas, products, etc. Conceptual
skills refer to the ability to see the whole picture to recognize significant elements in a situation
and to understand the relationship among these elements. Conceptual skills are required for
effective performance of the following managerial jobs:

1. Managers, particularly at higher levels, are required to make strategic decisions. These
decisions are relevant for solving unusual/unique problems like launching new products,
expansion of business in different lines, etc. Conditions for making these decisions are highly
uncertain and fluid and various alternatives for making decisions cannot be identified in advance.
Conceptual skills are required to identify and interpret these conditions properly so that suitable
strategic decisions are made.

2. Managers are required to build models like model showing how different business activities
will contribute to revenue generation, model for predicting environmental variables, etc. A
model is an abstraction of reality; a simplified representation of some real-world phenomenon.
For constructing a model, only partial information is available to the managers. They can use
their conceptual skills to generate desired additional information to fill the information gap.

In short, technical skills deal with things, human skills deal with people, and conceptual skills
deal with ideas. Managers require these skills. However, what will be proportion of these skills
in managers depends on the management levels at which they work. Managers at lower level
require technical skills more; managers at middle level require human skills more, and managers
at top level require conceptual skills more. Besides these three skills, various writers and
researchers have provided other skill sets for various levels of management.

Top Management Skills

In the academic world, much attention has been focused on the skills and their development in
top management because this level is the major driving force in an organization. In a survey of
90 global chief executives, conducted by Anderson Consulting, a US-based consultancy firm,
shows that the chief executives require fourteen skills. Accordingly, a chief executive thinks

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globally, anticipates opportunities, creates a shared vision, develops and empowers people,
appreciates cultural diversity, builds teamwork and partnership, embraces changes, shows
technological savvy, encourages constructive challenge, ensures customer Satisfaction, achieves
a competitive advantage, demonstrates personal mastery, shares leadership, and lives the values.
In Indian context, one such study of 125 chief executives has identified various relevant personal
skills as analytical skills, creativity, sense of high achievement, risk-taking aptitudes, business
aptitudes, leadership; job-related skills such as corporate perspective, knowledge of external
environment, outside contacts, planning processes, and accuracy in work.

Middle Management Skills

In middle management group, there may be managers at different levels placed between the top
management and supervisors. Usually, they are concerned with a particular functional area of the
organization. There is a tendency of faster movement of this group of managers. Therefore, they
require a variety of skills which must be relevant for their entire career. While at the lower end of
middle management, more of technical and human skills are required; at the higher end of
middle management, more creative and integrative skills are required. Thus, the managers in the
middle management require human relations skill, leadership skill, motivating skill, and
integrative skill.

Supervisory Management Skills

Supervisors may also be classified into front-line, intermediate, and senior. Since they are
directly concerned with operatives where the actual operations of the organization take place,
supervisors should possess skills which help them to get things done by operatives. Every
supervisor in the organization should have sound technical knowledge of his field to provide
proper instructions and guidance to operatives, interpersonal skill to develop cohesive operative-
management relations, accuracy in work, motivational skill for creating proper work
environment, and communication skill for interacting with higher management.

CHALLENGES OF MANAGEMENT

Managers have to perform their functions in the organization. The systems approach of
managing suggests that an organization, being a subsystem of broader societal system, has to
work within the framework provided by the society and its various constituents. These
constituents in combined form are known as environment of the organization. Since environment
has very significant impact on working of organizations, managers have to understand
environment for effective working of their organization but affect organizational working. Based
on the type of impact that the environment has on organizations, it is classified into two parts:
general environment and specific environment.

General Environment

General environment, also known as societal environment, consists of those factors which affect
all the organizations in a given society homogeneously. Effect of general environment on
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organizations is indirect as it just sets forth the framework for working of the organizations.
Factors of general environment are economic, social, technological, political, and legal.

Specific Environment

Specific environment, also known as task or direct impact environment, consists of those factors
that affect organizations directly and immediately. Factors of specific environment are investors,
customers, competitors, and suppliers. Environment provides both the opportunities and threats.
In order to know whether there is an opportunity or threat, we have to look at the nature of
environment in terms of its complexity and variability.

Environmental Complexity

Environmental complexity refers to the degree of heterogeneity and range of activities which are
relevant to an organization's operations. Thus, if an organization's environment has large number
of activities with high heterogeneity, environment becomes complex. The heterogeneity relates
to the variety of activities in the environment affecting the organization. Organizations dealing
with non-complex environment have one advantage in the sense that there are fewer critically
important information categories necessary for decision making. As against this, organizations
working in complex environment have to process a large variety of information.

Environmental variability

Environmental variability refers to rate of change in environment. Environment, being dynamic,

changes over the period of time, but it is the rate of change which is a matter of concern. There
can be low or high change rate. Environmental variability depends on

(i) The frequency of change in relevant activities

(ii) The degree of change in these activities, and
(iii) The degree of irregularity in the overall patterns of change. There are four types of
environmental change: low-stable change, high-stable change, low-unstable change,
and high-unstable change - all having different effects on an organization. The degree
of variability in the environment affects the organizational functioning by affecting
the task performance. Higher variability in the environment results in higher
uncertainty in the task performance. Higher task performance uncertainty leads to
processing of large amount of information by decision makers during task execution
in order to achieve a given level of performance. Uncertainty is the difference
between the amount of information required to perform the task and the amount of
information already possessed by the organization. Uncertainty limits the ability of
the organization to preplan or to make decisions about activities in advance of their
execution.
Taking both dimensions of the nature of environment - complexity and variability, environment
may be seen in terms of a continuum ranging from turbulent to simple with varying degree of
complexity and variability as shown in Figure

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Fundamentals of Management BCB501

Image Sources: L.M. Prasad (2022), Principles and Practice of Management, Sultan Chand & Son 10(71).

A turbulent environment has the following characteristics:

1. Growth does not extrapolate.
2. Historical strategies are suspect.
3. Profitability does not follow growth.
4. The future is highly uncertain.
5. The environment is full of surprises.
The above characteristics of environment may be because of high rate of change which may not
be predictable, for example, sudden change in government policies, technological breakthrough,
threats for, or actual, war, change in prices of any product at international level, etc.
A simple environment has the following characteristics:
1. The rate of change is quite slow and therefore, predictable.
2. Historical strategies work though some minor modification may be required.
3. The rate of growth for the industry may be extrapolated.
4. Profitability is linked with growth.

Challenges for Managers in Twenty-First Century

Responding to Globalization
 Globalization Challenges
1) Cultural Diversity
2) Multicultural Workforces
3) Language Diversity
4) Economic Diversity
 Global Managerial Competencies
 Integrating Mergers and Acquisitions
 Managing Workforce Diversity
 Improving Customer services
 Working in Networked Organization
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 Improving People’s Skills

 Enhancing Employee Well-Being at Workplace

EVOLUTION OF MANAGEMENT

Thought Management practice is as old as human civilization when people started living together
in groups. Every human group requires management and the history of human beings is full of
organizational activities and early contributions which were relevant for management also came
from people related with public administration. However, the study of how managers achieve
results is predominantly a twentieth century phenomenon. Initially, the contributions in
development of management thought came from people discharging managerial responsibilities
or closely related to business operations. However, these contributions were not systematic. Over
the period of time, growing competition and complexity of managing large business
organizations provided impetus for developing systematic management concepts and principles.
This phenomenon attracted the attention of a wide variety of intellectuals - economists,
sociologists, psychologists, anthropologists, mathematicians, and management practitioners - to
study the organizations and processes through which these organizations could be made more
effective. Each of these groups of intellectuals viewed the organizations and the processes
therein in a particular way and made recommendations accordingly. This led to the emergence of
a variety of orientations and approaches in management; some making clear demarcation from
others; some overlapping others. Similarly, a particular approach did not really start with the end
of the previous one so far as time period was concerned. Table 2.1 presents list of approaches to
management

Table: Approaches to Management

Classical approaches:
Scientific management
Administrative management
Neoclassical approaches:
Behavioural approach
Contemporary approaches:
Quantitative approach
Systems approach
Contingency approach
Table Sources: L.M. Prasad (2022), Principles and Practice of Management, Sultan Chand & Son 10(34)

CLASSICAL APPROACHES

Classical approaches are based on the belief that workers only have physical and economic
needs. It does not take into account social needs or job satisfaction, but instead advocates a
specialization of labor, centralized leadership and decision-making, and profit maximization.
There are four approaches: early contributions, scientific management, administrative
management, and bureaucracy.
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TAYLOR'S SCIENTIFIC MANAGEMENT

The concept of scientific management was introduced by Frederick Winslow Taylor (1856-1915)
in USA in the beginning of 20th century. This concept was further carried on by Frank and
Lillian Gilbreth, Henry Gantt, George Berth, Edward Felen, etc. Taylor has defined scientific
management as follows:
Scientific management is concerned with knowing exactly what you want men to do and
then see in that they do it in the best and cheapest way.
Since Taylor has put the emphasis on solving managerial problems in a scientific way, often,
he is called as 'father of scientific management' and his contributions as the scientific
management. For applying scientific management in organizations, Taylor has suggested
principles of scientific management, techniques of scientific management, and mental revolution.

Principles of Scientific Management

Principles of scientific management are as follows:

1. Science, Not Rule of Thumb: This principle involves use of scientific method in place of rule
of thumb. Rule of thumb involves 'trial and error methods' or 'hit and miss methods' which is a
costly affair. Scientific method involves investigation of traditional work methods through work
study and unifying the best practices and developing a standard method which would be
followed throughout the organization.
2. Harmony, Not Discord: This principle involves maintaining harmony between management
and workers in place of discord (conflict) between them. Both should realize that they require
each other. Management should share the gains of the organization with workers and workers
should work hard with loyalty and be willing to embrace change for the good of the organization.
3. Cooperation, Not Individualism: This principle involves cooperation between managemen!
and workers instead of individualism. It suggests that management should encourage
constructive suggestions from the workers and reward the suggestions which result in substantial
reduction in time or costs. This principle also suggests that management should take workers into
confidence in making important decisions which affect workers and there should be almost equal
division of work and responsibility between workers and management and both should work side
by side.
4. Development of Each and Every Person: This principle involves development of each and
every person to his/her greatest efficiency and prosperity. There should be scientific selection of
workers and work assigned to them should suit their physical, mental,
intellectual capabilities. Development of workers requires training at the workplace to keep them
fully fit according to requirement of new methods of working which may be different from the
non-scientific methods.

FAYOL'S ADMINISTRATIVE MANAGEMENT

Perhaps the real father of modern operational management theory is the French industrialist
Henry Fayol. His contributions are generally termed as operational management or
administrative management. Fayol looked at the problems of managing an organization from top
management point of view. He has used the term administration' instead of 'management. Fayol
has divided his approach of studying management into three parts: (i) managerial qualities and
training, (ii) general principles of management, and (iii) elements of management.

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Managerial Qualities and Training:

Fayol was the first person to identify the qualities required in a manager. According to him, there
are six types of qualities that a manager requires: (i) physical (health, vigour, and address), (it)
mental (ability to understand and learn, judgement, mental vigour, and capability), (iti) moral
(energy, firmness, initiative, loyalty, tact, and dignity), (iv) educational (general acquaintance
with matters not belonging exclusively to the function performed), (v) technical (peculiar to the
function being performed), and (vi) experience (arising from the work). Fayol has observed that
the most important ability for a worker is technical; the relative importance of managerial ability
increases as one goes up the scalar chain, with insight becoming the most important ability for
top level executives.

General Principles of Management

Fayol has given fourteen principles of management. Management principle is a fundamental

truth establishing cause-effect relationship and provides guidelines for managerial actions.
Fayol's principles of management are known as general principles onon basement because the
principles can be applied in any type of organization: business or non-business, public sector or
private sector. Fayol's principles of management are as follows:

1. Division of Work: Division of work involves dividing whole work into relevant number of
tasks or units. Instead of assigning the whole work to a person, only a task/unit of work is
assigned to him based on his competence. Adoption of this principle results in specialization of
work. In its absence, there is lack of specialization and chances of duplication of work increase.
2. Authority and Responsibility: Authority is the right to make decisions and get these
implemented by the subordinates. Responsibility is the duty of a person to complete an assigned
work. There should be parity between authority and responsibility. Adoption of this principle
results in quick decision making and action taking and no misuse of authority. Violation of this
principle results in delay in decision making and overburden of responsibility or chances of
misuse of authority.

3. Discipline: Discipline means engaging in desirable behaviour prescribed by the organization.

Such prescription may be through rules and regulations known as enforced or command
discipline or through practices like commitment to organization, work, etc. known as self-
discipline. In an organization, both types of discipline are relevant for all persons. This principle
also suggests that there should be judicious application of penalties by management in case of
breach of discipline by any one. Adoption of this principle results in systematic working in the
organization and mutual trust among people. Violation of this principle results in chaos in the
organization, wastage of resources, and delayin work performance.

4. Unity of Command: Unity of command means an employee should get orders and is an
important principle because if a person has a reporting relationship to a single superior, problem
of conflicts in instructions is less and feeling of responsibility for results is high. Adoption of this
principle leads to clarity about what a subordinate has to do and fast communication of work
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performance. Violation of this principle results in confusion about what to do and what not to do
and escaping of the subordinate from his responsibility of work performance.

5. Unity of Direction: In short, unity of direction means 'one plan, one boss'. According to this
principle, each group of activities having the same objectives must have one plan and one head.
For example, product promotion involves various activities like advertising through various
media (TV, radio, newspapers, magazines, etc.), personal selling (demonstration or selling of
products through personal contact), and sales promotion (offering of specific occasion
discounts). However, all these activities have the same objective, that is, increasing customer
awareness about products. Therefore, all these activities should be put under one plan and one
head for better performance. Adoption of this principle results in better coordination between
different related activities and unity of efforts of all employees concerned. Violation of this
principle results in unnecessary duplication of activities and lack of coordination in performing
various activities.

6. Subordination of Individual Interest to General Interest: This principle implies that

individual interest must be subordinate to general interest if there is any conflict between the
two. General interest is in the form of common purpose of a next higher entity. For individuals,
the next higher entity is the group of individuals; for groups of individuals. the department; for
departments, the organization as a whole. Conflict of interest at any level should be solved by
referring to the interest of the next higher entity and, ultimately, organizational interest will
prevail over all other interests. Adoption of this principle results in emphasis on achieving
organizational goals and coordination among goals at all levels. Violation of this principle results
in frequent interest conflicts and emergence of organizational politics leading to self-serving
behaviours.

7. Remuneration of Employees: This principle implies that remuneration (wages/salaries) of

employees should be fair and provide maximum possible satisfaction to employees and
employers. This principle also includes provision of non-financial incentives. Adoption of this
principle results in satisfaction of employees and their commitment to satisfactory work
performance. Violation of this principle results in conflict between owners and employees and
high rate of employee turnover (leaving an organization).
8. Centralization and Decentralization: This principle shows the degree of centralization or
decentralization of authority in an organization. Centralization means concentration of authority
at upward and decentralization means widespread distribution of authority. Share of authority of
a manager depends on his character, mental worth, reliability of his subordinates and, also, on
conditions or nature of business. However, since both absolute and relative values are constantly
changing, it is desirable that the degree of centralization and decentralization may itself vary
constantly - leaning towards decentralization. Adoption of this principle leads to determination
of appropriate level of centralization or decentralization and appropriate use of authority.
Violation of this principle results in either high centralization causing undue delay in decision
making or high decentralization leading to coordination and control problems.
9. Scalar Chain: Scalar chain is the chain of superiors ranging from the highest level of
authority to the lowest level in an organization. In an organization, except persons at the highest
and lowest levels, all persons are both superiors as well as subordinates. Any communication

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going up or coming down should follow this chain. Thus, communication passes through a
number of superior-subordinate relationships. However, this system results in undue delay in
communication. In order to overcome this problem, Fayol has suggested gang plank which is the
system of direct communication between two employees not in the same chain for timely
horizontal communication flow in special circumstances. Scalar chain and gang plan have been
presented in Figure:

Image Sources: L.M. Prasad (2022), Principles and Practice of Management, Sultan Chand & Son 10(41)

From the top to down. Similarly, it must flow from G to F to E and going up. It means if any
communication is going from F to P it will flow from F to A via E, D,C and B coming down to
P via L, M, N & O. Fayol suggested that this system allows F and P to deal in a few hours with
some questions or other which via the scalar chain would pass through twenty transmissions.
Inconvenience people, involve masses of paper, lose weeks or months to get to a conclusion. less
satisfactory than the one which could have been obtained via direct contact.

10. Order: This principle implies that there should be a place for everything and everything
should be on its place and there should be the right person at the right place. Essentially, it means
orderliness in the organization. Adoption of this principle results in procurement resources at
right time and optimum utilization of resources. Violation of this principle results in non-
availability of resources at the required time and ineffective utilization of resources.
11. Equity. Equity is the combination of justice and kindness. This principle implies that
employees should be given kind, just, and fair treatment. There should not be any discrimination
on account of sex, religion, language, caste, nationality, etc. Equity also involves that all
organizational rules should be followed by everyone irrespective of the positions people hold.
Adoption of this principle leads to uniformity in behavioural patterns of people resulting in high
morale of employees. Violation of this principle results in class conflict in the organization and
feeling of harassment.
12. Stability of Personnel: Stability of personnel means reasonable security of jobs. Employees
should be kept at their positions at least for a minimum fixed period and no employee should be
removed within a short period of time. Stability of personnel is essential to get an employee
accustomed to new work and succeeding in doing it well. This principle also involves that
personnel should be selected after due and rigorous procedure. Adoption of this principle results
in providing reasonable job security to employees saving them from unnecessary anxiety and
enabling them to fully concentrate in their work. Violation of this principle results in wastage of
time in learning the job by a new employee and unhealthy work environment.
13. Initiative: Initiative refers to taking steps ahead of others in doing a work or introducing a
new method of doing a work in a better way. This principle says that managers should encourage
employees for taking initiative. The organization should have employee suggestion system
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whereby suggestions which result in substantial cost/time reduction should be rewarded.

Adoption of this principle results in encouragement for creativity in an organization which helps
in finding out new ways of doing better and high satisfaction to employees. Violation of this
principle results in old ways of working which might be obsolete and demonization of
employees.
14. Esprit de Corps: Esprit de corps is a French term which means ‘Union is Strength’. Esprit
de corps principle states that management should promote team spirit among employees. The
word "I" should be replaced by the word "We" in all communications to employees. Adoption of
this principle results in development of team spirit, belongingness, and focus on group working.
Violation of this principle leads to lack of group harmony and focus on individualism.

NEOCLASSICAL APPROACHES:
Neoclassical approach was an attempt at incorporating the behavioral sciences into management
thought in order to solve the problems caused by classical approaches. The premise of this
inclusion was based on the idea that the role of management is to use employees to get things
done in organizations. Neoclassical approaches are human relations approach, social system
approach, decision theory approach, and behavioural approach.

BEHAVIOURAL APPROACH
Behavioural approach (also known as human behaviour approach) is the outcome of the thoughts
developed by behavioural scientists who have looked at the organization as collectivity of people
for achieving certain specified objectives. Since management involves getting things done by
people, the study of management must revolve around human behaviour. This approach, (also
known as human behaviour, leadership, behavioural science or human resource approach),
integrates the existing and newly-developed theories and methods of the relevant behavioural
sciences for the study of human behavior in organizations. In contrast to human relations
approach which assumes that happy workers are productive workers, human behaviour approach
is goal and efficiency-oriented and considers that better work performance itself is a source of
happiness of workers.
Among the many individual and social psychologists who have contributed to behavioural
approach are Maslow (need hierarchy), Herzberg (motivation-hygiene theory and job
enrichment), McGregor (theory X and theory Y), Likert (management systems and linking pin
model), Argyris (immaturity-maturity theory, integration of individual and organizational goals,
and pattern of AB analysis), Blake and Mouton (managerial grid), Sayles (interpersonal
behaviour), Bennis (organizational development), Fiedler (contingency model of leadership
styles), and Tannenbaum and others (continuum approach of leadership). Besides, notable
contributions have come from those who have expanded a particular concept formulated earlier
to make it more practicable. They include Leavitt, Stogdill, Vroom, Reddin, etc. Apart from
psychologists who have concentrated more on individual behaviour in organization, significant
contributions have come from sociologists who have studied human behaviour in group and have
emphasized group behaviour. Notable among them are Homans (human group), Bakke (fusion
process), Lewin (group dynamics), and Katz and Kahn (social psychology of organizations).
Some others have attempted to integrate the various views such as Dubin, Dalton, Selznick, etc.
Major propositions of human behaviour approach are as follows:
1. People do not dislike work. If they have been helped to establish objectives, they will want to
achieve them. In fact, job itself is a source of motivation and satisfaction to employees.
2. Most people can exercise a greater deal of self-direction, self-control, and creativity than are
required in their current job. Therefore, there remains untapped potential among them.
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3. The manager's basic job is to use the untapped human potential in the service of the
organization.
4. The manager should create a healthy environment wherein all subordinates can contribute to
the best of their capacity. The environment should provide a healthy, safe, comfortable, and
convenient place to work.
5. The manager should provide environment for self-direction by subordinates and they must be
encouraged to participate fully in all important matters.
6. Operating efficiency can be improved by expanding subordinates' influence, self-direction,
and self-control.
7. Work satisfaction may improve as a 'by-product' of subordinates making full use of their
potential.

CONTEMPORARY APPROACHES TO MANAGEMENT

Contemporary approaches to management (also known as modern approaches to management)

provide a framework of management practices based on more recent trends, such as
globalization, McKinsey's 7-S approach, excellence models, productivity and quality issues, etc.
Main features of contemporary approaches are:
(1) Belonging to or occurring in the same period of time,
(2) Existing or occurring at the present time,
(3) Conforming to modern or current ideas and styles
(4) Having approximately the same age. There are three contemporary approaches to
management: quantitative approach, systems approach, and contingency approach.

QUANTITATIVE APPROACH
Quantitative approach (also known as management science approach, mathematical, or
operations research approach) visualizes management as a logical entity, the action of which can
be expressed in terms of mathematical symbols, relationships, and measurement data. The major
features of management science approach are as follows:
1. Management is regarded as the problem-solving mechanism with the help of mathematical
tools and techniques.
2. Management problems can be described in terms of mathematical symbols and data. Thus,
every managerial activity can be quantified.
3. This approach covers decision making, systems analysis, and some aspects of human
behaviour approach.
4. Operations research, mathematical tools, and quantitative techniques are the base
methodologies to solve managerial problems. Management science approach is a fast developing
one in analyzing and understanding management. This he contributed significantly in developing
orderly thinking in management which has provided exactness in management discipline.
However, it is very the totault to call ta separate school of management because it does not
provide the answer for the total manageral problems because many managerial activities are not
really capable of being quantified because of involvement of human beings who are governed by
many irrational factors also.

SYSTEMS APPROACH
Systems approach has attracted the maximum attention of thinkers in management particularly in
the present era. It is an integrating approach which considers management in its totality based on
empirical data. The basic idea of systems approach is that an organization must rely on a method
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of analysis involving simultaneous variations of mutually dependent variables. This happens

when systems approach is applied in management.

Features of a System
A system is an integrated set of elements that are organized according to a plan and function as •
a whole.
On the basis of this definition, various features of a system can be identified which are as
follows:
1. A system is a combination of various parts (known as subsystems). Each part may have
various subparts. When a subsystem is considered as a system without reference to the system of
which it is a part, it has the same features which a system has. For example, a business
organization is a system having production, marketing, finance subsystems, etc. Each subsystem
may have subsystems. For example, when we consider marketing without reference to the
organization, marketing is a system with sales promotion, distribution of products, after-sale
service subsystems, etc. Thus, there is hierarchy of systems and subsystems in an organization.
2. Parts and subparts of a system are mutually related to each other, some more, some less; some
directly, some indirectly. This relationship is not natural, given, or unalterable in a social system.
The relationship is in the context of the whole. Any change in one part may affect other parts
also. Therefore, how various parts are given relationship is important for the functioning of the
system.
3. A system is not merely the totality of parts and subparts but their arrangement is more
important. The whole becomes greater than the total of individual parts because of the type of
arrangement made in these parts and subparts. Thus, a system is an interdependent framework in
which various parts are arranged.
4. A system can be identified because it has a boundary. In the case of physical system, this
boundary is quite visible and, therefore, the system can be identified easily. However, in the case
of a social system, the boundary is not visible.
5. The boundary of a system classifies it into two types: open system and closed system. All
living organisms are open systems while all non-living systems are closed systems. The major
differences between the two will be identified shortly.
6. System transforms inputs into outputs. This transformation process is essential for the survival
of the system. There are three aspects involved in this transformation process: inputs, mediator,
and outputs. Inputs are taken from the environment, transformed into outputs, and given back to
the environment. In the case of an organization as a system, various inputs are in the form of
information, money, materials, human resources, etc.; outputs are in the form of products (goods
and services), profit, and social concern. The process of taking inputs and giving outputs is
known as input-output process and system works as mediator in the process. However, in this
process, the system restores some of the inputs taken from the environment in the form of profit.
Restoring the inputs taken from the environment helps the system to maintain its structure and
avoid decay and death. Thus, the system can grow over the period of time. For example, a
business organization survives and grows over the period of time by earning profit in the process
of transforming inputs into outputs. Profit is essential for the business organizations to survive.

Open and Closed Systems

Base on the pattern of working, systems are grouped in two categories: open systems and closed
systems.

Open System:
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An open system is one that continuously interacts with its environment for taking inputs and
giving outputs. It has the following characteristics:
1. Importation of Energy. An open system takes energy - various types of inputs - from the
environment. Without these inputs, no open system can survive.
2. Throughput. An open system converts the inputs into some kind of outputs. This process is
known as throughput or transformation process. A business organization may convert inputs like
materials, energy, information into goods and services through the transformation process.
3. Outputs. An open system exports some outputs to the environment. Organizations export
goods and services. The manner in which they export outputs determines their viability and
existence.
4. System as Cycles of Events. The pattern of activities - inflow of inputs, throughput, and
outflow of outputs - has a cyclic character. The outputs exported to the environment furnish
sources of inputs for the repetition of cycle of activities.
5. Negative Entropy. Entropy is the law of nature which suggests that all organized forms move
towards disorganization and demise. In order to survive, an open system must move to arrest the
entropic process; it must acquire negative entropy. This is possible by importing more energy
from the environment than what the system spends. For example, a business organization must
earn profit in order to survive on long-term basis.
6. Feedback Mechanism. An open system has feedback mechanism through which it imports
information from the environment to evaluate effectiveness of its working. For example, a
business organization measures its profitability against the standard norm of profitability in the
concerned industry. In the light of this measurement, the organization takes necessary corrective
actions to improve its profitability if it is lower than the norm.
7. Steady State. The importation of energy from the environment to maintain negative entropy
has some consistency in energy exchange so that the system has steady state. However, this
steady state is not motionless or a fixed equilibrium. Since energy import and export is a
continuous process, a new equilibrium may be formed, for example, increased level of
operations.
8. Differentiation. An open system moves in the direction of differentiation. Therefore, old
pattern of working may be replaced by new pattern which may be specialized and more effective.
Thus, over the period of time, organizations, like other open systems, move towards well-
differentiation and specialization of roles and functions.
9. Integration and Coordination, As differentiation progresses, parstem must prome some monais
for integrating and coordinating various parts. In the case of an organization, this is done through
devising various processes and procedures.
10. Equifinality. An open system is characterized by the printaple of equifinalty. This principle
suggests that a system can reach the same final state from differing intel conditions and by a
variety of paths. It implies that not all organizations may choose the same course of actions and
strategies to be successful. For example, an organization can grow by expanding its present
business; another organization may grow by diversifying th new business.

Closed System:
As against an open system, a closed system does not interact with is environment. Such a system
has the following characteristics:
1. A closed system has no interaction with outside environment. Therefore, no outside system
impinges on it for taking inputs or giving outputs.
2. A closed system is self-contained and self-maintaining because of lack of outside interaction.
As a result, managing such a system is less complex.
Faculty of Management Studies, VTU, Belagavi-590018 Dr.Firozkhan
Fundamentals of Management BCB501

3. A closed system is generally mechanical in nature, for example, an automatic mechanical

watch. Therefore, once it is set, it continues to work.
4. A closed system is like a close loop and lacks feedback mechanism. Therefore, it is
susceptible to entropic process.

Subsystems
A subsystem is a part of a system having its own objectives, processes, roles, structure, and
norms of conduct. Every system has subsystems which are interrelated to constitute the system
as entity. The various subsystems of an organization constitute the mutually dependent parts.
These subsystems interact among them and have impact on each other. Thus, when any of the
subsystem fails to function properly, the impact on other subsystems is immediate and affects the
total system. In an organization as a system, there are various ways of classifying subsystems.
For example, each unit/department of the organization is a subsystem. There is another way of
classifying subsystems which may be found in each functional unit. For example, Seiler has
identified four components in an organization system: human inputs, technological inputs,
organizational inputs and social structure and norms. " Kast and Rosenzweig have identified five
subsystems: goals and value subsystem, psychological subsystem, technical subsystem, structural
subsysten. and managerial subsystem. Carzo and Yanouzas have identified three subsystems:
technica subsystem, social subsystem, and power subsystem. However, in these subsystems,
managerial subsystem should also be added so that managerial aspect is given due emphasis. All
these subsystems interact among them and actual organizational functioning is affected by this
interaction.

1. Technical Subsystem:
Technical subsystem refers to the knowledge required for the performance of work in an
organization. The basic component of the technical subsystem is a group of tasks or activities
that can be performed by an individual. In performing the work, the individual has to play a role
involving decision making, communication, and other actions which relate him with other parts
of the organization. Behaviour in the technical subsystem is governed by policies, rules,
procedures, and other prescriptions. The basic purpose of the behaviour regulation is to ensure
that jobs are performed as planned and to stabilize behavior of organizational members so that
the members may develop reasonable expectations of others' work behavior. Technical
subsystem, thus, constitutes the formal arrangement of the functions, relationships, and
behaviour.

2. Social Subsystem:
Every organization has a social subsystem which is composed of individuals and groups in
interaction. When people perform their tasks, they develop some sort of informal relationships.
These relationships are not patterned on formal basis but are different. Because of these informal
relationships, behaviour of organizational members in some cases may be different from what is
prescribed by technical subsystem. Thus, actual behavior of organizational members is shaped by
interaction of technical subsystem and social subsystem.

3. Power Subsystem:
Every organization has a power subsystem and people in the organization elaborate their
behaviour through the power relationship. Power is one's ability to influence others to achieve
desired results. Power subsystem is important to transform a decision into action in the
organization. Power distribution in the organization is both formal and informal and two persons
Faculty of Management Studies, VTU, Belagavi-590018 Dr.Firozkhan
Fundamentals of Management BCB501

occupying the same level of organizational position may have different degrees of power
because of difference in their personal characteristics as informal power distribution depends on
these characteristics.

4. Managerial Subsystem:
Managerial subsystem is quite important and refers to managing organizational activities which
are relevant for achieving organizational objectives. Managerial subsystem has two processes:
operation and control. Operation refers to conversion of inputs into outputs and control refers to
identifying deviation between planned performance and actual performance and taking corrective
actions, if required. Managerial subsystem is responsible for allocating inputs to organizational
units according to plan to perform operation process. However, the distribution of these inputs is
also affected by social subsystem and power subsystem, more by the latter.

System Boundary
Every system has boundary which separates it from the elements external to it. These elements
act as system's environment. In case of certain types of systems, such a boundary is easily
identified, for example, machine as a system. However, in other types of systems, such a
boundary may not be identified easily but certain parameters are used to define the boundary. For
example, an organization system does not have clear boundary. The identification of the
boundary is quite useful because what is lying inside the system can be controlled but elements
lying outside the system cannot be controlled. Rather, these elements put stress on the system to
act in a particular way. Boundary of a system can be identified in terms of controllability. Thus,
if the person who is responsible for managing a system has authority to exercise control over the
system elements, these elements constitute the system. Elements lying outside this controllability
constitute organization's environment.

Limitations of Systems Approach

Though systems approach possesses conceptual framework of much higher order as compared to
other approaches, it may be emphasized that this in no way is the unified theory of management.
Systems approach came in a big way in managerial analysis and raised the hope of becoming a
general and unified theory of management. A general and unified theory can be applied to all
types of organizations, presenting their comprehensive analysis so that those who want to study
organizations from different angles can derive knowledge. This was exactly expected of systems
approach. However, this promise could not be fulfilled because systems approach suffers from
the following two limitations:

1. Abstract Approach
It is often suggested that systems approach is too abstract to be of much use of practising
managers. It merely indicates that various parts of the organization are interrelated. Similarly, an
organization is a social system and, therefore, is related with other organizations in the society.
This is true and significant for managing. But it fails to spell out precisely relationships among
these. Therefore, its contribution to managing is limited. For example, it is one thing to say that
economic forces trigger social, technical, and psychological changes in the organization. But this
is not enough for managing an organization. What is required is a statement of what economic
forces initiate what social, technological, and psychological changes.

2. Lack of Universality

Faculty of Management Studies, VTU, Belagavi-590018 Dr.Firozkhan

Fundamentals of Management BCB501

Systems approach of management lacks universality and its precepts cannot be applied to all
organizations. For example, systems approach provides modern structural forms and cybernetic
system for communication and control. These systems are suitable for large and complex
organizations but are not suitable for small organizations. Since most modern organizations are
large and complex, it is argued that systems approach is applicable in general. This may be true
but the role of a theory is not to prescribe actions for a particular category of organizations,
rather, the theory should specify the relationships among different variables which can be applied
to all types of organizations. If systems approach is seen in this perspective, some people opine
that this approach is as incomplete as any other. Looking into these shortcomings of systems
approach, researchers have tried to modify the systems approach. This attempt has led to the
emergence of a separate, though related, approach, contingency or situational approach.
However, it does not mean that systems approach offers nothing; it offers many things. This is
the reason that many management thinkers combine systems approach and contingency approach
together because they are complimentary to each other.

CONTINGENCY APPROACH

Contingency approach (also known as situational approach) is an important addition to the

contemporary approaches to management. In one way, this is an extension of systems approach.
The basic idea of contingency approach is that there cannot be a particular management action
which will be suitable for all situations. Rather, an appropriate action is one which is designed on
the basis of external environment and internal states and needs. Thus, contingency approach
suggests what should be done in response to an event in the environment'. Some researchers
distinguish between contingency and situational approaches by suggesting that situational
management implies that what a manager does depends on a given situation. Contingency
approach, on the other hand, suggests an active interrelationship between the variables in a
situation and the managerial actions devised. Thus, contingency approach not only takes into
account given situations but also the effect of given solutions on behavioural patterns of an
organization. Despite these differences and emphasis on varying factors, themes of both the
approaches are common. In fact, some authors believe that the term contingency is misleading
and they should have used the term situational. Nevertheless, both the terms are used
interchangeably.
Contingency approach has the following features:
1. Management action is contingent on certain action outside the system or subsystem as the case
may be.
2. Organizational action should be based on the behaviour of action outside the system so that
organization is integrated with the environment.
3. Organization-environment relationship is specific in case of each organization. Therefore, no
action can be universal; it varies from situation to situation.

Relationship between Systems and Contingency Approaches

Contingency approach has emerged out of the systems approach. Therefore, contingency
theorists have accepted the basic tenets of systems approach and agree with the basic features of
organization-environment relationship and dynamic nature of organization. However, they feel
that systems approach is too abstract to apply for managerial action. This can be overcome by
modifying systems framework and translating it into operational framework. Therefore, both

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Fundamentals of Management BCB501

approaches are related but they differ in certain contexts. A comparison between the two has
been presented below:

1. Model of Human Being:

The range of activities of human beings is different under two approaches. Systems approach
usually employs a richer model of human beings than contingency approach. The former takes
into account the full range of human behaviour in the organization while contingency approach,
by and large, is interested in structural adaptation of organization to its task environment.
Therefore, contingency theorists talk mostly in terms of structural change in the organization in
response to a change in the environment.

2. Organizational Variables:
Systems approach is very broad in considering the organizational variables. It tries to cover
personal, social, technical, structural, and environmental variables. Therefore, managing involves
establishing relationships among these variables and considering them in taking any action.
Contingency approach, on the other hand, concentrates on structural adaptation of organization.
This approach tends to predict the ultimate outcome of a disturbance of the organizational
equilibrium by a change in the task environment.

3. Evolution:
Major contributors in systems approach have been social psychologists while sociologists have
contributed to contingency approach. Contingency approach has been built up over systems
approach. Therefore, it is possible that both approaches may merge or profoundly influence each
other. In fact, there are signs of convergence of two approaches. This is likely to continue and
systems approach may specify the situations under which a particular type of organization can
function well. In fact, equifinality feature of open system suggests that different strategies can be
adopted by an organization facing a similar problem. Similarly, contingency approach may
provide the process by which the organization may adapt to its task environment. Both these
efforts are quite similar.

Implications of Contingency Approach

Contingency approach is the sophisticated approach to understand the increasing complexity of

managing organizations. implications of the contingency approach are as follows:
1. Management is entirely situational and there is nothing like universal principles of
management or one best way of doing a particular thing. What managers do depends on the
circumstances and environment.
2. Contingency approach suggests suitable alternatives for those managerial actions which are
generally contingent upon external and internal environment such as strategy formulation,
decision making, design of organization structure, influence systems, leadership, and
organizational improvement. In all these cases, action alternatives cannot be arranged in advance
but have to be identified and adjusted according to the situations in which decisions in respect of
these have to be made.
3. Contingency approach suggests that since organization interacts with its environment, neither
the organization nor any of its subsystems is free to take absolute action. Rather, it has to modify
and adjust the actions subject to various forces like social, political, technical, and economic.
Besides, the actions should be according to the needs of internal state of the organization or its
Faculty of Management Studies, VTU, Belagavi-590018 Dr.Firozkhan
Fundamentals of Management BCB501

subsystems. Thus, the basic problem of managing is to align the internal state with the external
state.

Limitations of Contingency

1. Inadequate Literature
Contingency approach suffers from inadequacy of literature. Therefore, varlous types of actions
which can be taken under different situations have not been spelled out comprehensively. It is
not suicient to say that 'managerial action depends on the situation: Contingency approach should
provide if this is the situation, this action can be taken: Unless this is done, contingency approach
cannot offer complete assistance to the practice of management. No doubt, researches have been
conducted in this direction but, by and large, they have not satisfied the needs of managers.

2. Complex in Practice
The suggestion of contingency approach is very simple, that is, managers should do according to
the needs of the situation. However, when put into practice, this becomes very complex.
Determination of situation in which managerial action is to be taken involves analysis of a large
number of variables with multifarious dimensions. Therefore, there is a possibility that
managers, who are always short of time, may ignore the thorough analysis of all these variables
and may resort to short-cut and easier way.

3. Difficult Empirical Testing

Contingency approach, being complex, presents problems in testing the precepts of the theory
involved in contingency approach. For empirical testing of a theory, it is necessary that some
methodology is available. No doubt, methodology is available but because of the involvement of
too many factors, testing becomes difficult. For example, contingency approach suggests that
greater the degree of congruence between various parts of organizational components, the more
effective will be organizational behaviour at various levels. This lacks the empirical validity and
hence cannot be applied to managerial actions.

4. Reactive not Proactive

Contingency approach is basically reactive in nature. If merely suggests what managers can do in
a given situation. For a given organization, suprasystem (the system of which an organization is
a part) constitutes environment and management can be applied to suprasystem also. Therefore,
managers are responsible to manage the environment in such a way that they avoid the
undesirable aspects of environment. Since the managers are quite powerful in the society, they
may be in a position to provide a sense of direction and guidance through innovative and creative
efforts especially in coping with the environmental changes. No doubt, these limitations are
valid, but the situation remains that at micro level, managers have to manage according to
contingency approach. They should not ignore the importance of taking actions according to the
needs of the situations. For analyzing the situations, they will have to use their highest skills.
Michael Porter and C K Prahalad have made significant contributions to modern management
practices. Let us discuss these contributions.

CONTRIBUTIONS OF MICHAEL PORTER

Michael Porter has made significant contributions to develop strategic management and how
firms can become more competitive. His main contributions are as follows:
Faculty of Management Studies, VTU, Belagavi-590018 Dr.Firozkhan
Fundamentals of Management BCB501

1. Competitive Advantage
Competitive advantage exists when there is a match between the distinctive competencies of an
organization and the factors critical to success in its industry that enables the organization to
outperform its competitors.

2. Five Forces Model

Five forces model given by Porter explain the five factors which shape competition in an
industry. These forces are threats of entry in the industry concerned. bargaining power of
suppliers, bargaining power of buyers, threats of substitute products, and rivalry among existing
competitors.

3. Value Chain Analysis

Value chain analysis attempts to measure how each activity in the chain of an organization's
activities is creating value. Porter has identified nine strategically relevant activities that create
value and involve cost in the organization. Out of these, five activities are primary activities:
inbound logistic, operations, outbound logistics, marketing and sales, and service and four
activities are support activities: firm's infrastructure, human resource management, technology
development, and procurement. By measuring value creation by each activity, an organization
can take suitable actions to optimize its value creation.

4. Generic Business Strategies

Porter has given concept of generic business strategies. Accordingly, an organization may
compete either on the basis of overall cost leadership (being least cost producer) or product
differentiation (offering a product which is different from competitors' product).

5. Diamond Model
Diamond model, given by Porter, explains the factors which shape national competitive
advantage. These factors are factor conditions, demand conditions, related and support activities,
and firm's strategy, structure, and rivalry.

CONTRIBUTIONS OF C K PRAHALAD

Prahalad has also contributed to development of strategic management. His major contributions
are as follows:

1. Core Competence:
In collaboration with Gary Hamel, Prahalad has given concept of core competence of an
organization. Core competence of an organization is its unique capability which cannot be
imitated by its rivals. Core competence can be used by the organization concerned to generate
competitive advantage at the market place. Prahalad has advocated that the companies should
stick to those businesses in which their core competence is relevant.

2. Strategic Intent
Strategic intent envisions a desired leadership position and establishes the criterion the
organization will use to chart its progress. Strategic intent is more than simply unfitted ambition;

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Fundamentals of Management BCB501

it encompasses an active management process that focuses on the organization's attention on the
essence of winning and motivating people towards that.

3. Strategic Stretch and Leverage

Prahalad and Hamel have emphasized strategic stretch and leverage in strategy formulation.
Earlier approach of strategy formulation was based on strategic fit, that is, an organization should
choose a strategy which fits with its resources. Strategic stretch implies stretching organizational
resources beyond the desirable level. This approach was adopted by some organizations and their
attempts failed because of too much stretching of organizational resources. Therefore, strategic
leverage concept should be applied. Strategic leverage refers to concentrating, accumulating, and
conserving resources in such a manner that a meager resource base can be stretched to meet the
aspirations that the organization dares to have.
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Faculty of Management Studies, VTU, Belagavi-590018 Dr.Firozkhan